The Federal Government of Somalia has announced that the country’s economy will grow by 3.1 percent in 2025, despite a decline in some of the international aid and grants that Somalia has long relied on.
These two simultaneous developments are worth understanding separately, as they touch on the question of where Somalia’s economy is headed and whether the country can gradually move away from its dependence on foreign aid.
What does 3.1% actually mean?
A growth rate of 3.1 percent indicates that the Somali economy has the capacity to continue growing even as the external aid environment tightens. However, GDP growth and government revenue growth are two different things, and it is important not to confuse them.
GDP measures the total value of goods and services produced in a country over a period of time. When the economy grows by 3.1 percent, it means that gross domestic product has increased compared to the previous year, but it does not necessarily mean that government revenue has increased by the same amount.
Somalia has an economy that is heavily dependent on livestock, trade, services, remittances, and private sector activities.
If production and trade grow, the government’s ability to collect taxes and domestic revenue also increases.
If economic growth is coupled with an improved tax system and sound financial management, the government can gradually narrow the gap between its financial needs and external financing.
However, Somalia has long been heavily dependent on international support. Grants and projects funded by international organizations and friendly governments have been an important part of government services, institutional development, and social programs.
Somalia has various potential economic sectors if they are invested and manages effectively, the major Somalis economic sectors are Livestock, Farming, services and fishing as well as possible significant gas and oil sector which is now under exploration face. Since the collapse of the military regime, these sectors were reduced by civil war, political instability and terrorism. If the current 4.5 federal system manages good governance and invests properly these sectors Somali needs nobody and it can be a heavyweight of global economy and tourism.
Written by: Omar Ahmed Malin
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