Insight Somalia
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National Security Socio-Economic

Impact of terrorism on Somalia’s post-conflict economy

Somalia is a nation that is vastly rich in natural resources and is known for the dynamism and entrepreneurial spirit of its people. It is strategically situated between the Indian Ocean and the Gulf of Aden. However, its post-conflict economic development faces serious economic challenges ranging from lack of sufficient growth, chronic unemployment, poverty, reoccurring droughts, floods, crumbling infrastructure, deficit trade balance, external debt, and low tax revenue collection among other factors. Moreover, its weak post-conflict security institutions have struggled to contain the threat of terror groups impacting on its economic development. The term terrorism originates from the seventeen ninety-four French Revolution “regime de la terreur”. Terrorism can be defined in two ways. Transnational terrorism and Domestic terrorism. From an economic perspective, it can be defined as an act that brings about a high level of security threats at relatively low costs.

Such costs consequently lead to a series of other variables that are harmful to the targeted economy. Due to how terror groups in Somalia openly take responsibility for their attacks and subsequently exploit the Somali and international media as a tool to spread terror. It has not only bulged psychological impacts but is also damaging the country’s post-conflict economic development.

Despite the symbolic appointment of the country’s first national economic council by the current federal administration on 11/08/2018 and its preliminary tax reforms that led domestic revenue to increase to 26.5% and consequently the budget to 24%, much to my regret, these figures remain insignificant as the 2019 fiscal budget for Somalia is represented by a mere $340 million dollars making the country almost ungovernable. Terror groups like Al-Shabab and pro-Islamic State militants have become the primary threat while their deleterious impacts on Somalia’s economic development remains largely undocumented. Hence, this article aims to focus on the main impacts of terrorism on Somalia’s post-conflict economic development.

Economic cost of terrorism

Economic costs of terrorism are generally divided into two parts known as direct and indirect. Direct costs include loss of life, cost related to injuries, damaged properties, business and trade losses. These occur shortly after the attack and are short term and easy to measure. On the other hand, indirect costs take time and are difficult to measure due to the complexities associated with data collection and estimation. Furthermore, it has far more severe impacts on economic factors like growth, foreign direct investment, unemployment, financial markets, public expenditures, and government borrowing costs. Both direct and indirect impacts are clearly visible in Somalia. It has prevented the inflow of investment such as foreign direct, portfolio and other investments. Moreover, the margin of profit is very low due to how Al-Shabaab is forcing businesses to pay ransom often far beyond what they make in profit or at times more than what the business is worth.

Consequently, it is having a negative impact on productivity, growth, development and the movement of goods and services. As indicated by the secretary general of the Somali business council (SGSBC) and CEO of the Telecom giant Hormud, “Somali businesses are facing extortion by armed groups”. Similarly, Somalia’s Minister of Trade Mohamed Hayir stated that most Somali traders are forced to pay ransom to al-Shabab or face death. Moreover, the consistent loss of life and damage to properties due to terrorism has made sustained economic growth and development illusive in Somalia. It is also important to keep in mind that developed economies hold far better monetary as well as fiscal capabilities to limit the impacts of terrorism compared to a post-conflict developing economy such as Somalia.

1. Foreign Direct Investment Effect

Foreign direct investment (FDI) refers to the amount of capital invested and consists of two types known as investments in green space, and brown area. The first means acquiring new business in a foreign country while brownfield investment refers to acquiring an existing business that fails to manage among other reasons. Capital inflows through FDI depend on whether the expected return is adequate, given the anticipated risks. A risk in this regard is mostly a function of many factors such as dependence on natural resources, instability, terrorism, changes in laws and regulations, changes in tax policies, and interest rates among others. Hence, Somalia is struggling to attract FDI inflows mainly due to the instability caused by terrorism. In the immediate term, even if Somalia found a way to stop direct terror attacks, the costs of protecting the facilities of foreign investors from potential attacks change little in terms of operational costs. Therefore, an organisation that decides to enter the Somali market would need to pay additional insurance costs. From the organisation’s point of view, doing this would mean losing its price-competitive power in the international arena. It would also mean that if a terror attack occurs, it may not only cause damage to infrastructure consequently causing business interruptions but also lead to a decrease in asset prices and in capital. This would then force the firm to increase its borrowing costs.

2. Impact on Trade

Terrorism is having a clear negative impact on Somalia’s post-conflict economy. In Somalia, both within realms domestic as well as transnational trade, terrorism has increased economic uncertainty consequently leading higher costs of traded goods. The cost for a foreign firm to do business in Somalia is high under the current circumstances because it would have to increase the wages, insurance premiums and security costs thus reducing the competitiveness of the goods produced in Somalia. Terrorism is also having a negative impact on the flow of goods, therefore, making trade more expensive both in terms of export and import. For instance, the impact of terrorism on Somalia’s trading partners is notable particularly in the case of Kenya. It has increased the cost of transport and greater border controls among other factors. This has negatively impacted on trade because of how it has slowed the flow of trade between the two countries. Numerous studies have similarly discovered this negative correlation between foreign trade and terrorism.

3. Impact on Unemployment

Terrorism is affecting Somalia’s ability to reduce its high unemployment rate. One of the many obstacles which prevent the federal government to address this issue is to do with the constant terror attacks that damage physical capital. It has negatively impacted the lives and working conditions of Somalis and cast a deep sense of fear and uncertainty. The federal government’s growing need to spend more on security would not only continue its inability to address Somalia’s chronic unemployment as more and more of its resources would be diverted away from economic development to security. Moreover, the speed in which the privet sector can itself rebuild key sectors such as the tourism sector which would reduce unemployment significantly is anyone’s guess. Terrorism is preventing the ability of this and other key sectors to naturally expand and reduce unemployment. According to numerous studies, terrorism is said to reduce the number of business organisation who want to operate in such an environment and thus their ability to employ people.

Policy recommendation & concluding remarks

The aim of this paper was to examine and bring into light the main impacts of terrorism on the post-conflict Somali economy. Though the current federal government has weaved its way forward and has taken some notable steps, this, however, is dwarfed by the enormous economic and security challenges it faces. Keeping in mind that Somalia’s weak federal institutions, chronic unemployment, poverty, and reoccurring droughts among other factors have forced people to survive at all cost which has made it easy for terror groups to employ the youth by paying them money from their extortion. To counter this threat however from an economic and security perspective, it is important to stifle their financing and reduce their threat to the business community in order to avoid this battle eventually ending up a pyrrhic victory.

First, it would be ideal to consider creating joint task force between the federal government, the business community, regional leaders and city mayors thereby establishing effective communication channels aimed at tackling existing economic-security challenges. Second, the objective goals which emerge out of this should be fed into the system all the way down to neighbourhoods or “waax” in Somali. Third, it should focus on the telecommunication industry by setting up research depart in order to learn from other conflict areas on how they deal or are dealing with the usage of mobile telecommunication on terrorism-related activities. For instance, numerous studies have indicated that making mobile SIM registration mandatory would directly lead to a reduction in crime particularly that of terrorism whilst others have exposed the deep flaws of this method. However, the ability to tax and track the users of this sector would contribute to the improvement of the economy and security in two ways. One, it would give the federal government more economic spending power and two it would broaden its surveillance capabilities. The nearly 155 million transactions, worth $2.7 billion US dollars which are recorded every single month further indicate the significance of this sector.

Fourth, the government should expand its new economic structural reforms beyond Mogadishu and accelerate to create broader fiscal buffers consequently leading to higher public investment on basic public services and on security. Fifth, the federal government should urgently bring forth and implement reforms to the Somali Central Bank. This should, as a result, begin to stabilise interest rates and support steady economic growth consequently giving it more room to manoeuvre within the realms of economic security. Sixth, it should provide economic incentives to grass-roots community initiatives such as the “Ma’awisley” who have taken arms and driven al-Shabab out of their villages. Doing this would not only improve security but would also unleash Somalia’s rural economy particularly the agricultural sector. Seventh, the government should consider deploying a specific strategy towards clans and clan elders with the aim to uncover the number of individuals belonging to each clan and sub-clans who are members of al-shabaab. This information would be very useful particularly in reducing the economic cost required to dismantle al-shabaab. Eighth, the government should urgently begin the process of removing al-shabaab out of middle Juba. Denying them space to operate would reduce their ability to acquire the means necessary to carry out attacks.

Therefore, beyond understanding beneath the veneer perverted religious spite and sadism dogma these furtive terror groups use to divide the Somali people, the government should not forbear from the fight, therefore, should focus on deploying a panoply of strategies including those identified. This may not be a panacea or elixir to all the economic and security problems of Somalia but would undoubtedly strengthen the emblematic resilience of the Somali people and the legitimacy and power of the federal government. Hence, the kismet of this nation is in the hands of the Somali people particularly those who lead Somalia today. Furthermore, in order to bring lasting peace to this nation, the federal government should also favour deploying Somali led initiatives and strategies on economic and security matters. Taking such steps and others like it is not only a desideratum but is also vital in the current context of the nation.

Ali Omar Hashi holds an BSc. In Business studies with International Business from the University of Salford and MA. International Development from Northumbria University.

He can be reached via E-mail: [email protected]

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