Table of contents Abbreviations iv Acknowledgements vi Executive Summary ix 1. Introduction 1 2. Recent Developments 2 Political and Social Context 2 Economic and Governance Developments 4 Poverty and Social Outcomes 7 Spatial Variations in Poverty 8 Human Capital and Poverty 9 Shocks and Poverty 11 Jobs, Incomes and Poverty 12 Welfare Trends since the First SCD 14 3. Binding Constraints and Opportunities in the Attainment of High-Level Outcomes 15 High-Level Outcome 1: Improved Security, Participation, and Access to Justice 16 Political Stability, Participation, and Constitutional Review 16 Security Architecture and Transition 17 Justice 17 High-Level Outcome 2: Improved Access to and Quality of Services through Better 18 Stable Macroeconomic Conditions and Fiscal Sustainability 18 Strengthening the Institutional Framework for Social and Economic Expenditures 19 Transparency and Accountability in the Petroleum Sector 20 Public Debt Management in a post-HIPC context 20 High-Level Outcome 3: Improved Household Resilience to Shocks 21 Improve Water Security 21 Upgrade and Diversify Natural Resource Sectors in a Climate-smart Manner 22 Urbanization and Disaster Risk Management 23 High-Level Outcome 4: Improved Human Capital Outcomes 24 Developing the Foundation for Education 24 Strengthening Health Systems 25 ii Social Protection for Human Capital 27 High-Level Outcome 5: Enhanced Private Sector for Better Jobs 27 Improve Access to Finance and Strengthen Financial Integrity 27 Enhance Access to Shared Infrastructure 28 Develop Trade and Regional Integration 29 Improve the Business Environment and Conditions for Entrepreneurship 30 Strengthening Opportunities for Women in the Private Sector 31 4. Summary of Policy Priorities 32 References 37 Annexes Annex 1: New Knowledge Generated by the World Bank Group and Remaining Knowledge Gaps 40 Annex 2: Consultations 42 Annex 3: Clan Dynamics in Somalia 43 Annex 4: Somalia: Selected Economic and Financial Indicators, 2019-2025 (as a percentage of GDP unless indicated otherwise) 44 Annex 5: Household Socioeconomic Indicators, 2017-2022 45 Annex 6: Benchmarking Somalia’s Development Outcomes with Peer Countries 46 Figures Figure 1: Economic growth in Somalia 5 Figure 2: Poverty Indicators 7 Figure 3: Gini Coefficients across Selected Countries 8 Figure 4: Poverty Rates and Human Development Outcomes 9 Figure 5: Poverty and Literacy 10 Figure 6: Population Pyramid 10 Figure 7: Poverty Incidence by Household Size 10 Figure 8: Average Monthly Temperature Profiles in Somalia, 1961-2020 11 Figure 9: Labor Market Situation, 2022 12 Figure 10: Summary of Priorities and HLOs 36 iii SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Abbreviations ACFTA African Continental Free Trade Area ACLED Armed Conflict Location & Event Data Project AMISOM African Union Mission in Somalia AML/CFT Anti-Money Laundering/Countering the Financing of Terrorism ANC Antenatal Care ATMIS African Union Transition Mission in Somalia CBS Central Bank of Somalia COMESA Common Market for Eastern and Southern Africa CPI Consumer Price Index DHS Demographic and Health Survey DRM Disaster Risk Management EAC East African Community FCV Fragility, Conflict, and Violence FGC Financial Governance Committee FGM Female Genital Mutilation FGS Federal Government of Somalia FMS Federal Member States GBV Gender-Based Violence GBVIMS Gender-Based Violence Information Management System GDP Gross Domestic Product HH Household HIPC Heavily Indebted Poor Countries HLO High-Level Outcomes HOA Horn of Africa IDA International Development Association IDPs Internally Displaced Persons IFIs International Financial Institutions IGFF-TC Inter-Governmental Fiscal Federalism Technical Committee IMF International Monetary Fund iv ABBREVIATIONS IPV Intimate Partner Violence IUU Illegal, Unreported and Unregulated km Kilometer kW Kilowatt KYC Know Your Customer MENA-FATF Middle East and North Africa Financial Action Task Force NCA National Communications Agency NCD Non-communicable Disease NDP9 Ninth National Development Plan NGO Non-governmental Organization ODA Official Development Assistance PFM Public Financial Management PPP Public-Private Partnership SCD Systematic Country Diagnostic SCD1 First Systematic Country Diagnostic SHDS Somalia Health and Demographic Survey SHFS Somali High Frequency Survey SIHBS Somalia Integrated Household Budget Survey SNBG Somalia National Bureau of Statistics SNBS Somalia National Bureau of Statistics SSA Sub-Saharan Africa TFR Total Fertility Rate UNICEF United Nations Children’s Fund USR Unified Social Registry WBG World Bank Group WDI World Development Indicators WHO World Health Organization WTO World Trade Organization v SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Acknowledgements This report was prepared by a multi-sector Program Leader, IAEDR), Anne Margreth Bakilana team from the World Bank Group (WBG) led by (Program Leader, HAEDR), Isfandyar Zaman Khan Aphichoke Kotikula (Senior Economist, EAEPV) (Acting Program Leader, EFI) and Ragini Praful and Natasha Sharma (Senior Economist, EA1M1), Dalal (Sector Leader, SAEDR), as well as Matthias with valuable input from Tom Bundervoet (Lead Mayr (Senior Operations Officer, AEMSO). Economist, EAEPV). The report was prepared under the guidance of Asad Alam (Regional Director, Contributions were received from Alexandru Equitable Growth, Finance and Institutions, Cojocaru (Senior Economist, EPVGE), Luis Alvaro EAEDR), Keith Hansen (Country Director, Sanchez (Consultant, IEGEC), Fatuma Hirsi AECE2), Kristina Svensson (Country Manager for (Communications Consultant, ECRAE) and Vera Somalia, AEMSO), Amina Arif (Country Manager, Rosauer (Senior External Affairs Officer, ECRAE). International Finance Corporation, CAEKE), Cheick-Oumar Sylla (Director, CANDR), Nkemjika External consultations were conducted by the Heritage I. Onwuamaegbu (Regional Head, Multilateral Institute for Policy Studies and Africa Voices Foundation. Investment Guarantee Agency), Pierella Paci Helpful comments were received from peer reviewers, (Practice Manager, EAEPV) and Abha Prasad including Hugh Riddell (Country Manager, AEMMW), (Practice Manager, EA1M1). Paolo Di Lorenzo (Senior Economist, EAWM1) and Wendy Karamba (Economist, EEAPV). Logistical Valuable support was provided by the Country assistance was ably provided by Eric Walter Maina Management Unit, including Program Leaders (Team Assistant, AEMSO). The report was designed Peter Taniform (Senior Transport Specialist, by Cybil Maradza (Consultant, EAEPV). Table 1: Report Contributors Global Practice Team Member Equitable Growth, Finance and Institutions Finance, Competitiveness, and Innovation Asta Bareisaite, Sameer Goyal Macroeconomics, Trade, and Investment Natasha Sharma, John Randa, Phil Schuler, Catherine Ngumbau Poverty and Equity Aphichoke Kotikula, Tom Bundervoet, Shinya Takamatsu, Marie Christelle Mabeu, Revocatus Washington Paul, Alastair Haynes Governance Jana Kunicova, Leonard Matheka, Vishal Ashvin Patel, Mohamud Yasin Jama, Alma Nurshaikhova Human Development Education Pedro Cerdan-Infantes, Ousman Ali Gender Aphichoke Kotikula, Verena Phipps Health, Nutrition and Population Bernard Olayo, Peter Okwero Social Protection and Jobs Afrah Alawi Al-Ahmadi vi ACKNOWLEDGEMENTS Global Practice Team Member Sustainable Development Agriculture James Muli Musinga Disaster Risk Management (DRM) Haris Khan, Muratha Kinuthia Environment and Natural Resources Stephen Ling, Abdirahman Zeila Dubow, Julien Million Social Verena Phipps, Adrian Howard Cutler Urban Makiko Watanabe, Benjamin Kushner Water Chantal Richey Infrastructure Energy and Extractives Patrick Balla Transport Adam Stone Diehl Digital Development Isabella Hayward Global Theme Fragility, Conflict, and Violence Miguel Angel De Corral Martin World Bank Group International Finance Corporation Kalton Mohamed Hassan, Magidu Nyende Multilateral Investment Guarantee Agency Jessica Charles Wade, and Olanrewaju Kassim vii viii EXECUTIVE SUMMARY Executive Summary 1. The central message of this Systematic per capita economic growth rates were negative.² Country Diagnostic (SCD) Update is that Somalia Labor force participation rates are exceptionally should accelerate the momentum in building low with large gender gaps. Only one-third of men its institutions to develop resilience and create and 12 percent of women participate in the labor jobs, thus serving as a basis for transitioning market.³ Almost half of those who are employed from fragility to reducing poverty and promoting live below the poverty line, indicating that jobs are shared prosperity. The narrative from the first of low quality and productivity. generation SCD approved in May 2018 (hereafter referred to as SCD1) remains relevant. It was to 3. Since SCD1, there have been modest improve institutions to achieve the development improvements in some non-monetary dimensions objectives and transition from fragility, while of welfare. For example, regarding education, there working in a context of large periodic shocks, and have been some improvements to literacy (with high levels of poverty. Since SCD1, Somalia has an increase from 45 percent to 54 percent) and continued to face multiple and overlapping shocks, net primary school enrollment (with an increase including extreme weather events linked to climate from 21 percent to 25 percent). Access to some change, the COVID-19 pandemic, as well as frequent basic services has improved, such as sanitation security incidences. These have contributed to (from 43 percent to 60 percent) and electricity widespread food insecurity (affecting around 50 (from 39 percent to 62 percent), whereas access percent of the population) and displacement. to improved drinking water remained unchanged (at 78 percent). However, during the current 2. Poverty remains widespread, with growth drought — the longest on record — the ownership and job creation insufficient for lifting incomes. of livestock has declined (from 53 percent to 32 The SCD Update uses data from the 2022 Somalia percent), which likely reflects coping mechanisms, Integrated Household Budget Survey (SIHBS), which as well as excess livestock mortality. With climate is the first comprehensive household budget survey change, the prevalence of shocks has increased. undertaken since the collapse of the state in 1991. Furthermore, gender disparities prevail across Although poverty rates from surveys undertaken a range of welfare indicators, highlighting the in 2017 and 2022 cannot be compared due to challenges that women and girls face in accessing methodological differences, the latest data shows services, as well as productively participating in that in 2022 an estimated 55 percent of the Somali the workforce. population lived below the national poverty line of US$741 per person per year. According to World 4. Somalia has benefited from new sources of Bank simulations, this represents a slight increase financial support, which are helping to strengthen from 2017.¹ Between 2017–22, economic growth institutions through the advancement of the debt rates averaged only 2.2 percent as compared with a relief process. In March 2020, Somalia cleared population growth rate of 2.9 percent, meaning that its arrears to international financial institutions ¹ The US$2.15 international poverty rate is being developed and will be available before the end of 2023. ² Somali National Bureau of Statistics, Federal Government of Somalia. ³ SIHBS, Federal Government of Somalia. ix SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 (IFIs) that had accrued over three decades. It institutions are being developed; however, also regained access to regular financing from they remain weak. A wide range of services are the International Development Association (IDA) being delivered by the private sector, which and reached the Heavily Indebted Poor Countries complicates efforts to build the social contract (HIPC) Initiative Decision Point. When Somalia between citizens and the state. A neglect of reaches the HIPC Completion Point, it will qualify service delivery contributes to a vicious cycle for full and irrevocable debt relief. The resources which reinforces marginalization and breeds that Somalia has been able to access during conflict. This in turn leads to further neglect, the HIPC interim period have helped to support continued poverty and marginalization. the development of foundational institutions necessary for state building. 6. This SCD Update reaffirms that the binding constraints and priorities presented in SCD1 5. However, progress in institution building remain valid. The SCD Update presents five high- has been non-linear, reflecting the country’s level outcomes (HLOs) that consider the progress context of fragility, conflict, and violence made since SCD1, as well as the availability of (FCV). Somalia continues to work on its state- new analytical work. There are two foundational building architecture. Although a Provisional HLOs, including: “improved access to and quality Constitution was agreed in 2012, foundational of services through better economic governance” issues — such as how resources and power will and “improved security, participation, and be shared between regions and by different access to justice”. Further progress is needed to levels of government — need to be resolved. The advance these foundational HLOs to support lack of agreement reflects low levels of trust long-term socioeconomic development through and continued contestation between political strengthening the resilience of households to stakeholders across the Federal Government of shocks and promoting access to productive jobs by Somalia (FGS), the Federal Member States (FMS), building human capital and mobilizing the private and Somaliland. Low levels of cooperation sector. The multiple HLOs are complementary between political stakeholders contributed and are expected to support state-building, the to a 15-month delay in presidential and transition out of fragility, and improved longer- parliamentary elections in 2021. Government term socioeconomic outcomes. Foundational HLO 1: Improved Security, Participation, and Access to Justice Goal: Support the transition from fragility, reduce poverty, and promote shared prosperity Foundational HLOs for peace, stability, and inclusive development HLO: Improved Security, HLO: Improved Access to and Quality of Participation, and Access to Justice Services through Better Economic Governance HLOs to boost resilience and support improved socioeconomic outcomes HLO: Strengthened Household HLO: Enhanced Private HLO: Improved Human Capital Resilience to Shocks Sector for Better Jobs x EXECUTIVE SUMMARY 7. Security and justice continue to be challenging, Foundational HLO 2: Improved Access and the absence of progress will slow Somalia’s to and Quality of Services through transition out of fragility and the attainment of Better Economic Governance development outcomes. On the state-building front, periodic disagreements between the FGS, the 9. Since SCD1, Somalia has made progress in FMS and Somaliland underscore the importance of developing economic governance institutions building trust and promoting dialogue between the with the objective of improving service delivery regions, particularly concerning how resources and over the long term. A modern legal framework for power will be shared. In the absence of decisions managing public finances is being implemented. about the Provisional Constitution, efforts should Given Somalia’s vast public expenditure needs, continue to develop interim revenue- and power- it is critical for government administrations to sharing agreements, which can form the basis of increase revenue mobilization (which was at trust building. In a context of continued episodes 3.2 percent of gross domestic product [GDP] in of violence and contestation of state legitimacy, 2022), as well as to ensure that expenditures agreeing on the architecture and financing of the are prioritized. Government efforts should focus security sector will be a critical priority for the on harmonizing taxation regimes for inland and coming years. As the government has committed customs revenues. Trade-related taxes currently to taking responsibility for the security sector dominate domestic revenues. However, over time, from the African Union’s peacekeeping forces this could change as economic growth helps to in 2024, it will be critical to identify sources of increase the tax base and as tax administration financing. Likewise, it will be important to ensure improves. The government will need to continue that security functions are well defined at the FGS efforts to contain the wage bill, while also and FMS levels. managing security costs in a context of the planned withdrawal of African Union peacekeeping 8. Over time, moving toward more participatory forces. These efforts must be complemented by electoral and political processes can help to strengthened debt management so that after encourage the engagement of women and Somalia reaches the HIPC Completion Point, new minorities. The prolonged electoral period in 2021 borrowing supports productive spending for highlighted the challenges women and minorities human, physical, and institutional capital. encounter in running for political office. Addressing the barriers of female aspirants spans issues, such 10. The FGS and the FMS must decide how as a lack of education, technical expertise, networks to allocate resources according to the and experience that are necessary for them to functions undertaken by the different levels make an impact in their roles. These are important of government, using the institutions that steps toward creating an environment that can have been established to support federalism. promote inclusion and trust. In the justice sector, Although some interim agreements have been there is an absence of a formalized justice system reached for the sharing of resources, these have which has the legitimacy and trust of citizens. Thus, not been evenly implemented. The focus should informal justice resolution mechanisms are likely be on establishing functional assignments for to continue. However, over the medium term, it big-ticket expenditure items, such as security, will be important to strengthen the foundations and then gradually moving toward the service of formal justice, which can help to bring greater delivery sectors. Finance Ministers of the FGS and certainty to the private sector and to citizens, the FMS will need to take decisions concerning particularly if it is perceived as being impartial, revenue- and power-sharing, utilizing existing accountable, and fair. institutional structures that have been developed. xi SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 These include the Finance Ministers Fiscal Forum HLO 3: Improved Household Resilience to Shocks and the Inter-Governmental Fiscal Federalism Technical Committee (IGFF-TC). 12. With climate change making Somalia drier and hotter, improving water security remains a 11. Enhancing transparency and accountability of priority in both rural and urban areas. Somalia public finances for both the FGS and FMS could continues to be vulnerable to climate-related help to build trust in state institutions. The FGS shocks such as droughts, floods, and desert and the FMS are working together to enhance locust infestations. These shocks contribute to transparency in public expenditures. However, widespread food insecurity, forced displacement, further steps are needed to improve the control abandonment of rural livelihoods, and poverty. environment; reduce off-budget operations; Although there have been some improvements to limit fragmentation in accounting and reporting water storage capacity in rural areas, they remains structures; and improve citizen engagement. insufficient for strengthening water security. The Strengthening the governance of high-value foundations for water management have been contracts continues to be a priority. In this context, developed through the agreement of a National the role of the Financial Governance Committee Water Resources Strategy in 2021. Improving remains important.⁴ Ensuring the independence water security can benefit from innovation by of the Auditor General and parliamentary using new technologies, such as manual well oversight of the use of public funds would help drilling and farmer-led irrigation to secure rural to improve accountability. Furthermore, special livelihoods. Water scarcity is expected to be efforts are needed to improve the governance of prevalent in urban areas, with the possibility of the petroleum sector, particularly regarding the Mogadishu, the capital city, running out of water management of high-value contracts. Multiple by 2030. This situation is particularly concerning efforts are needed to strengthen systems to as climate-related shocks are the main driver ensure integrity in public financial management of insecurity and displacement, which is a key and combat corruption. contributor to urbanization. ⁴ The Financial Governance Committee (FGC) is a high-level advisory committee comprised of senior members of the FGS and international representatives. The FGC is a forum for dialogue and confidential advice concerning strategic and sensitive financial governance issues, covering fiscal issues, contracts and concessions, natural resource management, and central bank governance. xii EXECUTIVE SUMMARY 13. Somali cities are currently failing to leverage providing only about 40–50 percent of per capita the potential that urbanization brings. Somali cereal needs. The export of live sheep and goats cities are estimated to be hosting over 75 percent dominates the export basket. It is highly vulnerable of the close to 3 million internally displaced to erratic rainfall as well as sporadic import bans persons (IDPs) across the country, thus leading imposed by trading partners, thus reflecting a lack to a rapid urbanization. Developing disaster risk of progress in upgrading veterinary standards. A management systems could help to curb the influx number of steps could be taken to help raise the of IDPs to urban centers, with a particular focus productivity of value chains, including: (i) adopting on mitigating the impacts of climate-induced climate-smart agricultural practices; (ii) improving disasters. However, cities are not coping with water for rural livelihoods; (iii) strengthening such large and rapid urban growth, resulting in protection against communicable diseases; (iv) an uncontrolled urban sprawl, the unsustainable facilitating the feed and fodder trade; and (v) use of natural resources (particularly water), and adopting digital agricultural technologies. There is widespread economic informality. Additional also substantial potential to develop the fisheries attention will be needed to ensure that cities are sector, which requires improving governance, and livable in the face of increasing extreme climate addressing illegal, unreported and unregulated conditions. If managed well, urbanization can (IUU) fishing. Over time, establishing the basic help propel Somalia’s economic development. enabling environment for the productive sectors Currently, Somalia is not realizing the potential can help to increase certainty and gradually that urbanization brings. encourage private investments. 14. Somali cities have the potential to enhance HLO 4: Improved Human Capital resilience, provided steps are taken to improve governance and enhance the quality and 16. Although there have been some improvements coverage of service provision. Somalia’s cities in education outcomes, performance is still far have evolved with ad hoc, hybrid governance below peer countries, with high dropout rates systems, as well as overlapping mandates in rural areas and amongst girls. To address the between the national, state, and district or gap in service provision following the civil war, municipal authorities. The FGS, FMS, municipal the private sector including non-governmental and district authorities should endeavor to organizations (NGOs), took an active role in demarcate the responsibilities for service delivering education services. However, this has provision (particularly urban land management) come at a cost for those who cannot afford to and clarify financing arrangements. Given the role pay, who are then excluded from services. There that the private sector plays in service provision, are also large disparities in access across the developing a service delivery model that includes country. Furthermore, the legitimacy of the state the state and the private sector will be critical to and the social contract are undermined due to enhancing the quality and coverage of services, the governments’ limited role in service provision. and for supporting state legitimacy in a way that In 2021, the ministries of education across the reflects the nascent state-building process. federation agreed to enhance cooperation concerning the formation of the national 15. Since SCD1, there has only been limited examination, certification, and curriculum boards, progress in upgrading and diversifying which was an important step. Going further, agricultural value chains, which contributes to the FGS should undertake its stewardship role widespread food insecurity. The performance of to convene the FMS and the private sector to the crop sector in the last decade has been weak, improve access to education in underserved areas, xiii SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 enhance the quality of teachers, and improve the 18. Somalia’s social protection system has teacher gender mix. developed since SCD1, with the launch of the first national, government-led social safety net 17. Since SCD1, the COVID-19 pandemic has program, known as Baxnaano, and a national placed added stress on an already weak health Unified Social Registry (USR). The government system. Somalia experienced widespread and is developing safeguards to support the public intense community transmission during the handling of private data to allow the social COVID-19 pandemic in all regions, which placed protection system to be administered by the added stress on health outcomes. Since SCD1, government. The Baxnaano program has provided the FGS and the FMS have agreed on a Health vital support in times of shocks, which also helps Sector Strategic Plan for 2022–2026. To make to build resilience. However, it only covers about further progress, the FGS should undertake ten percent of the population. Going forward, the its stewardship role and work with the private coverage of Baxnaano could be widened if more sector to deliver an essential package of health resources are identified. Baxnaano could also be services. As such, interventions should be focused extended to support an increase in the uptake of on high-impact services in maternal, newborn, social services. In addition, the USR could also child, and general health care. Improving access be coordinated with disaster risk management to reproductive health and family planning can systems to ensure a rapid response to any also help to reduce fertility rates and discourage potential crisis, thereby providing a backbone to girls from dropping out of school. a comprehensive social assistance system. HLO 5: Enhanced Private Sector for Better Jobs 19. Somalia’s vibrant private sector is characterized by a few large conglomerates that have evolved in a weak regulatory environment, a plethora of micro and small enterprises, and a missing middle comprised of medium-sized firms. Enhancing the productivity of firms will be critical to increasing jobs of higher value added, which in turn will depend on access to finance and electricity, securing land rights particularly in dense urban areas, improving security and strengthening conditions for trade. Encouraging the types of investment that Somalia needs for the country to develop vital human and physical capital requires: (i) improving certainty in the business environment; (ii) lowering the cost of electricity; (iii) increasing access to finance for micro, small and medium enterprises; and (iv) integrating Somalia with the global financial system. Since SCD1, Improving access to reproductive health various Somali government authorities have and family planning can also help to reduce developed policies and institutions to support fertility rates and discourage girls from the private sector, such as a new Company dropping out of school. xiv EXECUTIVE SUMMARY Act with supporting regulations, as well as under development are expected to provide the establishment of the Somali Investment greater regulatory certainty and encourage Promotion Agency. However, further work is private investments in renewable energy. needed to strengthen the capacity of institutions Over the medium term, Somalia’s renewable responsible for private sector development. energy capacity is expected to be developed and integrated with other Horn of Africa (HoA) 20. Since SCD1, there has been an increased use countries, thereby helping to reduce energy of formal financial institutions as well as a rise costs. A pipeline of new road projects is being in mobile money, which is critical to supporting developed that can also help to develop trade financial inclusion and private sector corridors. Telecommunications operators have development. Over 97 percent of households been licensed and interconnection agreements can access mobile money as compared with 64 have been reached. These are expected to lower percent in SCD1.⁵ However, accessing financing the costs of providing mobile services across the for investment purposes remains low. The country. Strengthening the capacity of the National financial sector has been growing steadily, and Communications Agency (NCA) can support the banking sector assets having grown more than regulation of the telecommunications sector. Over four times since the last SCD. However, financial time, Somalia can also develop its connection to intermediation remains low with private credit to submarine cables to strengthen regional digital GDP remaining below 5 percent. The Central Bank integration. More broadly, infrastructure plays of Somalia (CBS) should continue strengthening an important role in driving economic growth, its regulatory and supervisory capacity to improve creating jobs, and encouraging social cohesion. the stability of the financial sector. Financial institutions could be encouraged to increase 22. Somalia has taken important steps to lending if mechanisms are in place to mitigate improve the business environment, but further perceptions of risks through the development efforts are needed to launch reforms across of financial infrastructure, such as a credit the federation. Since SCD1, Somalia has enacted information system and collateral registries, a new Company Law and issued implementing as well as recognized forms of identification. regulations. It has also established a business Strengthening the Anti-Money Laundering/ registry and enacted the Investor and Investment Countering the Financing of Terrorism (AML/ Protection Law. A law to support public-private CFT) framework can help to establish the building partnerships is also being developed. These blocks for developing correspondent banking measures provide the foundations for improving relationships. Furthermore, efforts are needed to the business environment. They now need to be close gender gaps in access to finance and capital, fully launched across the FMS with consistency which remain large. Indeed, only six percent of in terms of their application. adult women own a bank account as compared with twelve percent of men. 23. International trade has substantial potential to drive economic growth, but competitiveness 21. There have been numerous efforts to develop is hampered by domestic barriers, such as infrastructure, which can support regional illegal checkpoints that increase the cost of integration and improvements in service doing business. Addressing internal and external delivery. The 2023 Electricity Act and associated constraints to competitiveness is essential for implementing regulations that are currently benefiting from the prospective membership ⁵ SIHBS, Federal Government of Somalia. xv SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 of the East African Community (EAC), the well as better economic governance to improve African Continental Free Trade Area (ACFTA), access to and the quality of services). The second the World Trade Organization (WTO), and other principle is to build resilience and mitigate the international integration arrangements. Somalia risks that Somalia increasingly encounters, for has multiple and fragmented customs regimes, example, risks related to food insecurity, climate- which enhances costs for traders and increases related shocks and its impact on infrastructure the cost of doing business. Harmonizing customs and services, as well as global crises. Efforts to regimes could help to simplify the business strengthen resilience require crisis and disaster environment, while also potentially increasing response measures, as well as longer term revenues through the application of ad valorem efforts to improve human capital and access tariffs. In addition, reducing illegal checkpoints to better jobs. Such improvements would would reduce the transportation costs along the strengthen the population’s coping mechanisms. major transport corridors, which would support The third principle is the importance of inclusive improvements to competitiveness. opportunities to support greater social cohesion, particularly for women, youth, and minority 24. Specific measures are needed to support groups. Furthermore, given Somalia’s FCV context, women’s economic empowerment. Women progress in building institutions and applying face multiple barriers to accessing productive these principles is likely to be non-linear. This jobs related to social norms and legal barriers. will require adjustments as lessons are learned. For example, current legislation does not allow for women to access the same industries as men, or to work the same number of hours. Amending legislation, such as the Family Law and the Family Code of 1975, could help to ensure that women and men can be equal in terms of heading the household. These measures should be complemented by developments to sector- specific legislation to encourage women’s participation, as well as efforts to remove the social norms that prohibit women’s participation in the economy. Without proactively encouraging Somali women’s labor force participation, Somalia will have missed an opportunity for greater growth and productivity. 25. Given the multitude of challenges facing Somalia, three principles can help to guide the prioritization of efforts. The first principle is to ensure a linkage between how a priority area is Current legislation does not allow for pursued and the foundational HLOs (improved women to access the same industries as security, participation, and access to justice, as men, or to work the same number of hours. xvi xvii SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 1. Introduction 1. This Systematic Country Diagnostic (SCD) of fragility, conflict, and violence (FCV), as well as Update presents the high-level outcomes (HLOs) low levels of trust among political actors. and priority interventions for Somalia to make progress in transitioning from fragility, reducing 3. This SCD Update identifies five complementary poverty, and promoting shared prosperity HLOs to support the transition from fragility over the next five years. The SCD Update takes to poverty reduction and shared prosperity. stock of recent developments and revisits There are two foundational HLOs, including: (i) the priorities identified in the first Systematic to improve security, justice, and participation, Country Diagnostic (hereafter referred to as SCD1), and (ii) to improve access to and quality of which was approved by the World Bank Group’s services through economic governance. Making Executive Directors in May 2018. This SCD is progress on these foundational HLOs is important being prepared as an update, as the development for building resilience and supporting better narrative in SCD1 remains relevant. Specifically, it socioeconomic outcomes. This would be achieved calls for improvements in institutions to achieve through the strengthening of human capital development objectives within a context of large and the enhancement of the private sector in periodic shocks, widespread fragility, and high providing better jobs. The SCD Update reflects levels of poverty. new data concerning poverty and social trends, recent analytical work, as well as consultations 2. The opportunities and constraints identified with numerous stakeholders within the World in SCD1 remain relevant. The SCD1 discusses Bank Group and in Somalia (see annexes 1 and 2). opportunities for Somalia, such as a vibrant private sector providing jobs, developing the productive sectors to improve food security, and strengthening economic corridors to support trade and regional integration. The SCD1 identified binding constraints, such as poor governance, insecurity, inadequate human and physical capital, gender inequality, and a lack of access to finance and electricity. Over the last five years, the nature of the constraints has evolved. Efforts are ongoing to gradually build and strengthen the quality of institutions. These are supported by renewed access to financing as Somalia reached the Heavily Indebted Poor Countries (HIPC) Initiative The SCD Update reflects new data Decision Point in March 2020.⁶ However, progress concerning poverty and social trends, has been non-linear, reflecting Somalia’s context recent analytical work ⁶ In March 2020, Somalia cleared its arrears to international financial institutions (IFIs), regained access to regular financing from the International Development Association (IDA) and reached the Heavily Indebted Poor Countries (HIPC) Initiative Decision Point. 1 2. RECENT DEVELOPMENTS 2. Recent Developments Political and Social Context Indirect elections have been held in Somalia since 2012, using a 4.5 power-sharing formula, which 4. Somalia continues to work toward a political gives the four major clan families an equal share settlement. Since the collapse of the state in 1991, of representation (61 seats) and other groups — Somalia has experienced protracted conflict and including marginalized and minority communities instability, thus undermining its efforts to build — a collective half share (31 seats) in the 275- institutions and secure sustainable development seat House of the People (Lower House).⁷ Direct outcomes. In 2012, a Provisional Constitution was elections have been planned and postponed twice approved, which set the foundation for a federal in favor of indirect electoral processes based on system of governance. However, Somali political the 4.5 formula. actors need to resolve issues, such as how resources and powers will be shared between the 6. The reliance on a power-sharing model regions and by the different levels of government based on clannism has been an obstacle to (federal, state, and municipal or district). The lack achieving greater inclusion of women and of clarity and consensus reflects low levels of other minority groups in politics (World Bank trust and continued contestation between political 2023). In this regard, women have weaker claims stakeholders across the Federal Government of to clan allegiance than their male relatives, Somalia (FGS), the Federal Member States (FMS), which places them at a disadvantage. To address and Somaliland. Further complicating the current low levels of women’s participation in political phase of Somalia’s state-building process is the processes, gender quotas for legislative bodies existence of several parallel Constitutions enacted have been defined. However, these quotas have by the FMS and Somaliland. These will need to be never been reached. In the 2022 election, there harmonized with an agreed, single Constitution was a deterioration in women’s representation for the country. Progress toward agreeing on a in Parliament as compared to the 2017 elections.⁸ Constitution endorsed by a popular referendum is likely to remain gradual, and it will require 7. High levels of insecurity and conflict continue constructive dialogue among key stakeholders. to affect Somalia. Al-Shabaab maintains territorial control in parts of southern and central 5. Somalia has an indirect electoral model. Somalia, including several major towns and much Somalia completed three elections in 2012, 2017 of the rural hinterlands. Although conflict-related and 2022. The 2022 election was protracted with incidents and fatalities have been on a declining reported irregularities and incidences of violence. trend, in 2022, there was an uptick in incidents by It eventually concluded, albeit with a 15-month 39 percent as compared to 2021. This was due to delay, which was followed by a peaceful transition fighting with Al-Shabaab in central and southern of power and the formation of a new government. Somalia.9The African Union Mission in Somalia 7 See annex 3 on clan dynamics in Somalia. 8 Women accounted for 24 percent of parliamentary seats in the previous parliament, and just 20 percent in the newly established parliament. 9 Between 2018 to 2022, there were 20,201 fatalities due to FCV events. This is based on data from the Armed Conflict Location and Event Data Project database, https://acleddata.com/. 2 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 (AMISOM) was rebranded the African Union system has been a challenge, where legitimacy Transition Mission in Somalia (ATMIS) to reflect is contingent on the integrity of clan elders. There plans for its withdrawal in 2024. In mid-2023, the are inconsistencies between some xeer systems government heightened the offensive against Al- and Shari’a formal justice mechanisms, as well Shabaab, and renewed its intention to stabilize as international human rights standards. There the country. The ability to hold newly recovered is also limited trust in the formal court structure, territory and introduce relative security, justice, which is considered to have biases related to and stability will demonstrate the country’s clans. Due to limitations with the xeer system readiness for the planned withdrawal of the and the formal courts, Al-Shabaab-administered ATMIS, which will require strengthening security courts are often utilized, although outcomes capabilities and identifying appropriate sources of may be contrary to international human rights financing within a medium-term fiscal framework. standards. Together with security, the provision of justice is essential to Somalia’s long-term state- 8. Women and girls face added dimensions building agenda. of conflict with gender-based violence (GBV) prevalent across the country. Intimate partner 10. Underlying the challenges of state-building, violence (IPV) is the highest reported incidence of participatory elections, and insecurity are a GBV, although sexual and psychological violence set of diverse structural issues, where weak are common too, particularly among women and institutions are exacerbated by corruption and girls living in informal settlements and Internally elite capture. Somalia consistently ranks at or Displaced Persons (IDP) camps.10 Girls are often near the bottom of the Transparency International forced into marriage and expected to bear Corruption Perception Index.¹² Despite slight children at an early age. In addition, female genital improvements in government effectiveness mutilation (FGM) is almost universal, affecting and regulatory quality over the past several 99.2 percent of women and girls aged 15-49 years, Somalia also remains at the bottom of (MOP 2020). Almost 5 percent of adult women had World Governance Indicators, and well behind experienced sexual violence during childhood, and the average for Sub-Saharan Africa (SSA).¹³ nearly a quarter of all women have experienced Following a protracted absence, the weakness sexual IPV in their lifetimes.¹¹ of nascent government institutions undermines the state’s ability to deliver basic services and 9. The justice domain is complex, comprising rebuild the social contract between citizens and traditional processes and a formal court the state. Deep-seated intercommunal divisions, structure (World Bank 2023). The traditional characterized by clan dynamics and social xeer system is a dispute resolution mechanism power structures, entrench systemic exclusion developed by traditional elders. It is linked to and stoke inter-societal contestation.¹⁴ These the clan structure. Enforcement of the xeer factors highlight the importance of strengthening ¹⁰ According to UNFPA (2021), GBV was reported to have been exacerbated by the COVID-19 pandemic. ¹¹ The same study by Wirtz and others (2018) also found that almost 2 percent of adult men had experienced sexual violence during childhood, and 14.7 percent of men reported having experienced sexual IPV in their lifetimes. ¹² In 2021, Somalia ranked in joint place, that is, 178th of 180, with Syria, just ahead of South Sudan. Its score has improved slightly from 8/100 in 2015 to 13/100 in 2021. See www.transparency.org and World Bank (2023) for further analysis of corruption in Somalia. ¹³ With respect to global indicators, in 2021, Somalia’s scores were as follows: government effectiveness at -2.05, regulatory quality at −1.82, and rule of law at −2.27 — consistently featuring among the poorest performing ten countries. ¹⁴ The analysis is drawn from the Risk and Resilience Assessment, World Bank (2023). 3 2. RECENT DEVELOPMENTS institutions, in particular, governance and substantial international support for the HoA accountability measures, as well as the fostering initiative, and meetings between finance ministers of a more inclusive social contract. in the region have persisted, despite broader geo- political challenges in the region.¹⁶ 11. As part of efforts to build domestic cohesion and reduce fragmentation, there Economic and have been initiatives to develop interim Governance Developments federal agreements concerning resource sharing, although implementation has been 13. Slowing global growth, higher inflation uneven. Somalia’s emerging federal system is and monetary tightening are contributing to characterized by inequities in access to resources. challenging conditions for Somalia. Since SCD1, The capital of Mogadishu and the states that the global economy has faced multiple shocks have a major port (such as Puntland or Jubaland) related to the COVID-19 pandemic, Russia’s invasion can collect a higher share of revenues, mainly of Ukraine and rising costs. Global growth prospects from trade-related taxes. However, other states have weakened, which may affect the sustainability are at a disadvantage. Adopting a rules-based of remittance inflows from the large Somali approach to how revenues will be collected and diaspora. At the same time, a prolonging of the shared could provide a solid foundation to agree conflict could lead to greater competition for official on functional assignments for service delivery development assistance (ODA) as the number of and public goods. While some federal agreements poor and vulnerable across the globe increase. have been reached to support resource sharing The legacy of the prolonged civil war in Somalia (for example in the fisheries sector or related has resulted in negligible domestic production to budget support), implementation has varied. capabilities. As such, Somalia is dependent on Enhancing intergovernmental dialogue at the imports for basic commodities, including food and political and technical levels could help to build fuel. The chronic current account deficit averaged trust and set a precedent for future cooperation. 12.1 percent over 2017-22. It is largely financed by remittances and ODA, underscoring reliance on 12. Beyond domestic efforts, there has also been external sources of support. broad support for regional cooperation through the Horn of Africa (HoA) initiative to address 14. Somalia’s economy has suffered repeated the common development challenges that are shocks, which have contributed to a slowdown constraining economic growth and poverty in growth. From 2017–22, growth rates averaged reduction efforts.¹⁵ In October 2019, the ministers of only 2.2 percent, compared with a population finance from across the HoA expressed a commitment growth rate of 2.9 percent (Figure 1). There have to develop coordinated approaches to regional been repeated cycles of security incidences, challenges. Four priority areas for cooperation floods, droughts, and the COVID-19 pandemic, all were identified, which include improvements to adversely affecting the wellbeing of households. A regional infrastructure connectivity; promoting prolonged drought in 2022 and 2023 is estimated trade and economic integration; building resilience; to have led to close to one-third of the population and strengthening human capital. There has been being food insecure by January 2023 (IPC 2023).¹⁷ ¹⁵ The countries participating in the HoA initiative include Somalia, along with Djibouti, Ethiopia, Eritrea, Kenya, South Sudan and Sudan. ¹⁶ The World Bank, the African Development Bank, and the European Union have mobilized over US$7 billion for regional projects. ¹⁷ By February 2023, there was a fifth consecutive failed rainy season, resulting in nearly 5 million people (nearly 50 percent of the population) becoming food insecure (crisis level 3 – IPC Phase 3). 4 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 From the demand side, the main driver of growth (AML/CFT) framework. Since SCD1, the efforts of is private consumption. Over the medium term, the CBS and the government have focused on public and private investments are expected to licensing banks, regulating the mobile banking contribute to growth, including from Somalia’s sector, and improving transparency in financial diaspora. Supply side GDP data is unavailable. transactions, including through the publication However, large urban-based sectors include of a National Risk Assessment in 2022. These telecommunications, wholesale and retail trade, efforts are helping the CBS to develop its nascent as well as the financial sector. Medium-term supervisory capabilities. growth forecasts for 2023-28 are projected at 3.8 percent, provided the security situation 16. As highlighted in SCD1, limited fiscal space stabilizes and there are new investments (see reinforces the need to raise revenues and annex 4 concerning selected economic and prioritize expenditures to support growth and financial indicators). poverty reduction. From 2017–2022, domestic revenue mobilization averaged only 3.1 percent 15. The Central Bank of Somalia (CBS) does not of GDP for the FGS. However, progress in revenue have the policy levers to respond to crises. mobilization has been made from a very low base Somalia has an independent central bank, as (that is, from US$143 million in 2017 to US$250 stated in the 2012 CBS Act. The economy is de million in 2022). Expenditures averaged only 6 facto dollarized, which is a source of stability percent of GDP over 2017–22 and are focused on for the country. However, in times of global price developing basic state functions that prioritize shocks or rising interest rates, the country lacks stabilization. Raising revenues is a priority, a monetary policy response. There are some particularly as the government plans to take Somali shillings that are in circulation, which are on responsibility for security provision, thus largely utilized by the very poor. These are mostly following for the planned withdrawal of the ATMIS. counterfeit. The CBS focuses on enhancing the Approximately half of the FGS expenditures are for supervision of the financial sector. In collaboration the public wage bill. Somalia is in debt distress, with the Financial Reporting Center, the CBS is following the accumulation of arrears from loans helping to ensure compliance with the Anti-Money contracted prior to the civil war. The country runs Laundering/Countering the Financing of Terrorism a cash-based budget, and there is no scope to Figure 1: Economic growth in Somalia Percent 6,0 5,0 Extreme 4,0 Drought 3,0 2,0 Agreement on the COVID-19 Severe 1,0 Provisional Constitution Crisis Drought 0,0 -1,0 2014 2015 2016 2017 2018 2019 2020 2021 2022t 2023t 2024t Real GDP growth Average 2014-21 Source: Federal Government of Somalia, International Monetary Fund (IMF) and World Bank. 5 2. RECENT DEVELOPMENTS accommodate deficits.¹⁸ A fiscal buffer account cannot pay, and undermining the social contract has been established to help ensure consistent between the state and its citizens. Scaling up monthly expenditure payments. Over time, it government-led basic service delivery will can be used to build a buffer to support a policy require significant increases in public expenditure. response to shocks. However, the country is not yet able to afford such expenditures. Since SCD1, the government 17. Since SCD1, Somalia has benefited from has undertaken multiple efforts to establish basic new sources of financial support through functions, such as enacting a modernized Public its advancement in the debt relief process. Financial Management Law in 2019; systemizing In March 2020, Somalia cleared its arrears to financial management information systems for international financial institutions (IFIs), regained payment processes and reporting; developing a access to regular financing from the International reporting system for inter-governmental fiscal Development Association (IDA), and reached the transfers; and increasing civil service capacities. Heavily Indebted Poor Countries (HIPC) Initiative Over time, the foundational state institutions are Decision Point. The HIPC initiative has provided an being developed. anchor to the government’s reform program, which reflects priorities of the Somali Poverty Reduction 19. Furthermore, strengthening social cohesion Strategy Paper, the ninth National Development will be foundational to establishing effective Plan (NDP9) for 2020-24. When Somalia reaches local authorities and local service delivery. the HIPC Completion Point, it will qualify for full and Social cohesion is defined as having a shared irrevocable debt relief. Reaching this milestone will purpose, trust and willingness to cooperate signal to the private sector and the international among members of a given group, between community that progress in Somalia has been members of different groups (including clans), and made in implementing reforms and that there is between people. Having a foundational level of potential for the country to do business. social cohesion is critical for Somali government authorities to establish themselves, initiate a 18. As identified in SCD1, in a context where the “state-society bargain”, and subsequently deliver private sector takes an active role in service basic services that could alleviate poverty and provision, it is important to define the size improve outcomes, such as the country’s Human and the role of the state. After the collapse of Development Index. In the absence of social the Siad Barre regime, a plethora of non-state cohesion, there is a risk that nascent state actors emerged to deliver services, which have institutions will conduct a bargain with one social been largely unregulated. As such, they require group (clan), resulting in state capture with limited the payment of fees, thereby excluding those who benefits for the wider population.¹⁹ ¹⁸ The only lending arrangement that Somalia has engaged in is with the IMF for the Extended Credit Facility, as well as the increased allocation to Special Drawing Rights in August 2021. All other financing to Somalia during the HIPC interim period is on grant terms. ¹⁹ These findings concerning social cohesion are reinforced by the World Bank’s Risk and Resilience Assessment (2023), which identifies deep-seated intercommunal divisions as a driver of FCV dynamics. 6 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Poverty and Social Outcomes However, simulations based on growth in terms of real per capita GDP suggest that poverty increased 20. Poverty in Somalia remains high. According slightly between 2017 and 2022. to the SNBS poverty report - based on the Somalia Integrated Household Budget Survey 2022, the 21. Somalia’s nomadic population has the first fully fledged household budget survey highest poverty rate; however, the majority since the collapse of the state—an estimated of the poor live in urban areas. The poverty rate 54 percent of the Somali population lived below among nomadic communities amounted to 78 the national cost-of-basic-needs poverty line of percent in 2022, compared to 65 percent in rural US$754 per person per year (approximately US$2 areas and 46 percent in urban areas. The depth of per person per day).²⁰ In addition, 22 percent of poverty, as measured by the poverty gap, follows the population was extremely poor, meaning a similar pattern. Thus, the poverty gap is almost that their total expenditures fell below the food three times higher among nomadic communities poverty line of US$425 per person per year than in urban areas (Figure 2). Despite this (US$1.2 per day).²¹ Due to limitations in the scope pattern, the majority of the poor (55 percent) and coverage of previous attempts to collect live in urban areas. This is a consequence of household consumption data through the Somali Somalia’s relatively high level of urbanization, High-Frequency Survey conducted in 2017, it is not which is itself a result of decades-long instability possible to directly compare poverty indicators in and increasingly frequent climate shocks which 2022 with those of previous years, although other have driven people away from rural areas (World measures of welfare are deemed comparable.²² Bank 2021c).²³ The nomadic population, although Figure 2: Poverty Indicators A. Poverty Headcount and Gap (%) B. Distribution of the Population Living Below the National Poverty Line (by area) Share of the poor 78 65 16% 54 46 55% 37 29% 25 20 15 National Urban Rural Nomads Poverty Headcount Poverty Gap Urban Rural Nomads Source: World Bank staff estimates from Somalia Integrated Household Budget Survey (SIHBS) (2022). ²⁰ The poverty line was constructed by the Somali National Bureau of Statistics with support from the World Bank using the methodology proposed by Ravallion (1994). See SNBS (2023) - Somalia Poverty Report 2023 for more details. ²¹ The purchasing power parity exchange rate for Somalia will only be available toward the end of 2023, which is when the international poverty rate of US$2.15 a day can be calculated to facilitate a comparison between Somalia’s poverty situation with peer countries. ²² The upcoming World Bank Poverty Assessment will comprehensively analyze the household budget survey data and explore innovative techniques, such as survey-to-survey imputation and SWIFT methodology to better understand the poverty trends. 7 2. RECENT DEVELOPMENTS by far the most deprived, the nomadic population For instance, in the central regions of Hiraan accounts for 16 percent of national poverty due to and Middle Shabelle, 82 percent and 87 percent their small population share (estimated at 11 percent). of the population, respectively, live below the national poverty line. In contrast, poverty rates 22. Inequality in Somalia is comparable with peer in northern regions, such as Awdal and Bari, are countries. As of 2022, Somalia's Gini coefficient lower at 39 percent and 44 percent, respectively. is 0.35, which is similar to that of Ethiopia (also Regional disparities also hold for non-monetary 0.35), but lower than Kenya's Gini coefficient of dimensions of well-being, with the Human 0.41. Furthermore, it is also comparable to other Development Index — a composite indicator of comparator countries (Figure 3). This may suggest achievements in education, health and living a relatively equal distribution of consumption at standards — being higher in the north. Regional the national level. However, it is important to pay disparities in poverty and social outcomes attention to inequality and its potentially negative can be partly attributed to the geography and impacts on society and the economy. Ensuring spatial characteristics unique to each region. For a fair and just distribution of wealth, as well as example, the northern regions historically have equal opportunities for all members of society to a higher prevalence of government authorities succeed and thrive, can help reduce social tension delivering services (Cloutier and others 2022). and prevent conflicts between different groups. This spatial distribution of poverty and poor human development outcomes aligns with Spatial Variations in Poverty the spatial distribution of conflict, weak local institutions, as well as the presence of Al 23. Although poverty is high across Somalia, Shabab. This is indicative of a vicious cycle of the 2022 Somalia Integrated Household conflict and fragility, where the lack of services Budget Survey (SIHBS) revealed significant and opportunities reinforces marginalization regional variations. The southern and central and breeds conflict. This in turn leads to further regions of the country have higher poverty rates, neglect, continued poverty and marginalization. whereas the northern and northwest regions have a lower incidence of poverty (Figure 4). Figure 3: Gini Coefficients across Selected Countries 0.50 0.44 0.45 0.41 0.42 0.40 0.35 0.35 0.35 0.36 0.36 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Ethiopia Somalia Liberia Sierra Leone Mali Kenya Congo, Dem. Rwanda Rep. Source: Somalia: World Bank staff estimates from SIHBS (2022); The date for other countries is drawn from the World Bank’s World Development Indicators. ²³ Internal displacement is an important driver of urbanization in Somalia. The vast majority (73 percent) of people who are displaced are currently living in urban areas. The main reasons for the displacement are drought followed by fighting. With an estimated urbanization rate of 4.3 percent per year, close to four million new residents are expected to live in urban areas by 2030. 8 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Figure 4: Poverty Rates and Human Development Outcomes A. Regions with High Poverty Cluster in the South B. Human Development Outcomes are Higher in Northern Regions Source: World Bank staff estimates from SIHBS, 2022. Source: Subnational Human Development of the Global Data Lab, 2021. Human Capital and Poverty 24. Poverty in Somalia is strongly related to 25. Enrollment rates have modestly increased education and literacy. Literacy rates are low from a low base, and the gender gap appears to in Somalia, with only 54 percent of the adult be narrowing. The share of adult males that are population as compared to a regional average of literate (63 percent) is far higher than the share 67 percent.²⁴ Poverty rates among households of adult females (45 percent), which is largely a with a literate head are 25 percentage points lower legacy of earlier times. In 2022, net enrollment in relative to households with an illiterate head (see primary school amounted to 24 percent for girls Figure 5). School enrollment rates are low across and 26 percent for boys. The net enrollment in the board. Indeed, they are much lower than the secondary school was at parity, specifically, at averages across SSA and FCV countries, and lower a low 14 percent. These figures suggest that the still for the poor. As education is largely provided gender gaps in education outcomes could narrow by the private sector, the cost of education is a in the future if girls do not drop out of school early key constraint to school attendance. Only one in (SIHBS 2022). Entrenched social norms, including four primary school age children are attending social pressures for early marriage, expectations primary school, and this drops to one in five for that girls support households and caregiving, children of poor households. Nevertheless, this and the greater ‘social value’ attached to boys’ represents a modest improvement over time. education places girls at a disadvantage. The Similarly, secondary enrollment shows a large dominance of male teachers may also discourage gap between poor and non-poor households (at the enrollment and/or retention of girls, thus 8 percent versus 22 percent, respectively). limiting safe spaces for girls. ²⁴ World Bank, World Development Indicator data for 2018. 9 2. RECENT DEVELOPMENTS Figure 5: Poverty and Literacy A. Poverty Rate by Literacy of Household Head B. Literacy Rate for Adults, total (% of people ages 15 and above) across Selected Countries 79% 79% Mali 31% 72% 37% Afghanistan 65% 48% Sierra Leone 58% 54% Liberia 48% Ethiopia 52% 40% Somalia 54% 33% FCV 65% SSA 67% Rwanda 76% Congo, Dem. Rep. 80% Kenya 83% National Urban Rural Normadic Source: Somalia: World Bank staff estimates; Datas for the other countries Illiterate Literate is derived from World Development Indicators. Source: World Bank staff estimates derived from SIHBS (2022). Note: FCV= Fragilility, Conflict and Violence; SSA= Sub-Saharan Africa. Figure 6: Population Pyramid Figure 7: Poverty Incidence by Household Size 100+ Male 0.0% 0.0% Female 95-99 0.0% 0.0% 63 90-94 0.0% 0.0% 58 85-89 0.0% 0.0% 80-84 0.1% 0.1% 75-79 0.2% 0.2% 46 70-74 0.3% 0.4% 65-69 0.5% 0.6% 60-64 0.7% 0.8% 55-59 0.9% 1.0% 50-54 1.2% 1.3% 24 45-49 1.5% 1.5% 40-44 1.9% 2.0% 35-39 2.4% 2.4% 30-34 2.7% 2.7% 25-29 3.7% 3.7% 20-24 4.6% 4.5% 15-19 5.5% 5.4% 10-14 6.6% 6.4% 1-3HH 4-6 HH 7-9 HH 10+ HH 5-9 7.9% 7.7% members members members members 0-4 9.6% 9.2% 10% 8% 6% 4% 2% 0% 2% 4% 6% 8% 10% Source: World Bank staff estimates derived from the SIHBS (2022). Source: United Nations (2022). Note: HH= household. 26. Fertility rates in Somalia have remained more are poor (Figure 7). Because of high fertility high, resulting in large households with high rates, which are largely driven by early marriage, dependency rates. The 2020 Somalia Health Somalia has a youthful population. Indeed, 70 and Demographic Survey (SHDS) found a Total percent of the population are below the age of 25. Fertility Rate (TFR) of 6.9, largely unchanged A youthful population structure (Figure 6) could from 2006 when it was estimated at 6.7. As a be a boon for growth. It is commonly referred to result, households in Somalia are large, with an as a demographic dividend. However, Somalia is average size of 6.7 persons as compared with the currently at a pre-demographic dividend phase SSA average of 4.8 persons in 2019. The incidence characterized by every younger age cohort being of poverty increases with the size of household; larger than the previous one. Strong improvements small households (1-3 members) have the lowest in girls’ education will be necessary for Somalia to poverty rate of 24 percent, whereas more than boost women’s participation in the labor market 60 percent of households with 10 members or and reap a demographic dividend. 10 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Shocks and Poverty 29. Somalia is heavily affected by climate change, and the impacts are likely to become more 27. Since the last SCD, climate change pronounced. Somalia is in the throes of its longest and insecurity have been contributing to drought on record. Five consecutive poor rainy widespread displacement. Continued conflict seasons have dramatically eroded the asset bases in parts of the country have led to 1.6 million of households (through massive livestock deaths and additional displacements between 2018 and distress sales). Thus, household purchasing power 2021 (the year 2021 is the last year for which has declined at a time when global food prices have the Internal Displacement Monitoring Center spiked.²⁷ The result has been widespread and intense has published data).²⁵ Climate shocks are an food insecurity, with over 8 million Somalis — close to increasingly important source of displacement, half of the population — requiring lifesaving aid and with repeated droughts and floods since 2018 protection.²⁸ Increasing temperatures are likely to leading to 2.3 million displacements (up to the have a serious impact on climate-sensitive agriculture end of 2021). Thus, climate shocks have overtaken and pastoralism (Figure 8). With increasing levels conflict as the main driver of displacement. of urbanization in Somalia, especially in the coastal Currently, an estimated 3 million Somalis are urban cities, it is noteworthy that projections show internally displaced.²⁶ sea level rise of up to 36 meters by the year 2080 (Binder and others 2022). 28. Displacement is associated with significantly higher poverty rates and lower social indicators. 30. Exposure to climate shocks is correlated The poverty rate among IDPs was 72 percent in with poverty. According to the 2022 SIHBS, 63 2022, as compared to 52 percent for non-IDPs. In percent of households that experienced a natural 2022, net enrollment in primary and secondary disaster shock were poor. This compares with 46 school among IDP households amounted to percent of households that did not experience a 16 percent and three percent, respectively, natural disaster shock. The intensity of shocks, substantially lower than the corresponding including those which are climate-related and figures for non-displaced households (26 percent their impact on poor households, highlights the and 16 percent, respectively). importance of building resilience to shocks. Figure 8: Average Monthly Temperature Profiles in Somalia, 1961-2020 2.5 2 1951-1980 baseline Change 'C from 1.5 1 0.5 0 -0.5 -1 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Source: World Bank, Somalia Climate Risk Report. Forthcoming. ²⁵ https://www.internal-displacement.org/countries/somalia. ²⁶ Estimate from UNHCR, https://reporting.unhcr.org/document/4687. ²⁷ Over half of households in the 2022 SIHBS reported having been negatively affected by increasing food prices. In the previous survey (2017), this type of shock was mentioned by less than 10 percent of households. ²⁸ According to a report by the WHO and UNICEF (2023), the ongoing drought has resulted in an excess mortality of 43,000 persons in 2022, mainly children. 11 2. RECENT DEVELOPMENTS Jobs, Incomes and Poverty 32. Almost half of those who are employed are living below the poverty line, indicating that 31. The labor force participation rate in Somalia jobs are of low productivity. Most non-farm jobs remains exceptionally low, with a substantial are in small, informal household enterprises or gender disparity. According to the 2022 SIHBS, entail self-employment in the trade and services only 26 percent of individuals aged 15 and above sector with established businesses (which include are participating in the labor force, significantly informal businesses, formal micro businesses, lower than in other sub-Saharan African countries and formal larger businesses). Productivity, (66 percent) and conflict-affected countries (61 measured as real GDP per worker, is lower in percent). The unemployment rate is similarly Somalia than in peer countries. Therefore, simply concerning, standing at 15 percent, with the youth having a job is insufficient for escaping poverty, population (15-24 years of age) experiencing an indicating that people are engaged in activities even higher rate of 27 percent. Urban youth face of limited value added, mostly for mere survival particular obstacles in securing employment, or subsistence purposes. with an unemployment rate of 32 percent. There is also a significant discrepancy in the labor 33. There is a large gender productivity gap. market between men and women. Men have a Women dominate lower income-generation much higher labor force participation rate (39 activities due to a lack of alternative sources of percent) than women (16 percent). Among those work. For instance, women dominate the lower- who are employed, urban areas have the highest end segment of cross-border trade. Similarly, in percentage of wage employment, at 60 percent, the fisheries and livestock sectors, women are followed by rural areas at 54 percent, and nomads largely excluded from the high-earning segments at less than 22 percent. The labor market patterns of the value chain, such as catching and exporting in 2022 remain similar to those seen in an earlier fish, or trekking with animals in search of higher analysis (Karamba 2021). market prices. Figure 9: Labor Market Situation, 2022 A. Labor Force Outcomes B. Distribution of Workers by Type of Activities Youth unemployment rate 100% (% of 15-24 in the labor force) 80% % of Employed Unemployment rate (% of labor force) 60% 40% Labor force participation rate (% of 15+) 20% Employment rate 0% (% of 15+) Rural/DP Urban Nomadic 0 10% 20% 30% 40% Wage Self-employment HH business Nomadic Urban Rural Total HH farming Multiple activities Source: SNBS (2022). Note: HH= Household. 12 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Welfare Trends since the First SCD prolonged drought conditions. While the poverty estimates from SIHBS 2022 are not comparable 34. Trends in several indicators suggest to the earlier numbers from the World Bank’s modest improvements to welfare since SCD1. In Somali High Frequency Survey (SHFS) 2017, the education, there have been some improvements poverty forecasting exercise using recent GDP in literacy and net primary school enrollment growth suggests that poverty has increased (see Annexes 5 and 6). Concerning access to basic slightly, that is, by about three percentage points services, access to sanitation and electricity have between 2017 and 2022. Poverty increased due to improved. However, access to improved drinking multiple shocks during this period.²⁹ In addition, the water remained unchanged. Financial inclusion COVID-19 pandemic High Frequency Phone Surveys has improved, with the share of households with of households suggested a decline in employment access to a mobile money account reaching 97 and income due to impacts of the pandemic and percent in 2022. However, reflecting numerous natural disasters (World Bank 2017).³⁰ Health and shocks, the ownership of livestock has declined. nutrition indicators are taken from the Somalia This may be due to negative coping mechanisms, Demographic and Health Survey. Therefore, they as well as excess livestock mortality following are not comparable with previous years. ²⁹ Macro Poverty Outlook for Somalia: April 2023 (English). Macro Poverty Outlook (MPO) Washington, D.C.: World Bank Group. ³⁰ The results are from the Somali High-Frequency Phone Survey of Households, wave 1 and wave 2. 13 14 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 3. Binding Constraints and Opportunities in the Attainment of High-Level Outcomes 35. This section revisits the diagnosis in SCD1 • Foundational HLO 1: “Improved Security, concerning the opportunities and constraints Participation, and Access to Justice” to achieving development outcomes consistent includes priorities, such as advancing the with the twin goals of reducing poverty and constitutional review process; enhancing the promoting shared prosperity. The SCD1 used a participation of women and minority groups; Wealth of Nations framework, which considers developing the security architecture to all types of wealth (natural, produced, human, consider the withdrawal of the African Union and intangible), as well as political sustainability.³¹ peacekeeping forces; and enhancing justice. In creating opportunities, emphasis was given In SCD1, these priorities were captured under to intangible forms of capital, such as institution the “Improve Governance” pillar. building, entrepreneurialism, and the operation of social norms of dispute resolution. Following this • Foundational HLO 2: “Improved Access to and analysis, SCD1 presented twelve priorities organized Quality of Services through Better Economic into three themes, which were to Build Resilience, Governance” requires maintaining stable Improve Governance, and Provide Opportunities. macroeconomic conditions; strengthening institutions for social and economic 36. The presentation of HLOs in this SCD Update expenditures; improving transparency and is consistent with the analytical approach accountability; and developing public debt used in SCD1. This SCD Update reconfigures the management capabilities. priorities identified in SCD1 into two foundational HLOs related to security, participation, and justice, • HLO 3: “Improved Household Resilience to and economic governance. These support three Shocks” includes the priorities to improve HLOs that concern resilience, human capital, and water storage and upgrade agricultural enhancing the private sector for jobs. The multiple value chains, which is the same as in SCD1. HLOs are complementary and are expected to Additional priorities of urbanization and support Somalia’s transition out of fragility, disaster risk management have been added increase its resilience and improve access to due to displacements and repeated shocks. better jobs. The linkages between the HLOs and the priorities in SCD1 and this SCD Update are • HLO 4: “Improved Human Capital Outcomes” summarized below. is consistent with the Wealth of Nations ³¹ Natural capital considers waters, plants, soils, and minerals that dominate national wealth. In this regard, the sustainable management of this stock of wealth is required. Development is seen as a function of the accumulation of produced capital (for example, infrastructure, buildings, machinery) and human capital (better education and health of the population). All other aspects of national wealth are seen as “intangible,” which although difficult to measure, are critical for good governance and the effective functioning of society. 15 3. BINDING CONSTRAINTS AND OPPORTUNITIES IN THE ATTAINMENT OF HIGH-LEVEL OUTCOMES approach in SCD1, and it has been elevated in Political Stability, Participation, and the SCD Update. This HLO includes education, Constitutional Review health, and social protection. 38. As noted in SCD1, although the constitutional • HLO 5: “More and Better Private Sector review process was expected to codify a political Jobs” includes three priorities in SCD1, which settlement, the lack of progress underscores are to expand access to electricity, improve the fragility of current structures. Since 2012, access to finance, and reduce regulatory there have been numerous attempts to finalize the uncertainty through enhancing the business Constitution through discussions about resource- environment. The HLO includes additional and power-sharing agreements. However, priorities, which are to increase access to disagreements regarding some of the foundational finance and infrastructure, as well as to features of the Constitution — including the structure improve opportunities for women. of the executive and basic systems of governance in the country — have limited progress with the negotiations.³³ As the political situation remains fluid and contested, there are greater opportunities High-Level Outcome 1: Improved Security, for Al-Shabaab to exploit the lack of state legitimacy Participation, and Access to Justice and expand its territorial control (World Bank 2023). 37. As noted in SCD1, societal division has 39. Recognizing the protracted process of contributed to a legacy of contestation and finalizing the Constitution, it will be critical to conflict. The number of conflict events and continue building the foundations for state-level fatalities have generally been on a downward resilience. Since SCD1, some basic institutions trend since SCD1 (with the exception of a recent have been established, such as systems for spike, given the government’s renewed offensive governing public resources and passing numerous against Al-Shabaab). However, fragility and sector laws and regulations. Although institution- conflict have continued to disrupt economic building is iterative and will take time, efforts to activity and undermine household welfare.³² develop foundational institutions should continue. While the situation is fluid and evolving, the The peaceful transfers of power following each spatial pattern of conflict between 2018 and of the elections since the establishment of the 2022 is correlated with the clustering of Provisional Constitution are encouraging. There poverty, indicating that regions with higher is also potential to move toward direct elections, levels of conflict also tend to have higher levels provided there is broad-based commitment from of poverty. This HLO considers the priorities in political stakeholders. Despite ongoing disputes working toward improved security, justice, and between the regions, there is growing acceptance participation in Somalia as the country seeks to that a federal system of governance is appropriate transition from fragility. This HLO is foundational for Somalia. Continuing efforts to work on interim for the building of resilience, as well as for federal arrangements would bring stakeholders advancing economic and social development. together, promote dialogue, and build trust. ³² Data concerning the conflict events and fatalities come from the Armed Conflict Location and Events Data, https://acleddata.com/. ³³ Examples of contentious issues that need to be resolved include: (i) the basis for agreeing on citizenship; (ii) whether a parliamentary or a presidential system should be adopted; (iii) the role of the judiciary; (iv) the security architecture (including the financing, size, and composition of the Somali National Army and regional police); and (v) the status of the Banadir and Mogadishu Regional Governments. 16 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 40. Greater political commitment is required partly depend on the effectiveness of the ongoing to ensure that quotas for women in politics are scaled-up offensive against Al-Shabaab. maintained. Addressing the barriers of female aspirants spans a variety of issues, such as a lack 42. A fundamental aspect underpinning the of education, technical expertise, and networks Somali government’s capacity to take over from and experience to make an impact in their roles. existing peacekeeping forces is the availability Training for “soft skills” could help to develop and management of resources. As fiscal space female political leaders through mentorship and is constrained, raising domestic revenues will be peer support systems. Moving away from the important for Somalia to finance security services. 4.5 power-sharing formula could also support Some progress has been made in improving the greater inclusion of minority groups in decision- management of resources in the security sector, making processes. At the same time, protection such as the introduction of biometric registration from GBV should be advanced for women and to identify legitimate personnel and the utilization of girls. This could be achieved through the approval a mobile money payment system for paying security and implementation of policies and laws (such forces (instead of by cash distribution). There has as the Sexual Offences Bill), as well as through also been open tendering of rations to the army, establishing accountability systems in the country. resulting in lower costs and increasing transparency. Security Architecture and Transition Justice 41. Since SCD1, there have been some changes 43. As noted in SCD1 and the Risk and Resilience in security sector capabilities. In 2017, a Assessment, Somalia’s fragmented justice National Security Architecture was endorsed, system has resulted in the utilization of which considered responsibilities for federal and alternative sources of dispute resolution. There regional-level forces. However, in subsequent are many challenges associated with the clan years, fundamental revisions were made to the system, such as the marginalization of women National Security Architecture resulting in its and minority groups. However, in the absence of practical abandonment, with no progress made effective formal justice mechanisms, Somali society toward implementation. Instead, the focus was has fallen back to clan support structures. They turned to a Somali Transition Plan to guide the form a basic collective insurance system. Localized process of Somali forces assuming full control reconciliation efforts throughout the country have of internal security as the African Union forces often been led by clan elders, religious leaders, civil planned to draw down. Clan affiliation remains society activists, and the business community. a salient feature of the security sector, and well- In the absence of a formalized justice system armed, clan-based militias are still prevalent which has the legitimacy and trust of its citizens, throughout much of southern and central Somalia. informal justice resolution mechanisms are likely There has also been considerable bilateral to continue. Over the medium to long term, it will be support to Somali security forces, including the important to strengthen the foundations of formal training of new recruits. However, the capacity of justice. This can help to bring greater certainty to Somali security forces to take over responsibilities the private sector and to citizens, if it is perceived from the African Union remains uncertain. It will as being impartial, accountable, and fair. 17 3. BINDING CONSTRAINTS AND OPPORTUNITIES IN THE ATTAINMENT OF HIGH-LEVEL OUTCOMES pressures. Over the medium-term, Somalia could leverage its trade potential to diversify its export High-Level Outcome 2: Improved Access basket and expand its trading partners, which to and Quality of Services through Better could help to generate higher export receipts. Economic Governance Somalia is dependent on ODA and remittances for financing the trade deficit, which are vulnerable 44. Enhancing economic governance is critical due to challenging global conditions. This for Somalia to make progress across the highlights the importance of encouraging foreign HLOs.³⁴ Increasing revenues is important for the investment and building reserves to develop government authorities to expand service delivery, buffers against shocks. which in turn can support the development of a social contract. Accessing private and official 46. Increasing fiscal space to deliver services financing resources for much-needed investments through domestic revenue mobilization is an will require improvements to the governance urgent priority. Harmonizing Somalia’s revenue environment and structural reforms that can administration processes can help to the country to provide investors with confidence that Somalia transition to national customs and inland revenue is a credible environment for investment and for administration systems. The FGS and the FMS should doing business. develop a common approach for organizational structures to support revenue administration and Stable Macroeconomic Conditions and the identification of core functions at different levels Fiscal Sustainability of government,³⁶ building on progress on revenue assignment agreement in 2023. Somalia’s formal 45. Maintaining macroeconomic stability is a institutions are much less trusted than traditional or prerequisite to encouraging investment and communal authorities, which reflects dissatisfaction private sector development. In the short-term, among Somalis, especially traders, with respect to maintaining macroeconomic stability requires reciprocity, equity, fairness, and accountability. Over staying on track to complete the HIPC process.³⁵ the medium- to long-term, it will be important to: The government should continue to prioritize (i) improve tax administration through the limitation fiscal sustainability of the wage bill through the of tax exemptions, thus ensuring predictability in implementation of a pay and grading reform, a taxation rates; (ii) automate processes; (iii) strengthen pension system, as well as rationalizing processes enforcement; (iv) promote voluntary compliance and for awarding allowances. Quantifying the cost of the legitimacy of the tax system; and (v) monitor how additional recruits in the security sector would the behaviors of tax officials change in response to help the government to better plan for rising fiscal tax automation reforms (World Bank, 2021e). ³⁴ Economic governance refers to the importance of maintaining stable macroeconomic conditions, as well as strengthening the foundations of the state to develop state legitimacy. ³⁵ To reach the HIPC Completion Point, the government must complete all remaining HIPC Completion Point triggers. In May 2023, the outstanding reforms include the issuance of regulations to the Electricity Act, and the application of a single import duty tariff schedule at all ports in the Federal Republic of Somalia. Macroeconomic conditions should continue to be stable, as evidenced by the conclusion of reviews under the IMF’s Extended Credit Facility. Also, financing assurances from creditors representing at least 80 percent of the net present value of debt after traditional debt relief will need to be secured. A Joint Staff Advisory Note on the implementation of the NDP9 is under review. ³⁶ Core functions include tax policy, revenue management and research, a large taxpayers office, compliance risk management, corporate services, human resource management, training and capacity building, and taxpayer support to promote voluntary compliance. 18 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Strengthening the Institutional Acts. However, these laws need to be coherent Framework for Social and across the regions, particularly concerning Economic Expenditures intergovernmental fiscal relations. Budget preparation and execution processes at the FGS 47. Over time, expenditures to support better and FMS levels need to be strengthened with the social and economic outcomes should increase; aim of enhancing budget credibility and fiscal they should be based on a strengthened sustainability. For example, improving revenue institutional framework.³⁷ As the federal model forecasting, commitments and payroll controls evolves, functional assignments could consider could help to ensure that expenditures are kept the role of the FGS, the FMS, and potentially the in line with available resources. districts and municipalities as well. The focus should be on establishing functional assignments 49. Enhancing transparency and accountability for big-ticket expenditure items, such as security, of public finances for both the FGS and FMS gradually moving toward the service delivery could help to build trust in state institutions. sectors. Defining responsibilities in sectors such Key issues undermining greater transparency as education and health can provide a more solid and accountability include: (i) a weak internal basis for the FGS to undertake its stewardship and external control environment; (ii) off-budget role to strengthen policies governing the sector. operations; (iii) fragmentation in accounting This would help to address fragmentation and the and reporting structures; and (iv) a lack of uneven quality and coverage of service delivery. citizen engagement. Strengthening governance Improving the government’s stewardship role of high-value contracts is critical and requires can help to improve service delivery, perceptions gradual institution-building with the support of of state legitimacy and the social contract, as the Financial Governance Committee.³⁸ Legal, well as encourage tax morale. Over time, as regulatory, and procedural frameworks for public capacity develops, a minimum floor for social procurement require strengthening, including sector expenditures can be considered. The the establishment of procurement oversight Inter-Governmental Fiscal Federalism Technical mechanisms. Enacting the Federal Audit Bill Committee can be utilized to support discussions would support the independence of the Office concerning federalism and inform decisions taken of the Auditor General (OAG). Parliamentary by the Finance Ministers Fiscal Forum. oversight and strong internal audit functions are needed to manage public funds in an efficient and 48. The FGS and FMS need to improve the accountable manner. In addition, as the remit of coherence of legal frameworks for public public services expands, accountability and financial management, as well as systems for feedback loops with citizens can be explored. planning, spending, and accounting. Progress has been made to develop a foundation for 50. In the medium term, advancing the political public financial management (PFM). Both the and institutional reform agenda will greatly FGS and the FMS have passed modern PFM depend on the governments’ ability to deliver ³⁷ The 2023 budget allocates expenditure functions as follows: administration (26 percent); security (20 percent); intergovernmental transfers (20 percent); social (20 percent); and economic (15 percent). https://mof.gov.so/fiscal/ ³⁸ The Financial Governance Committee (FGC) is a high-level advisory committee comprised of senior members of the FGS and international representatives. The FGC is a forum for dialogue and confidential advice concerning strategic and sensitive financial governance issues. As such, it covers fiscal issues, contracts and concessions, natural resource management, and central bank governance. 19 3. BINDING CONSTRAINTS AND OPPORTUNITIES IN THE ATTAINMENT OF HIGH-LEVEL OUTCOMES on key functions and services. Improving public national interests, ensures political stability, service delivery and economic governance requires enhances state credibility, minimizes stable macroeconomic conditions, functioning contractual risk, and avoids environmental PFM system and DRM, as well as the support of an damage. The enactment of the Extractives effective civil service. As the FGS and FMS increase Industries Income Tax Law in March 2023 their domestic revenues, they will need to improve provides an important framework for the the capacity of the public sector to manage sector. The consensus with all FMS concerning resources effectively and transparently for petroleum sector management should be re- service delivery. Although many of the necessary established. The regulatory capacity of the FGS structures are in place, further efforts will be should be scaled up, particularly in the areas of essential to improve the quality of the civil service, oversight, monitoring, and the audit of petroleum strengthen workforce management policies, and operations. The environmental oversight of expand key governmental administrative services. the FGS should be strengthened by enhancing intergovernmental cooperation, as well as by Transparency and Accountability in building the capacity of the National Climate the Petroleum Sector Change Committee. 51. As noted in SCD1, the petroleum sector could Public Debt Management offer new opportunities; however, success will in a post-HIPC context depend on the overall governance environment. Based on the prospects of substantial offshore 53. As Somalia looks toward the post-HIPC oil reserves, the government has been preparing environment, there will be opportunities to the legal and fiscal framework for petroleum borrow. Priority should be given to concessional management. As such, any oil and gas exploration financing. In a post-HIPC environment, Somalia must be in full compliance with the law. Not all FMS is expected to be eligible to borrow again. It have accepted the legitimacy of the Petroleum will be considered at a moderate risk of debt Act and the Somalia Petroleum Authority, thus distress. . All new financing from IDA and other creating the potential for political dispute in case IFIs is expected to be on concessional lending of any FGS award in their territory. Established terms rather than grants. In parallel, domestic revenue-sharing arrangements are likely to revenues should be raised to finance attendant lead to highly unequal revenue sharing across recurrent costs. Developing debt management the FMS, with limited scope for re-balancing — capacity, with a supportive regulatory creating the potential for political tension. The framework, as well as public investment capacity of the FGS to regulate, monitor, and audit management capacity will be critical to petroleum sector activities and environmental ensuring that new investments are compatible risks is currently extremely limited, although with fiscal and debt sustainability. The FGS the imminent enactment of the Environmental should develop the capacity to appraise and Management and Coordination Bill will help to select projects that are climate resilient. The partly mitigate this. authorities also need to develop a broader capacity to manage contingent liabilities if they 52. The FGS needs to manage Somalia’s enter into public-private partnerships (PPPs) petroleum resources in a way that protects and new concession arrangements. 20 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 efficiently managed and allocated to the most productive needs (Tuinhof and others 2021). High-Level Outcome 3: Water scarcity is expected to be prevalent in Improved Household Resilience to Shocks the Benadir region. In addition, there is a risk that Mogadishu will run out of water by 2030. 54. The increased frequency and magnitude of An additional 30 water-stressed Somali towns shocks in Somalia directly affects the poor and have been identified, which is concerning given contributes to displacement, food insecurity, rapid urbanization rates (Tuinhof and others 2021, and conflict. Somalia has outlined its nationally annex 2). determined contributions in line with the Paris Agreement on Climate Change. The Paris Agreement 56. New water capacity has been added since recognizes that while Somalia is an insignificant SCD1, although resource needs continue to contributor to climate change, the country is outstrip supply. An estimated 0.83 million increasingly affected by extreme weather events.³⁹ cubic meters have been added to water capacity In addition to climate change, Somalia is subject since 2018 through the installation of 45 new to other shocks, including the COVID-19 pandemic, water structures and the rehabilitation of 15 rising commodity prices and repeated security water points.⁴⁰ This additional water storage incidences. Climate change and environmental has provided water for over 328,000 people, degradation are also exacerbating water insecurity. 1,551,000 livestock and approximately 50 small Displacement and rapid urbanization are farms. Access to water at the national level is associated with a deterioration in agricultural value about 77.6 percent. There are substantial urban- chains, which further contributes to the challenge rural inequities in access to water, estimated at of food insecurity and Somalia’s dependence on 70 percent in rural areas and 81 percent in urban basic food imports. The multitude of shocks can centers. This situation places rural households at intensify conflict, as there is competition for scarce a disadvantage and limits the capacity to respond resources in a context of weak justice mechanisms. to shocks.⁴¹ Thus, this HLO considers water security, the upgrading and diversifying of natural resource value chains, as well as urbanization and disaster risk management. Improve Water Security 55. As identified in SCD1, strengthening water security is a critical priority in Somalia. Somalia has two perennial rivers, and groundwater is the largest natural supply source. Somalia should have sufficient long-term renewable groundwater and surface runoff resources, provided water is ³⁹ The Federal Government of Somalia, Updated Nationally Determined Contributions, July 2021. ⁴⁰ These additions to water storage have been supported by the Biyoole project. Federal Government of Somalia MIS dashboa rd (accessed March 9, 2023), https://app.powerbi.com/view?r=eyJrIjoiYzhlNWFkMmEtZmUzNy00N2M1LWJhODMtMWUwM GQ3YTdlYTg1IiwidCI6ImI5NTFlMDMwLWFmMzgtNDBkNy1iZDBiLWZiZWQzYzg3NjUzYSIsImMiOjZ9&pageName=ReportSectio n93c0ef934198c97908b0. ⁴¹ Access to improved water sources during dry season (SNBS 2023). 21 3. BINDING CONSTRAINTS AND OPPORTUNITIES IN THE ATTAINMENT OF HIGH-LEVEL OUTCOMES 57. Since SCD1, there has been progress in has been weak, providing only about 40–50 developing the institutional framework for the percent of per capita cereal needs (World Bank sector. A National Water Resources Strategy was Group 2018). The livestock sector has shown published in 2021, complemented by a Roadmap greater resilience, typically accounting for 75 to Implementation. The Roadmap identifies percent of total exports, with demand originating opportunities to use water for socioeconomic from Gulf Cooperation Council countries. However, development and highlights how equitable the livestock sector is highly vulnerable to erratic access to water can help to reduce conflict. rainfall, as well as sporadic import bans imposed However, the water sector remains characterized by trading partners, reflecting a lack of progress by fragmentation, with no clear demarcation in veterinary standards. Nevertheless, there of responsibilities between the national, state, are several value chains that could generate district, and municipal authorities. Furthermore, employment and raise incomes. These include women and minority social groups have low levels livestock, the production of fresh milk and meat, of participation in leadership and decision-making poultry, as well as perishable produce such as processes, thus rarely playing a role in defining sesame seeds, bananas and dry lemons. However, water policies and programs. employment and incomes can only increase provided there are improvements to security, 58. Further investments in rural and urban water governance and infrastructure, including access to could generate high returns. Investments should post-harvest cold storage and reliable electricity improve water and land management practices to supply (World Bank and FAO 2018; World Bank support agricultural development. The use of new Group 2020). technologies, such as manual well drilling, as well as the introduction of farmer-led irrigation, can 60. There have been some improvements to the also help to secure rural livelihoods. An investment governance of the fisheries sector. Somalia has of US$1 million in rural water infrastructure and the longest coastline in Africa and a productive livelihood development activities is estimated marine ecosystem due to seasonal upwelling. to generate a discounted return of US$7.25 The fisheries sector could create opportunities million under baseline assumptions (World for improving food security, creating jobs, Bank 2022a). Both urban and rural economies diversifying the export basket, and generating need to be underpinned by affordable, inclusive, revenues. Combating Illegal, Unreported and and reliable water services, which are critical to Unregulated (IUU) fishing requires strengthening improving human capital development. Water collaboration between the FGS and the FMS. In interventions in peri-urban zones could also 2019, an interim agreement was reached to share help to increase access to services and support revenues from fisheries licenses between the FGS economic diversification. and the FMS. Although implementation has been uneven, an agreement exists which can be built Upgrade and Diversify upon. A new Federal Fisheries Law was approved Natural Resource Sectors by the Parliament in March 2023, which provides in a Climate-smart Manner a foundation for the sector. 59. Since SCD1, there has been limited progress 61. Enhancing and diversifying the productive in realizing the potential of the agriculture, sectors, such as agriculture, fisheries and livestock and crop sub-sectors, despite their livestock, could support job creation in the relevance for food security and trade. The context of rapid urbanization. Somalia’s rapid performance of the crop sector in the last decade urbanization rates could support the creation of 22 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 domestic markets for agricultural and fisheries 63. Realizing Somalia’s urbanization potential products. However, the potential for increasing will require strengthening governance. Cities trade between rural and urban areas would in part are characterized by ad hoc hybrid governance depend on whether internal barriers to trade, such systems, involving a complex mix of traditional as illegal checkpoints and high transportation leaders, religious authorities, civic groups, militia costs, can be addressed — while also providing the commanders, businesses, and local government security situation improves (World Bank 2021a). authorities. To address overlapping mandates, it is Furthermore, better access to finance through critical to demarcate responsibilities between the a menu of products, such as drought insurance, national, state, and district or municipal authorities, savings, and access to credit, could encourage including financing arrangements. Relatedly, finding private sector investment. Strengthening the ways to regulate service providers will be critical quality and availability of agricultural and fisheries to supporting the quality and coverage of services. products could have positive spillovers, such as This will involve defining how the FGS develops its improving food security and nutrition. Increasing capacity to work with other levels of government. goods for export would enhance export earnings Given the large influx of displaced people to urban and strengthen the balance of payments. centers, where 75 percent of the 3 million IDPs are estimated to reside, resolving their residency status Urbanization and Disaster will be critical, including through providing security Risk Management of tenure, as well as securing their access to jobs and services to improve incomes. 62. If managed well, Somalia’s rapid urbanization could hold substantial potential 64. Further efforts to improve disaster-risk for the country’s development. Extensive work management functions could help to curb the undertaken since SCD1 suggests that while rural- influx of IDPs to the cities. Currently, climate- urban migration has been fueled by displacement, induced disasters and crises are addressed on an ad there are also pull factors, such as access to hoc basis. Government coordination between the FGS better services and employment (World Bank and the FMS is a challenge. They also rely on donor 2021c). Global evidence shows that, on average, support for humanitarian response and recovery/ for every 1 percent increase in urbanization, GDP rehabilitation efforts. Challenges in coordinating per capita grows by 4 percent (World Bank 2021c). responses to disasters partly stem from the lack Based on current trends, by 2030, an additional of institutional capacity at the newly established 3.8 million residents will reside in urban areas. Somalia Disaster Management Authority, as well By 2050, another 11.6 million will reside in these as gaps in establishing a nationally owned and areas, thus tripling the urban population over managed emergency alert and early warning system. 30 years.⁴² The increase in urban populations The government’s limited capacity to translate and could help to generate agglomeration economies disseminate hydrometeorological information by shortening the distance in terms of access inhibits user access and uptake of early warning to services, infrastructure, and jobs. However, information. Thus, it rarely results in mitigative if Somalia fails to meet the needs of its growing actions. Improving preparedness and response urban population, its modest successes could systems to disasters would reduce fatalities and be undermined. contain the adverse impact on livelihoods. ⁴² World Bank staff calculations are based on the UN-Habitat and CIA World Factbook; World Bank Group (2019). 23 3. BINDING CONSTRAINTS AND OPPORTUNITIES IN THE ATTAINMENT OF HIGH-LEVEL OUTCOMES urban areas have never attended formal schooling (MOP 2020). The teaching force is ill-equipped, High-Level Outcome 4: Improved Human with only 38 percent of teachers having the Capital Outcomes necessary qualifications (MOP 2020). Planning for education is further challenged by insufficient 65. As highlighted in SCD1, developing human and unreliable financing, with nearly all funding capital is an urgent priority in Somalia. A being provided by external partners. healthier and more educated population will be better prepared to engage in activities of higher 67. Since SCD1, there have been some value added. It is also likely to be more resilient developments to the institutional framework to shocks. Somalia’s low human development for education, which can be built upon to provide outcomes put the country at a disadvantage. services to those who are marginalized and Healthier children are more likely to have better underserved. To address fragmentation in the cognitive abilities and succeed in school. They are education sector and differences in service provision, also likelier to have higher future earnings and in July 2021 the ministries of education signed an perform better in the labor market than unhealthy agreement to enhance cooperation in areas such as children. In Somalia, education is correlated with the formation of national examination, certification, being an employed wage earner and generating and curriculum boards. An intergovernmental higher productivity in established and micro forum for education has since been established. businesses (World Bank 2021a). Furthermore, Building on these developments, the FGS should underinvestment in girls’ health and education is take a strong role in setting the policy direction noted as a contributor to early marriage and high and monitoring sector progress. Priority should be fertility rates. In this context, early marriage also given to expanding education institutions focusing contributes to low educational attainment among on underserved areas, the training of teachers, women. Developing human capital is critical to improving the teacher gender mix, strengthening escaping a fragility trap of economic exclusion the oversight of non-state schools, and establishing and fragility. Thus, this HLO considers education, a system of learning assessment. Developing health and social protection. education systems that provide the same learning experiences for all citizens can promote a sense of Developing the Foundation for Education unity and a national Somali identity. 66. The challenges identified in SCD1 pertaining to education still hold. In the absence of a strong public system, a variety of non-state actors have filled the gap in education provision. However, these are mostly fee-charging schools, thus excluding the poor. As a result, primary enrollment rates are markedly lower among poor households (20 percent) as compared to households that live above the poverty line (33 percent). Rural children have significantly fewer options due to the lower supply of non-state schools. Furthermore, girls are more likely to drop out of secondary education. For example, 72 percent of 15–49-year-old women Girls are more likely to drop out of living in rural areas and 59 percent of women in secondary education. 24 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 68. There are opportunities for Somalia to poorly equipped to provide quality care. The leapfrog in education provision, considering the availability of human resources (with 0.92 health role of technology; however, this will depend workers/1,000 people) is below the World Health on securing resources and forging effective Organization (WHO) minimum standard of 2.3 partnerships with non-state education health workers per 1,000 people (World Bank providers and communities. Investments in 2021d). As a result of both supply- and demand- second chance education and skill training could side impediments, health service utilization is provide access to formal education for Somalis low. In the public sector, there are an estimated who have previously been excluded, thus 0.23 outpatient visits per person per year, and enhancing the country’s productivity. Technology 0.81 hospital discharges per one hundred people can be leveraged to provide learning support to per year. Nearly three-quarters of women faced teachers and students across Somalia. Adequate at least one barrier to accessing services, which infrastructure could also help to increase access included a lack of money (65 percent); distance to education. Securing sufficient resources for from health facility (62 percent); not wanting to the education sector is critical. This could be seek care alone (47 percent); and needing to seek achieved through increasing the availability of a husband’s permission (42 percent) (MOP 2020). domestic resources and improving coordination Supply chain management for health is further with development partners. Mobilizing additional challenged by insecurity, poor infrastructure, private resources remains a valid option, and human resource shortages and low capacity, could be aligned with a sector vision. This would as well as limited access to supervision and have to occur within an appropriate public-private monitoring. In addition, there is a lack of sector- partnership framework. However, stewardship wide information management systems. and visibility of the public sector will be critical for developing the legitimacy of government 71. The private sector plays a key role in the institutions and developing trust. delivery of health services in Somalia, similar to that of their role in the education sector. An 69. Concerted efforts are needed to increase estimated 60 percent of services and 70 percent girls’ access to and completion of quality of medicines are delivered by the private sector, education. Schooling for girls in Somalia primarily in urban areas. Indeed, patients prefer (especially in rural and remote areas) should these facilities due to the perceived higher quality focus on: (i) bringing schools closer to home; and availability of drugs. Pharmacies are one of (ii) making schools safe and welcoming places the most accessible health care delivery platforms for girls; (iii) removing gender-based violence in for many Somalis, and community leaders are schools; (iv) reducing out-of-pocket costs; and actively involved in the delivery of health services, (v) improving the quality of teaching. To address including the COVID-19 immunization program. social norms that may impede girls’ participation, there should be community-level engagement 72. The COVID-19 pandemic has exacerbated and awareness-raising concerning the benefits existing health system gaps, contributing of girls’ education, as well as the eradication of to poor human capital outcomes. Somalia FGM and early marriage. experienced widespread and intense community transmission of the COVID-19 pandemic in Strengthening Health Systems all regions. Official COVID-19 figures likely underestimate the actual scope and magnitude 70. As noted in SCD1, public health facilities of the pandemic (As of March 7, 2023, there have are inadequate, inequitably distributed, and been 27,324 confirmed cases of COVID-19 and 25 3. BINDING CONSTRAINTS AND OPPORTUNITIES IN THE ATTAINMENT OF HIGH-LEVEL OUTCOMES 1,361 deaths reported to the WHO. As of January Sector Strategic Plan. However, maintaining the 1, 2023, a total of 8,726,329 vaccine doses have visibility and leadership role of the government been administered.) The COVID-19 pandemic will be critical as part of the efforts to develop has diverted already limited resources from the social contract and secure the legitimacy of the health sector, exacerbating long-standing government institutions. vulnerabilities and disparities. The government took steps to tackle the pandemic, such as 74. Increasing access to family planning services improving testing capacity, putting in place rapid can also help to improve women’s health and response teams, and expanding intensive care contribute to a reduction in Somalia’s total unit bed capacity. A National Deployment and fertility rate (MOP 2020). Efforts to increase the Vaccination Plan was finalized in February 2021. use of birth spacing/family planning commodities There have also been some modest improvements should focus on increasing the supply of modern in vaccine management, including cold chain contraceptives and addressing demand-side storage capacity, equipment and transport, and factors constraining the prevalence of modern strengthened information management. contraceptive use, which is currently 1 percent (MOP 2020). Core methods to be used to improve 73. Critical institutional developments since the uptake of modern contraceptives, space SCD1 set the foundation for implementing births, and delay marriage include: (i) female reforms and investments in the health sector. health worker engagement with women in The FGS and the FMS agreed on a Health Sector their communities; (ii) work through religious Strategic Plan for 2022–2026. It highlights current and community leaders; (iii) counseling by gaps and provides a plan for how these can be health workers; (iv) engaging women in health addressed, with an emphasis given to deploying decision making; and (v) employing contextually a package of essential health services to provide appropriate, innovative approaches. a basic platform for improved service delivery.⁴³ The FGS can develop its stewardship role by contracting competent organizations to deliver the essential package of health services, which can help to improve the alignment of resources and coordination with partners, as well as strengthen the oversight and contracting function of government. Strengthening health institutions involves enhancing management information systems, contract management and public financial management. As with the education sector, there is the possibility of mobilizing additional private finance to support the Health ⁴³ The Government’s 2020 Essential Package of Health Services (EPHS) package is comprised of six key areas: (i) access to care (continuity care planning and coordination, emergency care, approach to common signs and symptoms); (ii) reproductive, maternal and new-born health (maternal and new-born care, sexual and reproductive health); (iii) life-course, growth and development (childhood and adolescence, including nutrition, older age and adults); (iv) non-communicable diseases (NCDs) (health promotion and disease prevention, cardiovascular and pulmonary diseases, diabetes, cancer, mental health and substance use disorders, injuries, and other NCDs); (v) communicable diseases (immunization, management of human immunodeficiency virus [HIV], Tuberculosis [TB], Malaria and Hepatitis, neglected tropical diseases, respiratory infections, gastrointestinal infections, other infections, and outbreak surveillance); and (vi) rehabilitation. 26 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Social Protection for Human Capital be developed. The USR could also be coordinated with disaster risk management systems to ensure 75. As noted in SCD1, social protection plays an a rapid response to any potential crisis, providing important role in addressing chronic poverty, a backbone to a comprehensive social assistance as well as in protecting household food system. Over time, the focus of the social security and livelihoods. Predictable and reliable protection system could further shift toward safety net interventions can support families supporting human capital objectives, with cash in accessing food; investing in human capital; transfers encouraging the uptake of health and increasing precautionary savings; improving education services. access to credit; enhancing livelihood strategies; and avoiding negative coping mechanisms during crises. Efficient, inclusive, and transparent social protection delivery systems support countries in High-Level Outcome 5: Enhanced Private identifying the poor and most vulnerable, enabling Sector for Better Jobs them to deliver socioeconomic benefits and services, promote social cohesion, and facilitate 77. The SCD1 describes the country’s a rapid response during a crisis. Somalis have vibrant private sector as the basis of its long relied on traditional safety nets and/or entrepreneurial capital. The Somali private humanitarian assistance to mitigate risks, cope sector is widely noted for its resilience across with shocks, and redistribute resources to those a range of sectors (Cassanelli 2010; Musa and in need. Although critical for protecting many Horst 2019). In the context of a nascent formal Somalis in times of need, these mechanisms are regulatory and institutional environment, a unpredictable. They also have a short-term focus few large, well-connected firms dominate and lack inclusivity by not serving minority clans profitable markets in the economy, alongside a and the chronic, rural poor. multitude of household and small firms (World Bank Group forthcoming). This HLO considers 76. There is substantial potential to further various dimensions of the private sector to develop the Baxnaano program, which can help encourage Somalia’s entrepreneurial capital. to strengthen resilience to shocks and promote Priorities include: (i) improving access to financial human development outcomes. In March 2023, services and strengthening financial integrity; the Data Protection Law and Data Privacy Law (ii) enhancing access to infrastructure and were enacted. These are building blocks to allow regional integration; (iii) improving the business the government to administer private data in environment; (iv)_strengthening the capacity Baxnaano and the USR. The USR is intended of institutions to encourage private sector to serve as an anchor for the social protection development; and (v) developing opportunities system, as well as other poverty reduction for women in the private sector. programs in the country. However, expanding coverage of the Baxnaano program remains a Improve Access to Finance and priority, as currently only an estimated 10 percent Strengthen Financial Integrity of the population are covered while poverty is widespread. If sufficient funding is secured, the 78. Somalia has low levels of access to finance Baxnaano program could be scaled up to cover a for investment purposes. The stock of private larger proportion of the population. In addition, a credit is less than 3 percent of GDP, and less youth-targeted, productive social safety net could than nine percent of the population owns a bank 27 3. BINDING CONSTRAINTS AND OPPORTUNITIES IN THE ATTAINMENT OF HIGH-LEVEL OUTCOMES account (SNBS 2023).⁴⁴ Mobile money account support the development of the financial sector. In penetration has been growing rapidly, with addition, replacing the counterfeit local currency an estimated 97 percent of households having in circulation with legitimate notes can help to access to mobile money/payment accounts. restore confidence and support the development However, the widespread circulation of counterfeit of mobile money in Somali shillings, thus further currency, which is commonly used by the poor, supporting financial inclusion. limits the possibility of using mobile money in the Somali shilling. Money transfer bureaus operate Enhance Access to as the dominant form of financial institution, and Shared Infrastructure financial intermediation is generally weak. The establishment of a national payment system 81. Since SCD1, there have been improvements should help to facilitate low-cost, fast transactions in electricity access. Access to electricity at in a secure and safe manner.⁴⁵ However, the the national level increased from 39 percent supporting financial infrastructure is still at a in 2017 to 62 percent in 2022, reflecting the nascent stage. The lack of credit and collateral increased availability of off-grid energy, as well registries, as well as national identification, limits as greater access to electricity in urban areas. the ability of financial institutions to mitigate risks. However, electricity costs are high, and supply is unreliable. The electricity sector continues 79. Somalia is taking steps to address gaps to be characterized by oligopolistic operators concerning money laundering and the financing of mini grids that are mainly powered by diesel of terrorism. The lack of an accepted form of generators with high technical and commercial identification limits compliance with know-your- losses. Consequently, electricity costs around customer (KYC) requirements. The enactment US$0.6–1.0 per kilowatt [kW] as compared with of a Digital ID Law in March 2023 provides the an average of US$0.22 in the Horn of Africa. The legislative framework for digital identification. approval of the Electricity Act in March 2023 is The government’s publication of the National Risk expected to encourage investment in renewable Assessment outlines the country’s AML/CTF risks. energy by providing greater certainty about the It supports the preparation of an upcoming Middle regulatory environment. Greater transparency East and North Africa Financial Action Task Force and public-private dialogue are also expected (MENA-FATF) mutual evaluation in mid-2024. These to increase investment and the provision of steps can help build the foundation for establishing renewable energy. correspondent banking relationships and integrating Somalia into the global financial system. 82. Somalia has substantial potential to expand digital inclusion. Less than five percent 80. The CBS has been increasing its capacity of the population are estimated to have access to to oversee and regulate the financial sector. broadband. About 28 percent of the population The CBS has focused on strengthening its over the age of 10 have access to the Internet capacity to license and supervise the activities of (SNBS 2023). The telecommunications market is commercial banks and money transfer businesses. fragmented, characterized by dominant regional Developing other legislation, such as a National players and a lack of competition. Since SCD1, Payment Systems Law, the Insurance Bill, and the nearly all telecommunications operators have updated Financial Institutions Law, can further been licensed, and interconnection agreements ⁴⁴ See annex 2 on Selected Economic and Financial Indicators. ⁴⁵ SNBS (2023). Percentage of population aged 15+. 28 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 between operators to allow for traffic to be Eastern and Southern Africa (COMESA), the exchanged at low or zero cost were finalized in East African Community (EAC) and the African March 2023. As digital literacy and purchasing Continental Free Trade Area (ACFTA) over the power improves, demand for digital services is medium term.⁴⁶ also expected to be strengthened. 85. Strengthening the capacity of Somalia’s 83. Strengthening accessibility to road and trade-related institutions could also support air transportation would support access trade and regional integration. Bringing together to markets and service delivery units. It is public and private stakeholders can support estimated that only 2,860 kilometers (km) of the a national trade strategy aimed at diversifying 21,830 km of roads in the country are paved (13 the product and geographic range of Somali percent)—and most are in poor condition. Only exports, thereby attracting investment. Currently, 31 percent of the rural population has access to Somalia’s trading partners are concentrated in the an all-season road (IMF 2022). Pipeline work to Gulf Cooperation Council countries.⁴⁷ Integrating develop road infrastructure offers the potential Somali traders in the Horn of Africa, across the to deepen strategic corridors. Developing a rural African continent (by leveraging its membership road network could help Somalis reach a wider in COMESA and the ACFTA) and globally, through range of markets and services. Furthermore, complying with membership requirements the air transportation sector could be further of the World Trade Organization could also developed to enhance connections within Somalia support greater trade cooperation. Furthermore, and beyond. This will require the upgrading of developing sanitary and phytosanitary measures systems and training of personnel. would help to raise the quality of Somali exports, as well as encourage the upgrading and Develop Trade and diversification of productive assets. Regional Integration 86. There are multiple opportunities for 84. Although trade is critical for the Somali strengthening regional integration, building on economy, there has been mixed progress in the Horn of Africa initiative. Developing economic advancing reforms that can leverage its impact corridors is essential and can be supported by better for economic growth and job creation. Domestic road infrastructure. Four priority corridors have market fragmentation due to illegal checkpoints been identified in the HoA, of which three include and high transportation costs complicate logistics connections in Somalia.⁴⁸ Any infrastructure and dampen competitiveness. Somalia is working investments in regional corridors would need to toward harmonizing duties and rates in its three be accompanied by trade and border facilitation to major ports. This is expected to ease the process reduce impediments to trade (Brenton and others for the private sector doing business in Somalia, 2021). Somalia is connected to many submarine as traders will no longer have to navigate multiple and cross-border terrestrial cables, which can customs regimes. Furthermore, harmonization improve connectivity for domestic consumers will provide the building blocks for joining regional and enhance regional connectivity, including for trading blocs, such as the Common Market for landlocked neighbors such as Ethiopia.⁴⁹ With ⁴⁶ In February 2023, verification was ongoing to determine Somalia’s readiness to participate in the EAC. ⁴⁷ Somalia’s key trading partners by share of export destination are Oman (37.4 percent), the United Arab Emirates (28.6 percent), Saudi Arabia (9.38 percent), India and China. ⁴⁸ The corridors are Kismayo, Lamu, and Mogadishu; Berbera and Djibouti; and the Mogadishu, Berbera, and Bossasso. 29 3. BINDING CONSTRAINTS AND OPPORTUNITIES IN THE ATTAINMENT OF HIGH-LEVEL OUTCOMES the longest coastline in Africa, Somalia’s multiple Law in March 2023 is expected to encourage new ports could help to strengthen trade connections investments when combined with improvements for other countries in the region. Thus, advancing to the investment climate (for example, through regional integration through better connectivity the establishment of public-private-development can have multiple benefits, including improving frameworks). The establishment of the Somali trade in key commodities, which can promote Investment Promotion Office is a good first step, greater food security. although further efforts are needed to strengthen its capacity. These types of reforms can help to strengthen the enabling environment for larger established businesses, which have significant potential for job creation. They can also encourage small- and medium-sized enterprises to formalize and grow.⁵⁰ 88. Improvements to the formal business environment should be complemented with measures that enable households and small- sized enterprises to develop and gradually form part of the missing middle. Household entrepreneurs provide a quarter of all jobs, including the largest number of steady wage Improve the Business Environment jobs in the economy. However, the productivity and Conditions for Entrepreneurship of household enterprises is low, with an estimated low median revenue of about US$2 per worker 87. Since SCD1, several steps have been taken per day. Despite household enterprises having to develop the enabling conditions for private lower levels of productivity, running a household sector growth, although substantial challenges enterprise is associated with lower household remain. For example, a Company Act was enacted poverty incidence.⁵¹ Addressing constraints to in 2019 and regulations were issued in 2022. These entrepreneurship can have beneficial effects support the foundation for market entry and exit, for job creation and paid employment. Access to as well as business formation. However, business land is a key constraint faced by entrepreneurs, registration processes also need to be harmonized reflecting insecurity, weak government capacity, and simplified, particularly across the FMS. The the legacy of conflict and displacement, and approval of an Investor and Investment Protection deep-seated questions over people’s identity ⁴⁹ These include: (i) the EASSy submarine cable landing in Mogadishu; (ii) the Gulf to Africa (G2A) submarine cable landing in Bosaso (Puntland); (iii) the Djibouti-Africa Regional Express (DARE) cable that lands in both Mogadishu and Bosaso (thus, helping to connect the EASSy and G2A cables); (iv) the terrestrial Somcable fiberoptic link between Somaliland and Djibouti; and (v) Hormuud’s terrestrial microwave links to Kenya’s network at Liboi and Mandera. More international submarine cables are on the way, including the Pakistan and East Africa Connecting Europe (PEACE) cable that will be landing in Mogadishu, Bosaso, Kismayo and Hobyo starting in 2022; the 2Africa cable due to land in Mogadishu in 2023; and the Africa-1 cable. ⁵⁰ Prior to the COVID-19 pandemic (between 2017 and 2019), larger established businesses in Somalia increased their payroll by 13 percent on a net basis, which is the highest compared with peer countries in sub-Saharan Africa. See the Somalia Country Economic Memorandum, World Bank (2021a). ⁵¹ Controlling for other household characteristics, the probability of being poor in households that have an entrepreneurial activity is 11 percent lower than households that rely primarily on wage work. See the Somalia Country Economic Memorandum, World Bank (2021a). 30 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 and citizenship. Access to finance for investment educational attainment and a lack of vocational or purposes is also a barrier for the development of business skills development constrains women’s entrepreneurship. Finally, developing the know- access to quality jobs. In addition, women have how and skills of Somalis to meet the needs of less access to finance. Women have less control an evolving private sector is critical for ensuring over land, financial resources and other inputs, the development of the more productive areas of which limits their engagement in productive the economy. activities. Female youth are often constrained by mobility restrictions, gender-based violence, Strengthening Opportunities for and early or forced marriages. Furthermore, Women in the Private Sector Somali laws do not treat men and women equally in numerous areas that are essential for 89. There are several barriers to women’s economic participation. The Women, Business, economic engagement in Somalia. Norms and and Law Index for 2022 ranks Somalia third from perceptions of women’s roles in households the lowest in sub–Saharan Africa (World Bank and society constrain their access to productive 2022b). Updating key pieces of legislation, such opportunities.⁵² In many instances, women’s work as the Labor Code and the Family Law, can provide is only supported if their husbands are perceived the legislative basis for female and male heads of as not earning enough for the family. Low households to be treated more equally. ⁵² For a detailed analysis on the obstacles women face in accessing jobs of higher productivity, see the Somalia Country Economic Memorandum, World Bank (2021a). 31 32 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 4. Summary of Policy Priorities 90. Since SCD1 there has been progress in many for Somali citizens. Although Somalia is making areas. There have been improvements in access laudable progress in advancing the debt relief to basic services, sanitation, net primary school process, a commitment to stable macroeconomic enrollment and financial inclusion. Foundational conditions underpinned by fiscal sustainability institutions have been developed in sectors, such and advancing the fiscal federalism dialogue must as public financial management, social protection, continue. Furthermore, in the absence of progress finance, electricity, telecommunications, and with the foundational HLOs, there is a risk that the the business environment. Several of these hard-won gains in establishing basic institutions reforms have been anchored in the HIPC process and systems of governance could be undone. through which Somalia is seeking debt relief. As government efforts to establish institutions 93. Given the multitude of challenges that Somalia advance, the existing social foundations can be encounters, three principles can help to guide the strengthened to help develop a more cohesive and prioritization of its efforts. The first principle is inclusive state-society bargain. This is important to ensure a linkage between how a priority area is for broader efforts to enhance the social contract. pursued and the foundational HLOs. For example, efforts to build an education or health system 91. Nevertheless, Somalia continues to be beset should consider the allocation of responsibilities and by widespread challenges. Poverty remains the availability of resources. The second principle widespread and human development indicators is to mitigate the risks that Somalia increasingly are far below peer countries. Higher poverty encounters by building resilience. For example, levels in the south of the country, where conflict risks include those related to food insecurity, is more intense, highlights challenges related to climate shocks and their impact on infrastructure regional inequalities. Limited fiscal space means and services, as well as global crises. Efforts to that government authorities cannot provide the strengthen resilience require crisis and disaster services that the population needs. The dominance response measures, as well as longer term of service provision by fee-charging non-state efforts to improve human capital and access to actors excludes those who cannot pay, with women better jobs, thus improving coping mechanisms. and girls more likely to be at a disadvantage. The The third principle is the importance of inclusive persistence of insecurity, fragility, and limited opportunities, particularly for women, youth, and recourse to justice mechanisms continues to minority groups, to support greater social cohesion. compromise the legitimacy of the state. Furthermore, given Somalia’s FCV context, progress in building institutions and applying 92. For Somalia to make progress in achieving these principles is likely to be non-linear. As such, peace, stability and inclusive development it will require adjustment as lessons are learned. outcomes, priority should be given to These principles could be useful for future national strengthening the foundational HLOs. Widespread development plans as well as the upcoming Vision insecurity and broader state fragmentation continue 2060. A summary of policy priorities is presented to affect economic growth and opportunities in Figure 10 and described below.⁵³ ⁵² For a detailed analysis on the obstacles women face in accessing jobs of higher productivity, see the Somalia Country Economic Memorandum, World Bank (2021a). ⁵³ For a detailed analysis on the obstacles women face in accessing jobs of higher productivity, see the Somalia Country Economic Memorandum, World Bank (2021a). 33 4. SUMMARY OF POLICY PRIORITIES 94. Improving security, justice, and participation efforts to develop economic governance and requires implementing several priorities in combat corruption. For example, developments a fluid political context. Ultimately, agreeing in the petroleum sector highlight the risks of a on the Constitution would provide a basis for weak institutional framework. settling how resources and power will be shared between the regions. However, given the limited 96. Strengthening resilience requires a multi- progress to date, resolving contentious issues faceted approach to respond to short-term may remain a challenge. In the interim and the crises and gradually build buffers for the short-term, ad hoc federal arrangements can Somali economy and its people to address provide the basis for dialogue and trust building. shocks. In the short-term, the Baxnaano social Building an inclusive state requires increasing safety net interlinked with the disaster response the political participation of women and certain and early warning systems. This forms the basis minority groups, which may entail a gradual move for addressing shocks, which can help to prevent toward more direct electoral systems. Given the an influx of displaced people in urban areas. absence of a formal justice system which has Improving water and food security needs to be legitimacy and the trust of citizens, informal considered in a context of rapid urbanization. justice resolution mechanisms are likely to In the water sector, the Somali authorities continue. Over the medium term, the foundations should focus on strengthening the policy for formal justice should be strengthened. This environment, particularly related to flood and can help to bring greater certainty to the private drought risk management, as well as addressing sector and to citizens — if perceived as being water scarcity in urban areas. Developing impartial, accountable, and fair. Somalia’s potential in sectors, such as fisheries, agriculture and livestock, could help to reduce 95. Strengthening economic governance food insecurity, create jobs, and support greater remains critical for Somalia to make progress exports over time. In the fisheries sector, priority vis-a-vis all the HLOs. Maintaining stable should be given to strengthening monitoring, macroeconomic conditions is critical for control, and surveillance; encouraging female encouraging private investment. Although engagement; and developing intergovernmental Somalia is currently dependent on imports, over cooperation. To develop the agriculture, crop time, increasing domestic production can help and fisheries sectors, priority should be given to improve food security and export receipts. to climate-smart practices and the upgrading of Higher levels of growth and a widening tax base veterinary standards. To maximize the potential can support an increase in domestic revenues of urbanization, governance should be improved and enhance fiscal space. In the short term, the through demarcating responsibilities between Somali authorities across the regions should the different levels of government, which may be continue to prioritize the harmonization of possible over the medium-term. inland and customs revenue administrations. Over the medium- to long-term, it will be 97. Improving human capital outcomes can important to improve tax administration through support the other HLOs, where efforts should focusing on automation, enforcement, voluntary be contextualized in the evolving framework compliance, and predictable rates of taxation. for federalism. In both the education and health As public expenditures are currently focused on sectors, the FGS can take a greater stewardship stabilization, over time, increased fiscal space can role to ensure quality in service provision, develop support the delivery of public services. Improved coordination mechanisms with the FMS, and transparency and accountability should underpin regulate nonstate actors. In the education sector, 34 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 priority should be given to expanding education micro, small and medium enterprises, particularly institutions while focusing on underserved areas; those which are led by female entrepreneurs. This training teachers; improving the teacher gender mix; would help to develop a missing middle. Increasing strengthening the oversight of non-state school;, access to finance through credit and collateral and establishing a system of learning assessment. registries, as well as meeting KYC requirements In the health sector, a priority is for the FGS to through recognized identification, remains a build on the Health Sector Strategic Plan (2022- priority. Integrating Somalia into the global 2026) by working with competent organizations financial system by addressing AML/CFT concerns to deliver the agreed, essential package of health could be one of the steps taken to help support services. This can help in improving the alignment the establishment of correspondent banking of resources and coordination with partners, as well relationships. This would encourage investment as in strengthening the oversight and contracting flows, which are expected to be particularly function of the government. Special attention should beneficial in areas such as the renewable energy, also be given to strengthening the human capital of fisheries, and telecommunications sectors. women and girls, who have lower access to services. Potentially, this could be achieved through material 100. Developing infrastructure can help to expand incentives to keep girls in school, as well as through strategic corridors and increase access to services. initiatives to address the demand constraints of The Electricity Act forms the foundation for increasing health services used by women. investments in the energy sector, with a particular focus on renewable energy. Adopting a least-cost 98. The government’s Baxnaano program can electrification plan and establishing a regulatory be extended to deliver human development- agency can help to further develop the sector and linked priorities. Since SCD1, the government has attract investments. Further developing roads in established a national social protection program, strategic corridors can support Somalia’s integration which has played a vital role in supporting the with other countries and trading networks. Somalia’s population in times of shocks. The government connection to various submarine cables can be is preparing to take over the administration of further leveraged to support connectivity and Baxnaano, following the adoption of the Data increase digital inclusion. Over time, increased Protection Law and Digital ID Law. These laws digital connectivity can also support enhanced will provide safeguards for the public handling of access to social services. Finally, the development private data. Conditional on funding, the Baxnaano of strategic corridors and infrastructure can program could be scaled up to cover a larger support regional integration, including through proportion of the poor. As the Baxnaano program participation in regional trading blocs. evolves, cash transfers could also be linked to the uptake in public services. Given the frequency 101. Continued efforts are needed to improve of climate shocks, the USR could over time be the business environment and encourage coordinated with disaster risk management women’s participation in the workplace. While systems to ensure a rapid response to any several important steps have been taken to potential crisis, thereby providing a backbone to improve the conditions for the private sector to do a comprehensive social assistance system. business, strong public-private dialogue will be required to secure implementation. Trade could 99. Efforts to develop the enabling environment be an important contributor to growth and job for the private sector to provide jobs should be creation, but competitiveness is currently held extended, and access to finance and improving back by domestic fragmentation. Addressing illegal financial integrity should continue to be checkpoints could help to facilitate the flow of priorities. In Somalia a key challenge is to develop goods and services. Going further, harmonizing 35 4. SUMMARY OF POLICY PRIORITIES fragmented customs regimes would help to simplify increase women’s participation in the labor market. the environment for traders. Thus, these measures This could be achieved through addressing social could help Somalia to improve competitiveness and norms and values, as well as through the updating increase its prospects to join regional trading blocs. of sector-specific laws to place men and women Furthermore, concrete measures are required to on an equal footing in the workplace. Figure 10: Summary of Priorities and HLOs Support the transition from fragility, reduce poverty, and promote shared prosperity Improved Security, Participation, Improved Access to and Quality of Services and Access to Justice HLO through Better Economic Governance HLO Continue interim federal agreements while the Maintain stable macroeconomic conditions, increase constitutional review process continues, encourage fiscal space, strengthen institutions for service female participation, prevent GBV, improve delivery expenditures, mobilize revenue with inland social cohesion at the local level, and strengthen and customs administration reforms, build the capacity mechanisms for justice. of public services, and strengthen transparency and accountability, with attention to the petroleum sector. Improved Household Improved Human More and Better Resilience to Shocks HLO Capital HLO Private Sector Jobs HLO Water: Education: Finance: Enact a Water Law, strengthen Strengthen leadership of the Strengthen oversight of financial urban water provision, increase federal ministry, focus on institutions, develop financial rural and urban water investments teacher training, underserved inclusion for investment, strengthen (through farmer-led irrigation, and areas, a learning assessment AML/CFT, establish digital manual well drilling). system, using technology, and identification, and prioritize finance encouraging girls’ participation. for female entrepreneurs. Upgrade and diversify the natural resource sectors: Health: Shared infrastructure: Adopt climate-smart agricultural Strengthen FGS’ stewardship, Electricity: Expand renewable energy, practices, strengthen monitoring partner with the private sector to adopt a least-cost electrification plan, and surveillance in fisheries, implement an essential package and encourage regional trade. and enhance intergovernmental of health services and encourage cooperation. birth spacing. Roads: Develop a pipeline of roads projects that supports regional trade Urbanization and Social protection: corridors and rural access. disaster risk management: Scale-up coverage of the Baxnaano Demarcate responsibilities in social protection protection and Digital inclusion: Strengthen the urban areas, resolve residency strengthen links with disaster NCA, complete regulatory reforms, status of informal settlers, response, the uptake of services, and develop regional submarine improve land management, and establish a productive safety cable interconnections. strengthen the Somalia Disaster net for the youth. Management Authority and a Business environment: nationally owned emergency alert Strengthen public-private dialogue and early warning system. and the PPP framework. 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Musa, Ahmed M., and Cindy Horst. 2019. “State Formation and Economic Development in Post-War Somaliland: The Impact of the Private Sector in an Unrecognized State.” Conflict, Security & Development 19 (1): 35–53. https://www.tandfonline.com/doi/ citedby/10.1080/14678802.2019.1561621?scroll=top&needAccess=true&role=tab. 37 REFERENCES Raballand, Gael, and Justine Knebelmann. 2020. Domestic Resource Mobilization in Somalia. Washington, D.C.: World Bank Group. https://documents1.worldbank.org/curated/en/121391596804622057/pdf/ Domestic-Resource-Mobilization-in-Somalia.pdf. Ravallion, M. 1994. Poverty Comparisons. Vol. 56. London: Taylor & Francis. Somalia National Bureau of Statistics (SNBS). 2023. “2022 Somalia Integrated Household Budget Survey (SIHBS).” National Bureau of Statistics, Mogadishu. https://api.nbs.gov.so/wwwroot/ Publications/188d169e4c294911a1e0c58ab00fd390.pdf. Somalia Poverty Report." 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Abdi, Brendan Ross, Francesco Kaburu, Isatu Kajue, Ezekiel Kutto, Eri Taniguchi, and Nancy Glass. 2018. “Lifetime Prevalence, Correlates and Health Consequences of Gender-Based Violence Victimisation and Perpetration among Men and Women in Somalia.” BMJ Global Health 3 (4). https://gh.bmj.com/ content/bmjgh/3/4/e000773.full.pdf. World Health Organization (WHO) and the United Nations Children’s Fund (UNICEF). 2023. “From Insight to Action: Examining Mortality in Somalia.” WHO, Mogadishu. https://www.unicef.org/esa/ media/12316/file/From-Insight-to-Action-Somalia-2023.pdf. World Bank Group 2023. Macro Poverty Outlook for Somalia: April 2023 (English). Macro Poverty Outlook (MPO) Washington, D.C.: World Bank Group. World Bank Group 2022. Collection of Policy Notes for the New Somali Government Washington, D.C.: World Bank Group. h t t p s : // d o c u m e n t s . w o r l d b a n k . o r g / e n / p u b l i c a t i o n / d o c u m e n t s - r e p o r t s / documentdetail/099500006282221939/p1775040e575fc036094170aca16ab29e5f World Bank Group (WBG) and Food and Agriculture Organization (FAO). 2018. “Somalia Country Economic Memorandum Volume I: Rebuilding Resilient and Sustainable Agriculture in Somalia.” World Bank Group and FAO, Washington, D.C. and Rome. https://www.fao.org/3/i8841en/I8841EN.pdf. World Bank Group. 2019. “Somali Poverty and Vulnerability Assessment.” World Bank Group, Washington, D.C. ______. 2018. Rebuilding Resilient and Sustainable Agriculture in Somalia: Volume 1 - Main Report (English). Washington, D.C.: World Bank Group. World Bank. 2023. “Somalia Risk and Resilience Assessment.” World Bank, Washington, D.C. 38 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 ______. 2022a. “Barwaaqo - Somalia Water for Rural Resilience Project.” Projects and Operations. Last updated March 8, 2023. https://projects.worldbank.org/en/projects-operations/project-detail/ P177627. ______. 2022b. Women, Business and the Law 2022. Washington, DC: World Bank. doi:10.1596/978-1- 4648-1817-2. License: Creative Commons Attribution CC BY 3.0 IGO. ______. 2021a. “Somalia Country Economic Memorandum: Towards an Inclusive Jobs Agenda.” World Bank, Washington, D.C. https://openknowledge.worldbank.org/entities/publication/10356977-735a-5a36- a2ab-2ef261c86e63. ______. 2021b. “Somalia COVID-19 Emergency Vaccination Project (P176956).” Project Information Document PIDA32279, World Bank, Washington, D.C. https://documents1.worldbank.org/curated/ en/606101630563573042/pdf/Project-Information-Document-Somalia-COVID-19-Emergency- Vaccination-Project-P176956.pdf. ______. 2021c. Somalia Urbanization Review: Fostering Cities as Anchors of Development. Washington, D.C.: World Bank. https://openknowledge.worldbank.org/entities/publication/5b84d71d-b568- 5b55-a9c0-dea5f8ccaaf3. ______. 2021d. “Somalia COVID-19 Emergency Vaccination Project (P176956).” Project Information Document, World Bank, Washington, D.C. ______. 2021e. “Domestic Resource Mobilization in Somalia, Public Expenditure Review.” World Bank, Washington, D.C. ______. 2017. Somali High Frequency Survey (SHFS). 39 ANNEX 1 New Knowledge Generated by the World Bank Group and Annex 1 Remaining Knowledge Gaps Many of the knowledge and data gaps identified Private Sector Family Planning Commodity Market in the 2018 SCD have been filled through country- Research in Somalia. The Somalia Urbanization specific studies. For example, the Somalia Country Review and the Somalia Political Economy of Economic Memorandum of 2021 provided Urban Governance and Service Delivery helped knowledge about entrepreneurship and trade, shed more light on the urbanization agenda. as well as constraints to gender and jobs. The Finally, the following reports provided knowledge Public Expenditure Review of 2017 provided to better target social protection programs: the insight into the security sector budget. Further Baxnaano Targeting Approach, the Household Public Expenditure Reviews in 2020 analyzed Welfare Scoring Model for Somalia’s Unified Social fiscal federalism, domestic revenue mobilization, Registry, and the Targeting Evaluation of Somalia’s the sustainability of the wage bill, and public Shock-Responsive Safety Net. financial management. The Somali Poverty and Vulnerability Assessment, which is based on Several data gaps have been filled, such as the the findings from Wave 2 of the Somali High Somali Integrated Household Budget Survey Frequency Survey, helped the World Bank better (SIHBS), which has provided information about understand poverty in Somalia. In addition, the household welfare and livelihoods. Three rounds report on “Improving Access to Jobs for the Poor each of the impact of COVID-19 on firms and and Vulnerable in Somalia” shed new light on the household surveys have also been conducted. job situation in the country. Studies on state- Information about child anthropometry, fertility, building, such as “Lessons from FCV Experience price data, time use, savings, and health have been – ‘Humility on a Journey of State Building’” and captured in the Demographic and Health Survey “Local Governments and Federalism in Somalia,” (DHS). However, there is also a need for a regular provided much-needed knowledge regarding the nationally representative labor force survey. FCV setting. Some data gaps identified in the SCD of 2018 have Issues related to the environment and climate not been filled. Information regarding constraints change were explored through the Somalia to the private sector doing business have not been Country Environmental Analysis. The World systematically analyzed. Also, a business registry Bank’s water sector staff conducted an Economics does not exist, and basic data on trade is lacking. of Water study. The HOA Regional Economic A Country Private Sector Diagnostic is underway. It Memorandum filled the gap concerning transport is supported by the launching of a new Enterprise and trade. New knowledge on digital development Survey, which will provide new data. Somalia still was provided by the Digital Economy for Africa lacks an agricultural census and surveys to help (DE4A) Country Assessment and the Analysis better understand the structure of the sector, its of Missing Broadband Links. The Somalia Social production systems, and constraints to productivity Assessment provided insight on social inclusion. — as well as linkages between agriculture and climate The reports that added to the knowledge change. Business establishment census and surveys about health include the Situation Analysis on remain unavailable. These are invaluable tools for Challenges in Birth Spacing and Reproductive information about the structure and activities of Health Interventions in Somalia, as well as the enterprises, employment, and the contribution of 40 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 the private sector to GDP. Macroeconomic data, calculated from the SIHBS. Finally, there is a need such as the national Consumer Price Index (CPI) for data about climate change to support efforts on and GDP from the production approach, are also both mitigation and adaptation. These issues will be lacking. In this regard, the government is planning addressed through a forthcoming Country Climate to address these gaps using the new CPI basket and Development Report. 41 ANNEX 2 Annex 2 Consultations The prioritization agenda is informed by peace and security was the most frequently cited new knowledge from recent analytical work, priority for poverty eradication. Findings varied by as well as additional internal and external region, reflecting development levels and local consultations. These included discussions with situations. Consultations held in the south and the WBG’s Somalia country team across different central regions put more emphasis on security Practice Groups and workshops, FGS and FMS and basic services, whereas consultations in representatives of government, the private sector, northern areas highlighted infrastructure and the civil society, women’s groups, development development of productive sectors. partners, and academia. In addition, a citizen consultation exercise was also conducted using a Consultations with the private sector highlighted radio show and interactive SMS dialogues. During several challenges. The sectors consulted included these discussions, an analysis of the changes to telecommunications, banking, and agriculture. welfare indicators was presented, along with the Challenges identified included security concerns, challenges and priorities identified in SCD1. This poor infrastructure, electricity challenges, poor presentation was followed by discussions about access to international markets, and lack of the identification of priorities. credit. Women-owned businesses face additional obstacles, including a lack of credit and skills. To The consultations confirmed support for address these challenges, expanding access to identified priorities and challenges, including finance, affordable energy, and skills development insecurity, weak institutions, poor human should be prioritized. Other challenges include capital development, and inadequate developing industries to support agriculture and resilience to climate change impacts. Citizens fisheries value chains. Public-private partnerships emphasized community agency, Somali-led and foreign investment can help create jobs and solutions and peace and security as prerequisites promote inclusive growth. However, addressing for development. They also noted the need for weak governance and institutions is crucial for sustainable solutions to drought. Strengthening private sector-led growth. 42 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Annex 3 Clan Dynamics in Somalia Clan dynamics have been important in shaping Furthermore, hierarchies have also been societal relations, although the classification of created within Somalia’s clan dynamics that groups in Somalia is complex and fluid. Somali have manifested themselves in political power society is historically divided into three broad structures. The clan-based power-sharing categories. These include those claiming descent arrangement that was formalized in 2000 from Samaale, those claiming descent from afforded an equal number of seats in Parliament Saab, and a third category that encompasses all to each of the four major clan families — the other resident communities. Those belonging to Darod, Dir (including Isaaq), Hawiye, and the first two categories are broadly considered Rahanwein families — with approximately half ethnic Somalis. The third category includes the that number (that is, “0.5”) then held by the marginalized ‘caste’ groups, a significant and caste groups, Bantu, and Benadiri collectively heterogeneous ethnic Bantu population, and the in a formula commonly referred to as “4.5”. descendants of Arab and Persian traders that took Although this clan-based, power-sharing residence in coastal cities from around the 10th formula has been a source of relative stability, it century (often referred to as the Benadiri). All three has also served as an obstacle to direct elections categories are divided into further increasingly and the achievement of greater gender equity. complex and fluid patrilineal categories and sub- Indeed, women face disproportionate obstacles categories. These are commonly referred to as in terms of political participation and decision clan families, clans, and sub-clans. making. Moreover, the political and economic dominance of particular clans in certain urban Southern Somalia is more heterogeneous centers further entrenches societal hierarchies than central and northern Somalia, which and inter-communal conflict dynamics. has contributed to a legacy of contestation and conflict. The relative stability achieved in However, despite the significant challenges Somaliland and Puntland in the 1990s is in part faced over the past three decades, communities attributed to greater homogeneity of the clans in in Somalia have endured and adapted in part by northern Somalia, where the Dir/Isaaq and Darod/ relying upon traditional societal mechanisms. Harti clans are dominant. Southern Somalia is This includes clan support structures, which both more densely populated and heterogeneous provide a basic collective social insurance with a greater array of communities competing system, acting as a first line of assistance to for resources, including land, water, and livestock. communities impacted by poverty, climatic In light of a rapidly growing population in an shocks, and conflict. Moreover, in the absence environment increasingly prone to climatic of formal justice, traditional justice mechanisms shocks — and without effective measures in governing inter-clan relations have served to place to protect and enhance inclusive, equitable protect many communities and their members. access to resources and effective mechanisms Localized reconciliation efforts – and more to manage contestation over shared resources recently efforts to counter violent extremism – — inter-communal divisions are likely to remain have also often been led by clan elders alongside a major source of conflict. religious leaders. 43 ANNEX 4 Somalia: Selected Economic and Financial Indicators, 2019-2025 Annex 4 (as a percentage of GDP unless indicated otherwise) Global Practice 2019 2020 2021 2022e 2023f 2024f 2025f GDP, nominal (millions of dollars) 6,485 6,883 7,628 8,158 8,738 9,429 10,260 GDP, real (millions of dollars) 5,973 5,956 6,131 6,235 6,410 6,647 6,906 Real GDP growth 2.7 -0.3 2.9 1.7 2.8 3.7 3.9 Per capita GDP, real (dollars) 416 403 404 399 399 403 407 Money and prices CPI inflation rate (period average) 4.5 4.3 4.6 6.8 4.2 3.8 3.6 Private credit (growth, e.o.p) 11.8 7.0 45.7 25.3 .. .. .. Private credit (share of GDP) 3.2 3.2 3.5 4.0 .. .. .. Fiscal (central government) Total revenue and grants 5.2 7.4 4.9 8.9 7.8 6.7 6.5 Total expenditure 4.9 7.0 6.0 8.9 8.3 8.5 8.3 Overall balance, net 0.3 0.4 -1.1 0.0 -0.5 -1.8 -1.9 External Current account balance -13.0 -14.9 -16.8 -16.8 -16.4 -14.4 -14.6 Trade balance -66.2 -67.4 -71.7 -79.1 -75.0 -72.2 -71.72 Exports 17.4 17.1 17.2 17.0 18.2 18.9 19.5 Imports 83.6 84.5 88.9 96.2 93.2 91.1 91.1 Remittances, private transfers 24.3 23.2 27.8 26.3 27.6 28.4 28.8 Official grants 30.1 30.6 27.8 36.6 31.5 29.8 28.6 FDI 6.9 7.8 8.0 7.8 7.8 7.8 7.8 External debt 82 57.2 45.2 40 6.3 7.8 9.1 Exchange rate (shilling/dollar) (e.o.p) 25,065 25,761 26,039 26,833 Sources: Somali authorities, IMF, and World Bank estimates. Note: CPI= Consumer Price Index; eop= end of period; FDI= foreign direct investment; GDP= gross domestic product. *Assumes application of HIPC debt relief and interim HIPC assistance from the Decision Point, and MDRI and ‘beyond-HIPC’ relief at the Completion Point in 2023. The central government refers to the Federal Government of Somalia. 44 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Annex 5 Household Socioeconomic Indicators, 2017-2022 Summary of Changes to Development Indicators SHFS 2017 SHDS 2020 SIHBS 2022 Household composition Household size 6.03 6.2 6.7 Education Literacy rate 45% 54% Net primary school enrollment 21% 25% Net secondary school enrolment 16% 15% Access to basic services Access to safe drinking water 78% 67% 78% Access to improved sanitation 43% 57% 60% Access to electricity 39% 49% 62% Productive asset ownership Households owning livestock 53% 32% Households holding title deeds 70% 66% Legal Identification Population holding a legal ID 18% 15% Population holding a birth registration 6% Finance Households with bank or mobile money accounts 64% 97% Health and nutrition HH experiencing hunger in the past 30days 42% 35% Maternal mortality (per 100,000 live birth) 692 Adolescent birth rate (per 1,000 girls) 118 Total fertility rate 6.9 Births taking place at home 79% Proportion of births attended by skilled health personnel 32% Stunting 27% Malnutrition 21% Skilled assistance during ANC 31% Deliveries in health facility 21% Experience of physical violence 8% Shocks Economic shock 3% 14% Food price shock 10% 53% Health shock 2% 6% Natural shock 56% 50% Security shock 5% 5% Sources: Somali High Frequency Survey Wave 2 (2017), Somali Health and Demographic Survey (2020) and Somali Integrated Household Budget Survey (2022). Note: ANC= antenatal; HH= Household; SHDS= Somalia Health and Demographic Survey; SHFS= Somali High Frequency Survey; SIHBS= Somalia Integrated Household Budget Survey. 45 ANNEX 6 Benchmarking Somalia’s Development Outcomes with Annex 6 Peer Countries This annex present a cross-countries comparison political stability and absence of violence, rule of of various development outcomes. The comparison law, and violence and accountability. All of these is between Somalia and the following countries indicators are very low in Somalia. or groups of countries: Afghanistan, Democratic Republic of Congo, Ethiopia, FCV countries, Political Stability and Absence of Violence/ Kenya, Liberia, Mali, Rwanda, Sierra Leone, and Terrorism index measures perceptions of sub-Saharan African countries. The comparator the likelihood of political instability and/ countries share commonality with Somalia as most or politically motivated violence, including have experienced conflict, political instability, and terrorism. Estimate gives the country's score humanitarian crises in recent years. They are also on the aggregate indicator, in units of a standard classified as fragile and conflict-affected states normal distribution. by the World Bank. Additionally, many of these countries have struggled with similar challenges The Women Business and the Law Index that Somalia face – extreme poverty, weak Score measures how laws and regulations governance, and limited access to basic services. impact women's economic opportunities, with an overall score representing the average HLO 1: Improved Security, Participation, score of each index. Somalia has a very low and Access to Justice WBL score, indicating significant barriers for women in areas such as mobility, workplace, Improved security, participation and access to pay, marriage, parenthood, entrepreneurship, justice is measured through indicators such as assets, and pensions. Political stability and absence of violence estimate Women buisness and the Law Index Score (scale 1-100) Somalia Afghanistan Afghanistan Somalia Mali Mali Ethiopia SSA Congo, Dem. Rep. Sierra Leone Kenya Ethiopia Liberia Congo, Dem. Rep. Kenya Sierra Leone Liberia Rwanda Rwanda -3.00 -2.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 0 20 40 60 80 100 Source: The worldwide governance indicators, The World Bank – 2021. Source: Women, Business and the Law 2023. 46 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 Rule of Law index captures perceptions of the Rule of law estimate extent to which agents have confidence in and abide by the rules of society, and in particular the Somalia quality of contract enforcement, property rights, Afghanistan the police, and the courts, as well as the likelihood Congo, Dem. Rep. Liberia of crime and violence. Estimate gives the country's Mali score on the aggregate indicator, in units of a Sierra Leone standard normal distribution. Ethiopia Kenya HLO 2: Improved Access to and Quality of Rwanda Services through Better Economic Governance' -2,50 -2,00 -1,50 -1,00 -0,50 0,00 0,50 Source: The worldwide governance indicators, The World Bank - 2021. Improved access to and quality of services is proxied by an indicator of Government Birth registration effectiveness. Government Effectiveness captures perceptions of the quality of public Ethiopia services, the quality of the civil service and Somalia the degree of its independence from political Congo, Dem. Rep. pressures, the quality of policy formulation Afghanistan and implementation, and the credibility of the SSA government's commitment to such policies. FCV Estimate gives the country's score on the Liberia aggregate indicator, in units of a standard normal Kenya distribution. In addition, birth registration rates, Rwanda Mali the percentage of children under the age of 5 Sierra Leone whose births have been officially registered, also captures public services.. Both indicators 0% 20% 40% 60% 80% 100% for Somalia are alarmingly low when compared Source: Somalia: Somali Health and Demographic Survey (2020); Other to other countries. countries: World Development Indicators. HLO 3: Improved Household Resilience to Shocks ND- Gain index Household resilience to shocks is measured Congo, Dem. Rep. through the ND-GAIN index (Notre Dame Afghanistan Global Adaptation Initiative). The ND-GAIN Liberia Index summarizes a country's vulnerability to Somalia climate change and other global challenges Mali in combination with its readiness to improve Ethiopia resilience. This index ranges from 0 to 100. It can Sierra Leone be complemented with data on access to safe Kenya drinking water, which is defined as drinking water Rwanda from an improved source within 30 minutes for 0 10 20 30 40 50 a round trip. Somalia is comparable to other Source: Index, ND-GAIN Country, and Notre Dame Global Adaptation countries in the analysis. Initiative. "University of Notre Dame."– 2020. 47 ANNEX 6 Access to safe drinking water Congo, Dem. Rep. Ethiopia Rwanda Kenya Sierra Leone SSA FCV Afghanistan Liberia Somalia Mali 0% 20% 40% 60% 80% 100% Source: Somalia: Somali Integrated Household Budget Survey (2022); Other countries: World Development Indicators. HLO 4: Improved Human Capital HLO net primary and secondary school enrollment, total fertility rate, and prevalence of severe wasting among Human capital outcomes, including education and children under 5 years old. Somalia has low primary health, are measured through indicators such as enrollment ratios and high total fertility rate. Net primary school enrollment Net secondary school enrollment Somalia Somalia Afghanistan Liberia Congo, Dem. Rep. Congo, Dem. Rep. Liberia Mali Mali Ethiopia SSA SSA FCV Rwanda Kenya FCV Ethiopia Sierra Leone Rwanda Kenya Sierra Leone Afghanistan 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Total fertility rate (births per woman) Prevalence of severe wasting Kenya Rwanda Rwanda Liberia Sierra Leone Kenya Libera Ethiopia Ethiopia SSA FCV Afghanistan SSA Afghanistan mali Mali Congo, Dem. Rep. Congo, Dem. Rep. Sierra Leone Somalia Somalia 0 2 4 6 8 0% 1% 2% 3% 4% 5% Source: Somalia: Somali Integrated Household Budget Survey (2022); Other Source: Somalia: Somali Integrated Household Budget Survey (2022); Other countries: World Development Indicators. countries: World Development Indicators. 48 SOMALIA SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE 2023 HLO 5: More and Better Private Sector Jobs HLO share of youth not in education, employment, or training. Labor force participation and Quality of private sector jobs is measured through wage employment are very low in Somalia. indicators such as labor force participation, Unemployment rate and the share of youth not unemployment rate, wage employment and in education are high. Labor force participation Wage employment Somalia Sierra Leone Liberia Somalia Ethiopia Afghanistan Afghanistan Sierra Leone Mali Rwanda Congo, Dem. Rep Congo, Dem. Rep. Liberia SSA Mali FCV Kenya Rwanda Ethiopia Kenya 0 20% 40% 60% 80% 100% 0% 10% 20% 30% 40% 50% Source: World development indicators, The World Bank – 2017-2021 and Source: World development indicators, The World Bank – 2017-2021 and Somalia Integrated Household Budget Survey (SIHBS) 2022. Somalia Integrated Household Budget Survey (SIHBS) 2022. Unemployment rate Share of youth not in education, employment or training Congo, Dem. Rep. Ethiopia Sierra Leone Kenya Mali Rwanda Ethiopia Mali Kenya Congo, Dem. Rep. Afghanistan Sierra Leone Liberia Libera Rwanda Somalia Somalia Afghanistan 0% 10% 20% 30% 0% 20% 40% 60% Source: World development indicators. Source: The World Bank – 2017-2021. 49 50