Macroeconomics, Trade and Investment Global Practice Africa-East Region May 2021 © 2021 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved. This work is a product of the staff of The World Bank. The fi ons, and conclusions expressed in this work ndings, interpretati do not necessarily refl ve Directors of The World Bank or the governments they represent. The ect the views of the Executi ons, and World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominati on shown on any map in this work do not imply any judgment on the part of The World Bank concerning other informati the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions on of its knowledge, this The material in this work is subject to copyright. Because the World Bank encourages disseminati ributi work may be reproduced, in whole or in part, for noncommercial purposes as long as full att on to this work is given. Attribution—Please cite the work as follows: “World Bank. 2020. Trade as an Engine of Growth in Somalia: Constraints es. © World Bank.” and Opportuniti ons, pubrights@ All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publicati worldbank.org. Photos credits: FAO Somalia; GEE Somali; AMISOM Public Information; and EUCAP/Mukhtar Nuur CONTENTS Abbreviations................................................................................................................................................................................ i Acknowledgments...................................................................................................................................................................... ii Executive Summary.................................................................................................................................................................... iii 1. Introduction and Country Context.................................................................................................................................. 1 1.1 Background: The legacies of conflict and fragility for trade............................................................................. 2 1.2 Opening the door to increasing export competitiveness................................................................................ 3 1.3 Scope of the report ........................................................................................................................................................ 4 2. Trends in the Composition and Direction of Trade................................................................................................... 5 2.1 Composition of trade .................................................................................................................................................... 6 2.2 Direction of trade............................................................................................................................................................ 8 2.3 Balance of trade............................................................................................................................................................... 10 2.4 Implications ...................................................................................................................................................................... 11 3. Export Specialization and Comparative Advantage................................................................................................ 13 3.1 The Revealed Comparative Advantage Index ...................................................................................................... 14 3.2 Somalia’s Revealed Comparative Advantage (RCA)............................................................................................ 14 4. Opportunities for Export Growth..................................................................................................................................... 17 4.1 Actual versus potential exports................................................................................................................................. 18 4.2 Potential for exports by product .............................................................................................................................. 19 4.3 Potential for exports by destination........................................................................................................................ 23 5. Opportunities for Product Diversification.................................................................................................................... 25 5.1 Product diversification ................................................................................................................................................. 26 5.2 Product space analysis ................................................................................................................................................. 27 5.3 Potential new exports in Somalia’s product space map .................................................................................. 27 5.4 The challenge of export survival .............................................................................................................................. 29 5.5 Exploiting opportunities for product diversification ........................................................................................ 29 6. Strategies for growth and diversification..................................................................................................................... 31 6.1 Increasing sales of existing exports in the short to medium term............................................................... 32 6.2 Diversifying into new products over the long term .......................................................................................... 32 6.3 Other considerations for Somalia’s national trade strategy............................................................................ 34 Annexes............................................................................................................................................................................................ 37 References ....................................................................................................................................................................................... 57 LIST OF FIGURES Figure 1.1: GDP growth and per capita GDP, 2015–22............................................................................................................... 3 Figure 2.1: Composition of commodity trade (percent of total exports), 2018................................................................ 7 Figure 2.2: Composition of commodity imports by Broad Economic Categories, 1962–2018................................... 8 Figure 2.3: Goods and services trade balance, 1960–2020...................................................................................................... 10 Figure 2.4: Saudi imports of Somali livestock, 2015–20............................................................................................................ 11 Figure 3.1: Distribution of exports by revealed comparative advantage (RCA), 2018................................................... 14 Figure 4.1: Observed exports as share of potential exports, by product............................................................................ 20 Figure 4.2: Products with greatest export potential and global demand for them........................................................ 20 Figure 4.3: Actual and potential exports of sesamum seed, by market ............................................................................. 21 Figure 4.4: Actual and potential exports of frozen fish, by market ...................................................................................... 23 Figure 4.5: Observed and potential exports of Somali goods, by region .......................................................................... 24 Figure 5.1: Product diversification and concentration of Somalia’s exports, 1962–2019.............................................. 26 Figure 5.2: Somalia’s product space, 2018 ..................................................................................................................................... 28 Figure 5.3: Export survival, 1980–2019 ........................................................................................................................................... 29 LIST OF TABLES Table 2.1: Composition of commodity exports, 1962–2018......................................................................................... 7 Table 2.2: Destination and origin of commodity exports and imports, 1962–2018 (percent of total).......... 9 Table 2.3: Destination and origin of commodity exports and imports, 2018 ........................................................ 10 Table 2.4: Small-scale cross-border trade flows in the Horn of Africa....................................................................... 12 Table 3.1: Exports with the highest revealed comparative advantage (RCA) values........................................... 15 Table 4.1: Subsectors and markets with the most potential for export growth ................................................... 19 Table 4.2: Observed and potential Somali exports, by region..................................................................................... 24 LIST OF BOXES Box 2.1: Khat imports into Somalia .................................................................................................................................... 12 ABBREVIATIONS All currency is in U.S. dollars, except where indicated otherwise ARC American Refugee Committee DFID Department for International Development EEZ Exclusive Economic Zone FAO Food and Agriculture Organization FAOSTAT Food and Agriculture Organization Corporate Statistical Database FEWS Food Early Warning System FGS Federal Government of Somalia FSNAU Food Security and Nutrition Analysis Unit GDP Gross Domestic Product IDP Internally Displaced Persons IMF International Monetary Fund INDC Intended Nationally Determined Contribution IOTC Indian Ocean Tuna Commission NGO Nongovernment Organization PPP Public-Private Partnership SATG Somali Agriculture Technical Group SWALIM Somalia Water and Land Information Management UN United Nations UNFPA United Nations Population Fund Trade as an Engine of Growth in Somalia • Constraints and Opportunities i ACKNOWLEDGMENTS This report was prepared by Ephraim Kebede, John Randa, and Philip Schuler. It benefitted from comments by Paul Brenton, Charles Kunaka, Elizabeth Kibaki-Obiero, and peer reviewers Pierre Sauve and Taneem Ahad. We also acknowledge the helpful comments received from Ahmed Warsame, Abdiaziz Ibrahim, Ayan Isse Farah, and Garaad Farah Warsame during the consultation on the preliminary findings of the analysis. Practice Manager Vivek Suri and Country Manager Kristina Svenson provided overall guidance. This project was supported in part by the governments of Finland, Norway, Sweden, and the United Kingdom through the Multi-Donor Trust Fund for Trade and Development. ii Trade as an Engine of Growth in Somalia • Constraints and Opportunities EXECUTIVE SUMMARY Trade is essential for Somalia’s recovery, economic Limited or unreliable domestic supply constrains development, and poverty reduction many of Somalia’s exporters. The World Bank’s 2018 International trade can promote efficiency, Country Economic Memorandum (CEM) presents knowledge diffusion, technological progress, recommendations for sustainably increasing and—what ultimately matters most—inclusive output of fish, sesame seed, animals, and other growth and poverty reduction. Boosting export commodities that Somalia already exports. To competitiveness is inextricably linked with rebuilding break into new markets, Somali exporters must also the productive sectors of Somalia’s economy, invest in gathering information about consumer generating jobs and incomes, and reducing the preferences and policies in unfamiliar markets and country’s large structural trade deficits, which establish business relationships with new buyers, have averaged over 80 percent of GDP since 2015. shippers, and other partners. The 2018 CEM identifies important roles for public and private sectors in Exports are concentrated and vulnerable to shocks strengthening systems to ensure animal and plant Somalia supplies a limited number of exports to health and developing logistical arrangements a relatively small set of markets. Its top five export to support increased trade flows, which could be products in 2018 accounted for more than 83 reflected in the national trade strategy. percent of total goods exports. Dominated by live animals, these exports are primarily unprocessed Diversifying exports into new products could help spur economic growth and development over the primary commodities that do not generate spillovers long run to other sectors of the economy and are vulnerable Diversifying into new exports is more challenging to weather and other shocks. Somalia also exports but potentially more rewarding. Generating the to a small set of countries: 82 percent of its exports jobs and incomes needed to reduce poverty in were sold to just five destinations in 2018, mainly Somalia will ultimately require a transition away the United Arab Emirates, Oman, and Saudi Arabia. from primary commodities toward goods with There is potential to expand sales of products greater complexity, value added, and linkages across Somalia already exports sectors. Given the small size of Somalia’s domestic Somalia’s annual goods export revenues could market, producers must rely on the global market to be increased significantly by expanding sales achieve scale. of current exports to new markets and markets where potential remains untapped. Export Somalia’s trade strategy can begin this transition growth opportunities are greatest for sesame seed by focusing on diversification into new products and fish. There is also some potential to increase that are closely related to exports in which Somalia livestock exports by seeking new markets, although already has a comparative advantage, in the sense econometric analysis suggest that some markets of having similar production processes, belong to in the Gulf may be saturated. Gums and resins the same supply chain, or making requiring similar (frankincense and myrrh), fruit, and meat also show managerial capabilities. A product space analysis potential for increased sales. Countries in East and identifies new fish species, processed fish, and other South Asia present the greatest opportunities agro-food products—such as meat, sesame oil, for growth. These export opportunities could be processed fruits, and essential oils—as promising prioritized in Somalia’s national trade strategy. prospects for diversification. Trade as an Engine of Growth in Somalia • Constraints and Opportunities iii Executive Summary Realizing the potential for export growth and Now is the time for a national trade strategy diversification requires supply-side improvements Somalia is making progress in rebuilding the state Low levels of production and productivity are and creating conditions for economic growth. some of the main factors associated with the Security is improving. The country is reengaging underperformance of Somalia’s export. Considerable with creditors; after reaching the Decision Point of investments—both private and public—and policy the Heavily Indebted Poor Countries (HIPC) Initiative reforms would be required to increase export levels in March 2020, it is poised to finally eliminate the and develop the industrial base to diversify into debt burden that has hung over it for decades. new products. Broad reforms are already underway Somalia is now in a position where it can consider in the power sector, transportation infrastructure, entering into international trade arrangements the legal and institutional underpinnings for a and joining the World Trade Organization (WTO). market economy, and the financial sector. These A national trade strategy that emphasizes building elements of Somalia’s broader development export competitiveness is an essential step toward program are especially important for the country’s making these important accomplishments pay off trade competitiveness and could be reflected in for the Somali people. the national trade strategy. The national trade strategy could also emphasize the trade-specific areas of sectoral strategies and provide added support to them. iv Trade as an Engine of Growth in Somalia • Constraints and Opportunities Chapter 1 INTRODUCTION AND COUNTRY CONTEXT Trade as an Engine of Growth in Somalia • Constraints and Opportunities 1 1. Introduction and Country Context 1.1 Background: The legacies of conflict and “scientific socialism.” A dual exchange rate system, fragility for trade price controls (including minimum export prices 1. Conflict, fragility, and state fragmentation for livestock), and state marketing arrangements have transformed Somalia’s economy, including also shaped trade flows. In contrast, the economy its integration into the world economy. Decades is now firmly in the hands of private operators. New of civil war destroyed much of Somalia’s productive private telecommunications and financial service capacity. Conflict in the south-central areas of the providers filled the void created by the exit of country—historically the center of Somalia’s crop state-owned enterprises and, despite fragility and production—wiped out cultivation of bananas and a regulatory vacuum, mobile money has become grains. Destruction and looting of industrial facilities, firmly established.1 Private power operators have warehouses, and small businesses decimated established diesel-powered mini-grids in urban Somalia’s industrial base. These developments areas, although the costs are among the highest in transformed the commodity composition of trade by the world (Bannerjee et al., 2017), constraining the eliminating the capacity to produce for both export emergence of new manufacturing activities. and domestic consumption (World Bank 2006). 4. GDP growth remains modest and volatile. 2. The massive movement of people into urban The economy grew by an average of 2.5 percent a areas and abroad has transformed consumption year between 2015 and 2019, with growth slowing and livelihoods. Once characterized by nomadism, in 2017 as the result of a severe drought (Figure 1, the population has become majority urban. panel a).2 Although conditions improved over the Somalia’s population was 83 percent rural in 1960; past decade, unaffordable and unreliable energy, that figure fell to 70 percent by 1990, according to the poor state of the post-war transport system, the World Development Indicators (World Bank, and inadequate urban infrastructure overstressed 2020). The population survey conducted in 2013/14 by a growing population are major obstacles to estimated that rural residents and nomads made up expansion of the economy.3 The year 2020 opened only 48 percent of the population, which had grown with expectations that policy reforms, improved to an estimated 12.3 million, up from 7.2 million security, debt relief, and increased capital inflows to in 1990 (Federal Republic of Somalia and United support reconstruction would place the economy on Nations Population Fund 2014). The United Nations an upward trajectory, with growth rates averaging estimates that an additional 2 million Somalis were 3.5 percent over the medium term and rising to a living in other countries in 2015 (UN 2015). long-run average approaching 5 percent a year (IDA and IMF 2020). The triple shock of flooding, locusts, 3. Somalia has transformed the state’s role in the and the COVID-19 pandemic hit the country hard. As economy and trade. During the 1970s and 1980s, a result, the economy is now expected to contract public enterprises produced much of the output of sharply in 2020, rebounding in 2021 in a way that Somalia’s industrial and services sectors, reflecting still leaves per capita GDP about 5 percent lower the government’s commitment to establishing than projected before the crisis (Figure 1, panel b). 1 It is estimated that 9 in 10 Somalis own at least one mobile phone and 7 in 10 regularly use mobile money services (see, for example, World Bank 2018a). 2 Growth estimates presented here are constructed using estimates of expenditure components. Data limitations prevent the construction of GDP from the supply side (based on estimates of value added in economic sectors) or by aggregating incomes. Expenditure data tend to underestimate year-to-year variations in GDP growth rates, because consumption estimates for the entire 2015–22 series in figure 1 are based primarily on household data from a single household survey. For more information on how GDP is estimated in Somalia, see World Bank (2019a). 3 For a summary of growth and development challenges facing Somalia, see World Bank (2018b). 2 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 1. Introduction and Country Context Figure 1.1: GDP growth and per capita GDP, 2015–22 a. Annual GDP growth rate b. Per capita GDP growth 4 305 3 300 5.1% lower than Annual percentage growth pre-crisis forecast Constant 2010 dollars 2 295 290 1 285 0 280 -1 275 -2 270 2015 2016 2017 2018 2019 2020p 2021f 2022f 2015 2016 2017 2018 2019 2020p 2021f 2022f Pre-crisis forecast Latest forecast Pre-covid forecast Latest forecast Source: IMF and World Bank staff estimates. Note: Values for 2020 are projected; values for 2021 and 2022 are forecasts. 5. Poverty is extensive in Somalia, and GDP institutions, introduced sectoral regulatory growth is not generating enough jobs to reduce frameworks, and reestablished the government’s it. Wave 2 of the Somali High Frequency Survey, basic capabilities to raise revenue and spend conducted in 2017–18, estimated that about 69 funds effectively. These reforms have provided percent of Somalis live in poverty (World Bank macroeconomic stability. In stark contrast to the 2019b). The incidence of poverty is likely increasing, sustained high inflation (averaging 60 percent as GDP growth fails to keep pace with population a year) of the 1980s and chronic budget deficits growth (Figure 1, panel b). Only 55 percent of the that characterized pre-war Somalia, the FGS has working-age population participates in the labor maintained a balanced budget, and inflation force (is employed or actively seeking employment). has remained in single digits (aided by de facto The share is even lower among women (43 percent), dollarization). This track record of reform enabled and most of them are self-employed. Wage Somalia to reach the Heavily Indebted Poor Countries employment accounts for only 34 percent of total (HIPC) Decision Point (in March 2020), resolving the employment (World Bank 2020c). large debt burden that accumulated before 1990. The government has also regained regular access 1.2 Opening the door to increasing export to concessional external financing for development competitiveness (rather than just humanitarian assistance). 6. Political and economic reforms have helped stabilize the economy and provide a basis for 7. These policy reforms also provide the economic transformation. The 2012 Provisional foundation for effective governance of Constitution established a new federal political international trade and financial flows. Federal system. The Federal Government of Somalia (FGS) and state governments have developed a common has a new legal and institutional framework that import tariff schedule, with goods classified supports an effective state and its governance of according to the Harmonized System, that will be the economy. It reestablished the central bank, applied at all ports of entry, and they are working enacted laws governing companies and financial to modernize customs administration.4 Starting 4 After the collapse of the central government, in the early 1990s, municipalities and later state governments began collecting customs duties and other taxes on international trade—each according to its own tariff schedule. The federal, Federal Member States (FMS), and Somaliland governments currently operate independent customs administrations, with each government retaining the revenue it collects. The national government collects customs duties only in Mogadishu. Somalia joined the World Customs Organization in 2012 but is not yet a contracting party to the Harmonized System Convention. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 3 1. Introduction and Country Context in 2012, the FGS began introducing a modern to harness the development promise that trade financial sector regulatory framework that includes could tap, based on Somalia’s entrepreneurial spirit measures aimed at preventing money laundering and fortuitous geographical location. The report and terrorism financing. These measures are discusses the policy implications derived from the prerequisites for reestablishing correspondent analysis in terms of actions the FGS could take or banking relationships with international banks.5 prioritize to improve trade in areas with greater By establishing the basic requirements for the trade potential. creation and operation of formal companies, the 2019 Companies Act will foster an environment in which 10. The report is organized as follows. Section 2 foreign companies have the confidence to conduct summarizes trends in goods exports and imports arms’ length transactions with Somali companies. since 1962. Section 3 assesses the specialization of exports, identifying goods in which Somalia has a 8. Somalia is entering into regional and comparative advantage. Section 4 assesses Somalia’s international trade arrangements. It returned to potential to increase sales of goods it currently the Common Market for Eastern and Southern Africa exports, both to markets it already serves and to (COMESA) in 2018. A working party to consider its new markets. Section 5 explores the possibilities request for accession to the WTO was established for diversifying exports into new products, building in 2016, and the FGS submitted its Memorandum on goods for which the country currently has a on Foreign Trade Regime (MFTR) in 2020. Somalia comparative advantage. Section 6 summarizes has applied to join the East Africa Community, and potential priorities for the national trade strategy. in 2020 the Somali cabinet approved the Africa Continental Free Trade Area (AfCFTA) treaty. 11. This report uses two (free) web-based trade analytical tools: the Export Potential Map 1.3 Scope of the report produced by the International Trade Centre (ITC) 9. This report responds to a request by the FGS and the product space map and related trade data Ministry of Commerce and Industry for analysis to visualization tools produced by the Observatory of inform the preparation of a national trade strategy. Economic Complexity. With these tools, the Somali The report analyzes Somalia’s trade performance authorities and trade stakeholders can expand on and the supply constraints weighing most heavily the analysis presented in this report to develop and on the trade of commodities. It identifies the implement Somalia’s trade strategy. sectoral and product-specific pathways available 5 The absence of correspondent banking relationships raises the costs of international trade and financial transactions. Without these relationships, export receipts, payments for import purchases, investments, and repatriation of profits cannot be intermediated through conventional international banking channels. 4 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Chapter 2 TRENDS IN THE COMPOSITION AND DIRECTION OF TRADE Photo: Mukhtar Nuur Trade as an Engine of Growth in Somalia • Constraints and Opportunities 5 2. Trends in the Composition and Direction of Trade MAJOR FINDINGS • Trends in trade flows reflect broad political and institutional shifts, punctuated by shocks and crises. • Agriculture has dominated goods exports since independence, with livestock replacing bananas and other fruit by the 1970s. Gold emerged in the past two decades as an important export. • Imports are more diversified than exports. Around 1990, a shift in the composition of imports occurred, away from industrial imports and toward food, beverages, tobacco, and consumer goods. • Somalia trades principally with its Arab neighbors. Colonial trade ties weakened after independence. East Asian and South Asian countries have become major suppliers since 2000. • Somalia’s trade deficit widened after 1970 with the introduction of state planning and the slide into macroeconomic instability. Since 2015, the trade deficit has averaged over 80 percent of GDP. 12. This report focuses on merchandise trade, after independence (Table 2.1). Banana production because of the long-standing challenges that was one of the casualties of the civil war, and hinder the collection of data on international trade commercial operations have not been reestablished. in services. Services exports are equally as important as goods exports for the balance of payments, as 15. Livestock exports have proved to be more both generate roughly the same value of receipts for resilient to political and social upheaval. They the economy (see Figure A2.1 in Annex 2). Spending have accounted for about 75 percent of goods on services imports is also significant—larger than exports since 2010. The collapse of the Siad Barre receipts from all exports (both goods and services)— regime ended the restrictive regulations (including at about 40 percent of spending on goods imports. on foreign exchange) imposed on private livestock traders. Livestock exports have been vulnerable 13. Somalia has not published comprehensive, to import bans that trade partners impose during product-level merchandise trade statistics since outbreaks of animal diseases, notably the ban by the 1980s. This report therefore relies on “mirror” Saudi Arabia in 2000–09. trade statistics—official data reported by Somalia’s trade partners—for the analysis of goods trade. This 16. Conflict and state collapse fostered the is a standard approach in the trade literature when emergence of charcoal exports, an important there are gaps in reporter statistics.6 source of revenue for militias and Al-Shabab. To close off financing of these groups and to slow 2.1 Composition of trade the deforestation caused by charcoal production, Commodity exports in 2012 the UN Security Council imposed a ban on 14. Agriculture has always dominated Somalia’s Somali charcoal exports. goods exports. Somalia was the largest producer of bananas in East Africa during its colonial period (FAO 17. Sesame seed exports began to emerge after and World Bank 2018), and bananas and other fruit 2000. Gold emerged as a new export product in the were Somalia’s main export during the first decade 2000s from small-scale operations in Somaliland.7 6 See Annex 1 for a discussion of the use of mirror statistics. 7 The 2007 UN–World Bank Joint Needs Assessment reported that there was artisanal gold mining activity in Somaliland at Arabysio near Hargeisa (UN and World Bank 2007). The Somaliland Sun reported a new gold nugget discovery near Hargeisa in 2015 (“Somaliland: Investment in Gold Mining Anticipated,” December 12, 2015, https://www.somalilandsun.com/somaliland-investment-in-gold-mining- anticipated/). Small Somali-owned mining companies uncovered new finds in the Sanaag region of Somaliland in 2019 (“Somaliland: Gold-Rich Irshida Mountains Promise Substantive Yield,” Somtribune, January 15, 2019, https://www.somtribune.com/2019/01/15/ somaliland-gold-rich-irshida-mountains-promise-substantive-yield/). 6 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 2. Trends in the Composition and Direction of Trade Table 2.1: Composition of commodity exports, 1962–2018 Exports 1962–69 1970–79 1980–89 1990–99 2000–09 2010–18 Live animals (00+94) 15 53 65 64 45 68 Bananas and other fruit and vegetables (05) 67 23 16 9 0.5 2 Hides, skins and fur skins, undressed (21) 9 7 4 2 3 1 Fish and fish preparations (03) 1 2 3 9 7 3 Nonmonetary gold (97) 0 0 0.002 0.002 12 9 Charcoal and other wood products (24) 1 0.3 0.1 3 10 3 Crude animal and vegetable material (29) 1 2 5 3 2 2 Meat and meat preparations (01) 3 5 0.2 1 5 1 Sesame and other oil seeds (22) 0 0.1 0.005 1 2 5 Leather and leather manufactures n.e.s. (61) 0.08 0.2 0.39 0.2 1 1 All other exported goods 3 8 7 9 14 5 Source: World Bank staff calculations based on data from UN Comtrade. Note: Figures show the percent of commodity exports for the top Standard International Trade Classification (SITC) divisions, based on data reported by Somalia’s trade partners. Figures in parentheses are the two-digit (division) product code, as defined in the SITC. n.e.s. = not elsewhere specified. Partner data for 2018 show that goods exports were concentrated in a handful of products, such as live animals (sheep, goats, and cattle); gums and resins (frankincense and myrrh); and mollusks, representing 45 percent, 13.4 percent, and 8.4 percent of total exports, respectively. In 2018, gold accounted for 26.4 percent of total exports—the largest single export product at the six-digit level of the Harmonized System (HS). 18. The top five exported product categories countries of about 5 percent and the average for Sub- represented more than 83 percent of Somalia’s Saharan Africa of about 65 percent. It is also higher total exports (Figure 2.1). This figure is much than the figures for Kenya (44 percent), Ethiopia (70 higher than the average for low- and middle-income percent) and Rwanda (75 percent). Figure 2.1: Composition of commodity trade (percent of total exports), 2018 a. Exports b. Imports Source: Observatory Economic Complexity (https://oec.world/en/profile/country/som#product-space), using the BACI database. Note: Export products are defined at the six-digit (subheading) level of the Harmonized System (HS) classification and grouped by HS section. To aid readability, imports are defined at the four-digit (heading) level. Data are constructed from mirror/partner statistics. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 7 2. Trends in the Composition and Direction of Trade Commodity imports 20. Somalia’s top imported products in 2018 19. Somalia’s goods imports have been more included tobacco, sugar, rice, and milk. Just 20 diversified (Figure 2.1, panel b), although the imported goods represented 58 percent of total composition of imports shifted from industrial to imports. This share is lower in comparator countries consumer imports after 1990. From independence Rwanda (26 percent), Ethiopia (35 percent), and though the 1980s, imports were spread broadly Kenya (37 percent). The share for the top 20 imports across capital equipment, industrial supplies, and averaged 11 percent in low- and middle-income food products (Figure 2.2).8 A shift in composition countries and 22 percent in Sub-Saharan Africa. occurred in the 1990s, as conflict destroyed the economy’s productive base and pushed people 2.2 Direction of trade out of rural areas. Imports of machinery; transport 21. The past six decades have witnessed a equipment (mostly non-passenger vehicles); and, to reorientation in the direction of trade from Europe a lesser extent, industrial supplies—much of which to regional destinations for Somali exports and to were associated with public sector investments— regional and Asian sources for imports. Italy was declined sharply. Imports of food, beverages, and Somalia’s largest trade partner in the first decade tobacco grew to about half of all imports after after independence. It remained Somalia’s largest 1990. Rice, flour, pasta, and tobacco products supplier and a significant export market through have consistently been important imports since the end of the century. As Somali producers shifted independence. After being negligible before 1990, out of fruit and concentrated on live animals, Saudi sugar has accounted for about 15 percent of Somalia’s Arabia, Oman, Yemen, and neighboring countries imports, on average, although sugar imports fell to became Somalia’s main destinations. Over time, less than 6 percent of imports in 2018.9 Kenya, India, and, more recently, China displaced Europe and the United States as Somalia’s most important import suppliers. Figure 2.2: Composition of commodity imports by Broad Economic Categories, 1962–2018 100 80 7: Goods n.e.s. Share of imports, percent 6: Consumer goods n.e.s. 60 5: Transport equipment 4: Capital goods (excl. transport equipment) 3: Fuels and lubricants 40 2: Industrial supplies n.e.s. 1: Food, beverages, tobacco 20 0 1962-69 1970-79 1980-89 1990-99 2000-09 2010-18 Source: World Bank staff calculations based on data from UN Comtrade. Note: Data are constructed from mirror/partner statistics. Imports are defined according to the Broad Economic Categories classification. n.e.s. = not elsewhere specified. 8 Table A2.1 in Annex 2 presents data on imports of top products (rather than by Broad Economic Categories). 9 The sugar factories developed in the 1960s and 1970s satisfied domestic consumption needs. Sugar production ceased during the war, during which facilities were looted. Because of the large investment requirements, sugar production has not resumed. 8 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 2. Trends in the Composition and Direction of Trade 22. The changing geography of Somalia’s 23. In 2018, the United Arab Emirates, Oman, oil imports illustrates how trade has evolved Saudi Arabia, China, and Japan together accounted alongside Somalia’s international relationships for 81 percent of total Somalia’s exports (Table (Table 2.2). Europe (mainly Italy) supplied Somalia’s 2.3). For low- and middle-income countries and Sub- oil needs during the 1960s and 1980s; Kuwait and Saharan Africa, the top five destinations represented Sudan in the 1970s; Kenya throughout most of the 40 percent and 57 percent of exports, respectively. 1990s and 2000s; and the United Arab Emirates The top five destinations accounted for 61 percent and Oman since 2010. The Soviet Union, with of total exports in Rwanda, 60 percent in Ethiopia, which Somalia had a special political relationship and 40 percent in Kenya. Import suppliers are also between 1969 and 1977, did not report its trade concentrated, with the top five sources accounting data to UN Comtrade. Official Somali government for 75 percent of Somalia’s imports in 2018. As with statistics from the time indicated that it purchased exports, this share is larger than in other countries. 5–8 percent of Somalia’s exports a year during the For both low- and middle-income countries, 59 mid-1970s and supplied 9–12 percent of Somalia’s percent of imports came from the top five partners. imports (reported in World Bank 1981). These shares are much lower in nearby African countries as well (51 percent in Kenya, 55 percent in Rwanda, and 62 percent in Ethiopia). Table 2.2: Destination and origin of commodity exports and imports, 1962–2018 (percent of total) Country 1962–69 1970–79 1980–89 1990–99 2000–09 2010–18 Destination of exports Saudi Arabia 13 54 65 46 13 44 Italy 74 24 20 16 1 0.2 Yemen n.d. 0.01 n.d. 14 28 5 Oman n.d. 0.4 0.2 3 12 24 United Arab Emirates n.d. 1.9 2 7 9 7 India 0.1 0.003 0.1 2 7 4 Kuwait n.d. 5 0.1 2 4 1 Nigeria 0 0.2 0.1 n.d. 6 0.001 All other countries 13 16 12 12 20 16 Origin of imports Italy 44 31 37 15 1 1 Kenya n.d. 1 2 18 21 4 United States 11 6 15 8 4 2 India 3 2 1 7 12 19 United Kingdom 8 9 6 4 2 1 Germany 8 6 7 2 0.4 1 China n.d. n.d. 0.3 1 5 17 Brazil 0.03 0.4 0.5 9 9 3 Oman n.d. 0.0001 0.1 0.1 7 8 United Arab Emirates n.d. 0 0.03 1 3 10 All other countries 26 45 31 34 35 35 Source: World Bank staff calculations based on data from UN Comtrade. Note: Statistics are based on data reported by Somalia’s trade partners. n.e.s. = not elsewhere specified. n.d. = partner reported no exports to Somalia during the decade. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 9 2. Trends in the Composition and Direction of Trade Table 2.3: Destination and origin of commodity exports and imports, 2018 Millions of Percent of Millions of Percent of Destination of exports dollars total Origin of imports dollars total United Arab Emirates 147.5 31 United Arab Emirates 1,026.3 31 Oman 142.4 30 China 637.1 19 Saudi Arabia 73.0 15 India 427.0 13 China 15.9 3 Oman 221.1 7 Japan 13.6 3 Turkey 180.4 5 France 8.2 2 Kenya 148.6 4 Bulgaria 16.6 3 Malaysia 83.3 3 India 11.2 2 Egypt 77.0 2 Pakistan 5.8 1 Indonesia 68.1 2 Turkey 5.8 1 Brazil 60.8 2 Total exports 483.5 100  Total imports 3,340.0 100  Source: Observatory Economic Complexity (https://oec.world/en/profile/country/som#product-space), using data from BACI (Base pour l’Analyse du Commerce International). 2.3 Balance of trade finance and insurance services, the breakdown 24. Import spending has exceeded export receipts of transport and communication networks, poor for decades, and the gap has increased over time. marketing facilities, limited access to international The average deficit of trade in goods and services markets, and insecurity. By the early 2000s, Somalia roughly quadrupled during the 1970 and 1980s, a began supplying cattle, charcoal, sugar, and period of state intervention in trade and growing electronics to other countries in the Horn of Africa. macroeconomic instability (Figure 2.3). The trade Little (2003) argues that trade survived because of gap has been even wider since the reconstitution of the growth of remittances (which financed imports the national government, averaging over 80 percent and stabilized the currency), telecommunications of GDP in years for which reliable trade and GDP (which made it possible to have timeline market data are available. information), and the emergence of money transfer bureaus (which facilitated international financial 25. Trade flows declined in the immediate post– transactions). The World Bank’s 2006 Country civil war period, hampered by the lack of trade Economic Memorandum concluded that Somalia Figure 2.3: Goods and services trade balance, 1960–2020 0 -20 1960–72 average,-7.8 Percent of GDP -40 1973–90 average,-31.3 -60 2015–20 average,-82.1 -80 -100 1960 1965 1970 1975 1980 1985 1990 2017 Sources: World Development Indicators (1960–90) and IMF staff reports (2015–20). Note: Data for 1991–2014 are not available; data for 2020 are projections. 10 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 2. Trends in the Composition and Direction of Trade had “become a de facto duty-free zone and a critical from the Horn of Africa following an outbreak of Rift part of a trade network spanning from Dubai—a Valley Fever in Saudi Arabia and Yemen. The import critical supply and finance center for Somali ban was lifted in 2002 by every country except Saudi businessmen—to Ethiopia and Kenya and their Arabia, which kept it in force until 2009. Since 2017, neighbors.” Somalia has been hit with successive droughts, flooding, and infestations of desert locusts (which 26. Before 1990, external grants financed trade consume rangelands as well as crops). Each episode deficits. Official development assistance averaged has shocked Somalia’s balance of payments. 11 percent of gross national income 1960 and 1972 and almost 45 percent between 1973 and 1990, 28. Foreign demand for Somalia’s livestock according to staff estimates based on data from the is higher by purchases of sheep and goats for World Development Indicators. Remittances from sacrificial purposes during the annual Hajj, which the Somali diaspora have been a critical source of concentrates all production, transport, and financing since the 1990s. Figure A2.1 in Annex commercial activities associated with Somalia’s 2 shows that remittance inflows exceeded total top export into a few months of the year. As a export receipts between 2015 and 2020, averaging result, ports and other transport infrastructure are 32 percent of GDP during this period. used inefficiently, smallholder producers are at the mercy of middlemen, and risks are concentrated. 2.4 Implications Saudi Arabia reimposed its ban on Somalia Vulnerability to shocks livestock in December 2016, with a waiver during 27. Somalia’s dependence on exporting a few the Hajj period; the move narrowed the window of primary commodities to a few countries has opportunity to export livestock profitably to a few amplified fluctuations in trade flows caused by months each year, as starkly highlighted in Figure conflict and political instability. Both animal and 2.4. In 2020, the COVID-19 pandemic forced Saudi crop production are sensitive to rainfall patterns and Arabia to cancel the Hajj to stop the spread of the subject to pests and diseases. In September 2000, disease, devastating sales of livestock. all Gulf countries halted imports of live animals Figure 2.4: Saudi imports of Somali livestock, 2015–20 140 Imports during the Hajj as 52% shares of annual imports 120 Millions of dollars 61% 100 80 94% 82% 60 80% 40 COVID-9 20 halts travel 0 Apr 2015 Apr 2016 Apr 2017 Apr 2018 Apr 2019 Apr 2020 Jan 2015 Jan 2016 Jan 2017 Jan 2018 Jan 2019 Jan 2020 Oct 2015 Oct 2016 Oct 2017 Oct 2018 Oct 2019 Jul 2015 Jul 2016 Jul 2017 Jul 2018 Jul 2019 Jul 2020 Source: World Bank staff calculations using data reported by the Saudi Arabia General Authority for Statistics (https://www.stats.gov.sa/en/325). Note: The latest observation is for September 2020. 10 These estimates are compiled and summarized in World Bank (2020d), an unpublished background paper prepared for the World Bank’s forthcoming Horn of Africa Regional Economic Memorandum. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 11 2. Trends in the Composition and Direction of Trade Unrecorded and small-scale, cross-border trade to livelihoods, especially of women and youth. 29. The trends analyzed in this section use trade Table 2.4 presents the main items traded through statistics reported by Somalia’s trade partners. these channels. Unrecorded movements of livestock between Somalia and its neighbors in the Horn of Africa are 30. Khat is also traded largely informally in the believed to greatly exceed the amounts reported Horn of Africa. Although it is legal to grow and in official statistics.10 Little, Tiki, and Debsu (2015) consume it in the region, there is little evidence in estimate that the majority of live animals Somalia international trade statistics of what appears to be exports to Gulf countries originate in Ethiopia. sizable cross-border trade in khat. Khat imports into There is also significant small-scale, cross-border Somalia are one of the most important sources of trade in agricultural products and foodstuffs in government revenue at both the federal and state areas bordering Djibouti, Ethiopia, and Kenya that levels (Box 2.1). do not appear in official statistics. This trade is vital Table 2.4: Small-scale cross-border trade flows in the Horn of Africa Partner Somalia exports Somalia imports Livestock (cattle, camel, and goats); sorghum; and small amounts of Djibouti legumes, cereals, fruits, and vegetables Ethiopia Sheep, goats, rice, flour, pasta, and consumer goods Sheep, goats, cattle, khat, and coffee Kenya Cattle, camels, goats, sheep, rice, pasta, and sorghum Khat, maize, tea, and sugar Source: World Bank 2020b, 2020d. Box 2.1: Khat imports into Somalia Khat (also called miraa) is a popular herbal stimulant that is said to increase energy, deepen focus, and suppress appetite. It is legal in the three countries in which it grows (Kenya, Ethiopia, and Yemen). Most of it is consumed in Somalia, Yemen, and Djibouti; it is used to a lesser extent in Ethiopia, Tanzania, Kenya, and Uganda. Every day, Kenyan farmers pick khat leaves and sell them to traders, who package them and transport them to Somalia by truck and plane. Before the closure of airports in March 2020 to stop the spread of the COVID-19 pandemic, 15–20 cargo planes full of khat arrived daily in Somalia from Kenya, carrying an estimated 50 tons a day. In 2014, Ethiopia’s khat exports were estimated at $300 million, sold mainly to Somalia and Djibouti. Khat imports represent a significant source of revenue for the public sector in Somalia. In 2019, they brought in about $39.4 million for the Somaliland government (18.9 percent of revenue) and $16.6 million for the FGS (7.2 percent of revenue). Sources: BBC (2020); Belwal and Teshome (2011); Cochane and O’Regan (2016); Khoshin (2020); Reuters (2020); Somaliland Ministry of Finance Development (2019). 12 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Chapter 3 EXPORT SPECIALIZATION AND COMPARATIVE ADVANTAGE Trade as an Engine of Growth in Somalia • Constraints and Opportunities 13 3. Export Specialization and Comparative Advantage MAJOR FINDINGS • Somalia enjoyed a revealed comparative advantage in 34 goods exports in 2018. • The goods are concentrated in relatively unprocessed animal, fish, and agricultural products. 3.1 The Revealed Comparative Advantage differences in relative costs and nonprice factors that Index determine the pattern of international trade (Balassa 31. This section analyzes the composition of 1986). The RCA Index is also attractive because Somalia’s exports in terms of products’ revealed it does not require data on the underlying factor comparative advantage (RCA). The RCA is an endowments, productivity, or costs that determine index developed by Bela Balassa that measures the comparative advantage. (For more on the index, see importance of a product in a country’s export basket Annex 2) relative to that product’s weight in world trade:11 3.2 Somalia’s Revealed Comparative Product’s share of a country’s exports RCA = Advantage (RCA) Product’s share of total world trade 33. Somalia has an RCA in relatively few products. 32. The value of the index exceeds 1 when a In 2018, it exported 173 products out of 1,225 product’s share of a country’s exports is greater products defined at the four-digit (heading) level of than its share of total world trade in all products. the HS; exports were zero for 83 percent of products Scaling products’ shares in a country’s exports at the HS heading level (Figure 3.1). Of the 173 by their shares of world trade provides a better products Somalia exported, only 34 have RCA values measure of a country’s export specialization than greater than 1. Small economies’ export baskets are looking at shares in the country’s exports, because it often more specialized than those of large countries. compares the country to others. Belassa argued that Kenya has 212 exports with RCA values greater this ratio reveals a country’s comparative advantage than 1, for example, and Ethiopia has 89 (see Table in a product because it reflects the intercountry A3.2. in Annex 3).12 Figure 3.1: Distribution of exports by revealed comparative advantage (RCA), 2018 a. Distribution of products by RCA value b. Product categories with RCA > 1 Animal products 9 RCA > 100 1% Vegetable products 6 34 products with a revealed Animal hides 4 10 < RCA < 100 1% comparative advantage Precious metals 3 Animal, veg. byproducts 2 1 < RCA < 10 2% Mineral products 2 0.1 < RCA < 1 3% Transportation 2 Chemical products 2 0 < RCA < 0.1 11% Metals 2 Foodstuffs 1 Exports = 0 83% Textiles 1 Share of HS four-digit headings Number of products with RCA > 1 11 The components of the RCA can be rearranged so that the index is expressed as the ratio of a country’s share of the world market for a particular product to the country’s share of world trade in all products. 12 The relationship between size and specialization is not absolute, however. South Sudan exports more than Somalia, but its exports are heavily concentrated in oil and only nine of its exports have an RCA greater than 1. Sixty-five of Djibouti’s exports have an RCA greater than 1, and Djibouti exports less than Somalia. 14 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 3. Export Specialization and Comparative Advantage 34. Exports in which Somalia has an RCA are 35. The exports in which Somalia currently highly concentrated in livestock and relatively has an RCA are primarily products with little lightly processed animal and vegetable products. value added. Although many provide livelihoods Including foodstuffs, these exports account for 65 for their producers, they generally have limited percent of all products with an RCA greater than 1. backward and forward linkages with other sectors Table 3.1 lists the exports with the 10 highest RCA of the Somali economy (or global value chains) and values (Table A3.3 in Annex 3 presents the full list). thus provide little technological spillover (a point What is notable is the dearth of manufactured explored further below). Production and export products. Somalia’s exports are specialized in dependence on primary commodities, particularly livestock but not meat; hides and skins but not live animals, leaves Somalia exposed to external price leather or goods made from leather; and seeds, shocks, natural disasters, and changes in importing fresh fruit, gums and resins in raw form rather than countries’ trade policies (such as the Saudi ban on processed into other products. Manufactured items imported live animals). with RCA values greater than 1 include scrap vessels, scrap copper, and armored vehicles—items that were originally manufactured elsewhere. Table 3.1: Exports with the highest revealed comparative advantage (RCA) values Product RCA value 1. Live sheep and goats (0104) 3,484 2. Gums and resins (1301) 1,580 3. Live bovine animals (0102) 167 4. Other hides and skins (4103) 146 5. Sesame and other oilseeds (1207) 139 6. Armored vehicles (8710) 113 7. Tanned goat hides (4106) 95 8. Mollusks and invertebrates (0307) 70 9. Scrap vessels (8908) 57 10. Sheep hides (4102) 31 Source: World Bank staff calculations based on RCAs computed by the Observatory of Economic Complexity (https://oec.world/en/ profile/country/som). Note: Figures in parentheses are the HS heading codes. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 15 Chapter 4 OPPORTUNITIES FOR EXPORT GROWTH exportpotential.intracen.org Trade as an Engine of Growth in Somalia • Constraints and Opportunities 17 4. Opportunities for Export Growth MAJOR FINDINGS • There is untapped potential for Somalia to increase sales of exports in which it currently has a comparative advantage—both to markets it already supplies and to new markets—by 27 percent. • Sesame and fisheries products offer the greatest potential for significant export growth. There remains some untapped potential to increase livestock exports, although import demand in markets is already saturated. There is also apparent demand for gums and resins, fruit, and meat. • Untapped demand is greatest in East Asia and South Asia. 4.1 Actual versus potential exports 37. The Export Potential Map estimates that 36. How can Somalia increase its export revenue? Somalia’s annual export revenue could be What products and markets appear to have the 27  percent greater if Somalia exploited the greatest potential for growth? This section of the untapped potential to increase sales of goods it currently exports.15 Table 4.1 lists Somalia’s paper uses the ITC’s Export Potential Map to identify top export subsectors (subsectors with average opportunities to increase exports of goods that annual exports of at least $1 million), the untapped Somalia currently produces. This free web-based potential for increasing revenue in them, and the tool estimates the potential value of bilateral trade markets with the greatest potential for growth. in a product based on historical trade flows, the characteristics of the exporter and importer (such 38. The tool estimates that Somalia could earn as countries’ GDP and distances between countries), an additional $104 million a year from goods in and import tariffs and other market access these subsectors—an increase of 27 percent over constraints that pertain to a particular bilateral trade current levels. The potential for increased growth flow.13 The Export Potential Map uses a weighted varies considerably across sectors. The tool estimates average of international trade flow data reported that Somalia could potentially double its sales of to UN Comtrade for 2015–19 to estimate annual sesame and other oil seeds and increase the value exports and export potential.14 This tool is useful for of fish and shellfish exports by about 60 percent. In exploring potential additional sales of goods that contrast, the growth potential for livestock exports are already in a country’s export basket. As it relies is more modest, at about 10 percent of current on historical trade data, it is not useful for identifying exports. Somalia’s current exports to certain markets new goods that a country could potentially produce of products in this subsector (such as live sheep and export. Section 5 explores the potential for new to Oman and Saudi Arabia) already exceed the goods using an alternative methodology. hypothetical potential estimated by the model.16 13 The ITC Export Potential Map tool is available at https://exportpotential.intracen.org/. 14 The ITC also supplements UN Comtrade data with information obtained directly from country authorities (see Annex 1). As Somalia does not report to UN Comtrade, all values of Somalia’s observed exports are constructed from the import data reported by Somalia’s partners. 15 Table A4.1 in Annex 4 presents total untapped potential. 16 No econometric estimation can capture all information about product characteristics, consumer preferences, or business relationships that influence actual trade flows. 18 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 4. Opportunities for Export Growth Table 4.1: Subsectors and markets with the most potential for export growth Observed average Estimated Subsector annual exports untapped Markets with most potential (2015–19) potential United Arab Emirates, Turkey, Bahrain, China, Live animals 272.0 28.5 France, Qatar China, Japan, India, Turkey, Rep. of Korea, Saudi Oil seeds 27.1 27.6 Arabia Côte d’Ivoire, China, Japan, France, Hong Kong Fish and shellfish 33.0 20.9 (China) India, China, Saudi Arabia, Japan, Pakistan, Gums and resins 30.4 15.8 United Arab Emirates China, India, Pakistan, Japan, Turkey, Hong Skins and leathers 3.9 4.9 Kong (China) Fruit 10.2 4.4 France, Japan, Oman, Germany, Bulgaria, China France, India, China, Japan, United States, Ger- Essential oils 1.3 1.2 many, United Arab Emirates Japan, China, India, France, Singapore, United Miscellaneous fish products 1.5 0.72 States, Rep. of Korea Total of top subsectors 379.4 104.0 Source: https://exportpotential.intracen.org/en/products/tree-map?fromMarker=i&exporter=706&toMarker=w&market=w&whatMar ker=s), accessed December 3, 2020). Note: Values of actual and untapped potential exports are in millions of US dollars. The values of Somalia’s exports are weighted averages of partner markets’ imports in 2015–19. Export markets for each product are ordered based on their values of unrealized export potential. 4.2 Potential for exports by product the unrealized value of potential exports of sesame 39. To visualize which specific products have at $23.2 million, gums and resins at $14.6 million, the most potential, the ITC tool produces a and frozen fish at $10.8 million. tree diagram that depicts levels of current and potential exports at the six-digit level of the HS 40. The size of the world market heavily influences classification (Figure 4.1). It shows that Somalia still the estimated value of this unrealized potential. has potential to export more live goats and sheep— World demand for live animals is small compared the two largest blocks in Figure 4.1—because there with demand for fish. Figure 4.2 ranks products by are still some markets that Somalia could potentially the value of their potential and shows total world tap. The ITC estimates the unrealized potential at demand for the product. Sesame seed ranks third $14.6 million for goats and $10.0 million for sheep. in terms of total potential, based on current trade Somalia also has a large potential to increase its patterns, but total world demand is much larger for exports of sesame seeds, frankincense and myrrh sesame than it is for live goats and live sheep, which (included in gums and resins), whole frozen fish, and are ranked first and second, respectively. mollusks (including cuttlefish and squid). Somalia has realized most of its hypothetical potential to 41. Somalia already enjoys some export success export live sheep and goats; Figure 4.1 shows that in two products for which the unrealized potential it has realized much smaller shares of potential remains large and there is sizable global demand: exports of these other products. The ITC estimates sesame seeds and whole frozen fish. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 19 4. Opportunities for Export Growth Figure 4.1: Observed exports as share of potential exports, by product Source: https://exportpotential.intracen.org/en/products/tree-map?fromMarker=i&exporter=706&toMarker=w&market=w&whatMark er=k), accessed December 3, 2020. Note: Values are weighted averages of partner markets’ imports in 2015–19. Figure 4.2: Products with greatest export potential and global demand for them Source: https://exportpotential.intracen.org/en/products/ analyze?fromMarker=i&exporter=706&toMarker=w&market=w&whatMarker=k), accessed December 3, 2020. Note: Products are ranked based on the value of potential exports. Values of Somalia’s exports are weighted averages of partner markets’ imports in 2015–19. The size of a product’s circle reflects the size of total world imports of the product (from all sources). The length of the spokes reflects the value of Somalia’s current exports. 20 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 4. Opportunities for Export Growth Sesame seeds markets, notably India and the United Arab Emirates, 42. Somalia’s production and export of sesame observed exports already exceed their hypothetical seed has exceeded pre-war levels. Somalia was potential, suggesting that there may be little scope the 22nd largest exporter of sesame seed in 2018 to increase sesame exports to these countries. The (out of 141 exporters), supplying 0.7 percent of the unrealized potential remaining in other countries is world market.17 ITC’s Export Potential Map estimates estimated at $27.6 million. Somalia’s average annual sesame seed exports at $27.1 million in 2015–19—far less than its export 43. Many markets that appear in Figure 4.3 potential of $41.0 million. China, Japan, and the imported no sesame from Somalia in 2015–19, Republic of Korea are the most promising areas of including Bulgaria, France, Germany, Korea, expansion (they were the world’s first-, second-, and and the United States. The estimate of Somalia’s fourth-largest importers, respectively, of sesame potential exports to these countries depends in seed in 2018); they account for most of Somalia’s part on the countries’ exports of sesame from other estimated untapped potential (Figure 4.3). The sources and on Export Potential Map estimates that model estimates potential exports to these countries Somalia has significant potential to export to these at $27.3 million, which greatly exceeds the three large importers of sesame. Korea was the world’s countries’ current sesame imports from Somalia. fourth-largest importer of sesame in 2018 (see Table Somalia also has unrealized potential to increase A5.1), so the high estimate of potential exports to sesame exports to Turkey (the third-largest import Korea may not be surprising. Bulgaria also ranks high market in 2018), Saudi Arabia, and Europe. In some for potential exports from Somalia, even though it is Figure 4.3: Actual and potential exports of sesamum seed, by market Source: (https://exportpotential.intracen.org/en/markets/gap-chart? fromMarker=i&exporter=706&whatMarker=k&what=120740&toMarker=j, accessed December 3, 2020. Note: Observed values of Somalia’s annual exports are weighted averages of partner markets’ imports of sesame from Somalia in 2015–19. 17 Table A5.1 in Annex 5 presents a matrix of sesame exporters and importers in 2018, based on importer data reported to UN Comtrade. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 21 4. Opportunities for Export Growth a relatively small importer of sesame (it ranked 46th as crustaceans (such as lobster) and mollusks (such in 2018). The Export Potential Map estimates this as cuttlefish and squid). Analysis by the FAO and high export potential for Somalia in part because the World Bank (2018) finds that tuna, tuna-like species, historical trade data show that Somalia trades more and small pelagic fish offer the best prospects for (across all products) with Bulgaria than with the commercial production. average country. Somali exporters thus have certain advantages in the Bulgarian market (commercial 47. ITC’s Export Potential Map identifies whole contacts, knowledge of trade procedures) that could frozen fish as the fisheries product with the greatest spill over to sesame exports. potential for export growth. Somalia is a small supplier of whole frozen fish (HS 030389). It ranked 44. How could Somalia realize its untapped export 61st out of 162 exporters in 2018, with a 0.2 percent potential? Increasing productivity is one step. share of the world market (see A5.2 in Annex 5). ITC’s Analysis by the Food and Agriculture Organization Export Potential Map estimates Somalia’s average (FAO) and the World Bank finds that yields in Somalia annual frozen fish exports in 2015–19 at $8.4 million, are low but that with modest improvements in well below the potential of $17.0 million. In some irrigation systems, seed quality, pest control, and countries, notably Korea, Oman, the United Arab general crop management, Somali farmers have Emirates, and Saudi Arabia, Somalia’s actual export demonstrated that they can achieve up to fourfold exceed their hypothetical potential, suggesting little increases in output per hectare (FAO and World room for additional growth (Figure 4.4). ITC’s Export Bank, 2018). Potential Map estimates that Somalia’s unrealized potential to export frozen fish to other countries at 45. Expanding sales of sesame to new markets is a $11.9 million, 142 percent above current levels. second step. Table 5A.1 shows that Somalia exported to only eight countries in 2018 and that 77 percent 48. Côte d’Ivoire, the world’s 11th-largest importer, of sales were to two importers (India and the United purchased 47 percent of Somalia’s frozen fish Arab Emirates). Entering new markets generally exports in 2018, about 4 percent of the Ivorian requires producers to first invest in learning about market (Table A5.2 in Annex 5). Although Côte the country’s policies and economic conditions. d’Ivoire is already the largest market for Somali fish, Somali sesame exporters may be able to benefit it is also where Somalia faces the greatest unrealized from market intelligence gathered by other Somali potential for growth. Observed average annual exporters in countries that already import other exports are estimated at $3.0 million in 2015–19; products from Somalia. For agro-food products potential exports are $8.6 million. Somalia also such as sesame seeds, Somali producers would also has potential to expand its exports to China and need to meet the food hygiene regulations imposed Japan, Somalia’s fourth- and seventh-largest by importing countries, which likely would require export markets, respectively, in 2015–19. The additional investments. Export Potential Map estimates that Somalia could potentially increase annual exports by $5.4 million, Fish an almost sevenfold increase. 46. With a large Exclusive Economic Zone— Somalia has the longest coastline in Africa— 49. Somalia also has the potential to increase Somalia’s maritime fishery has strong growth exports of several other fisheries products, potential. It is home to a range of marine ecosystems including mollusks and invertebrates (such as that support both large and small pelagic (highly squid); frozen lobster and other crustaceans; frozen migratory) species, from tuna to sardines, as well flatfish, mackerel, and filets; and cured fish. Somalia 22 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 4. Opportunities for Export Growth Figure 4.4: Actual and potential exports of frozen fish, by market Source: https://exportpotential.intracen.org/en/markets/gap-chart? fromMarker=i&exporter=706&whatMarker=k&what=0303Xa&toMarker=j, accessed December 3, 2020. Note: Observed values of Somalia’s annual exports are weighted averages of partner markets’ imports of miscellaneous whole frozen fish from Somalia in 2015–19. is currently a small producer of these products 51. In the short run, it seems likely that export and exports them to only a few markets. It was the growth will come primarily through licensing of 82nd largest exporter of cuttlefish, squid and other fishing vessels that can deliver fish directly to invertebrates and mollusks in 2018 (out of 180 export markets. To guide this growth, it is important exporters), and it sold 87 percent of its exports to to improve market intelligence on foreign buyers’ just one market (the United Arab Emirates). It had no preferences (for different species and types of sales to the world’s top importers (see Table A.5.3 in preparation, for example) and the collection of Annex 5). data on Somalia’s marine resources. Rebuilding a commercial fishing industry over the long run would 50. How can Somalia realize this potential? The require significant private and public investments, in first step is to increase the catch in a sustainable vessels and onshore processing and logistics; in port manner. Doing so hinges critically on having a good facilities; in fish hygiene, inspection, and compliance; legal, regulatory, and institutional framework for and in human capital (FAO and World Bank 2018). fisheries management. A draft Federal Fisheries Law that is under preparation represents one step in this 4.3 Potential for exports by destination direction. It addresses gaps in the existing (2014) law 52. The Middle East has purchased the majority of by strengthening provisions governing conservation Somalia’s exports since the 1970s. The ITC Export and protection of Somalia’s marine ecosystems, Potential Map analysis suggests that the potential licensing of vessels, preparation of management for further growth to the Middles East is somewhat plans, and monitoring and enforcement of fishing limited (Figure 4.5). Somalia already exports more operations. of several products to countries in the region than Trade as an Engine of Growth in Somalia • Constraints and Opportunities 23 4. Opportunities for Export Growth Figure 4.5: Observed and potential exports of Somali goods, by region Source: https://exportpotential.intracen.org/en/markets/gap-chart?fromMarker=i&exporter=706 &toMarker=r&whatMarker=a&what=a, accessed December 4, 2020. Note: Observations are ordered vertically based on the value of Somalia’s unrealized exports to the region. Unrealized exports to East Asia are the largest, followed by exports to the Middle East. the model would predict (including live sheep and gums and resins, and lemons and limes are especially goats to Saudi Arabia, sesame to the United Arab promising in East Asia. Exploiting these opportunities Emirates, and whole frozen fish to Oman). This would more than double Somalia’s current exports analysis estimates that Somalia could increase its to the region. Virtually all of the untapped export exports to the Middle East by a modest 10 percent potential identified in South Asia lies in gums and above current levels if it exploited all remaining resins ($11.1 million of the $12.8 million total shown untapped potential in other products and markets in Table 4.2). The products with the most potential (Table 4.2). for additional exports to the European Union and Western Europe include nonfish seafood (squid, 53. East Asia, South Asia, and Europe show the cuttlefish, and other invertebrates and mollusks); greatest potential for export growth, with some lemons and limes; sesame; and live sheep. variation in products across regions. Sesame, fish, Table 4.2: Observed and potential Somali exports, by region Observed Untapped potential Growth potential Region (2015–19 average) (annual) (percent) East Asia 32.4 38.2 118 Middle East 301.9 29.5 10 South Asia 15.9 12.8 81 European Union and Western Europe 22.6 11.2 50 Western Africa 3.2 5.9 184 Northern Africa 1.4 1.3 93 Subtotal of top regions 376.0 97.6 26 Source: https://exportpotential.intracen.org/en/markets/gap-chart? fromMarker=i&exporter=706&toMarker=r&whatMarker=a&what=a, accessed December 4, 2020. Note: Observed values of Somalia’s annual exports are weighted averages of partner markets’ imports from Somalia in 2015–19. Observed and untapped potential are in millions of dollars. 24 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Chapter 5 OPPORTUNITIES FOR PRODUCT DIVERSIFICATION exportpotential.intracen.org Photo: XXXX Trade as an Engine of Growth in Somalia • Constraints and Opportunities 25 5. Opportunities for Product Diversification MAJOR FINDINGS • Somalia’s best opportunities to diversify exports into new products lie with goods whose production is closely related in the product space to exports in which Somalia currently exports. • The most promising related products are new fish and shellfish species and agro-food products such as sesame oil, meat, and processed fruits. 54. The previous section identified the potential and 1975, as the economy diversified and moved to increase exports of products that Somalia away from colonial-era trading relationships (Figure currently produces, both by exploiting untapped 5.1). To take into account the values of goods that potential in markets that Somalia currently serves Somalia exports, Figure 5.1 also shows the Hirschman and by expanding sales to new markets. This concentration index over time.19 Hirschman index is section explores opportunities to diversify exports a commonly accepted measure of market dispersion into new products. of trade value across an exporter’s partners. It measures the competitiveness of a country in terms 5.1 Product diversification of the market concentration of its trade partners. A 55. Diversifying a country’s export basket into second period of export diversification took place new products can help boost a country’s export between 1989 and 2007, after state trading and revenue. It is also a critical part of technological strict currency and trade controls on the private change and economic growth. Economies grow sector disappeared with the collapse of the Siad in large part by upgrading the products that firms Barre regime. During this period, Somalia became produce, increasingly moving into production of a de facto free trade area. Partners’ trade statistics goods that require more advanced technology, show new imports from Somalia of machinery and capital, institutions, and skills.18 Somalia diversified equipment that likely were looted during the civil its export basket in the past. Somali firms doubled war rather than manufactured in Somalia. Since the number of products they exported between 1965 2010, experience has been mixed. Between 2010 Figure 5.1: Product diversification and concentration of Somalia’s exports, 1962–2019 45 0.00 40 Periods of increasing diversification 0.10 Share of product lines in SITC (%) Hirschman index (inverted scale) 35 0.20 0.30 30 0.40 25 0.50 20 0.60 15 0.70 10 0.80 5 0.90 0 1.00 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Share of products with exports Hirschman concentration index Source: World Bank staff calculations using UN Comtrade mirror statistics. Note: Products are defined at the four-digit (subgroup) level of the SITC. 18 This approach to international trade and economic growth was developed in Hausmann and Rodrik (2003); Hausmann and Klinger (2007); Hausmann, Hwang, and Rodrik (2007); and Hidalgo and others (2007). It is embodied in the Observatory of Economic Complexity data visualization platform (https://oec.world/). 19 The Hirschman concentration index equals 1 when a country exports only one product and approaches 0 when a country exports equal values of all products. See Annex 3 for more information. 26 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 5. Opportunities for Product Diversification and 2015, Somalia exported increasing number of come from different industries, such as processed products, although the most income was generated food products and textiles or food products and from very few commodities. In contrast, during 2016 the bottles or packaging used by food-processing and 2020, Somalia’s exports concentration on few industries. products was increasing, while the number of the number of exported products was declining. 59. The map for a country shows a country’s current exports and opportunities for 56. Countries are likely to diversify into exporting diversification into new products. Where currently new products that are related to existing exports exported products lie in densely clustered areas of in the sense that they make use of the same the product space, the country has many plausible capabilities, possibly because they are part of a opportunities to diversify. In contrast, when products common value chain, require similar inputs, use that the country exports are located in sparse areas similar management processes, or have similar of the space, there are fewer likely opportunities. degrees of technical sophistication. Product space analysis employs this notion of product relatedness 5.3 Potential new exports in Somalia’s to identify potential new export products, building product space map on empirical research that finds that countries are 60. Figure 5.2 shows Somalia’s product space more likely to start exporting new products that are using export trade data for 2018 generated by related to their current exports. the Observatory of Economic Complexity. The 34 colored nodes represent products that Somalia 5.2 Product space analysis exported with an RCA greater than or equal to one 57. The product space map developed by Hidalgo in 2018. The dark grey nodes represent the 817 and others (2007) is a representation of how products that Somalia did not export in 2018 (RCA of similar the products a country exports are to each zero) and the 173 products with RCAs between zero other. Each node in the network map represents and one. an internationally traded product (as defined by a product classification system, such as the HS). Links 61. Live sheep and goats, Somalia’s largest export connect nodes that have a high probability of being sectors by value, are shown by the large orange co-exported, based on a statistical analysis of all circle that is a terminal node (also called leaf node countries’ trade flows over time. Products that have a that is extending to any other node in the product high degree of similarity or relatedness (for example, space) at the bottom-right area of the product metal products or garments) are clustered in the space. It lies close to goat and sheep skins and map. Along the peripheries of the map are products hides, which Somalia exports in smaller quantities. that are closely related to only one other product. The product space analysis finds that exports of Users of the Observatory of Economic Complexity’s hides and skins are (statistically) closely related to website (www.oec.world) can create product space and co-exported with other products, ranging from maps for any country using annual export data for sausages, seasonings, and animal feed to paper 1995–2018. labels, paper packaging, wooden cases, and plastic lids and articles used in construction. 58. Some sets of products that econometric analysis finds to be co-exported are unsurprising 62. Oil seeds (including sesame seeds) are (apples and pears, for example, or different types represented by the yellow circle in the upper- of garments). Product space analysis is arguably right area. Like the node for live sheep and goats, more useful where it identifies co-exports that this node is a terminal node in a periphery of the Trade as an Engine of Growth in Somalia • Constraints and Opportunities 27 5. Opportunities for Product Diversification Figure 5.2: Somalia’s product space, 2018 Sesame seed HS Section Animal products Not currently exported Textiles and garments Precious metals Metals Transportation Vegetable products Animal, vegetable byproducts Foodstu s Mineral products Chemical products Animal hides Live Fish and seafood Gold shoats Citrus Goat, sheep meat Goat, sheep hides Source: Observatory of Economic Complexity (https://oec.world/en/profile/country/som#product-space), accessed November 15, 2020. Data are from BACI. [[AU: Spell out?] Note: Products are defined at the four-digit (subheading) level of the HS classification. Colored nodes are products with a revealed comparative advantage of at least 1 in 2018. The size of the colored nodes is proportional to the value of Somalia’s exports. product space. However, it has a link into a cluster of machinery needed to produce higher-quality oil closely related food products that Somalia currently in larger, exportable volumes. The Observatory of does not export in large quantities or at all, including Economic Complexity’s product space analysis finds fruit and vegetable juices, preserved vegetables, that sesame oil is often co-exported with a range of jams and jellies, and processed fruits and nuts. This cotton and synthetic fabrics (in HS headings 5407 and cluster also includes wheat flour, baked bread, and 5512–5515) as well as leather footwear (HS 6403). confectionary sugar. 64. Somalia currently exports dried lime. 63. Sesame oil is one potential new export. Historically, it exported other fruits, most notably Somalia already raises sesame seed, and analysis bananas. Moving into processed fruit products suggests that increased yields are attainable. Many (juices, jams, and jellies) requires not only scaled- small-scale producers operate in Somali cities. Their up fruit production but also private firms that are knowledge and experience could be leveraged to willing to invest and secure supplies of inputs support larger-scale commercial oil processing. A throughout the year (not just during Somalia’s study by the FAO and World Bank (2018) argues that harvest season), as well as a standards and quality Somalia could engage in larger-scale commercial regime that enables producers to demonstrate oil processing through private sector investment food safety. in the higher-capacity sorting and cleaning 28 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 5. Opportunities for Product Diversification 65. In the bottom-center of the product space 5.5 Exploiting opportunities for product figure (5.2) shows Somalia’s exports of frozen fish, diversification mollusks, crustaceans, processed fish, and fish oil. 67. Before they can export new goods, firms The product space analysis finds that these products must make large up-front investments in new are closely related to one another and also to other production, learn about foreign market conditions seafood products in which Somalia’s exports are and policies, and establish business relationships. currently small, including fresh fish, fish fillets, and Firms in low-income countries often operate in fish meal for animal feed. Some of these products are unsupportive macroeconomic, regulatory, and also linked to other animal products, such as chilled trading environments characterized by high trade beef and edible offal, both of which have processing transaction costs that make entry and survival or storage requirements similar to those of fish. more difficult. These challenges are magnified in situations of fragility.20 5.4 The challenge of export survival 66. It is not sufficient to simply add new products; 68. Exporting new products is more challenging Somalia needs to sustain these exports over than increasing sales of existing exports. A global time. Somalia’s export basket exhibits considerable analysis of country-level trade data from 1975 to 2015 churning of new products entering and others (Giri, Quayyum, and Yin 2019) finds that the main exiting year. This churn was greatest between factors explaining successful export diversification 2000 and 2009, when an average of 102 new are country’s human capital, openness to trade, products a year were exported and an average of quality of governance and institutions, infrastructure 96 products dropped out (Figure 5.3). Since 2015, exit (especially for industrial products), and access to has outweighed entry. Many products are exported finance (especially for primary commodities). intermittently; 19 percent of the products Somalia has exported since 1980 were exported only once or twice. Figure 5.3: Export survival, 1980–2019 a. Export entry, exit, and survival b. Duration of exporting 300 100 100 250 90 90 Number of products exported 80 80 Number of products exported 200 Cumulative share (%) 150 70 70 60 60 100 50 50 50 40 40 0 median = 6years 30 30 -50 20 20 -100 10 10 -150 0 0 0 5 10 15 20 25 30 35 40 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 Years exported, 1980-2019 Survived Entered Exited Frequency Cumulative % Source: World Bank staff calculations using UN Comtrade mirror statistics. Note: Products are defined at the four-digit (subgroup) level of the SITC. 20 See Brenton, Cadot, and Pierola (2012) for a summary of research on export entry, exit, and survival in African countries. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 29 5. Opportunities for Product Diversification 69. Many of these challenges are product · High electricity costs: Firms need affordable and specific. The requirements to competitively reliable power to run machinery and (if needed) produce export-quality meat differ from those refrigeration. needed for leather, even though both depend · Inadequate transportation infrastructure: Much ultimately on the same animal inputs. Similarly, of Somalia’s rural, urban, and international road commercial export of fruit juices, cooking oil, transport infrastructure is in poor condition. Port sugar, or new fish or shellfish species each has capacity is deemed adequate for current trade a different production process. Furthermore, flows, but it would need to expand to support products must satisfy preferences, standards, significant export growth (AfDB 2016). About and regulations in importing countries.21 The 40 percent of firms responding to the 2019 capabilities needed to meet countries’ import Trade Facilitation survey highlighted transport requirements for one product are not always constraints as impeding factors (IFC, 2020). easily applied to other products or markets. · Vulnerability to weather shocks and pests: Frequent drought, flooding, pest infestations, and other 70. Decisions about which new goods to produce natural hazards interrupt the production of the and export are ultimately made in the market; agricultural inputs that expanded commercial firms determine whether it is profitable to invest production and export of foodstuffs requires. in new production. Nevertheless, there are roles for governments, donors, trade associations, and · Pervasive informality: Employment is dominated educational institutions that could be prioritized by informal microenterprises, self-employment, in Somalia’s national trade strategy or in sectoral and unpaid household work. Investments in development strategies. They include providing the manufacture and export of the products business support services, technical training, and identified above typically require firms that have incubation support and facilitating adaptation of larger scale, managerial capacity, and access to production technologies for specific products. finance, as well as the legal status to enter into contracts with foreign buyers and suppliers. 71. Some obstacles affect many products. Agro- · Insecurity: Continued conflict and Al- food, fisheries, and light manufacturing products, Shabaab’s extortion of businesses are powerful for example, face the following common challenges: disincentives to investing in new production. 21 For example, potential meat exporters must learn about consumers’ preferences for different cuts, qualities, preparation, and packaging. Inputs used in complex manufacturing processes must be made according to buyers’ product specifications, and almost all governments have technical regulations governing the import and sale of products that potentially expose people to health or safety hazards or pose risks to the environment. 30 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Chapter 6 STRATEGIES FOR GROWTH AND DIVERSIFICATION Photo: XXXX 6. Strategies for growth and diversification MAJOR FINDINGS • The most promising priority for Somalia’s trade strategy in the short to medium term is to boost the sales of existing exports. • Facilitating diversification into new exports should be the strategy’s main priority for the longer term. • Export growth and diversification will require concerted effort to address a range of supply-side constraints. 72. Production and export dependence in labor cost, abundance of natural resources, and primary commodities leaves Somalia vulnerable opportunities to increase yields on cultivated to price- and partner-specific shocks. A decrease land. Currently, the processed food industry in the specialization of Somali exports away from is still young and growing. These products animal products might have been affected by the have relatively high levels of sophistication; lack of Somalia’s participation in related global strengthening these industries could be value chains. instrumental in diversifying the economy. · Compete on the quality of existing agricultural 6.1 Increasing sales of existing exports in the short to medium term and fish exports (not just on price) and increase production. Given Somalia’s strong comparative 73. In the short to medium term, Somalia’s advantage in live animals, sesame seeds, and national trade strategy should focus on increasing fish, enhancing the productivity and quality of exports of products in which Somalia currently these products will not only increase export has a comparative advantage. Although most of earnings, it will also lay the foundation for more these exports are primary products (like live animals sophisticated diversification in the long term. and vegetables), other manufactured products To succeed internationally, it is important to (like fish oil and processed fish) on the lower end of the complexity spectrum seem feasible given identify and exploit a wider range of market Somalia’s export potential.23 These products are opportunities. within Somalia’s current reach; fostering them · Encourage cooperation among exporting firms would increase manufacturing skills that are across industries, to help address common a prerequisite for accelerated diversification challenges firms face in servicing foreign markets. into more sophisticated products. This strategy Cooperation across sectors has been successful can lay the foundation for acquiring the more elsewhere in Africa. For example, Ugandan fish sophisticated technical skills necessary for exporters joined forces with flower exporters’ large-scale manufacturing. Labor-intensive light ground-handling firms to reduce freight rates manufacturing led the economic transformation of and improve freight services at Entebbe Airport. many of the most successful developing countries (Dinh, et al., 2012). Options to build competitive 6.2 Diversifying into new products over the sectors for export diversification could include: long term · Strengthen and expand agro-processing 74. Over the longer term, Somalia’s trade strategy industries. Somalia’s agro-processing industries should emphasize diversification into a few more include fish oil, processed fish, and vegetable oils. sophisticated products that can generate demand Somalia’s potential for agribusiness lies in its low for wage employment. 23 See Table A3.3 in Annex 3 for the list of products in which Somalia had an RCA in 2018. 32 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 6. Strategies for growth and diversification Potential product priorities potential entrepreneurs/firms to move on their 75. Fish products. Somalia has the potential to own to identified new activities while operating develop a fish-processing industry, an industry that existing activities more productively. In practice, is highly labor intensive. Somalia has only a few fish- the provision of the missing public inputs requires processing firms, but targeted policy support could a government that can identify as many obstacles enhance the country’s production capabilities. and opportunities as possible and make informed Promoting the sustainable use of fisheries, linking choices. The success of such strategic bets will smaller operators to new value chains, and improving critically hinge on the quality and depth of public– regional cooperation over shared resources would private dialogue. Once the government identifies support the vulnerable and the poor who depend the categories of products that need to be the target on fisheries. of its medium- and longer-term perspective plans, appropriate policies can be devised to facilitate 76. Agribusiness. Somalia’s competitiveness private investment. Identifying the country’s export potential for agribusiness lies in its low wages; sector potential and opportunities will also inform suitable soil condition for grains, oilseeds, fruits, the donor community about areas that require focus and vegetables; and opportunities to increase yields while promoting export diversification as a way to on cultivated land. The inability to produce and sustain economic growth and poverty reduction. process agro-industrial commodities has limited the scope for industrialization, as opportunities to add Cross-sectoral priorities to support export value and create jobs have not been adequately diversification exploited. Somalia must stimulate its agro-industry 78. The national trade strategy’s diversification first by increasing agricultural productivity and agenda overlaps with other economic reform areas, reducing post-harvest losses resulting from including the business enabling environment, inadequate storage, packaging, and transport infrastructure, financial sector development, and facilities. To unleash the potential of agribusiness, human capital. The trade strategy can lend support the government should (a) facilitate private sector to ongoing reform initiatives. Key priorities in these investments in key input markets, such as fertilizers areas for trade and export competitiveness include and hybrid seeds; (b) pilot the use of land and cattle the following: as collateral in key locations; and (c) facilitate access · Power and transportation infrastructure: The to rural land for good-practice investors. The 2018 establishment of a modern legal and regulatory Country Economic Memorandum on agriculture framework is critical to investment in power prepared by the FAO and World Bank presents generation and distribution. Investing in road detailed policy recommendations for increasing infrastructure, likely to be a primarily public production across the agricultural sector. The sector responsibility, and attracting private recommendations, summarized in Annex 7, include investment to port facilities are also priorities for investing in irrigation and agricultural research, long-term export diversification. facilitating investment in specialized logistics and · Business regulatory environment: Adopting a distribution, and developing a national standards Business License Law and issuing regulations infrastructure. to implement the 2019 Company Law will help enable Somali entrepreneurs to establish firms 77. This approach to product diversification and conduct business with foreign businesses. emphasizes the importance of first learning Independent sectoral regulators must ensure about cross-sector barriers and providing the a level playing field in telecommunications, necessary sector-specific public inputs to allow transportation, and financial services to prevent Trade as an Engine of Growth in Somalia • Constraints and Opportunities 33 6. Strategies for growth and diversification anti-competitive behavior that raises the costs 6.3 Other considerations for Somalia’s for users of these critical services. A trade national trade strategy information portal and similar portals in other Trade data capacity regulatory areas would increase the transparency 80. The dearth of data on production and trade of the emerging trade regulatory framework for poses a severe challenge to effective trade policy both foreign and domestic firms. and private sector decision making. Building · Financial sector reform: All firms need a well- systems for collecting, compiling, analyzing, functioning financial system for transactions and publishing trade data needs to be a part of and credit, whether or not they engage in a national trade strategy. The most important international commerce. Reform initiatives priority is to harmonize customs administration underway in the financial sector that aim to throughout the country, modernize and automate prevent money laundering and the financing procedures, compile data on values and quantities of terrorism (such as passing the Targeted in line with international practices, and publish the Financial Sanctions Law, conducting a national data. Federal and state governments are currently money laundering and terrorism financing risk working toward this goal as part of their effort to assessment, and introducing a national digital improve revenue collection. identification system, which would help financial institutions comply with Know Your Customer 81. Improving the collection of information about requirements) are particularly important for small-scale cross-border trade is a second priority traders. These initiatives are preconditions for building trade data capacity. Such trade can be for reestablishing correspondent banking important for poverty reduction in border areas.24 relationships with international banks, which in Policies to boost exports of livestock, meat, and turn would allow traders to make trade payments other animal products need to be informed by a through secure banking channels. better understanding of the cross-border trade in live animals with Ethiopia and Kenya. Uganda, Rwanda, and other countries in the region have 79. All of these initiatives involve writing or developed regular data collection exercises.26 amending laws; they will therefore require the negotiation of trade agreements, regional 82. The production-side data challenges are orders integration arrangements, and WTO accession. To of magnitude larger, as the government must facilitate the legal reform process, the national trade compile not only economy-wide information on strategy could conduct a gap analysis of Somalia’s final production of all goods and services but also current framework of trade-related legislation, data related to the cost of production and input– regulations, and policies. Another priority would output linkages across sectors. Implementing a be to build consensus among stakeholders on regular integrated business establishment survey the development of a comprehensive, prioritized to gather production and productivity statistics legislative action plan. needed for estimating GDP (which the Directorate of National Statistics plans to undertake) is, by extension, a critical input for implementing a national trade strategy. 24 See World Bank (2011) for a discussion of the importance of small-scale cross-border trade in the Great Lakes region and examples of polices that can promote the welfare benefits from this trade. 25 Two manuals for data collection are the COMESA Regional Small-Scale Cross Border Trade Data Collection Manual (COMESA 2018) and the EAC Informal Cross Border Trade Survey Manual (East African Community 2014). 34 Trade as an Engine of Growth in Somalia • Constraints and Opportunities 6. Strategies for growth and diversification Services trade agenda Facilitating imports used in exports 83. Although this report covers only goods 84. Developing policies to facilitate imports used exports, because of limitations in the data on in exporting will become an important part of services trade flows, the services trade agenda may Somalia’s trade strategy as the country rebuilds be just as important for Somalia, as services exports its economy and diversifies into the production are estimated to be of the same value as goods of new export goods and services. Few Somali exports. Services export flows recorded in Somalia’s producers are integrated into global value chains. balance of payments estimates are related to travel and apart from the export of live animals, Somalia and hospitality—presumably involving spending by has few exports whose production depends on visiting businesspeople, donors, NGOs, and the Somali imported goods and services inputs. This situation diaspora rather than tourists.27 As security conditions will likely change if Somali firms seek to enter in Somalia and the Horn of Africa improve, it may markets for labor-intensive manufactures or be feasible to consider a strategy that focuses services. Somalia will then need to consider how on transport and logistics services related to to tailor policies and investments in areas such international transit trade or on developing cultural as customs administration, taxation, temporary and ecotourism. migration, port infrastructure, warehousing, and industrial parks to facilitate the importation of inputs used in growing sectors. 27 The number of international arrivals is one proxy used to estimate services exports. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 35 ANNEXES Annexes Annex 1: Trade data and the use of mirror statistics There are large breaks in the data on Somalia’s commodity exports and imports, because during many years data were not collected or recorded according to conventional international produce classifications and valuation. As is common in these cases, mirror statistics are constructed, using the data governments report to the United Nations’ Statistics Division for inclusion in the UN Comtrade database (Table A1.1). Table A1.1: UN Comtrade data reporting by Somalia’s major trade partners, 1962–2019 Bahrain Belgium-Luxembourg Brazil China Djibouti Egypt, Arab Rep. Ethiopia European Union France Germany Ghana Greece Hong Kong, China India Indonesia Iran, Islamic Rep. Iraq Italy Japan Kenya Korea, Rep. Kuwait Malaysia Netherlands Nigeria Norway Oman Pakistan Qatar Saudi Arabia Somalia Switzerland Thailand Turkey United Arab Emirates United Kingdom United States Yemen Source: UN Comtrade. Note: Shaded cells indicate that the country reported either exports or imports (usually both) to UN Comtrade. Countries included are those that accounted for at least 1 percent of Somalia’s imports or 0.75 percent of its exports in any decade since 1962. Data were as available in November 2020. 38 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Annexes The UN Comtrade database contains bilateral product-level data on goods exports and imports, primarily on an annual basis. Until 1988, countries reported data that were organized mainly using the Standard International Trade Classification (SITC). Since establishment of the Harmonized System (HS) classification, in 1988, countries have increasingly based their import tariff schedules on the HS and reported their information to UN Comtrade organized according to the HS. The UN Statistical Division then makes the data available in the SITC, HS, Broad Economic Categories, and other classification systems. Datasets used in the Observatory of Economic Complexity and the ITC Export Potential Map visualization tools build on the data from UN Comtrade. The Observatory of Economic Complexity uses data from the BACI (Base pour l’Analyse du Commerce International) dataset of the Centre d’Études Prospectives et d’Informations Internationales. This dataset reconciles declarations of the exporter and the importer when they appear in the original UN Comtrade data to arrive at a single value for each bilateral trade flow.28 At the time of writing, Observatory of Economic Complexity tools used the 2020 version of BACI, which contains data for 1995–2018. The ITC supplements UN Comtrade data with information collected directly from country authorities and fills in missing flows using mirror statistics. The IMF Direction of Trade Statistics (DOTS) database contains bilateral commodity trade flows that are aggregated at the country rather than the product level. The IMF constructs the database using data governments report to UN Comtrade and official data reported by country authorities to the IMF. These data are complemented with estimated data for individual countries that report or publish trade statistics with a delay or do not publish trade statistics by partner countries at all. The IMF’s estimation of missing trade statistics based on counterpart trade and other information distinguishes the DOTS database from other sources of commodity trade data published by international organizations.29 Table A1.2 presents the shares of Somalia’s exports and imports with major trade partners for 1962–2018 using DOTS data. It is an alternative to Table 2.2, which uses partner statistics from UN Comtrade without corrections for missing data. Although the broad qualitative trends are similar—the top trade partners are almost identical, and the orderings of countries are similar—there are some differences that are worth pointing out. For export markets: · The United Arab Emirates’ share is, on average, higher when using DOTS data, because that ranking contains estimates for many years when it did not report to UN Comtrade. · The more complete coverage in DOTS shows that Yemen was an important export market for Somalia before 1990 and that Italy accounted for a significantly smaller share of Somalia’s exports during the 1960s when comparing the two datasets – UN Comtrade and DOTS. 28 See http://www.cepii.fr/CEPII/en/bdd_modele/presentation.asp?id=37. 29 For an explanation of the DOTS methodology, see Marini, Dippelsman, and Stanger (2018_. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 39 Annexes For import sources: · DOTS reveals that Yemen, which rarely reported to UN Comtrade before 1995, was a major source of imports into Somalia throughout the past half-century. · DOTS data suggest that Saudi Arabia and Djibouti have been more important sources of imports into Somalia over the years. These countries push Germany, Brazil, and the United Arab Emirates out of the top 10 sources. Table A1.2: Share of commodity exports and imports of Somalia’s major trade partners, 1962–2018, using IMF Direction of Trade Statistics (DOTS) Country 1962–69 1970–79 1980–89 1990–99 2000–09 2010–18 Destination of exports Saudi Arabia 28 58 53 40 9 38 Italy 49 19 16 11 0.4 0.1 United Arab Emirates n.d. 2 5 15 37 17 Yemen 13 3 13 20 20 4 Oman n.d. 1 0.2 2 7 20 Kuwait 2 3 0.01 1 5 0.3 India 0.003 0.06 0.1 2 5 3 Nigeria n.d. n.d. 0.05 n.d. 6 3 All other countries 10 14 12 9 12 14 Origin of imports Italy 35 28 30 10 1 1 Yemen 13 3 13 20 20 4 Saudi Arabia 0.4 13 8 5 23 8 Kenya 5 3 2 13 19 10 India 2 2 1 5 10 19 United States 9 5 13 5 3 2 United Kingdom 6 8 6 3 2 1 Djibouti n.d n.d. 3 19 1 3 China n.d n.d. 3 1 4 16 Oman n.d n.d. 0.2 0.1 8 12 All other countries 29 38 22 19 8 24 Source: World Bank staff calculations based on data from DOTS. Note: Data are as of November 2020. n.d. = no data appear in DOTS for all years during the decade. Neither UN Comtrade nor DOTS show the Soviet Union as ever having been a major trade partner of Somalia. (It never reported data to UN Comtrade.) Data published by the Somali government before 1990 indicate that the Soviet Union accounted for 9–12 percent of Somalia’s annual goods imports during the mid-1970s (World Bank 1975, 2006). 40 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Annexes Annex 2: Additional trade statistics Table A2.1 presents Somalia’s top imported products from 1962 through 2018, defined at the two-digit (division) level of the SITC. This is a more granular and product-focused presentation than shown in Figure 2.2, which presents the full distribution of all imports based on the higher-level Broad Economic Categories classification. Table A2.1: Composition of Somalia’s commodity imports at the two-digit (division) level of the Standard International Trade Classification (SITC), 1962–2018 Import 1962–69 1970–79 1980–89 1990–99 2000–09 2010–18 Cereals and cereal preparations (04) 12 11 18 22 20 19 Transport equipment (73) 15 30 18 6 1 3 Sugar, sugar preparations, and honey (06) 0.4 3 1 16 17 12 Machinery other than electric (71) 11 12 12 6 1 3 Electrical machinery and apparatus (72) 4 5 6 3 4 4 Tobacco and tobacco manufactures (12) 3 2 1 5 9 4 Textile yarn, fabrics, made-up articles (65) 7 3 2 2 2 5 Petroleum and petroleum products (33) 4 5 4 5 1 1 Manufactures of metal, n.e.s (69) 5 4 4 1 1 2 Medicinal and pharmaceutical products (54) 3 2 2 2 3 3 All other imported goods 36 24 32 30 39 44 Source: World Bank staff calculations based on data from UN Comtrade. Note: Figure shows the percent of commodity imports in each SITC division. Statistics are based on data reported by Somalia’s trade partners. Figures in parentheses are the two-digit (division) product code, as defined in the Standard International Trade Classification. n.e.s. = elsewhere specified. Figure A2.1: Composition of the current account (share of GDP), 2015–20 100 80 60 40 Percent of GDP 20 0 -20 -6.0 -9.4 -9.8 -7.5 -10.5 -12.8 -40 -60 -80 -100 -120 2015 2016 2017 2018 2019 2020p Grants Remittances Exports Imports Current account Source: IMF, 2019, 2020a, 2020b Note: Figures for 2020 are projections. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 41 Annexes Table A2.2: Composition of the current account (millions of US dollars) Item 2015 2016 2017 2018 2019 2020 Trade balance –3,043.9 –3,123.9 –3,907.5 –4,004.7 –4,103.5 –4,481.9 Exports 1,035.1 1,056.8 1,017.6 1,119.5 1,120.4 702.5 Goods 680.5 646.6 485.7 570.5 554.2 277.1 Services 354.6 410.2 531.8 549.0 566.2 425.4 Imports 4,079.0 4,180.6 4,925.1 5,124.1 5,223.9 5,184.4 Goods 2,744.1 2,849.8 3,451.9 3,573.7 3,614.3 3,771.9 Services 1,335.0 1,330.8 1,473.2 1,550.4 1,609.6 1,412.5 Current transfers (net) 2,746.5 2,762.0 3,503.1 3,682.3 3,621.6 3,887.2 Private remittances 1,332.1 1,365.0 1,423.1 1,482.7 1,578.3 1,543.4 Official grants 1,414.4 1,397.0 2,080.0 2,199.7 2,043.2 2,343.7 Income (net) –29.2 –30.3 –32.6 –34.1 –35.7 –35.5 Current account balance –336.6 –392.0 –437.0 –356.4 –517.7 –630.3 Source: World Bank staff calculations and IMF staff reports. Note: Figures for 2020 are projections. 42 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Annexes Annex 3: The Revealed Comparative Advantage (RCA) Index and concentration indices The concept of revealed comparative advantage (Balassa 1965, 1977, 1979, 1986) pertains to the relative trade performance of individual countries in particular commodities. On the assumption that the commodity pattern of trade reflects the intercountry differences in relative costs as well as nonprice factors, the RCA is assumed to “reveal” the comparative advantage of the trading countries. The factors that contribute to movements in RCA are structural change, improved world demand, and trade specialization. We adopt Balassa’s (1965) measure of relative export performance by country and industry/commodity, defined as a country’s share of world exports of a commodity divided by its share of total world exports. The index for country c commodity i is calculated as follows: where x(c,i) is the value of the exports of country c in the ith good. The index of revealed comparative advantage (RCAci) has a relatively simple interpretation. If it takes a value greater than 1, the country has an RCA in that product; if RCA(c, i) < 1, the country is not an effective exporter of that product. The advantage of using the RCA Index is that it considers the intrinsic advantage of a particular export commodity and is consistent with changes in an economy’s relative factor endowment and productivity. The disadvantage is that it cannot distinguish improvements in factor endowments from the pursuit of appropriate trade policies by a country. Albert Hirschman (1945 [1980]) developed an index to measure the concentration of countries’ trade flows: where N is the number of products exported and si is the ith product’s share of the country’s total exports. When a country exports a single product, the value of the index is 1. When a country exports N products of equal value, the value of the index is 1/N, which approaches 0 as grows very large. With 1,225 products defined at the four-digit (heading) level of the HS classification, the minimum value of the Hirschman concentration index would be 0.00082. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 43 Annexes Table A3.1: Number of products exported by Somalia with revealed comparative advantage (RCA) greater than 1, 2018 Number of products Number exported by Number exported HS Section in section Somalia with RCA>1 1: Animal products 43 15 9 2: Vegetable products 77 19 6 3: Animal and vegetable byproducts 21 4 2 4: Foodstuffs 56 7 1 5: Mineral products 66 6 2 6: Chemical products 179 11 2 7: Plastics and rubbers 43 10 0 8: Animal hides 20 6 4 9: Wood products 27 1 0 10: Paper goods 40 2 0 11: Textiles 152 13 1 12: Footwear and headwear 19 3 0 13: Stone and glass 48 2 0 14: Precious metals 18 5 3 15: Metals 148 17 2 16: Machines 132 36 0 17: Transportation 38 7 2 18: Instruments 53 7 0 19: Weapons 7 0 0 20: Miscellaneous 31 1 0 21: Arts and antiques 6 1 0 Total 1,225 173 34 Source: World Bank staff calculations using RCAs estimated by the Observatory of Economic Complexity, based on 2018 BACI data (https://oec.world/en/profile/country/som). Note: Products are defined at the four-digit (heading) level of the HS classification. 44 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Annexes Table A3.2: Number of products exported by Somalia and neighboring countries exported with revealed comparative advantage (RCA) greater than 1, 2018 South HS Section Djibouti Ethiopia Kenya Somalia Sudan Sudan Yemen 01: Animal products 6 6 14 9 1 6 8 02: Vegetable products 12 23 27 6 5 13 25 03: Animal, vegetable byproducts 0 1 6 2 0 1 2 04: Foodstuffs 2 4 21 1 0 4 5 05: Mineral products 3 4 11 2 1 2 2 06: Chemical products 4 0 29 2 0 1 1 07: Plastics and rubbers 3 2 4 0 0 1 1 08: Animal hides 4 8 6 4 0 4 5 09: Wood products 1 0 3 0 1 1 0 10: Paper goods 1 0 7 0 0 1 0 11: Textiles 4 30 29 1 1 2 0 12: Footwear and headwear 2 3 3 0 0 0 0 13: Stone and glass 1 0 4 0 0 0 2 14: Precious metals 1 2 3 3 0 1 2 15: Metals 7 0 21 2 0 5 7 16: Machines 4 5 7 0 0 0 0 17: Transportation 6 0 8 2 0 0 1 18: Instruments 2 0 3 0 0 0 0 19: Weapons 1 0 0 0 0 1 0 20: Miscellaneous 1 0 5 0 0 0 0 21: Arts and antiques 0 1 1 0 0 0 1 Total products with RCA>1 65 89 212 34 9 43 62 Hirschman concentration index 0.37 0.40 0.26 0.47 0.95 0.42 0.57 Value of exports (millions of dollars) 97.8 2,414.9 6,627.8 483.5 1,709.6 4,080.5 1,532.6 Source: World Bank staff calculations using RCAs estimated by the Observatory of Economic Complexity based on 2018 BACI data (https://oec.world/en/profile/country/som). Note: Products are defined at the four-digit level of the HS code. Hirschman concentration index = 1 when a country’s exports are concentrated in a single product and approaches 0 when exports are evenly distributed across all products. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 45 Annexes Table A3.3: Somali products with revealed comparative advantage (RCA) greater than 1, 2018 Product HS Section RCA value Sheep and goats (0104) Animal products 3,484 Gums and resins (1301) Vegetable products 1,580 Bovine (0102) Animal products 167 Other hides and skins (4103) Animal hides 146 Sesame and other oilseeds (1207) Vegetable products 139 Armored vehicles (8710) Transportation 113 Tanned goat hides (4106) Animal hides 95 Mollusks (0307) Animal products 70 Scrap vessels (8908) Transportation 57 Sheep hides (4102) Animal hides 31 Fish oil (1504) Animal and vegetable byproducts 25 Legume flours (1106) Vegetable products 24 Citrus (0805) Vegetable products 19 Gold (7108) Precious metals 16 Non-filet frozen fish (0303) Animal products 13 Essential oils (3301) Chemical products 12 Sheep and goat meat (0204) Animal products 12 Crustaceans (0306) Animal products 10 Tanned sheep hides (4105) Animal hides 8.7 Horses (0101) Animal products 7.0 Asphalt (2714) Mineral products 4.6 Processed fish (0305) Animal products 4.1 Industrial fatty acids, oils, and alcohols (3823) Chemical products 3.5 Processed cereals (1104) Vegetable products 3.4 Scrap lead (7802) Metals 3.4 Niobium, tantalum, vanadium, and zirconium ore (2615) Mineral products 3.3 Fat and oil residues (1522) Animal and vegetable byproducts 3.2 Coin (7118) Precious metals 3.2 Scrap copper (7404) Metals 2.9 Gauze (5803) Textiles 2.5 Pharmaceutical animal products (0510) Animal products 2.5 Processed fish (1604) Foodstuffs 1.4 Precious stones (7103) Precious metals 1.2 Buckwheat (1008) Vegetable products 1.1 Source: RCAs estimated by the Observatory of Economic Complexity (https://oec.world/en/profile/country/som), based on 2018 BACI data. Note: Figures in parentheses are the four-digit HS heading codes. 46 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Annexes Annex 4: The International Trade Centre’s Export Potential Map The International Trade Center has developed an export potential assessment methodology which is based on a decomposition of a country’s potential exports to a given target market into supply, and demand and overall ease of trade factors. The estimate of export potential for any given product is based on data on international trade flows—and specifically on Somalia’s export basket in 2015–19—rather than information about the domestic production and consumption that determine these flows. It overstates the scope for export growth in products in which large and costly investments would be required to expand productive capacity (such as investments in irrigation to boost crop production) or Somalia might face a binding physical constraint (stocks of animals, fish, and resinous trees are finite in the short run). It understates the role of entrepreneurship. The underlying International Trade Centre (ITC) trade dataset contains only the trade data that countries report to UN Comtrade. The simulations therefore underestimate the potential for Somalia to expand exports to countries that report rarely or only sporadically to Comtrade, notably Djibouti, Kenya, and Yemen (see Table A1.1). It also underestimates the importance of unrecorded trade, such as intraregional movements of livestock and small-scale trade in border communities, both of which can be important for poverty reduction. Table A4.1: Somalia’s exports and untapped export potential, by region Region Actual (2015–19 Untapped potential Growth potential average) (millions of dollars) (percent) (millions of dollars) East Asia 32.4 38.2 118 Middle East 301.9 29.5 10 South Asia 15.9 12.8 81 European Union and Western Europe 22.6 11.2 50 Western Africa 3.2 5.9 184 Northern Africa 1.4 1.3 93 North America 1.1 1.3 118 ASEAN 0.64 1.1 173 Pacific 0.067 0.17 248 Latin America 0.032 0.059 182 Eastern Europe 0.010 0.059 605 Eastern Africa 0.011 0.027 236 Southern Africa 0.032 0.025 79 Central Africa 0 0.0074 Total across all regions 379.3 101.6 27 Source: International Trade Centre Export Potential Map (https://exportpotential.intracen.org/en/products/tree-map?fromMarker=i &exporter=706&toMarker=w&market=w&whatMarker=s), accessed December 3, 2020. Note: Values of Somalia’s exports are weighted averages of partner markets’ imports in 2015–19. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 47 48 Annex 5: Markets for products that could be expanded Table A5.1: Importers and exporters of sesame, 2018 Importer Num- ber of Total CHN JPN TUR KOR IRN ISR EGY IND US SAU PSE DEU OAS UAE mar- Share of kets exports sup- (per- Exporter Rank plied cent) (100%) (37%) (7%) (7%) (4%) (3%) (3%) (3%) (3%) (3%) (2%) (2%) (2%) (2%) (1%) Total 142  100 2,921.4 1,067.4 213.9 198.1 123.3 92.9 92.1 77.6 75.7 74.5 70.6 64.4 61.8 52.3 21.2 Sudan 1 40 22 640.0 325.0 0.4 38.5 0 3.3 0 62.9 38.6 0.1 56.4 0.1 0.2 0.1 8.6 India 2 108 15 433.3 8.8 0.3 3.2 43.2 16.8 13.7 8.3 0 40.8 5.2 1.0 18.6 21.5 3.9 Ethiopia 3 40 12 356.1 216.4 12.4 15.8 2.2 2.1 71.5 1.1 0.8 2.5 3.2 8.5 0.6 0 0.0 Nigeria 4 50 8 244.8 2.5 62.5 101.5 5.8 2.8 2.2 2.0 1.8 1.7 0.2 1.6 13.0 0.8 0.2 Niger 5 8 6 167.5 166.5 0.1 0 0.2 0 0 0 0 0 0 0 0 0.1 Togo 6 10 5 132.3 127.4 0.6 0.5 2.8 0 0 0 0.5 0 0 0 0 0.4 Tanzania 7 10 4 102.8 84.1 16.6 1.4 0 0 0 0 .3 0 0 0 0.2 0 Mozambique 8 19 3 93.7 74.8 12.2 0.2 0 0 0 0 0 0 0.2 0 1.6 0 0.4 Pakistan 9 38 3 89.1 3.8 5.9 0.9 4.7 41.1 0 0 13.6 3.2 0.9 0 0.8 5.2 0.0 China 10 90 3 79.6 .. 2.4 0 62.6 0.4 0 0 0 1.3 0.0 0 0.1 2.4 0.0 Israel 11 16 2 51.1 .. 0 0 0 0 0 0 0 0 0 50.5 0 Burkina 12 17 2 48.3 0.1 41.4 1.0 0 0 0.1 0.5 0.7 0 0 0.1 0.2 Myanmar 13 10 1 40.7 9.5 13.1 0.6 0 0 0 0 0 0 0 0 9.9 Paraguay 14 35 1 35.4 1.2 13.8 0.3 0.1 0 0 0.4 0 1.0 0 0 2.6 0.4 0.0 Guatemala 15 26 1 35.0 .. 9.0 0.2 0 0 0 0 13.3 0 0 2.7 0 0.2 Mexico 16 40 1 32.5 0.4 3.9 0.1 0.6 0 0 0.3 0 6.0 0.3 0 1.7 0.5 0.1 Uganda 17 31 1 31.8 17.3 1.4 3.9 0 0.1 0.5 0.1 0 0 0 2.3 0 0.3 Netherlands 18 41 0.9 26.2 0 0 0 0 0 0 0 0.1 0 0 0 10.0 0 0.0 United Arab Emirates 19 29 0.9 25.6 0 0 0 0 18.9 0 0 3.6 0 2.0 0.2 0 0 Chad 20 8 0.8 24.6 0 0 21.9 0 0.2 0.1 1.6 0 0 0 0 0 0 0.3 Mali 21 5 0.8 24.2 21.8 0.7 0.1 0 0 0 0 0 0 0 0 0 Somalia 22 8 0.7 19.9 1.6 2.4 .4 0 0 0 0 8.8 0 .2 0 0 6.6 Egypt 23 29 0.6 16.8 0 1.3 0.7 0 0 0.1 0 0 0.1 0 2.0 1.4 0.0 Germany 24 48 0.6 16.1 0 0 0 0 0.4 0 0 0.1 0 0.0 0 0 Venezuela 25 6 0.5 14.8 0 0 0 0 0 0 0 0 0 0 0 0 United States 26 56 0.5 14.6 0 1.5 0 0 0 0 0 0.2 0 0.0 0 0 0.0 Turkey 27 56 0.4 12.7 0 3.2 0 0 0.2 0.9 0 0.1 1.0 0.6 0.3 0.5 0.0 Source: World Bank staff calculations based on UN Comtrade data. Annexes Trade as an Engine of Growth in Somalia • Constraints and Opportunities Note: Figures in parentheses are shares of imports. Country name abbreviation: CHN: China; JPN: Japan; TUR: Turkey; KOR: South Korea; IRN: Iran; ISR: Israel; EGY: Egypt; IND: India; US: United States; SAU: Saudi Arabia; PSE: Palestine; DEU: Germany; OAS: Other Asia; UAE: United Arab Emirate Table A5.2: Markets for miscellaneous frozen fish, 2018 Number Importer of Share of Annexes markets exports Total CHN KOR JPN THA US HKG RUS VNM ESP MYS CIV PRT NLD OAS ITA Exporter Rank supplied (percent)  (100%) (18%) (13%) (11%) (9%) (7%) (4%) (3%) (3%) (3%) (2%) (2%) (2%) (2%) (1%) (1% Total 136  100 4,348.9 778.7 585.2 492.5 374.1 293.6 176.3 124.1 119.0 116.4 108.7 93.2 67.2 66.2 62.9 62.8 China 1 85 18 796.8 284.6 33.6 36.6 91.8 105.9 51.8 13.7 3.3 30.0 5.0 4.6 0.5 13.2 5.2 United States 2 64 9 382.3 101.8 42.0 209.9 3.9 0 1.1 0 2.7 0.1 0.4 1.1 1.4 1.4 0.4 0.1 India 3 55 8 327.9 111.1 3.4 0.3 168.0 8.7 0.9 0.4 2.7 0.5 12.6 0.2 1.9 0.8 1.4 0.4 Other Asia, n.e.s. 4 40 5 235.4 67.1 45.9 10.4 2.3 24.4 5.2 4.0 23.1 0 0.9 0 0 Indonesia 5 52 5 199.0 122.7 2.9 2.9 9.9 7.4 5.0 0.1 4.0 0.0 12.8 0 0.0 0.9 10.0 0.3 Iceland 6 44 4 167.8 50.4 5.1 55.5 4.7 0.1 0 0 0.5 1.5 0 0 1.4 0.9 Norway 7 55 3 127.9 40.3 0.1 32.8 3.2 0.7 0.1 0 14.5 0.0 1.3 0.0 0.4 0.4 2.2 New Zealand 8 55 3 113.9 37.9 0.9 19.4 2.8 0.1 0.6 3.9 3.9 13.8 1.5 0.7 2.6 0.5 0.2 0.2 Vietnam 9 59 3 111.8 2.8 3.1 5.3 14.8 13.4 2.8 1.7 0 0 20.1 1.4 00 1.1 5.9 0.4 Pakistan 10 26 2 102.7 28.0 3.4 0.2 62.4 0.1 0.2 0 0.2 0 4.1 0 0 0.4 0.0 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Spain 11 77 2 100.4 7.0 2.5 5.4 0.2 1.9 0.6 0 0.7 0 0.5 1.0 37.1 0.8 0.6 5.5 Japan 12 56 2 94.1 17.5 3.4 11.7 2.3 3.5 7.8 24.6 0.3 5.5 1.9 0 1.4 Russia 13 38 2 89.7 21.5 25.5 32.5 0.5 0.1 0.2 0 0.8 1.2 0.0 0.2 0 0.2 Korea, Rep. 14 42 2 88.7 23.0 22.9 1.4 12.2 0.3 5.9 10.0 1.5 0.1 1.3 0.0 0.0 2.3 0.9 Canada 15 46 2 86.0 28.2 1.9 17.3 0.7 18.0 0.8 0 0.1 0.1 0.0 0.2 0.2 1.1 7.7 0.1 Senegal 16 43 2 70.4 3.0 29.4 0.4 0 0.1 1.1 0 2.4 3.0 0 23.1 0.4 0.1 0.1 0.8 Myanmar 17 36 2 69.6 0.5 0.4 0.1 3.1 12.2 0.0 0 0 0 10.8 0 0 0.5 0.1 3.2 Mauritania 18 33 2 69.4 1.0 3.0 0 0.0 0 0.0 0.9 0 8.3 0 34.6 0.3 0.1 0.0 0.3 Brazil 19 19 1 57.6 7.0 3.1 0.4 0 41.4 0 0 0 0.3 0 0.4 0.2 0.3 Argentina 20 55 1 57.2 3.4 3.3 0.7 0.0 1.6 0.6 2.9 0.1 0.9 0.5 2.7 0.3 1.1 0.5 0.4 Namibia 21 24 1 46.3 0 0.1 0 0 0 0 0 0 26.6 0 0 4.4 0.1 10.9 Greenland 22 13 1 46.2 13.2 0 1.9 0.2 0 0 11.3 0 0 0 0 0 0.0 Germany 23 44 1 42.5 5.8 0 3.3 0 0 0 0 0.1 3.7 0 0.2 2.3 17.7 0.1 Peru 60 22 0.2 8.2 0.4 0.4 0.1 0 0.5 0.2 0 0.1 0 0 0 0.1 Somalia 61 11 0.2 7.4 0.5 0.3 0.1 0.05 0 0 0 0 0.3 3.5 0 0 Lithuania 62 19 0.2% 7.0 0.3 0 1.2 0 0 0 0 0 0 0 1.1 0 Source: World Bank staff calculations based on UN Comtrade data. Note: Figures in parentheses are shares of imports. Country name abbreviation: CHN: China; KOR: South Korea; JPN: Japan; THA: Thailand; US: United States; HKG: Hong Kong; RUS: Russia; VNM: Vietnam; ESP: Spain; MYS: Malaysia; CIV: Côte d’Ivoire; PRT: Portugal; NLD: Netherlands; OAS: Other Asia; ITA: Italy 49 50 Table A5.3: Exporters and importers of mollusks and invertebrates, 2018 Importer Number of Share of markets exports US CHN JPN ESP KOR FRA HKG ITA CAN BEL GBR NLD VNM Exporter Rank supplied (percent)  Total (26%) (16%) (9%) (5%) (4%) (4%) (4%) (3%) (3%) (2%) (2%) (2%) (2%) Total 137  100 28,027.6 7,382.0 4,423.5 2,558.7 1,504.7 1,204.3 1,191.7 1,051.0 866.5 814.1 582.2 547.2 534.1 473.8 India 1 98 14 4,061.3 2,056.1 245.0 319.1 24.3 13.1 84.0 15.8 32.5 114.3 91.0 110.7 96.6 303.8 Canada 2 78 11 3,095.2 1,570.2 738.7 227.9 43.6 106.9 40.8 38.5 23.4 .0 41.9 26.1 7.2 33.2 Ecuador 3 68 7 2,014.6 519.4 483.6 12.5 227.0 68.7 227.5 1.9 180.0 14.8 14.2 27.3 20.8 28.8 Vietnam 4 90 7 2,003.1 275.5 136.1 369.5 5.9 256.4 59.2 100.2 16.8 93.7 71.0 113.6 78.8 Russian Fed. 5 54 6 1,768.6 473.6 333.2 494.3 0 368.3 7.4 1.2 0 22.7 1.3 .0 2.2 10.9 Indonesia 6 81 6 1,554.1 947.7 126.1 283.2 0.8 6.8 13.0 27.2 3.0 13.9 4.7 5.2 11.7 3.0 Argentina 7 80 5 1,489.4 139.7 288.6 150.0 374.0 19.8 25.8 2.8 167.5 11.2 6.1 3.0 0.9 29.8 China 8 102 4 1,211.4 149.1 0.0 108.0 109.3 160.9 2.2 248.9 4.7 69.4 4.8 11.7 5.2 0.8 United States 9 95 4 1,095.6 0 318.0 77.2 17.7 27.4 14.3 69.0 41.0 379.1 1.4 3.1 0.3 15.8 Thailand 10 70 4 991.9 256.0 255.6 142.2 .0 39.1 2.1 49.7 7.8 48.6 .3 20.7 1.0 9.1 Australia 11 38 2 565.6 5.7 473.6 23.6 1.0 0.2 0.4 31.8 0.4 0.4 0 1.2 0.1 6.3 Mexico 12 35 2 507.4 314.3 107.3 14.8 4.3 4.0 22.7 27.4 0.8 1.0 3.6 0.4 0 0.1 Bangladesh 13 60 2 460.9 20.4 68.6 15.3 2.5 1.4 36.0 1.2 .3 3.2 69.0 56.5 53.5 0.6 Netherlands 14 77 2 438.9 0.1 4.2 0.1 29.0 0 42.4 0.6 22.8 0.2 140.2 14.5 0 0.1 United Kingdom 15 69 2 434.4 5.2 71.0 1.5 85.2 0 120.4 2.3 28.0 0.2 17.9 0 7.6 6.7 Spain 16 74 1 413.3 9.0 0.2 0 0 .2 54.9 1.9 140.1 0.7 4.4 10.3 5.3 0 Greenland 17 25 1 374.1 12.9 80.1 30.7 0 .4 .7 0 0 0 0 Denmark 18 61 1 333.8 3.3 12.2 3.4 13.1 0 20.5 0 45.2 .3 6.4 47.6 29.6 0.4 Nicaragua 19 37 1 284.0 48.1 0 1.4 47.5 .0 39.8 19.5 1.2 1.2 15.9 9.7 4.2 0 Japan 20 45 1 263.2 8.9 7.4 0 .0 7.8 .1 191.4 0 1.0 0 0.0 0.0 2.1 New Zealand 21 34 1 252.2 3.6 239.1 3.7 0 .0 .0 1.6 0.0 .0 0 0.2 0 0.0 Honduras 22 29 1 251.4 105.3 0.7 15.3 .0 12.8 4.3 0 .9 6.1 30.3 0 0 Malaysia 23 47 1 246.9 4.5 50.5 20.4 0.4 31.3 7.6 18.3 0.1 .3 0 .0 0 1.3 Uruguay 81 4 0.03 7.1 0.5 4.5 0 2.1 0 0 0 0 0 0 0 0 0 Somalia 82 8 0.03 7.1 0 0 0 0 0.005 0 0.1 0 0.01 0 0 0 0 Dominican Republic 83 9 0.03 7.1 6.6 0 0 0 0 0 0.1 0 0.3 0 0.1 0 0 Source: World Bank staff calculations based on UN Comtrade data. Note: Figures in parentheses are shares of imports. Country name abbreviation: US: United States; CHN: China; JPN: Japan; ESP: Spain; KOR: South Korea; FRA: France; HKG: Hong Kong; ITA: Italy; CAN: Canada; BEL: Belgium; GBR: Great Britain; NLD: Netherlands; VNM: Vietnam Annexes Trade as an Engine of Growth in Somalia • Constraints and Opportunities Table A5.4: Importers and exporters of miscellaneous gums and resins, 2018 Number Importer Annexes of Share of markets exports IND PRT CHN FRA USA VNM RUS DEU ESP BGR SAU ITA SGP GBR NLD Exporter Rank supplied (percent)  Total (30% (6%) (6%) (5%) (5%) (4%) (4%) (4%) (3%) (3%) (3%) (3%) (2%) (2%) (2%) 137  100 585.5 175.6 33.4 32.6 27.9 26.9 25.9 24.4 24.2 20.0 19.4 18.8 18.1 12.9 9.8 9.5 Afghanistan 1 5 22 127.7 127.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Indonesia 2 49 12 69.7 20.3 0 15.7 1.3 .2 16.8 .0 1.0 .0 0 1.5 1.1 3.6 .1 .1 India 3 91 11 65.2 0 0 .5 1.3 10.9 .0 20.2 5.1 1.8 0 .4 .8 1.4 1.7 .2 Somalia 4 30 6 37.2 1.0 0 2.4 7.5 .2 0 .0001 .5 1.2 16.7 .4 .4 .1 0 Brazil 5 36 5 29.7 .0 16.7 1.9 0.5 0.5 4.6 .0 0.3 4.3 0 .1 0.0 0.2 .1 China 6 91 5 28.7 1.3 0 0 0 3.3 0.5 3.5 0 0.8 0 1.1 0.3 6.4 0.3 0 Germany 7 74 4 21.7 0.4 0.2 0.1 2.4 2.8 0 0.0 0 2.0 0 0.1 1.1 0.0 1.5 3.3 Spain 8 48 4 21.1 0.5 2.9 0 0.8 0.0 0 0.0 0 0 0 4.1 11.9 0.0 0.1 0 France 9 68 3 18.8 0.5 0 0 0.0 2.2 0.0 0.1 0.2 5.2 0.1 0.1 0.5 0.1 0.2 4.4 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Iran 10 26 3 15.6 1.6 0 0 2.8 0 0 0 6.4 0.1 0 0 0 0.0 2.8 0 Thailand 11 32 3 15.2 9.3 0 0 0.3 1.1 0 0 2.6 0 0 0 0 0.2 0 0 Netherlands 12 29 2 9.0 0.0 6.8 0 0 0 0 0 0.1 0.1 0 0 1.3 0.0 0.2 0 Sudan 13 31 1 8.3 0.1 0 1.1 0 0 0 0.1 1.6 0 0 1.2 0 0 0 0.1 Turkey 14 17 1 8.2 0 0 0 0 0 0 0 0 0 0 5.7 0 0 0 0 United States 15 69 1 8.0 0.8 0.1 0.6 0 0 0 0 0.1 00 0 0.7 0 0.2 1.6 0.1 Argentina 16 8 1 7.9 0 5.9 0 0 0 0.4 0 0 1.0 0 0 0 0 0 0 Italy 17 50 1 7.2 0.1 0.3 0 0.3 0.2 0 0 0.4 2.5 0 0 0 0 0 0 Greece 18 33 1 6.5 0.0 0 0 0.5 1.3 0 0 0.2 0.0 0.1 0.3 0.2 0 0 0 Ethiopia 19 21 1 6.0 0 0 1.3 0.0 0.4 0 0.1 1.2 2.1 0 0 0 0 0 Lao PDR 20 11 1 5.8 0.4 0 0 2.3 .1 0.8 0 0.6 0.4 0 0 0 0 0 0 Mali 21 4 1 5.3 2.1 0 0 3.2 0 0 0 0 0 0 0 0 0 0 0 United Kingdom 22 62 1 5.3 0 0 0.2 0.9 0.3 0 0 0.2 0 0 0 0.1 0 0 0.1 Kenya 23 27 1 5.3 0.1 0 3.7 0 0 0.2 0 0.6 0 0 0 0 0 0 0 Singapore 24 27 1 3.5 0.1 0 0.3 0.1 0.1 0.7 0 0.3 0 0 0.3 0 0 0 United Arab Emirates 25 22 0.5 2.8 2.1 0 0 0 0 0 0.3 0.1 0 0 0 0 Madagascar 26 3 0.4 2.4 0 2.4 0 0 0 0 0 0 0 0 0 0 0 Source: World Bank staff calculations based on UN Comtrade data. Note: Figures in parentheses are shares of imports. Country name abbreviation: IND: India; PRT: Portual; CHN: China; FRA: France; US: United States; VNM: Vietnam; RUS: Russia; DEU: Germany; ESP: Spain; BGR: Bulgaria; SAU: Saudi Arabia; ITA: Italia; SGP: Singapore; GBR: Great Britain; NLD: Netherlands 51 Annexes Annex 6: Proximity in the product space The Observatory of Economic Complexity measure of proximity is based on the conditional probability that a country that exports product p will also export product p’. As conditional probabilities are not symmetric, we take the minimum of the probability of exporting product p given p’ and the reverse to make the measure symmetric and more stringent. For instance, in 2008, 17 countries exported wine, 24 exported grapes, and 11 exported both, all with RCA > 1. The proximity between wine and grapes is 11/24 = 0.46. (Note that the Observatory of Economic Complexity divides by 24 instead of 17 to reduce the number of false positives.) Formally, for a pair of goods p and p’, we define proximity f as: where = 1 if country exports product with RCA > 1 and 0 otherwise; is the ubiquity of product p. It is equal to the number of links the product has in the product space map. 52 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Annexes Annex 7: Policy actions to improve the competitiveness of Somali agriculture This annex summarizes the policy recommendations for improving output in Somalia’s agriculture sector made in FAO and World Bank (2018), which have strong relevance for expanding exports of livestock, crops, and related agro-food products. Livestock Somalia’s livestock production system is geared primarily toward mitigating risk. There is ample room and opportunity for the system to shift toward meeting domestic and export demand for livestock and livestock products. Any proposed interventions along the livestock value chain, however, should carefully consider the limitations of the pastoral production system, including the carrying capacity of its rangelands, which has been maxed out. Minimal emphasis should be placed on animal population growth, including restocking; maximum emphasis should be placed on expanding processing, where value addition and high growth potential lie. Policies and projects to address pastoral issues must help build the resilience of communities to livestock emergencies, by mainstreaming disaster risk management and climate change adaptation. Private sector investment is needed to ease the procurement and transport of livestock from primary markets to ports of exit or main centers of domestic consumption. Support should focus on the following areas: developing and upgrading watering and holding facilities; improving fodder collection, transport, and feeding facilities; holding and separation pens; improving transport; and establishing (regional) livestock markets. Investments by both the public and private sectors are also needed to enhance animal welfare, by improving loading and unloading ramps, watering points, livestock shades, and vaccination pens in district and regional markets along the main transporting routes. Public functions should focus on creating a favorable policy environment for livestock trade and facilitating open and regular dialogue with importing countries to continuously review and update import requirements. Specific actions could include the following: · Strengthen both public and private training institutions to deliver the next generation of experts in rangeland management; animal production, nutrition, and health; meat, dairy, and food-processing technologies; and genetics. · Staff public institutions with qualified personnel to deliver effective services at the federal and regional levels. · Help livestock professional associations increase their outreach and coverage and improve their service delivery while providing their members with continuing training opportunities and better links with agro-vet stores at the community level. Crops There is enormous potential to increase crop production and productivity from rehabilitating and upgrading prewar flood control and irrigation public infrastructure. Efforts should focus on five areas: 1. Improve irrigation facilities. Somalia’s irrigated lands could potentially be increased to more than 700,000 hectares through three sets of actions: · Rehabilitating irrigation systems. Somalia’s irrigation systems are traditional and badly damaged from conflicts and lack of maintenance. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 53 Annexes · Investing in new irrigation systems (canals, dams, and so forth). This strategy, although less costly than rehabilitation, would require more time to benefit the agricultural sector. It would also require high- level coordination among line ministries (including the Ministry of Energy and Water; the Ministry of Agriculture, Irrigation and Livestock; and the Ministry of Rural Rehabilitation and Development). In addition, Somalia needs to thoroughly study the impact of the dam constructed in Ethiopia. · Investing in strong institutions and policies to improve irrigation water management. Efforts should include defining a legal and regulatory framework and strengthening the irrigation department to manage the irrigation network. 2. Invest in agricultural research and technology in order to deliver better technologies to farmers and increase yields and productivity. The capacity of the national research system needs to be improved in the short and medium term by developing a network of research stations and outsourcing research to international and national research centers working in similar agro-ecological areas. 3. Increase access to high-quality inputs needs. Efforts should focus on creating an effective regulatory system and strengthening the capacity of the Ministry of Agriculture/Irrigation Department to (a) enforce certification of seeds, veterinary medicines, vaccines, and so forth; (b) control banned pesticides; (c) constantly monitor domestic supplies; and (d) prevent imports of low-quality and hazardous agricultural inputs. 4. Improve the business climate needs, by establishing an effective regulatory framework and increasing access to credit. Licensing processes, documentation, and customs procedures requested for exporting need streamlining, in order to expand the domestic agro-processing industry and reduce the time and cost of exporting commodities. Implementation of risk-sharing practices, particularly partial credit guarantees, would increase access to finance by improving the information available on borrowers and building the credit origination and risk management capacity of participating lenders. 5. Improve infrastructure, certification, and market intelligence, through the following actions: · Improve post-harvest handling. Poor post-harvest handling (packing, processing, cleaning, storage, and so forth) of agricultural products results in the loss of at least 30–35 percent of crops. Improving post-harvest activities would increase crops’ shelf life, prevent losses, and increase the supply of products to domestic and international markets. · Build storage and warehouse facilities. To increase the shelf life of perishable exportable commodities, private sector investment is needed in cold storage and warehousing facilities in provinces and at customs ports for exporters. · Provide grading and processing facilities. Somalia lacks extensive grading and processing facilities for all exportable agricultural products. Grading and processing facilities are extremely important for promoting exports and reaping maximum profit. Building standard grading and processing facilities would help export promotion and import substitution. · Establish standard quality certifications: The private sector should be incentivized to invest in well- equipped quality control and testing laboratories that issue standard quality certificates of agricultural exportable commodities. Strengthening the institutional and legal frameworks governing certification is also vital for export promotion. · Improve market intelligence. Somalia needs to create online platforms for gathering and disseminating market information for traders (the International Finance Corporation is currently financing an information portal project). 54 Trade as an Engine of Growth in Somalia • Constraints and Opportunities Annexes Annex 8: Export diversification: Lessons learned from other countries Malaysia and Thailand Malaysia and Thailand stand out as successful examples of both vertical and horizontal diversification (see Reinhardt 2000). The governments of both countries adopted a dual strategy to upgrade natural resource– based industries (including palm oil and rubber products in Malaysia and agricultural and fish products in Thailand) and encourage labor-intensive manufactured exports (most notably clothing and electronics). Agriculture played a key role in the industrialization process. The development of traditional (rice and rubber) and high-value, export-orientated agriculture stimulated the growth of agro-industry. In the case of palm oil and rubber, Malaysia set up specialized agencies to promote production and upgrading. These agencies used the proceeds of production and export taxes to finance research and development. Both Malaysia and Thailand established export-processing zones and licensed bonded warehouses to stimulate manufactured exports and attract foreign direct investment, most of which came from neighboring Asian countries. The development of natural resource–based sectors helped both countries cope with the economic downturn after the mid-1990s, which affected manufactured exports most severely. Kenya Kenya has sought to diversify away from traditional commodities (tea and coffee) toward processed products (such as preserved fruit and fish products) and the production of new types of niche products (such as off- season and specialty fresh vegetables or cut flowers) and manufactures (apparel, clothing accessories, and leather products). Results have been mixed (see Glenday and Ndii 2003; Thoen and others 1999). Kenya is now the largest African cut-flower grower and one of the biggest exporters of fresh horticultural produce; it has been less successful in manufacturing. Provision of incentives to export-oriented manufacturing firms failed to sustain export growth. Kenya had already emerged in the late 1960s as a supplier of off-season fruits and vegetables to the United Kingdom and then to other European markets. Besides the booming trade in fresh horticultural produce, it started to develop cut-flower exports. This industry underwent a major transformation, thanks to foreign investment, in particular with the establishment of a Danish company that was granted attractive investment terms. The company brought in capital and expertise to generate considerable spin-offs. Several expatriate professionals left the company and started their own small flower businesses. In the 1970s, the Horticultural Crops Development Authority managed an experimental program to train smallholding farmers in flower cultivation and to organize their harvest for export. The great expansion of the sector in the 1980s increased the demand for technical assistance, which gave rise to a technical support cluster of specialized service suppliers. Cut-flower exports took off in the 1990s, in conjunction with significant reforms in import procedures, foreign exchange, and air freight; improvements in infrastructure; and active investment promotion. Historically dependent on foreign capital and expertise, the industry has increasingly seen the emergence of Kenyan players with significant levels of expertise, to the point that the country is now largely self-sufficient in in- house knowledge and provides business services to other African countries. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 55 Annexes Uganda The Lake Victoria fish industry exemplifies both opportunities and challenges with respect to commodity upgrading. The sector experienced spectacular growth in recent years. Fishing activities have developed around the lake since the 1990s, providing some $200 million a year in export earnings and employing about 200,000 people. Until then, large fish stocks had been almost unexploited for commercial purposes. Only about a tenth of the fish population of the lake was sold unprocessed on the local market. During the 1990s, responding to an increase in the European demand for freshwater fish, a few Ugandan companies started processing and airlifting fresh Nile perch in the form of fish fillets. As soon as the sector expanded, problems of quality and phytosanitary standards emerged, however, as a result of inadequate chilling equipment; environmental concerns as a result of fish processing waste were also raised. Low yields (because of high wastage in fish filleting) and the 1999 ban on Ugandan imports by the European Union (because of suspected fish poisoning, which led to a 35 percent decrease in exports) risked undermining the viability of the sector. The Uganda Fish Processors and Exporters Association (UFPEA) played a critical role in obtaining technical assistance from donors and establishing a reliable fish safety assurance system in compliance with EU standards. UFPEA members have directly invested more than $100 million in the sector. (For information on Uganda, see Dijkstra 2001). The growth of the fresh fillet sector has spurred the development of side sectors (such as processing of wastage for producing animal feed and fertilizers), downstream sectors (such as the packaging and freight and shipping companies), and upstream sectors, with fishers adapting their techniques to the new quality and organizational requirements set by the industry. The development of fish exports has also generated spillovers to other sectors, thanks to the improvement of cold storage and freight services (see section 6.1 of the report). 56 Trade as an Engine of Growth in Somalia • Constraints and Opportunities REFERENCES AfDB (African Development Bank). 2016. Somalia Transport Needs Assessment and Investment Programme. October 2016. Abidjan. Balassa, B. 1965 “Trade Liberalization and Revealed Comparative Advantage.” The Manchester School of Economic and Social Studies, 33, 99-123. --------------1977 “Revealed’ Comparative Advantage Revisited: An Analysis of Relative Export Shares of the Industrial Countries, 1953-1971,” The Manchester School of Economic and Social Studies, Vol. 45, pp. 327-344.  --------------1979. “The Changing Pattern of Comparative Advantage in Manufactured Goods,” The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 259-266, May --------------1986. “Comparative Advantage In Manufactured Goods: A Reappraisal.” Review of Economics and Statistics 68(2): 315–19. BBC. 2020. “Somalia’s Coronavirus Khat Bans Leaves Chewers in a Stew.” May 13. Brenton, Paul, Olivier Cadot, and Martha Denisse Pierola. 2012. Surviving: Pathways to African Export Sustainability. Washington, DC: World Bank. COMESA (Common Market for Eastern and Southern Africa). 2018. COMESA Regional Small-Scale Cross Border Trade Data Collection Manual, COMESA, Lusaka. Dijkstra, T. 2001. “Export Diversification in Uganda: Developments in Non-Traditional Agricultural Exports.” Working Paper 47/2001, African Studies Centre, Leiden University, The Netherlands. Dinh, Hinh T., Vincent Palmade, Vandana Chandra, and Frances Cossar. 2012. Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment and Create Jobs. Washington, DC: World Bank. http://go.worldbank.org/ ASG0J44350. East African Community. 2014 EAC Informal Cross Border Trade Survey Manual, EAC Arusha. FAO (Food and Agriculture Organization), and World Bank, 2018, Country Economic Memorandum, vol. 1: Rebuilding Resilient and Sustainable Agriculture in Somalia. Washington DC. Federal Republic of Somalia and United Nations Population Fund. 2014. Population Estimation Survey 2014 for the 18 Pre-War Regions of Somalia. Giri, Rahul, Saad Noor Quayyum, and Rujun Joy Yin. 2019. “Understanding Export Diversification: Key Drivers and Policy Implications.” IMF Working Paper WP/19/105. Washington, DC. Glenday, G. and D. Ndii, 2003. “Export Platforms in Kenya.” in Restarting and Sustaining Economic Growth and Development in Africa, eds. Mwangi Kimenyi, John Mukum Mbaku and Nguere Mwaniki. Aldershot, UK: Ashgate Publishers. Hausmann, R., Hwang, J, and D. Rodrik. 2007. “What You Export Matters.” Journal of Economic Growth. 12:1–25. Hausmann R., and B. Klinger. 2007. “The Structure of the Product Space and the Evolution of Comparative Advantage.” Center for International Development, Harvard University Working Paper 146, Cambridge, MA. Hausmann, R., and D. Rodrik. 2003. “Economic Development as Self-Discovery.” Journal of Development Economics 72: 603–633. Hidalgo, C.A., and R. Hausmann. 2009. “The Building Blocks of Economic Complexity.” PNAS 106 (26). www.pnas.org_ cgi_doi_10.1073_pnas.0900943106. Hidalgo, C.A., B. Klinger, A. L. Barabasi, and R. Hausmann. 2007. “The Product Space Conditions the Development of Nations.” Science 317: 482–487. Hirschman, Albert. 1945 [1980]. National Power and the Structure of Foreign Trade. Berkeley: University of California Press. Trade as an Engine of Growth in Somalia • Constraints and Opportunities 57 Refernces IFC International Financial Corporation. 2020. “IFC-Somalia-ICRP-II Baseline Survey on Somalia.” Unpublished. IFC IMF (International Monetary Fund). 2019. First Review under the Staff-Monitored Program. IMF Country Report 19/343. Washington, DC. ———. 2020a. Somalia: Second Review under the Staff-Monitored Program and Request for Three-Year Arrangements under the Extended Credit and the Extended Fund Facility. IMF Country Report 20/85. Washington, DC. ———. 2020b. Somalia: First Review Under the Extended Credit Facility Arrangement. IMF Country Report 20/310. November 2020. Washington, DC. Little, P.D. 2003. “Somalia: Economy without State.” Oxford: James Currey Publishers. Little, P.D., W. Tiki, and D.N. Debsu. 2015. Formal or Informal, Legal or Illegal: The Ambiguous Nature of Cross-Border Livestock Trade in the Horn of Africa. – page 15] Marini, Marco, Robert Dippelsman, and Michael Stanger. 2018. “New Estimates for Direction of Trade Statistics,” IMF Working Paper WP/18/16, International Monetary Fund, Washington, DC. Reinhardt, N. 2000, “Back to Basics in Malaysia and Thailand: The Role of Resource-Based Exports in Their Export-Led Growth.” World Development 28 (1): 57–77. Reuters. 2020. “Wives Rejoice and Traders Despair as Coronavirus Halts Khat Supply to Somalia.” April 2. Somaliland Ministry of Finance Development. 2019. Economic Performance Bulletin Issue 4/2019, Hargeisa. Thoen, R., S. Jaffee, C. Dolan, and F. Ba. 1999. “Equatorial Rose: The Kenyan–European Cut Flower Supply Chain.” In Supply Chain Development in Emerging Markets: Case Studies, ed. R. Kopiki. Washington, DC: World Bank. UN (United Nations). 2015. Trends in International Migrant Stock: Migrants by Destination and Origin. Department of Economic and Social Affairs, Population Division. POP/DB/MIG/Stock/Rev.2015. https://www.un.org/en/ development/desa/population/migration/data/estimates2/data/UN_MigrantStockByOriginAndDestination_2015. xlsx. UN (United Nations), and World Bank. 2007. Somalia Joint Needs Assessment: Productive Sectors and Environment Cluster Report, vol. 2. World Bank Report 80226, Washington, DC. World Bank. 1975. Somalia: Recent Economic Developments and Current Prospects. Report 702-SO. Washington, DC. ———. 1981. Memorandum on the Economy of Somalia. Report 3284-SO. Washington, DC. ———. 2006. From Resilience towards Recovery and Development: A Country Economic Memorandum for Somalia. Report 34356-SO. Washington DC. ———. 2011. Facilitating Cross-Border Trade between the DRC and Neighbors in the Great Lakes Region of Africa: Improving Conditions for Poor Traders. Report 62992-AFR. Washington DC. ———. 2016. Somalia: Support to the Fisheries Sector and Reconstructing Coastal Livelihoods. Report AUS13836. June 2016. Washington, DC. ———. 2018a. Somalia Economic Update. Rapid Growth in Mobile Money: Stability or Vulnerability. Washington, DC. ———. 2018b. Somalia: Systematic Country Diagnostic. Report 123807-SO. Washington, DC. ———. 2019a. Somalia Economic Update, 4th ed. Washington, DC. ———. 2019b. Somalia Poverty and Vulnerability Assessment: Findings from Wave 2 of the Somali High Frequency Survey. Report AUS0000407. Washington, DC. ———. 2020a. Doing Business 2020. Washington, DC: World Bank. ———. 2020b. From Isolation to Integration: An Overview of the Borderlands of the Horn of Africa. Washington, DC. ———. 2020c. Improving Access to Jobs for the Poor and Vulnerable in Somalia. Washington, DC. ———. 2020d. “Review of Cross-Border Trade in the Horn of Africa.” Background paper for the Horn of Africa Regional Economic Memorandum. ———. Various years. World Development Indicators. Washington, DC. 58 Trade as an Engine of Growth in Somalia • Constraints and Opportunities World Bank Group Delta Center Menengai Road, Upper Hill P. O. Box 30577 – 00100 Nairobi, Kenya Telephone: +254 20 2936000 Website: www.worldbank.org/somalia