Somalia - Current economic position and prospects

RESTRICTED Report No. AF-64a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF SOMALIA October 2, 1967 Africa Department CURRENCY EQUIVALENTS Unit - Somali Shilling (Sh. So.) 1 Somali Shilling = US $0. 14 1 US Dollar = Sh. So. 7. 14 1 million US Dollars Sh. So. 7, 143 million LAND MEASURES 1 hectare = 2.471 acres 1 square kilometer = 0. 386 sq. miles METRIC WEIGHTS 1 ton = 2, 204. 6 lbs. 1 kilogram = 2. 2 lbs. .1 quintal = 220 lbs. (100 kg.) This report is based on the findings of a mission consisting of Messrs. Harold Larsen and Rezaul Khandker, which visited Somalia in February-March 1967. TABLE OF CONTENTS Page Basic Data Summary and Conclusions I. BACKGROUND.................................................... 1 Land and People............................................ 1 Political Background....................................... 2 Public Administration...................................... 3 Economic Background........................................ 4 Economic Institutions...................................... 6 II. RECENT DEVELOP1ENTS........................................... 7 A. Developments in the Sectors (a) Agriculture....................................... 7 Plantation Agriculture............................ 7 Traditional Agriculture........................... 12 (b) Livestock......................................... 14 (c) Manufacturing Industry and Power.................. 15 (d) Transportation.................................... 16 (e) Social Services................................... 17 B. Investments............... ............................ 18 C. Finance................................................ 19 (a) Government Finance................................ 19 (b) Noney and Credit.................................. 21 (c) Foreign Trade and Payments........................ 23 D. Development Planning and External Assistance........... 25 Development Planning.............................. 25 External Assistance............................... 27 III. PROSPECTS FOR DEVELOPMENT.................................... 28 Creditworthiness........................................... 32 Statistical Appendix IMap BASIC DATA ,rea Totnl 638,000 Sq.Km.(254,000 Sq.Mi.) Arable 8 million hectares Cultivated 350-4C0,000 hectares Population (rough estimates) Total 2.5 million Density 4 per Sq. Km. (10 per Sq. PE1.) 30 per Sq. Km. arable land Rate of Growth 1.5% Gross Domestic Product (rough estimates) 1966 Total Sh.So. 900 million (US$ 125 millioa) Per capita Sh.So. 360 (uS$ 50) Percent of GDP 1965 1961-66 Gross investment 11 Balance of payment current account deficit 11 7 Government current revenues 20 18 Money and Credit 1966 Annual increase Million Sh.So. 1961-66 Total money supply 20F 6.57 Time and savings deposit 30 11% Claims on private sector 194 45% Claims on public sector 32 65% Public Sector Operations 1966 Annual increase Million Sh.So. 1961-66 Government current revenues 193 9.51 Government expenditure 1/ 241 Total External Assistance to public sector 76 External Public Debt 1966 Million US$ Total debt 61.6 Net of undisbursed 39.9 Total annual debt service (1967) 2.4 Debt service ratio (1967) 6.5 percent 1/ Including some capital expenditures BASIC DATA (continued) Balance of Payments 1966 Annual increase Million US$ 1961-65 Total exports f.o.b. 30 8% Total imports c.i.f. 42 13o Net invisibles - Net transfers 2 Current account balance -10 Commodity concentration of export: 1965 Average 1961-65 banana 7U 457 livestock and live- stock products 40% L4% End of 1966 Million US$ Gross foreign exchange reserves 21 (V months import) IEfl Position Quota 15.0 Drawing 11.2 SUlWARY AND CONCLUSIONS 1. Somalia, which comprises the former British and Italian Somalilands, and became independent in 1960, is still at an early stage of economic development. Population is roughly estimated as 2.5 million, of which two-thirds are nomads, moving with their herds from place to place in search of water and grazing land. No national accounting data exist, but experts, observing the general living standard, and comparing it with other developing countries, place Somalia's per-capita income at around US$ S0 a year. 2. Livestock and agriculture are Somalia's principal resources. Apart from providing subsistence to two-thirds of the population, live- stock represent about 45 percent of export earnings. Livestock exports to the Arabian peninsula have a promising future; and there is potential for exports of processed meat. In agriculture, banana had long been the leading export product. Export of banana to the formerly sheltered market in Italy now provides about 45 percent of export earnings. Sugar cane is another important plantation crop, and is processed in a local sugar mill of 40,000 tons a year capacity to make the country self- sufficient at her present level of sugar consumption. Traditional agri- culture is mainly devoted to the production of sorghum, maize, legumes, sesame and cotton. Average annual food-grain production is about 150,000 tons, which has to be supplemented by import of about 30,000 tons to meet the country's minimum _ood requirement. Studies conducted by FO and INDP suggest that available land and water resources would permit an increase of food-grain production to 400,000 tons. 3. The general economic performance of Somalia in the past few years has been fairly satisfactory. Though the economic problems in- herited at the time of independence still persist, there has been some progress in overcoming them. One such problem was making her banana exports competitive in the international market. Italy has liberalized her banana imports and Italian preference to Somali banana will cease after 1967. Anticipating this, farmers and exporters in Somalia have, with the assistance of the Government, been able to reduce production and handling costs of banana, and the consensus of those who have studied the Somali banana industry is that Somalia will be able to sell her banana in the Italian market without any preference from the im- porting country. Increase in the export of livestock since 1960 was spectacular, growing in value 170 percent, until it was affected by severe drought in 1965. In order to exploit the potential of live- stock export a Livestock Development Agency has been established to formulate and implement development programs mainly in animal health and marketing. A number of industrial projects have been completed, or are near the stage of completion; but most of these would not be economical unless problems relating to management and working capital could be solved. Educational facilities have improved including tech- nical education, but broadbased educational development is rendered difficult by the absence of a common written language. (ii) L. Government revenues form around 20 percent of GDP. From 1961 to 1966 current revenues, which are very much dependent upon taxes on international trade, increased at an annual rate of 9.5 percent. Government expenditure in- creased between 1961 and 1966 at an annual rate of 8 percent. But expenditure on defense and police increased faster than total expenditures. In 1966, defense and police expenditure was 35 percent of total Government expenditure, or about 9 percent of GDP, due, it is claimed, to worsening relationship with neighbors. While defense expenditure has to be viewed against the background of external and domestic tensions, it is evident that unless they are kept under control, resources for development will be correspondingly reduced. 5. Somali budgets do not distinguish between current and capital expenditures and do not include public investment directly financed from overseas. The deficit on total budget expenditures was Sh.So.41 million or 25 percent of total expen- ditures, in 1961 and Sh.So.51 million (also 25 percent) in 1963. Total deficit fell thereafter to Sh.So.41 million (19 percent of total expenditures) in 1965 and Sh.So.48 million (20 percent) in 1966 on preliminary results. Deficits have been financed by grants for ordinary expenditures, mainly from Italy, and grants and loans for budgetary capital expenditures. Net recourse to the banking system has been small after 1964, although this result was accompanied by some accumu- lation of unpaid vouchers. Public savings have always been negative, and it does not seem likely that the Government will be able to dispense with foreign budget- ary aid and achieve national public savings for some time, despite the increase of revenues noted above. 6. Prior to 1964 Somalia did not experience serious balance of payments prob- lems. Deficits in foreign trade were more or less compensated by inflow of foreign funds for budgetary, technical and capital aids, and for oil exploration. But large-scale speculative imports in 1964 and 1965, in anticipation of import restrictions which were applied in 1966, resulted in big deficits in the current account, and foreign exchange reserves fell drastically; a series of stand-by with the IMF were arranged. As a result of restrictive monetary, fiscal and import policies, equilibrium was restored in 1966, the current deficit again being balanced by net inflow of public and private capital. 7. Between 1961 and 1965 exports increased at an annual rate of 8 percent, but fell by 10 percent in 1966. In 1966, livestock exports fell as a result of the drought of 1965, and banana exports declined as a result of changed marketing arrangements. However, the prospects for exports in the coming years are reasonably good; both banana and livestock have a promising future. It is roughly estimated that in future years Somalia's export earnings could increase at an average rate of about 6 percent per annum. Over the years 1961 to 1965, imports increased at an annual rate of 13 percent but fell by 25 percent in 1966. 8. Average annual capital investment in the years after independence until the middle of 1966 was about 11 percent of GDP. The First Five-Year Plan (1963- 67) proved over-ambitious in respect of manpower demands, funds available and administrative capacity. According to available information, the actual develop- ment expenditure during the Plan period will be only a little over half the total expenditure envisaged in the Plan. Nevertheless the relative priorities of sectors exhibited in actual investment was in overall conformity with the priori- ties envisaged in the Plan. The experience with the First Plan led the Government to adjust its development strategy. It was rightly decided to prepare a (iii) realistic short-term plan with the limited objectives of attaining self- sufficiency in food production, stimulating the production and export of livestock, making banana competitive in the international market, and covering the gap in the ordinary budget of the Government. 9. Somalia has been remarkably successful in obtaining foreign aid from diverse sources, such as Italy, USSR, USA, China, West Germany, EEC, United Nations, etc. It is estimated that since independence until the middle of 1966, the total external aid received was US$320 million, or about US$21 per capita per year. Nearly 60 percent of the aid was in the form of grants and the remaining were loans. However, there was a con- tinued decline in the amounts of grants received. It seems in the future Somalia will have to depend mainly on loans for development, grants being confined to financing budget deficits. In technical assistance also, Somalia received bilateral and multilateral aid at least to the amount she could effectively absorb. 10. Public external debt service has so far been low but will increase in the coming years. Service payments on existing external public debt (including undisbursed) will amount to about nine percent of export earnings in 1972. If some increased inflow of capital is assumed for the coming years, and if this were contracted at conventional terms, service payments may be around 20 percent of export earnings in 1972. 11. Somalia is a poor country in terms of per capita income, poorer than most other developing countries in Africa. In the last few years Somalia has made reasonably good progress in economic development and financial management. There are encouraging prospects for future develop- ment in agriculture and livestock. The Government has recently announced realistic development policies and, with external assistance, may achieve a steady rate of economic growth. However, the potential for mobilizing domestic financial resources for development is modest, indicating that external aid should be concessional, both in service terms and in the pro- portion of project costs financed. I. BACKGROUND 1. The last Bank economic report on Somalia was prepared in May, 1964 under the title "The Economy of Somalia", No. AF-19A. The purpose of the present report is to review the salient events and trends in the Republic of Somalia since the last report, and to assess their significance for the prospects of economic development in coming years. Land and People 2. The Somali Republic has an area of 638,000 square kilometers, about the same as Afghanistan, Turkey, France or Chile. Geographically, it is situated between the latitude 11030' north and 1030' south in the extreme east corner of Africa, known as the "Horn of Africa." Its boundaries are: Gulf of Aden in the north, French Somaliland and Ethiopia in the north-west, Kenya in the south-west, and the Indian Ocean in the east. A part of the country is formed by a large plateau which, as a continuation of the Ethiopian highland, declines gradually towards the Indian Ocean. Otherwise, most of the land is flat. Its coastal line stretches about 2,800 kilometers with few natural landing places or small bays. 3. The climate of Somalia is, on the whole, arid or semi-arid, influenced by monsoon. There are only two rivers - Giuba and Scebelli - both in the south originiating in Ethiopia where rains are abundant. The Giuba, which crosses into Somalia from north to south in the south- western region, is a perennial river with a maximum flow of 36,000 cusecs in November and a minimum of 1,200 cusecs in February. Its mouth is situated about 8 kilometers north of Chisimaio. On the other hand, the Scebelli River has no outfall to the sea. After crossing into Somalia it flows southward to Balad, and then southwestward till it loses itself in a depression near Avai. It has a maximum flow of 6,000 cusecs during the rainy seasons, but dries up for two to four months during January- May. There are some other streams but these are all seasonal. Rain- fall is scarce, averaging less than 600 mm a year in areas between the Giuba and Scebelli rivers and on the highland between Hargeisa and Burao; elsewhere it is very little gradually decreasing to a few millimeters in Pigiurtinia. h. Population estimates of Somalia are very approximate. Due to the predominance of nomadism it has been impossible to take a full census. Indirect estimates place the number of people in the range of 2.2 million to 2.7 million, with a probable mean at 2.5 million. Of this number, about 1.9 million are estimated to be in the Southern Region (former Italian Somaliland). It is estimated that at least two-thirds of Somalia's population live a nomadic life ro-ming with their herds in search of water and grazing land, occasionaly crossing over to the territories of Kenya and Ethiopia. The settled population registered in 1964 in 58 municipalities was 560,000. The biggest towns are Mogadiscio (127,CC), Merca (56,000), Hargeisa (4o,oo), and Giamama (22,000). There are nine more towns with a population of more than 10,CO. The urban section of the population has been increasing as people have moved to towns from nomadic and agriculture sections. 5. No information exists about the rate of population growth. The birth rate is probably high, but due to inadequacy of health servic.e - c - and the rigors of the climate it is unlikely that the death rate would be low, particularly for the large nomadic section. The over-all population growth is thought to be little over 1.5 percent per annum. However, Somalia is not over populated. The large size of the country, the vast uncultivated arable land and the small population indicate that the country is not likely to have a population problem in the near future; the longer- run position will depend partly on the rate of population growth which is not known at present. 6. The people are all Somalis. They possess a high degree of ethnic, cultural, linguistic and religious homogenity. Islam is the official religion and has considerably influenced the Constitution and laws. There is a remarkable sense of equality among the Somalis, while within the general. Somali community strong tribal affiliations still persist. The people speak Somali, but cannot write it, since this language has no script. During the colonial rule, Italian and English used to be the official languages in the Southern and Northern regions respectively, and at present both are adopted as working languages. However, political speeches made within or outside the National Assembly are mostly in the Somali language. Arabic is also officially recognized as a national language but is seldom used. Political Background 7. The present Somali Republic is a union of former Italian and British Somallands. Italian control over the southern region dates back to 1892 when the Sultan of Zanzibar transferred the jurisdiction over Mcgadiscio, Merca, Brava and Uarsceik to Italy. However, direct administrative control of the territory known as the Italian Somaliland did not start until 1908. Italian colonial rule continued until World War II; in 1941 the British occupied the territory. British administration ended in 1950 when it be- came a U.N. Trust Area administered by Italy. The trusteeship period ended in 1960 when Somalia became independent. The northern region, then known as the British Somaliland, was ruled by the British since the latter part of the 19th century until independence and unification with the Italian Somaliland in 1960. 8. Somalia is a constitutional Republic founded on July 1, 1960. The President of the Republic is elected by the National Assembly by secret ballot for a period of six years. He must be a Mbslem by faith. The President appoints the Prime Minister and Ministers, but the Cabinet is responsible to the National Assembly. The first Presidential election was held in July 1961 when President Aden Abdulle Osman took office. In the second election which took place in June 1967 Dr. Abdirascid Ali Scernmarke was elected President. The National Assembly is composed of 123 members who are elected for a term of five years by universal suffrage In the election held in March 1964 the Somali Youth League (SYL) obtained a clear majority by winning 68 seats - and has remained the ruling party ever since. 9. Somali nationalism is very strong and transcends the boundary of the Somali Republic. The multiple experience of alien rule (before 1960) - 3 - strengthened the traditional consciousness of cultural exclusiveness and national identity of the Somali people and helped to promote a gradual transformation of Somali nationalism from a purely cultural phenomenon into a vigorous political force. The Somalis consider the unification of the southern and northern territory into one independent country only as a step in the direction of forming a greater Somali State including surrounding areas in Ethiopia, Kenya and French Somaliland where at present a part of the Somali community live. The Somali Constitution actually makes it an obligation of the Government to achieve reunification of all Somali terri- tories. This political aspiration in Somalia has resulted in very strained relationships with its neighbors. Ethiopia and Kenya have little desire to relinquish considerable parts of their territory, or to permit separationist movements amongst their population. They have taken measures to suppress any movement that would undermine their territorial integrity. The situation in French Somaliland is worse. The visit of French President de Gaulle in August 1966, was marred by a demonstration of Somalis living there, claiming independence for the territory. This led to the decision by the French Government to hold a referendum asking the people of the territory whether they preferred continued association with France with greater autonomy, or to become independent, in which case all economic and military aid from France would end. The referendum took place on March 19, 1967, and 60 percent of voters cast their votes in favor of continued political association with France. Somalis have refused to accept this verdict as representative of the peonle of the territory, because they allege that the referendum results were ensured by the manipulation of the voters list. Public Administration 10. The unification of the two systems of administration, British and Italian, is now almost complete. An Establishment Commission was set up in December 1962 to work out the practical methods of integrating two colonial administrations into one single national administration. On the recommendations of this Commission the Council of linisters approved in January 1965 the basic establishment for all ministries. It was the responsibility of the Commission to place or reassign the civil servants to appropriate posts within the new establishment as a part of civil service reform. This involved processing nominations of over 12,000 civil servants, which could not be completed before the termination of the Commission's tenure on March 31, 1965. The responsibility was later transferred to the Directorate of Establishment and Personnel. In January 1965 a Somali Institute of Public Administration (SIPA) was established with the help of U.N. technical assistance to train civil servants, and also to render technical assistance to the Directorate of Establishment and Personnel. 11. On the recommendation of the establishment Commission, a Public Salary Revision Commission was set up in March 1965 to refix the salary grades for different levels of posts. Revised salary grades as recommended by the Commission were accepted by the Government in September 1965 but their implementation had to wait until the budget -14 - for 1966 was presented. The budget made provision for the approved salary increases, but it fell short of the actual requirement. This, combined with shortfall in revenue collection, forced the Government to halt implementation of the salary revision. Since expenditure on personnel takes more than half the total budget, the Government decided to set up a Civil Service Establishment Commission to review the strength, categories and placements in the various Ministries. This Commission, which is to include two experts, one British and one Italian to be provided by UNDP, is expected to make a thorough study of the civil service. 12. An organizational development which occurred in 1966 was raising the status of the planning organization from the level of a Directorate to that of a full-fledged Ministry. The Planning and Coordination Ministry has been given additional power and responsibilities; but, being a new Ministry it is not fully equipped to formulate an over-all plan as well as sector programs. It is also relatively weak as compared to the older Ministries. 13. In spite of the recent improvements in its structure, the civil service is still unable to cope with its increasing responsibility of public administration and economic development. There is too much centralization of decision-making authority in the President of the Republic, Council of Ministers and Ministers. The Directors General, who hold the highest civil service position in the Ministi'es, do not play a significant role in po7li.y formulations but only faithfully follow the policy directions of theD Ministers. They lack power to enforce discipline on the sub- ordinate staff working under them. The laws relating to recruitment in public offices are so cumbersome that no appointment to posts in Grade C and above can take place without a Decree of the President; and before this Decree is issued it is necessary to strain the entire Government machinery. For example, the recruitment of a school teacher involves bringing into the picture the Director General of Establishment and Perso- nnel at least four times, the Yinistry of Education four times, the Council of Ministers twice, the State Attorney twice, the Magistrate of Accounts twice, the Public Service Commission once, the Minister of State once, the Committee of Examiners once, and the President of the Republic once. The desire to give a legalistic touch to each and every action - no matter how small it is - seems to be responsible for the extremely dilatory, laborious and lengthyprocess in which the Government machinery functions. 1. Somalia is administratively sub-divided into Regions, Districts, and Mnicipalities. There are eight regions, each administered by an appointed Governor. Districts are also administered by appointed District Commissioners but the municipalities are administered by elected councils. Economic Background 15. It is not possible to present a reliable figure of income per capita because available statistics do not permit an estimation of national income. Production statistics are fragmentary, and in some cases their accuracy is so doubtful that the Somali authorities have discontinued their publications. Data relating to income or expenditure do not exist. Haaever, the Directorate of Statistics in the Ministry of Planning and Coordination is currently engaged in making improvements in the accuracy of statistics. Looking at the general living standard in the towns and bearing in mind that an overwhelming majority of the people make a poor living in the countryside as nomads depending only on herds, experienced observers estimate the per capita income around Sh.So. 360 (US$50). On this basis, and taking population as 2.5 million, total income for Somalia could be visualized as being around Sh.So.900 million (US$125 million.1/ 16. Agriculture and livestock are the main resources of Somalia. About 90 percent of the population depend on these two sectors. These represent the main sources of subsistence and export trade. The country has about 8 million hectares of land suitable for cultivation, of which less than 400,000 hectares are actually cultivated. Plantation agriculture being entirely dependent on irrigation is concentrated in the southern region where the two rivers flow. Banana and sugarcane are the two main plantation crops both of which were originally dependent on protected markets. Banana cultivation was introduced by the Italian farmers in the 1920's and export started in the 1930's when cotton was abandoned during the depression. Banana production and exports to Italy continually in- creased, except during the Second World War period when cultivation was abandoned. Sugar cane is produced for the country's only sugar mill whose product is sold in the local sheltered market. Other agricultural crops are sorghum, beans, maize, grapefruit, sesame, etc., but their production fluctuates as rainfall varies considerably from year to year. 17. Livestock is an important resource for Somalia. As the 1964 report put it, livestock offers the best chances for survival to the nomadic population. The nomad is often successful in avoiding the extreme helpless conditions and famine caused by severe drought by moving on from place to place. He times his movement carefully in search of water and grazing land and relies on sturdier animals - camels and goats. Besides providing subsistence to the people, livestock also serves as the source of about half of the country's export earnings. 18. Forests cover about 9 million hectares, that is, about 14 per- cent of the total area. These consist mainly of shrubs and thorn trees. Real forests with high trees are found only along the two rivers. Incense, myrrh, and arabic gum are collected from wild trees. The large coastline along the Indian Ocean and the Gulf of Aden places Somalia in a favorable position in respect of fishery resources. However, at present fishing activity is confined to tuna for canning. Geological surveys have revealed the existence of some minerals in Somalia. The main deposits are iron ore in the "Bur" area in Upper Giuba, roughly estimated at 300 million tono (iron content 43 percent), and gypsum, estimated at 16 million tons, found within 14 Km from the port of Berbera. Other minerals, such as manganese, feldspar, meerschaum, columbite, etc., are also reported to exist. 1/ Later in this report, while reading the various economic magnitudes as proportions of GDP, the fragile nature of the GDP figure should be borne in mind. Economic Institutions 19. Before independence in 1960, participation of Somalis in the country's economic management was negligible. Except for livestock and traditional dry farming, economic activities in plantation agriculture, manufacturing, internal and external trade, banking, etc., were mainly in the hands of foreigners. There was no Somali private sector which could take an active part after the country became independent. The growth of a Somali private sector after 1960 has been slow. Though the share of Somalis in banana cultivation has increased as a result of deliberate Government policy, this sector is still predominantly in the hands of Italians, because of the sophisticated nature of this farming and the intricate problems of marketing. There exist two highly developed private banana farmer co-operatives, SACA and SAG, which handle the banana business. In commerce and banking also the foreign element continues. However, a process has started with Government encouragement to build up a Somali private sector, though it is still mainly confined to urban housing, public transport, and commission-agency business. 20. In the absence of an active private sector the State has assumed the main share of responsibility for the development of the national economy, though it itself is seriously handicapped by not having an administrative machinery which, by its structure and efficiency, could effectively discharge this function. However, steps have been taken to improve the capacity for economic administration by establisiing a number of institutions. In 1963 a Central Machinery Pool (ONAT) for providing farmers the use of tractors, vehicles and other machinery was established with a loan from Russia. A state trading institution called Ente Nazionale per il Commercio Estero (ECE) has been set up, mainly to run the business of import and sale of goods received under Russian aid. In 1966 the Government established two other autonomous agencies, viz. The Agricultural Development Agency and the Livestock Development Agency for the development of the respective sectors. It has also been decided to set up a National Banana Agency to regulate and promote the production and marketing of bananas. The Government is contemplating the establishment of an Industrial Development Corporation for developing and financing industries. In the banking field there are two state controlled institu- tions, the Somali National Bank and the Credito Somalo. The former is the central bank, also doing commercial banking, and the latter is a multi-purpose credit institution. II. RECENT DEVELOPMENTS 21. The general economic performance of Somalia in the past few years has been fairly satisfactory. Though the pattern of the economy has not changed, and the economic problems inherited at the time of independence still persist, there has been. a steady progress in overcoming the basic economic weaknesses. Somalia's economic progress cannot be measured by the growth rate of the national product because there are no national accounts estimates available. Conclusions have to be based on the actual efforts the country has made for increasing production and exports, achieving sound financial management and in other directions. 22. Somalia is still confronted with many economic problems which she must successfully solve before she can consider herself on a sound path of economic development. The country runs constant food deficits, often meeting with famines, but her traditional agriculture is stagnant. Her exports have increased but the increase cannot be sustained unless banana is made competitive in the international market and strict quality control is applied to her livestock exports. The dependence on foreign budgetary support, though reduced, still remains. The authorities face many problems in the planning and execution of development projects. A. Developments in the Sectors (a) Agriculture 23. The Somali Ministry of Agriculture has classified the land in the country as follows: Million Hectares Percentage Area suitable for cultivation 8.0 12.5 Area suitable for livestock raising 35.0 54.9 Other area 20.8 32.6 Total Area 63.8 100.0 Though the area of land suitable for cultivation has been shown as eight million hectares, the area actually cultivated is estimated between 350,000 and 00,000 hectares. Mhat limits cultivation is the availability of water! not of suitable land. The two rivers, Giuba and Scebelli, are used for irrigation, but not more than 30,000 hectares are at present under controlled irrigation. Another 60,000 hectares are estimated to be under irrigation operated in the traditional manner. Thus most of the cultivated land is left under rain-fed dry-farming. Plantation Agriculture 24. Though the area under controlled irrigation is only a small fraction of the total area under cultivation,, it has provided the os - 8 - for Somalia's agricultural development. Banana and sugar cane are the two main crops grown in this area through modern plantation cultivation. While the rain-fed traditional agriculture remained almost stagnant in the past few years, the irrigated plantation agriculture made good pro- gress. Irrigated agriculture had first been started around the Scebelli River by Italian farmers. At present about 55 percent of banana exports and the entire sugar cane production of the country are in the Scebelli area. Banana production is concentrated in the Afgoi-Genale area and sugar cane is grown around the sugar mill at Giohar. Since the Scebelli River dries up for two to four months during January-May, water has to be conserved for use in these months. Plantation in the Giuba region started later because the Giuba River marked the border between Somalia and Kenya until 1925. Though at present this region produces less than half of the country's banana, it offers greater potentiality for future development, because Giuba is perennial river and its water is less alkaline. 25. Sugar cane production in Somalia owes its origin to the establishment of a sugar mill at Giohar by an Italian company called Societa Agricola Italo-Somala (SAIS) in 1927. The company has an estate of 24,000 hectares of which only one-third has been brought under irriga- tion. Area under actual sugar cane crop in the years between 1960/61 to 1964/65 did not exceed 1,700 hectares. In the year 1965/66 the area under sugar cane cultivation increased to over 3,000 hectares as a result of the expansion of the capacity of the sugar mills from 12,000 tons a year to O,000 tons. Apart from the increase in area and output, the past years have seen improvements in yields and sugar content as a result of better cultivation, drainage and use of fertilizer. 26. Banana is of particular importance for Somalia. About 45 per- cent of Somalia's total export earnings are contributed by banana, which is about equal to the other major export, viz. livestock and livestock products. Banana also provides directly or indirectly about 15 percent of Government revenue. It is estimated that there are in total about 25,000 workers engaged fully or part time in the banana sector. 27. Over the period between 1960 to 1965, the production of banana increased by about two-thirds, from 91,000 tons to 157,000 tons. This was achieved almost entirely through higher yields per hectare; the total area under banana cultivation remained nearly unchanged, around 11,000 hectares. Yield per hectare increased from 9 tons in 1961 to 15 tons in 196$. Like- wise, banana exports also increased substantially from 77,000 tons in 1960 to nearly 100,000 tons in 196$. The entire export of Somali banana went to the Italian market where it had enjoyed protection since 1930, when it was first exempted from import duty. In 1935 the Italian Government established a banana monopoly organization, called Azienda Monopolio Banana (AMB), to handle the import and marketing of Somali banana. In Somalia, two associations, namely Societa Agricoltore Giuba (SAG) in the Giuba area and Societa Azionaria Concessionari Agricoli (SACA) in the Afgoi-Genale area, were organized for marketing the banana crop of the respective areas. This - 9 - arrangement continued, and succeeded in increasing the export of Somali banana to the Italian market from 22,000 tons in 1950 to 77,000 in 1960. 28. The protection to Somali banana in the Italian market continued even after 1960, when Somalia became independent, but Italy made it clear that she would eventually abolish this protection. A Special Banana Agree- ment was signed in 1960 which provided that total banana imports to Italy from Somalia would be decided annually through exchanges of notes between the two Governments, the details about prices, etc., to be negotiated between AiB and the two Societies in. Somalia. This agreement was valid for five years, to be terminated by the end of 1965. In October 1964, Italy abolished the AME and decided to open her market to banana exporters of other countries associated with the European Economic Community. To honor her undertaking to Somalia, Italy established a total import quota of 1.8 million quintals (1 quintal = 100 kg) for 1965, and reserved half of it for Somali bananas. With the termination, of the 1960 agreement in December 1965, Italy further liberalized her banana import policy, but in, order to allow more time to Somalia to make her bananas competitive in the Italian market, a reduction in the consumer tax by 30 lire per kg (Sh.So. 33 per quintal) was allowed to the first one million quintals of Somali bananas for two years, until December 31, 1967. This was an important step in tha liberalization of banana import policy of Italy since it did not provide for any fixed quota, and beyond the first one million quintals Somali bananas were to have the same position as bananas imported from countries associated with the European Common Market. Imports from other countries, not associated with the Common Market, had to pay a common external tariff of 20 percent. 29. The question. arises whether Somali banana will be able to compete in the Italian, market with bananas from other associated members of the European Common Market, such as the Ivory Coast, after 1967. To be success- full, Somalia has not only to reduce the production and transport costs of her bananas but also to make suitable marketing arrangements in. the absence of the traditional arrangements with the AD. The banana farmers and exporters have accepted this challenge, with assistance from the Government. The consensus of those who have studied the Somali banana industry is that Somalia will soon be able to sell her bananas in. the Italian market without any preference in. the importing country. 30. Both SACA and SAG have taken a number of measures to reduce the cost of production. The most important step is directed to achieving higher yields. In this, they have been remarkably successful, as the per hectare yield increased from 9 tons in, 1961 to 17 tons in 1966. These figures relate to the overall average; for the more advanced large estates the per hectare yields are much higher. Some experts believe that yields over 30 tons per hectare should be eventually possible. Both SACA and SAG resorted to improved technique of farming which involved narrower spacing of banana trees, increased use of fertilizer and greater attention to irrigation. SACA has taken up water conservation projects to provide regular supply of water during the months the Scebelli River dries up. Another measure resulting in higher yields is replanting the Latin American Poyo variety banana in place of the traditional Giuba Nana variety. Besides giving increased yields, the Poyo variety banana also makes for ecoro-ry in - 10 - the c.i.f. value, because it does not bruise so easily and is less damaged in handling. Both SACA and SAG hope that replanting of Poyo variety will be completed by the end of 1967. 31. A change-over to a new packing system has also led to a substantial reduction in handling costs. Previously, a whole stem of banana used to be packed in a polythene bag. In the new system of packing, hands are cut from the stem and then packed in cardboard cartons after rejecting sub-standard fruits. Though it involves more cost on packing materials, it results in economy in shipping space by about 12 percent, easy handling, less damage in transit and higher de- livered quality of fruits. SACA has a number of stations where pack- ing in cartons is done under strict quality control of qualified supervisors. Almost all export by SACA is now in cartons. Though late, SAG also switched over to carton-packing and has established a number of packing stations. 32. Cost of transportation from the packing stations to the harbors have also been reduced as a result of road improvements. The completion of the Afgoi-Scialambotroadin the Genale area and the Gelib-Chisimaio road in the Giuba area should result in further reduc- tion in cost if the trucking agencies could be induced to reduce their charges. The construction of the Chisimaio port and the improvements of harbor facilities in Merca port contributed to lower handling costs at pCrts. 33. The Government of Somalia has shown full awareness of the importance of making Somali banana competitive in the international market. Banana received high priority in the development program of the Government and foreign aid has been directed towards the construc- tion and improvement of roads and ports. The Italian Government has also contributed; besides granting preference in her market, Italy provided a loan of Sh. So.13 million to the banana growers through Italian banks and the Somali National Bank for infrastructural projects. In June 1966 a decision was taken to establish a National Banana Agency to regulate, promote and guide banana production and marketing. Though the proposed Agency has not yet been established, an Inter- Ministerial Committee has been concerned with banana problems. Banana has been given a high priority in the short-term Plan presently being prepared. 34. The SACA and the SAG were able to make new marketing arrange- ments after AIM was abolished. SAG negotiated a five-year contract with the Compagnia Italiana Frutta (CIF), a subsidiary of the United Fruit Company, to dispose of its bananas for a fixed f.o.b. Chisimaio price. SACA participated in the formation of Comafrica, a joint French-Italian Company, which would market its bananas on commission basis. Thus, while SAG received a guaranteed f.o.b. price, SACA's price fluctuated according to market conditions in Italy. However, the SAG-CIF contract provided that the stipulated f.o.b. price would be paid only for fruits meeting the CIF standard. In 1965, SAG realized 92 percent of the fixed price, but in 1966, due to stricter - 11 - application of quality condition by CIF, the actual price received by SAG a Cnly 75 percent of the fixed price. SACA earned a good profit in 1965, but incurred a loss in early 1966 due to low prices prevailing in the Italian market. In later months, SACA recovered and earned good profit. 35. Precise information about costs of production for Somali banana is hard to obtain. A study conducted by the U.S. Embassy in Pogadiscio gives some estimates of costs of bananas exported by SACA and SAG on the basis of a survey conducted in 1965 by the FAO, interviews with SACA and SAG officials and SACA and SAG submissions to the Somali Ministry of Agriculture. The U,S. Embassy study also gives some estimated costs for the year 1968 based on the expected results of the measures taken and to be taken for reducing costs. These fLgures are given in the table below: COST OF BANANAS f.o.b. SOMALI PORTS Sh. So. per Quintals 1966 1968 Items SACA SAG SACA SAG Production Cost 23.0 23.0 19,0 19.0 Cost of cutting and packing 5.2 5.0 3 .0 3.0 Road transport to port 2.8 6.0 2.0 4.0 Loading and related charges 7.1 6.5 3.5 2.5 Customs charges, harbor fees, etc. 6.0 6.0 6.0 6.0 Hiscellaneous (unloading from trucks, stevedoring) 2.4 1.5 2.4 1.5 Commission to SACA, SAG 4.5 3.0 4.5 3.0 Total plantation-to-ship cost 28.0 28.0 21.4 20.0 Total f.o.b. 51.0 51.0 40.4 39.0 Source: U.S. Embassy Study, 1966 36. The mean cost of production at farms is estimated at Sh. So. 23 per quintal in 1966, with a range of Sh. So. 21 to Sh. So. 25. The total cost on various items from the farm to the ships is estimated at Sh.So.28. This makes the f.o.b. cost Sh.So.51. Ocean freight costs for Somali bananas have been very high. At the time of Italian monopoly it amounted to about Sh.So.53 per quintal, including the cost resulting from the loss of weight and damage to the fruits during the voyage. Steps have been taken by the Somali and Italian Governments - 12 - to introduce competition in shipping Somali bananas to Italy. This has resulted in reduced sea freights. The U.S. Embassy has given Sh.So.38 as the sea freight for 1966 which brings the c.i.f. Italy to Sh.So.89. 37. The 1966 c.i.f. Italy at around Sh.So.90 was less than that of 1964 by more than 20 percent and was also less than the 1965 c.i.f. Italy of Ivory Coast bananas (Sh.So.98). However, the bananas from Ivory Coast are of better quality and fetch higher prices in the Italian market. It is expected that if all the measures taken to re- duce costs are vigorously pursued, the c.i.f. Italy for Somali bananas might come down to Sh.So.70. 38. The above comparison of cost estimates suggests that Somali bananas might be competitive even now in the Italian market without the 30 lire per kilogram preference. This conclusion is strengthened by the fact that both SACA and SAG planters are now earning high profits and should be able to sell at lower prices. In 1966, both SACA and SAG earned higher rates of profit than they did before 1964. The Giuba growers averaged a net return of Sh.So.17 per quintal and Scebelli growers a net return of Sh.So.14 per quintal. Even after taking account of the loss incurred in sales in the local market, the profit rate comes to about Sh.So.12 per quintal. Accord- ing to an FAO study of 1965, a profit rate of Sh.So.3 per quintal or 12,5 percent of production cost should be reasonable for Somali ba.anas. In recent years the Somali banana growers earned 25 to 50 percent of production costs as profits. It appears that a consider- able part of profits has been reinvested for plantation improvement. 39. While the conclusion that Somalia will be able to sell her bananas in the Italian market at competitive prices when the present Italian subsidy is lifted after December 31, 1967, seems to be valid, there is no room for complacency. Other banana exporting countries are not sitting idle; they are also trying to reduce costs and improve the quality of their bananas. Somalia must continue in her efforts in making all possible economies in the production and trade of her bananas. Specially, she must improve the quality of her bananas if she is to keep her position in the international market in the long run. Traditional Agriculture 4o. Traditional Agriculture - either through dry-farming or through innundation irrigation - is mainly devoted to sorghum, maize, legumes, sesame and cotton. The entire foodgrain production is grown by traditional agriculture, whose output varies considerably from year to year as a result of varying rainfalls.1/ The average annual 1/ Statistics of crop production are unreliable; for that reason no figures, except for banana and sugar cane, have been published for the years after 1964. - 13 - production of foodgrain in Somalia is about 150,000 tons, which is to be supplemented by an import of about 30,000 tons to meet the minimun food requirement of the country. However, production may fall below half of the average annual production in a year of severe drought. During three of the last six years, production fell much below the average, causing severe shortage of foodgrain. The situation is aggravated by the lack of storage and marketing facilities. Seasonal variations in the prices of agricultural crops can be very large - the price of sorghum, for instance, increases usually by three times between harvests. To stabilize prices at levels to provide the neces- sary incentive for increased production, the Government has launched a grain marketing, storage and price stabilization project with the assistance of UNDP (Special Fund). The project is in the initial stage of implementation and will not be completed before 1970. h1. In order to attempt a break-through in the stubborn tradi- tional agriculture in. Somalia, the Government in 1963 established three state farms with the financial and technical assistance of Soviet Russia. These were designed to settle nomads as sedentary cultivators, bring more arable land under cultivation and increase food production to eliminate the country's food shortage. According to the agreement with Soviet Russia, the capital cost was to be financed out of a Rble 40 million (Sh.So.317 million) loan, while the responsibility for meeting local currency expenditure was with the Government of Somalia. However, Soviet Russia extended a commo- dity loan of Rble 7 million (Sh.So.55.5 million), the proceeds of which could be used for meeting the local currency expenditure of the projects. One of the state farms was located in Tug Wajale area in the northern region with 8,000 hectares of dry farming land to produce wheat, sorghum and maize. The second farm was in Gelib in lower Giuba region to cover 5,000 hectares of irrigated land to produce oil seeds. The third farm, also located in Gelib, was to cover 5,O0 hectares of irrigated land to produce cotton and food grains. 42. The experiment with state farms did not succeed. The Somali Government found it difficult to meet the local currency requirements (including working capital) of the projects. Again, according to the agreement with Russia the managerial responsibility for construction and installation was with the Government of Somalia. Serious defi- ciencies and irregularities were discovered in management during the execution of the project. As a result of shortage of funds and bad management, work on the farms was stopped in January 1966. However, by that time a large area of land was cleared and a part of the food grain farm was put under crops. The state farms could yield good crops and income if working capital and proper management for farming the already cleared land could be arranged. 43. The Government of Somalia has recently reviewed its develop- ment strategy and has given highest priority to the development of agriculture and livestock. As a step to the development of agriculture the Government established an Agricultural Development Agency in early 1966. The Agency directed by FAO experts will concentrate on helping farmers in the inter-river region to consolidate their holdings into - 11 - efficient farming units, and providing them with technical guidance on farming practices and other facilities. It also plans to put the land cleared under the state farm project to cultivation through cooper- atives. The Agency has so far been short of funds. (b) Livestock L. At least two-thirds of the population of Somalia are nomads who raise livestock for a living. Herding covers about 35 million hectares or about 55 percent of the total area. 4E. There has been no census of animals taken in Somalia so far. Estimates are also difficult to make due to the continuous interchange of stock between Somalia and the surrounding countries. Occasional famines also cause big changes in the size of animal population. However, it has been estimated that more than two-thirds of Somalia's cattle are irL the southern region. Camels are equally distributed between north and south and the north has 80 per cent of the country's sheep and 30 percent of its goats. According to estimates made by the government veterinary services in 1964, the total animal population of Somalia has been put at 10.6 million, of which cattle account for 2.8 million, camels 2.5 million, sheep 2.1 million and goats 3.2 million. Whatever may be the validity of these estimates, people having a good knowledge of the livestock sector feel certain that Somalia could carry more livestock by applying modern techniques for production, conservation and utilization of forage and water resources as well as by using a proper breeding system., The regional distribution of animals by type depends on local traditions as well as the type of pasture available. Some pastures are more suitable for camels and goats while others are suitable for cattle. The quantity and quality of drinking water also determine the type of animal which can be maintained in different regions. 46. Exports of livestock until 1959 remained between Sh.So.10 to 20 million, and maintained a constant proportion of total exports, averaging less than 20 percent. After the country became independent in 1960 there has been a steady progress in the export of livestock. While in 1960 livestock export contributed only 25 percent of the total export earnings, it increased to 37 percent in 1962 and it further increased to 42 percent in 1964. In 1963 and 1964 the export earnings from livestock combined with export earnings from hides and skins surpassed the share of bananas which was about 45 percent of the total export earnings. The drought of 1965 seriously affected the export of livestock which fell to 34 percent of total export earnings of that year. The impact of the 1965 drought persisted in 1966 and the export of animals in that year also remained low as compared to previous years. Most of Somalia's livestock exports go to the Arabian peninsula. 47. Until 1965 no significant action was taken towards the development of the livestock sector except the reorganization and improvement of the veterinary services. In early 1966 a major step was taken by the Government by establishing a Livestock Development - 15 - Agency. The Livestock Development Agency is a central autonomous organ- ization charged with the responsibility of coordinating and integrating all livestock development activities and ensuring continuity of policies and also to take measures designed to promote the development, marketing and export of livestock and livestock products, 48. The administrative and technical functions of the Lvestock Development Agency are carried out by experts lent by the FAO, The Live- stock Development Agency has initiated a program of development activities,the main objective of which is to generate a 10 percent or more annual increase in export earnings from livestock and livestock products. The livestock development program has three facets, Firstly, the Agency is to foster and expand an effective animal disease control which would involve extensive veterinary services to the whole country and intensive health control measures in some specific locations. Secondly, the Agency is to facilitate the organization and maintenance of a marketing system of livestock and livestock Droducts, and provision of adequate facilities for exports. At least two holding grounds are to be established, one at Chisimaio and another near Mogadiscio. The purpose of these holding grounds is to main- tain animals thereon, to improve their health and weight before they are used in the local meat canning factory or are exported, The third facet of the program is raking adequate pre-investment studies for the establish- ment of training institutions and development of industries based on live- stock products. Some studies have already been initiated and the Agency will initiate and conduct new studies. h9. The Livestock Development Agency has so far been seriously handi- capped by lack of funds. The 1966 budget of the government made a provision of Sh.So. 1.3 million for the Agency, but only ShoSo. 1 million was released. The budget provision for 1967 is only Sh.So. 0.5 million. However, the Agency expects to get a substantial share of a recent Sh.So. 35 million Saudi Arabian loan. In the long run the Agency expects to be self-financing, its cost being met by the fees and payments received for services rendered. (c) Manufacturing Industry and Power 50. At the time of Independence Somalia had little manufacturing industry. There was only one industrial unit in the country worthy of the name, a sugar mill at Giohar by the Scebelli River, which had at that time a productive capacity of 12,000 tons. This was an. Italian venture run by a company called Societa Agricola Italo-Somala (SAIS). Outside this, manufacturing activities were confined to handicrafts and small plants for canning meat and tuna fish. In the last few years a number of industi1al projects have been implemented; some are already complete and some are near the stage of completion. The sugar mill at Giohar has also gone through modernization and expansion; its capacity was increased from 12,000 tons to 40,000 tons a year and a new company formed, under the name Societa Nazionale Agricola Industriale (SNAI), whose shares are owned equally by the former Italian company SAIS and the Somali Government. After this expansion, Somalia has become self-sufficient in sugar at her present level of consumption. - 16 - 5l. The new industrial units are a meat processing pl nt at Chisimaio, a fish canning plant near Las Khoreh along the Gulf of Aden, a milk process- ing plant in Mogadiscio and a cotton mill at Balad. The first three projects are Russian-aided and the last is a joint venture of the Somali Government, Somali private investors, and German private investors, for which a company called SOMALTEX has been formed., The meat factory in Chisimaio, which has a capacity of processing 170 cattlehead per day, is almost ready, but its operation, will have to await availability of water. Facilities for water were to be provided by a U.S. financed project, but will not be ready before 1968& However, before the plant starts, operating problems relating to management and working capital must be solved, The Somali Government is exploring the possibility of coming to an agreement with some foreign private company, which could provide both management and working capital. The fish canning factory is expected to be completed by the end of 1967, but it is reported that the factory will not be able to operate economically because of a lack of fish. The milk processing plant, which has a capacity of 20,000 liters a day, went into production in 1965, but at present the plant is working at about one-tenth capacity owing to the lack of an adequate supply of milk and insufficiency of working capital. To provide adequate supply of milk to the factory a dairy farm is being set up. The construction of the cotton mill at Balad, which is a joint venture, has started this year and is expected to be completed in two years. The factory will have 10,000 spindles and 300 looms and also bleaching and dyeing equipment0 The Govern- ment is contemplating the establishment of an industrial development corpora- tion fcr developing and financirg industries. The main domestic 97urce of financing industrial development is at present the Credito Sonalo--a mixed credit institution which has a separate development loan section for advancing medium- and long-term credit, 52C The total generating capacity of electric power in Somalia in 1962 was estimated at 7,000 Kw, and 25 towns were provided with electricity, Generation and distribution of electric power in M4ogadiscio are in the hands of an Italian private company, SEIS. In 1965 the capacity of the company increased to 4,100 Kw. Production and distribution of electricity in most of the other towns in the south are also in private hands, but in the north the Government owns and operates electric power stations, Power rates in Somalia are high; the SEIS in Mogadiscio charges Sh.So, 0.80 and Sh.So. 0.60 for domestic and industrial use respectively. (d) Transoortation 53- Somalia's transportation system at the time of Independence was meagre. The Italians constructed the port of M bgadiscio and some roads leading to the Ethiopian border during the war against Ethiopia in the 1930's. The British constructed roads during the Second World War linking the port of Berbera to Hargeisa and Burao. But the state of these roads and ports was very poor in 1960. The Somali Government gave the highest priority to the development of the transport sector. Construction of two new roads was completed in 1964 and 1965, one connecting Afgoi on the Scebelli River toScialambot (68 Km) near the Merca port; and the other connecting Gelib in the Giuta area to the Chisimaio port (115 Km). These roads have imoroved overland transport of exports to the exit points,, The - 17 - road between Mogadiscio and Afgoi (28 km) has been resurfaced. Work on a IDA-financed road between Afgoi and Baidoa (218 km) has started. At pres- ent, Somalia has 7,716 km of roads, of which about 600 km are asphalted and the remaining are gravel and earth roads. In 1965 there were 11,490 licensed vehicles. 54. Somalia has four ports: Mogadiscio, Chisimaio and Merca in the south, and Berbera in the north. Mogadiscio is the main import harbor; Berbera port handles mostly animal exports; Chisimaio port is the exit point of animals and bananas of the Giuba area; and the Merca port handles only bananas of the Scebelli area. At the Chisimaio port, the basic deep- water docking and other facilities have been completed with U.S. technical and financial aid, and work on complementary facilities are in progress. Construction of a deep-water port at Berbera with Russian aid is nearing completion. 55. Somalia has some 20 airstrips scattered all over the country, but only four of these, at Mogadiscio, Chisimaic, Berbera and Hargeisa, are all-weather ports equipped with navigational control. Mogadiscio, Chisimaio and Hargeisa ports have been enlarged and expanded and a new terminal building has been constructed at the Mogadiscio port. The Somali Airlines has three DC-3 and two Cessna aircraft. It has flight services to seven toms in the country and also to Aden. It has also started flights to Nairobi but with the worsening of political relation- ships Kenya has cancelled Somali Airlines' traffic rights. (e) Social Services 56. Educational development in Somalia is rendered particularly difficult by the absence of a common written language. The Somali language, which is spoken by all, has no script. Instruction is general- ly in Arabic in the elementary schools, with English or Italian as a subject being taught; the higher schools switch over to English or Italian as the language of instruction. However, there is a trend towards use of English in more and more higher level schools. School education is for twelve years, divided equally among elementary, intermediate and secondary levels. At present there are 265 Government schools, of which there are 220 elementary, 31 intermediate, 10 secondary and 4 teacher training schools. Besides, there are 57 private schools - 31 elementary, 19 intermediate and 7 secondary - mostly run by foreign missions. Total enrollment of students is nearly 40,000, of which 29,000 students are in the elementary level, 8,000 in the intermediate level, and 3,000 in the secondary and higher levels. There is a University College in Mogadiscio which imparts teaching for the first two years of a degree course, but for obtaining a degree the students have to study two more years in Italy. 57. In the past few years a number of schools have been established. A technical school with an ultimate capacity of 180 students has been established in Burao. Several other educational institutions are under construction or under study. However, there appears to be a shortage of educated personnel, particularly to staff the growing number of educa- tional institutions. On the other hand, it is estimated that there are 1,460 students studying abroad for degree and non-degree courses. Th%:n - 18 - students when returning home are expected to fill the preseit shortage of high-level skills; there may even be over-supply, and difficulty may arise in adjustment on account of the varying language and cultur).l backgrounds of the host countries. As many as 451 students are studying in USSR, 266 in Italy, 179 in UAR, 131 in Germany, $2 in Czechoslovakia and 131 in USA and UK. The Planning Ministry is examining the position and is also trying to coordinate the various foreign scholarship programs in the light of future needs. 58. The health sector in Somalia is at a low level of development. In 1964 there were 25 hospitals, 32 infirmaries and 182 ambulators, with a total number of 4,330 beds. A few new health institutions have been estab- lished in recent years. The EEC constructed a modern 600-bed hospital in Mogadiscio in 1965 and its further expansion is under study. The Somali Government has not been able to take over the operation of this hospital for lack of finance. A TB hospital has been established by the Government in 1966 at Belet Uen. Two hospitals, with 50 beds each, have been set up at Wajit and Shaikh, and a maternity section has been added to the Hargeisa hospital. Upgrading of six hospitals is now under way with assistance from UNICEF. B. Investment $9. There is no estimate of annual investments in Somalia. The German Plannig Advisory Group working with the Ministry of Planning and Coordina- tion has compiled a list of projects, mostly in the public sector, which were started or completed after Independence, including, as well as feasi- bility studies and surveys, all development projects involving capital investments; expenses for current advisory activities of foreign experts, for maintenance and operations, and for courses or scholarships abroad are not included in this list. The total cost of all the listed projects comes to Sh.So. 2,14 million. Actual expenditures until June 30, 1966, were Sh.So.602 million, averaging Sh.So.100 million a year or around 11 percent of GDP. Of this amount, Sh.So.268 million was on completed projects and the remaining Sh.So.334 million was on projects underway or under study. Thus, by June 1966, the actual total expenditure was 28 percent of the total cost of the projects - 15.5 percent on projects still underway, and 12.5 percent on projects already completed. Some of the "underway" projects, particularly in the agricultural sector, are already contributing to in- creased output. 60. The pattern of expenditure up to June 1966 on public sector projects conformed closely to the pattern implied in their total costs. The largest share in total cost was that of transportation, having about 36 percent; the share of this sector in actual expenditures up to June 1966 was 33 percent. Industries had the next largest share, both in the total cost of projects, and in actual expenditures - 19 percent and 23 percent, respectively. The share of agriculture was almost the same, about 17.5 percent, in the total cost and actual expenditure. For other sectors also the actual expenditure pattern shows a general conformity to the pattern of the total cost of projects. Since the list includes projects started before the First Five-Year Plan (1963-1968) and also projects not included in the Plan, the pattern of actual expenditure up to June 1966 will not be comparable to the pattern of the public sector program con- ceived in the Plan. However, there is an overa2. similarity between the - 19 - tqo. at least the relative priorities of the sectors are more or less the sarz. 61. Of the total Sh.So.602 million expenditure, as much as Sh.So.514 million or 82 percent have been provided by foreign governments or multilateral agencies as grants or loans. The amount of loans provided by these sources is Sh.So.272 million, and the amount of grants is Sh.So.242 million. A small part of the total expenditure, Sh.So.39 million, has been financed by the Somali Government. Participation of private investment is Sh.So.29 million, and, though a large proportion of this has come from Somali private investors, there is also an element of foreign private investment. The remaining Sh.So.20 million has been provided as loans by credit institutions in Somalia, mainly the Credito Somalo. 62. The German Planning Advisory Group has also made some preliminary esti- mates of foreign private investment in Somalia. This they have done on the basis of registration records of private investment available with the Ministry of Planning and Coordination. According to Law No. 10 on "Foreign Investments in Somalia" which came into force in February 1960, all foreign private invest- ments have to be registered with the Government. On the basis of the registra- tion records it has been estimated that an amount of Sh.So.h56 million have been invested in Somalia by foreign private investors. Since the registra- tion records mostly refer to investments which had already taken place before the Foreign Investment Law came into force, this estimate broadly represents an inventory of foreign private investments in 1960. This estimate, is, however, very tentative because it has not been possible to examine the registration documents in order to evaluate the accuracy of the figures. The largest share of the foreign private investment has gone to the agricultural sector, amounting to Sh.So.136 million or 30 percent of tt3 total. This includes Italian private investmenb in banana cultivation. Next to agriculture is industry, which had Sh.So.121 million or about 27 percent of the total private investments. Italian private investment contributed three-quarters of the total. The other nation- alities who made significant investments are Arabs (4 percent), Pakistanis (3 percent) and Indians (about 2 percent). C. Finance (a) Government Finance 63. The central government's budget dominates public finance in Somalia. The central revenues include not only taxes and fees but also income from state monopoly trading in tobacco and matches and profits transferred by the autono- mous bodies such as The Somali National Bank, Port Authority and ENCE. The municipalities have their own separate budgets and are generally self-financing. In 1966 the total budgeted expenditure of 60 municipalities amounted to Sh.So. 25.5 million, compared to the central government's budgeted expenditure of Sh. So.254.3 million for that year. 64. Prior to 1966 central government finances were divided between an Ordinary Budget and a Special Budget. The Special Budget which was intro- duced in 1962 covered Somali expenditures on some foreign-financed develop- ment projects; it followed the wishes of Italy and UK, who expressed prefer- ence for linking a part of their aid directly to investment. However, the Special Budget was never prepared satisfactorily - it remained incom- plete and never accurately reflected disbursements during the year. Its - 20 - preparation was given up in 1966, when the Government returned to the single budget system. Starting with 1966, all government current expen- ditures and capital expenditures in local currency, except the local expenses on certain projects financed by commodity loans from Russia, are included in the Ordinary Budget. Expenditure on development projects financed by foreign aid and local expenditure on Russian-aided projects remain outside the scope of the Ordinary Budget. 65. Constant deficit in the Ordinary Budget has been a constant feat- ure of public finance in Somalia. Historically, Somalia has received budget aid from Italy and United Kingdom since before Independence, and continues to be dependent upon such aid, although the United Kingdom ceased budget aid when diplomatic relationships were severed in 1963. Since then Somalia depended for budget aid mainly on Italy, though Communist China provided occasional budget aid. Revenues and Expenditures of Government of Somalia Million Somali Shillings 1961 1962 1963 1964 1965 1966L 1967 Budget Internal Revenues 123.5 142.7 150.5 177.7 177.5 193.2 2h 7 2/ 3/1 3 Current expenditure 164.82/ 158.6 180.3 198.8 199.4 232.9- 269.6 Capital expenditure 12.9 21.3 31.8 19.2 8.14 Total expenditure 171.5 201.6 230.6 218.6 241.0 269.6 Current deficit 41.3 15.9 29.8 21.1 21.9 39.7 24.0 Total deficit 41.3 28.8 51.1 52.9 41.1 47.8 1/ 1966 figures are provisional. T/ In 1961 there was no special budget, development expenditures, mainly by Public Works Ministry, is included here. 3/ Includes all current and local currency capital expenditure, except the local currency costs on Russian-aided projects. 4/ Local currency expenditure on Russian-aided projects, not included in the Budget. / Local currency expenditure on Russian-aided project will be known at the end of the year. The picture of government budgetary deficits is confused by the varying classification of expenditure under Ordinary and Special Budgets. However, it is evident that public saving in Somalia has all along been negative because there were deficits in all years in both Ordinary and Capital Budgets. The total deficit, which was Sh.So.4l.3 million in 1961, fluctuated from year to year but was the same amount in 1965, the latest - 21 - year for which actual expenditures are available. As a proportion of total expenditure the deficit fell between 1961 to 1965 from 25 percent to 19 percent. 66. Over the years 1961 to 1966, ordinary revenues of the govern- ment increased from Sh.So.124 million to Sh.So.193 million, that is, at an annual rate of 9.5 percent. Government revenues are roughly 20 per- cent of GDP. These are highly dependent upon taxes on international trade. The 1967 budget estimates Sh.So.127 million of revenue from this source, which is 52 percent of total revenue. The taxes on inter- national trade include import and export duties, special purchase tax on certain luxury imports and fuels, a statistical tax of 6.5 percent (5 percent in 1966), an exchange tax of 1.5 percent (3 percent in 1966), a harbor tax of 1.5 percent and various stamp duties. Next in importance are taxes on production, consumption and domestic trade, which include gross receipts of the state monopoly trading in tobacco and matches, manufacture tax on sugar, entertainment tax and a share of slaughter tax collected by municipalities. In the 1967 budget these amounted to Sh.So.63.7 million, representing 26 percent of total revenues. Direct taxation on income and property is very small, only Sh.So.16.3 million or less than 7 percent of total budget revenues for 1967. Fees, service charges, fines, property receipts and other taxes and revenues form about 15 percent of total government revenues. 67. Budget expenditure increased from Sh.So.164 million in 1961 to Sh.So.2h1 million in 1966, showing an 8 percent annual rate of in- crease. The expenditure on defense and police increased much faster than the total expenditure, due largely to the worsening relationship with neighbors and was 35 percent of total expenditure or 9 percent of GDP in 1966. The 1967 budget provision for defense and police repre- sents 39 percent of total expenditure. Expenditure on general adminis- tration was 34 percent of the total in 1966; in the 1967 budget the expenditure on this is 31 percent of the total. The expenditure on community and economic services (public works, transport and communica- tions, agriculture, industry and commerce, and information) was 20 per- cent or Ahe total in 1966 and has the same share in the 1967 budget. The expenditure on education and health in 1966 was 11 percent of the total, but in the 1967 budget has been increased to 14 percent. High expenditure on personnel is characteristic of Somali budgets. In 1966 such expenditure was 51.5 percent of total budget expenditure, and in the 1967 budget it has been increased to 5h percent. Apart from a pro- vision of Sh.So.2 million for filling vacant posts, the increase in the estimated expenditure on personnel in 1967 is largely due to revision of salaries of civil servants. 68. One important feature of the government's budgetary operation in the past few years was the accumulation of unpaid vouchers and bills to the amount of Sh.So.24 million by the end of 1964. It was decided to amortize this amount over a four year period, with Sh.So.6 million per year, starting from 1966. In 1965 another Sh.So.6 million unpaid bills were accumulated. The Somali authorities have reported that in 1966 no unpaid bill was accumulated. The budget for 1967 includes a provision of Sh.So.6 million for clearing unpaid bills. - 22 - (b) Money and Credit 69. The monetary institutions of Somalia consist of the Somali National Bank, as the central bank, and five commercial banks; four are branches of foreign banks and one is a government institution - Credito Somalo. The Constitution of the Somali National Bank, which started functioning in July 1960, provides that, in addition to central banking functions, the Bank may also engage in normal banking operations. In the first few years, the Bank concentrated primarily on its tasks as central bank, but since 1963 it has increasingly engaged in commercial banking. As a central bank, it issues currency, administers inter- national reserves, acts as banker to the Government and as central monetary authority vis-a-vis the other commercial banks. In the issu- ance of currency the Bank maintains a system of 100% cover: it issues notes in exchange for an equivalent receipt of gold or foreign exchange; and conversely, it pays out foreign exchange when Somali Shilling notes of equivalent value are surrendered. In order to maintain the external value of the shilling, it formerly repurchased its own notes abroad; this practice was stopped in 1966. As a banker to the Government, the Bank restricts itself mainly to the role of provider of "ways and means" advances or of "special advances" in anticipation of promised foreign budgetary aid. In controlling credit the Bank mainly relies on its own operation, since it is also the principal commercial bank, and resorts primarily to moral suasion to control the other commercial banks' credit. In the past, the commercial banks generally had a strong reserve position and relied very little on central bank financing, but, with recent deterioration of their liquidity position, it is expected that they will turn to the Somali National Bank for financing. The Bank would thus be in a stronger position to influence the credit operation of the commercial banks. The commercial banks have traditionally pro- vided short-term credit mainly to traders and plantation owners. However, the Credito Somalo maintains a section to provide medium and long-term credit, in addition to its commercial banking section. 70. The money and credit system of Somalia functioned well in the years 1961 to 1963. But there came a crisis in the later part of 1964 resulting from a sharp increase in domestic credit and a drastic fall in the country's net holding of foreign assets. In order to restore internal and external equilibrium the Somali authorities sought stand-by arrangements with the M3F and adopted restrictive credit policies. The situation improved in 1965 and by the close of 1966 both external and internal equilibrium was fully restored. 71. The increase in domestic credit in 1964 was both to the government and to the private sector. The Somali National Bank is the sole authority extending credit to the government. The level of credit to the government has fluctuated according to the receipt of budgetary aid from Italy. There was always considerable delay in getting budgetary aid due to the time lag between the Italian Government's decision to give aid and approval by the Assembly, and again between this approval and its actual disbursement. Whenever the transfer of external budgetary aid we-s delayed, the Somali Government had to borrow from the Somali National Bank. However, once the decision of the Italian Government in Pespec1 of - 23 - budget aid to Somalia was approved by the Italian Assembly, Somalia could borrow from Italian commercial banks against this commitment. The strain of delay in getting foreign budget aid was heaviest during the third quarter of 1964 when the aid amounts for 1963 and 1964 were still outstanding. The government's borrowing from the Somali National Bank reached an all-time peak of Sh.So.50 million compared to Sh.So.16 million at the end of 1963. During this period, credit to the private sector also rose very sharply, reaching Sh.So.183 million from Sh.So.106 million at the end of 1963, the increase being mainly for financing speculative imports resulting from repeated postponement of the introduction of a new system of controls on trade and payments and expectation of higher import duties in the future. Net foreign assets, which stood at Sh.So.98 million at the end of 1963, had completely dwindled away by November 1964. In December the government succeeded in borrowing Sh.So.29 million from Italian commercial banks and the first IMF stand-by arrangement of $4.7 million was fully drawn. Thus the year 1964 ended showing Sh.So.33 million net foreign assets and Sh.So.26 million credit to the government. The 68 percent increase in the domestic credit between 1963 and 1964 was offset by a 66 per- cent decline in the foreign assets, and so money supply remained almost unchanged. 72. In order to restore internal and external equilibrium, the Somali authorities launched a stabilization program with a series of stand-by arrangements with the IF and adopted a restrictive credit policy. This effort achieved considerable success. In 1965 domestic cre:lit rose by only 5 percent as compared to 68 percent in 1964, and the decline in foreign exchange was Sh.So.21 million compared to Sh.So.65 million in 1964. In the second quarter of 1965, the govern- ment received Italian budget aid for 1963 and 1964 and repaid the debt to the Italian commercial banks, but in the third quarter it had again to borrow Sh.So.17 million from this source against the Italian aid commitments for 1965. The $5.6 million F stand-by for 1965 was fully drawn. Between 1964 and 1965 the money supply registered a slight fall from Sh.So.200.5 million to Sh.So.196.1 million, or by 2 percent. 73. In 1966 the situation further improved. Domestic credit increased by only 5 percent (mostly to the public sector) and the hold- ing of foreign assets increased from Sh.So.11.8 million at the end of 1965 to Sh.So.22.5 million at the end of 1966. In November 1966, the Somali Government received Sh.So.11.8 million as loan from the Saudi Arabian Government and in December it received Sh.So.22 million Italian budget aid for 1965. Since the Italian budget aid for 1966 was not yet committed the Somali Government could not borrow from Italian banks. The $2.8 million WTh stand-by for 1966 was not drawn. Money supply increased from Sh.So.196.1 million to Sh.So.207.6 million between 1965 and 1966, or by 6 percent. - 24 - (c) Foreign Trade and Payments 74. Prior to 1964, Somalia did not experience serious balance of payments problems. Deficits in foreign trade were more than compensa- ted by the inflow of foreign funds for budgetary, technical and capital aids, and for oil exploration. But the large-scale imports and less than normal exports of 1964 resulted in a big deficit in the current account, foreign exchange reserves were reduced drastically, and a stand-by with IMF had to be arranged. In 1965 the reserves fell further, in addition to drawing the IF stand-by. In 1966 the equili- brium had been restored, the current deficit being balanced by net in- flow of public and private capital. The gross foreign exchange reserves with the central bank at the end of 1966 was Sh.So.151 million, equal to about four-and-a-half months import. 75. Somalia's economy is fairly open - her exports make about 25 percent of GDP. The export earnings, as given in the table on page 25 increased from Sh.So.176 million in 1961 to Sh.So.2L0 million in 1965, showing an annual rate of 8 percent increase. This was a fairly satis- factory performance. However, according to the preliminary estimates, exports in 1966 fell by about 10 percent compared to 1965. There has been some diversification of exports. Previously Somalia's exports largely depended on one commodity - banana, but in recent years the export of livestock increased and now has equal share with banana. Somalia's exports can be seriously affected by natural calamity. In 1962, flood damage so greatly reduced the export of banana that total expr.rts fell by 15 percent compared to 1961. The drought of 1965 seriously affected livestock; exports fell by 20 percent in that year as compared to 1964, and is estimated to be even lower in 1966. Changing over to new marketing arrangements, after the Italian Banana Monopoly was abolished in 1964, resulted in lower banana exports in 1965 and 1966. 76. Somalia's imports increased from Sh.So.241 million in 1961 to Sh.So.410 million in 1965 showing an annual rate of 13 percent increase. The large imports of 1964 and 1965 resulted from specula- tive imports due to repeated postponement of the introduction of a new system of controls on trade and payments and the expectation of higher import duties in the future. Imports in 1966 fell by about 25 percent as a result of running down of stocks and of restrictive monetary, fiscal and import policies. Somalia's imports consist mainly of such basic items as food, drink, and tobacco, textiles, cars and petroleum products. Imports of capital goods are relatively few and consist mainly of metal manufactures and machinery imported under aid agreements with Russia. - 25 - Summary of Balance of Payments (millions Somali Shillings) 1961 1962 1963 1964 1965 19661/ Exports, f.o.b. 176 19 199 238 2L0 216 Imports, c.i.f. 2b1 267 310 397 blo 303 Trade balance - 65 -118 -111 -159 -170 - 87 Net services - 3h - 88 - 52 - L9 - h2 2 Balance of goods & services - 99 -206 -163 -208 -212 - 85 Net transfer 110 182 123 82 111 13 Pr-vate (- 6) ( 10) (- 7) (-15) (-13) (- 3) Government ( 116) ( 172) ( 130) (97) 12L 16 Balance on cuirrent account 11 - 2o - 0 -126 -101 - 72 Private long-term capital, net 13 30 2 31 12 10 Public long-term loans, net 26 -39 77 73 75 57 Short-term and miscellaneous 15 - L - -10 - Monetary movement -53 46 -22 70 22 -3 Unidentified transa- ctions -12 -13 -21 -h8 2 8 1/ Provisional - 26 - 77. Historically, Italy dominated the external trade of Somalia, but its share has been declining in recent years. Exports to Italy were 56 percent in 1960 but fell to 46 percent in 1964. Exports to Arab coun- tries increased from 30 percent in 1960 to 46 percent in 1964. Imports from Italy were one-third of Somalia's total imports in 1960 but lately fell to one-quarter. Imports from the U.K. have also declined sub- stantially. On the other hand, imports from the U.S.S.R. increased from 3 percent in 1960 to 11 percent in 1964. However, in 1965 these trends reversed - the share of Italy increased in both exports and imports while imports from Russia declined. D. Development Planning and External Assistance Development Planning 78. The First Five-Year Plan for the period 1963-1967 was pre- pared in 1963. Total planned expenditure was put at Sh.So.1,h00 million, all in the public sector. Though the Somali authorities called the Plan "modest" and its goals "realistic", the 1964 Bank economic mission judged it "beyond the present absorptive capacity of Somalia." Though the Plaln period is not yet over, the Somali authorities have already drawn the conclusion that the Plan was over-ambitious in respect to manpower demands, funds available and administrative capacity. 79. A mid-term appraisal of the Plan made by the Planning Ministry of Somalia in October 1966 revealed that up to the middle of 1966, total actual expenditure on the Plan was about Sh.So.500 million, which on an annual basis would average some Sh.So.140 million; actual expenditure up to mid-1966 was thus 36 percent of the Plan total. No information was available about actual expenditure by years, but the mid-term appraisal report states that the rate of implementation was faster in 1963 and 1964 because there were at that time a large number of projects beyond the financial approval stage, while preparation of new projects delayed the overall implementation of the Plan, and the rate of activity de- clined gradually in 1965 and 1966. If the rate of implementation picks up in 1967, it can be expected that the Plan period will close with a total expenditure of about Sh. So.750 million, which is only 54 percent of the total planned expenditures. The mid-term appraisal report re- marked that a monetary comparison of the actual expenditre with the ex- penditure envisaged in the Plan would be distorted by the fact that most of the cost estimates in the Plan for individual projects were considerably on the low side. Revised cost estimates would make the size of the plan- ned program more than Sh.So.2,000 million. Compared to this amount, the estimated actual expenditure at the end of the Plan period would be less than 40 percent. 30. Since the Plan targets were placed too high, it will not be fair to call the Plan implementation a failure by comparing the actual expenditure with the planned expenditure. Nevertheless, many serious problems were faced by the Somali Government in executing the Plan. The most important constraint was non-availability of skilled manpower in the - 27 - country, especially of middle-level personnel. Lack of management skill made it difficult to operate some completed projects. Secondly, a grave handicap was shortage of funds to meet local costs. Work on many projects was delayed for lack of local cost financing and some projects had to be abandoned. Completed industrial projects could not be operated, or were operated much below capacity, for lack of working capital. Thirdly, inadequate pre-investment studies resulted in the execution of some projects which could not operate economically for want of raw ma- tarials or conplementary facilities. Finally, there was the inevitable time lag between the conception of a project and its implementation; completion of feasibility studies, project preparation, appraisal of proj- ects and securing financial arrangements take a long time, in cases several years, which perhaps was not fully realized during Plan formulation. 81. The experience with the First Five-Year Plan led the Government to adjust its attitude in respect of development strategy. Instead of going for another ambitious five-year plan the Government has decided to prepare a realistic short-term plan with limited objectives dealing with the most pressing economic problems. In a statement on March 8, 1966, the Prime Minister said: "The country's brief economic history since Independence has indicated the necessity of ob- taining the minimum pre-requisites of development before a dynamic development plan could be launched. In other words, it is deemed essential that the gains made by the country in the past should be stabilized, complete order restored in the country's financial affairs and a positive end put to the re- current threat of famine, before an attempt is made to prepare a new Five-Year Plan of development." 82. The proposed short-term plan will have the following objectives: a) attainment of self-sufficiency in food production; b) improvement of the livestock industry with a view to stimulating the expansion of export of livestock and its products; c) bringing the cost of production of and handling banana to a competitive international level; d) covering the existing gap in the Ordinary Budget of the Government. (This seems to mean that the ob- jective is that the current expenditure and the amount of local currency investment expenditure, which appears in the Ordinary Budget, ahould be covered by current revenues). - 28 - Eight working groups have been constituted to formulate the development programs and policies in different sectors under the short-term plan. They are presently engaged in this work and it was expected that the preparation of the short-term plan would be completed by the end of 1967. Foreign experts working in Somalia under multi-lateral and bilateral aid have also been directed to the work of formulating the short-term plan. The UNDP has provided a planning coordinator and a planning consultant for assistance in plan preparation. External Assistance 83. Somalia has been remarkably successful in getting foreign aid from diverse sources such as Italy, USSR, USA, EEC, China, West Germany,. United Nations, etc. According to a study made by the Office of the TDP in Mogadiscio, total external aid to Somalia since Independence up to the middle of 1966 was $ 320 million, giving an annual average of $ 53 million or $ 21 per capita. This covers all aid, including technical assistance, famine relief and budget support. Of the total amount of $ 320 million, $ 186 million, or 58 percent, was in the form of grants, and the remaining $ 134 million, or 42 percent, was in the form of loans. Italv provided the largest share, amounting to $ 90 million, which included budget support, technical assistance, and loans for financing projects. $ 65 million of Italian aid were grants and $ 25 million were loans. The USSR provided $ 59 million, the next biggest contribution, of which $ 52 million was loans and $ 7 million grants. The important Russian-financed projects are State farms, milk factory, meat canning factory, fish canning factory, Berbera port and mechanical workshop. The United States provided the third biggest contribution, amounting to $ h7 million of which $ h1 million was grant an6 $ 6 million loan. The important US-financed projects were Chisimaio port, soil and water conservation, water resources development, teacher training, agriculture services, and public safety. Communist China, West Germany, the United Nations with the specialized agencies, and the EEC were the other prominent aid providers each contributing $ 20-27 million. 8h. The broad conclusion is that Somalia has not lacked foreign aid - rather she may have strained her absorptive capacity. This is an example where aid-giving countries of conflicting political ideologies and interests were willing to provide economic aid, often without examining economic justification. In respect to technical assistance, the broad conclusion that there has not been any lack of it applies with greater force. Somalia has been provided with technical experts by many bi- lateral and multi-lateral agencies. At present the United Nations alone has 85 experts in Somalia - and the number is on the increase. There are also Large numbers of technicians from USSR, USA, Germany, Italy, India and others. These technical experts have helped to fill the gap in senior technical and administrative manpower. But the large influx of experts has also strained Somalia's resources by demanding counterparts, office space, transportation, etc. - 29 - III. PROSPECTS FOR DEVELOPMENT 85. With Independence, the Somali people felt impatient to bring about a quick transformation of the economy which had been previously controlled by foreign colonial powers. The government launched an ambitious economic development program, prepared a number of big pro- jects and went ahead with their implementation with external financial and technical assistance. Though the results so far achieved have been less than desired, the experiences of the past few years have been very valuable. They have provided the government with some perspective for future development strategy. If correct policies are followed, it could be expected that in the coming years there would be a steady rate of economic growth. The human and material resources of Somalia could pro- vide, in the long run, a comfortable living to the people. 86.. The people of Somalia are intelligent and energetic. The country has a number of qualified administrators, but there is a need for an intensive effort not only for increasing the number of higher level administrators and professionals, but also to train middle level technicians and skilled workers. The long run development of human re- sources could be facilitated by making education uniform. 87. Obviously, Somalia's future economic development should be based on her known natural resources: agriculture and livestock. Studi.ies conducted by the ICA (US-AID) and FAO/UNDP suggest.that the land and water resources available between the Scebelli and Giuba Rivers are sufficient to yield crops in most years. The land is suitable for mechanized cultivation, which has been useful elsewhere in reducing costs and increasing yields from rain-fed farming. The ICA Inter-River Econo- mic Exploration study of 1961 estimated that there was enough water avail- able for 160,000 hectares of irrigated land farming in the inter-river region. Similarly, 500-600 millimeter rainfall zones exist both in the southern and northern regions which area can be taken as potential rain- fed farm land. 88. Studies by FAO experts have indicated that there exist pros- pects for raising grain production up to 400,000 tons a year. This is, however, based on preliminary surveys and can be achieved only in the long run, requiring the introduction of modern techniques of cultivation, improvement of irrigation facilities, use of better seeds, plant protec- tion, better marketing system and completion of minor development works. If even a part of this potential is exploited, Somalia could become self- sufficient in food supply. With proper grain storage facilities, she should also be able to avoid the misery and death caused by occasional droughts. 89. A study on Diversification of Agriculture (1965) by Italcon- sult shows that the prospects of expanding the production of grapefruit, cotton, groundnuts, cashews, dates and avocado pears are fairly good. Particularly in grapefruit production, Somalia seems to be quite effi- cient. Temperature trends throughout the year are ideal, and if adequate irrigation is provided, Somalia's grapefruit production could be expande substantially. Development of grapefruit growing presupposes a certaiin - 30- minimum degree of expansion below which it would not be possible for efficient marketing arrangements to operate, nor would it be a feasible proposition to set up a factory for processing fruit that cannot be exported fresh. It is estimated that the minimum expansion would need 2,000 hectares, which should be possible because along the Scebelli and Giuba Rivers there are technically well-organized farms which have suffi- cient land and water available. It will, however, take some twelve years before the investment yields a full return. Cotton growing is another possibility. The study by the Italconsult suggests that cotton cultivation can be revived in the irrigated area and expanded in the dry- farming area. In fact, experimental farms have already grown cotton successfully in anticipation of the proposed textile plant. In order to supply cotton to the textile factory, cotton cultivation is planned by the Agricultural Development Agency with technical assistance from West Germany. Groundnuts could be grown in crop rotation on the land to be devoted to cotton. 90. The expansion of traditional agriculture is likely to be slow, Apart from the technical and organization difficulties, there will also be sociological problems, because the development process will involve the settlement of some nomads as sedentary farmers. A nomad will be reluctant to change his way of life unless in sedentary farming he is assured not only of a better living but also of the security which he enjoys in a nomadic life. 91, In the plantation agriculture sector, a main limit to future development is markets. It is clear that there exists enough suitable land and water to expand the present banana production threefold, given proper marketing. The future prospects will depend on the competitive- ness in costs, the expansion of the international banana market and Somalia's ability to capture part of the expanded market. Similarly, though the plantation area of SNAI is large, present sugar cane culti- vation is limited by the requirements of the sugar mill at Giohar. This will continue until domestic sugar consumption has increased enough to further expand the capacity of the sugar mill. The produc- tion cost of sugar of the mill being high, there are no prospects for exports. 92. As discussed earlier (paragraphs 30 to 39), there is a reason- able prospect that Somali banana will be competitive in the Italian market after the Italian preferential treatment is terminated at the end of 1967. After the competitive position of Somali banana in the Italian market is established, future expansion would then largely depend on the rate of increase of banana consumption in Italy and in Europe. In the past, per capita banana consumption in Italy was among the lowest of the Western European countries, as a result of restricted imports and high prices and profits charged by the Banana Monopoly Association (AMB) until 1964. But after the AMB was abolished in 1964, Italy liberalized her banana import policy, and by 1966 her banana import quota reached a fig- ure three times that of 1964. If Italy maintains liberal banana imports, it is expected that her total consumption will increase much faster. Commodity studies in banana suggest that, due to the close functional relationship between income and consumption, a major factor determin- ing trends in per capita banana consumption is the rate of growtth - 31 - of real income, but that income elasticity tends to decline at higher levels of per capita consumption and income. The price elasticity is also higher at lower income levels and declines as income rises. On this basis, the pcr capita consumption in Western Europe will continue to rise but at a declining rate, but in Italy, Greece and the rest of Southern EIrope the prospects are brighter. 93. It seems that Somali bananas could expect to enjoy a continually expanding market in Europe, but actual export performance will depend on competitiveness in cost and quality. Outside the Common Market, Somali banana could find markets in Yugoslavia, Austria and Eastern Europe, as well as in Arab countries such as Kuwait, Lebanon and Saudi Arabia. 9 . According to FAO experts, there exists a considerable scope for development of the livestock sector. Along the rivers Scebelli and Giuba large tracts of grazing land exist which at present are virtually closed to grazing and watering because of tsetse fly. This condition could possibly be remedied by adequate measures, perhaps taken on the initiative of the Livestock Development Agency. Livestock development in Somalia is essential not only for the increase in total income and wealth, but also for increasing the income of the nomads who form at least two-thirds of the population. Nomadic life will continue for a long time in Somalia because of the characteristics of her land and climate. Though continued efforts should be -ade to expand agriculture, converting a part of the nomadic herdsmen into settled farmers, developmental efforts should also be made to provide the nomads with facilities to maintain and if)crease their herds and sales of healthy animals. 95. Fundamental stock raising problems relate to animal health, feeding and genetics, combined with the marketing problem. Solution of health problems requires fighting tsetse fly, animal disease control and various other veterinary services. The feeding problem is becoming more and more difficult due to indiscriminate grazing and damage to grazing 2ands. It is obvious that under the conditions prevailing in the bush, the genetic potentiality of livestock is not fully exploited. It is estimated that the growth rate could be increased from 50 to 1CO percent by introducing scientific breeding and raising methods. The Livestock Development Agency is expected to tackle all these problems, but the real handicap, at least in the initial years, will be the shortage of skilled veterinarians. However, the Agency, with the assistance of FAO, may lay the technical and institutional foundation for a continued development of the livestock sector in Somalia. 96. Marketing arrangements are vital for livestock development. Increased exports of live animal to the Arabian peninsula seems assured. Kuwait, Lebanon and Saudi Arabia can provide a good market for Somali meat. In the longer-run, the meat packaging plant will require fattened disease-free animals in adequate numbers. The export potential of meat to the M1iddle East, Europe and Asia will depend on confidence that Somali neat is disease free. 97. In the manufacturing sector, the next few years may see the consolidation of the progress already made. The several industrial -32 - projects already started could be made economical by sound management and the provision of working capital. There exist some prospects for develop- ing small-scale industries specifically in processing some food items as are now imported fully finished. One good possibility is developing a tanning and leather industry, as a complement to livestock development. 98. The prospects for material developments will, to a large extent, depend on the financial performance of the Government. Efforts to increase revenues will have to be Flaintained to achieve the objective of meeting from the current revenues all current expenditures as well as the local currency expenditures of development projects. A rapid increase in government revenues will not be easy and will take time, because the proportion of government revenues to GDP is already high 20 percent. Never- theless, studies have shown that streamlining the tax-collection mach- inery could yield quick increases in revenues. The more obvious effort to improve the budgetary position would be making for economy in current expenditures. At present.defense and police consume as much as 9 percent of the GDP. While defense expenditure should be viewed against the background of external and domestic tensions, the fact remains that it will be difficult for Somalia to cover her budgetary deficit in the near future unless defense expenditure is kept under control. There is also scope for reducing the burden of expenditure on general administration, specially through reviewing personnel use. 99. The chance of Somalia being successful in the implementation of her soort-term Plan would increase if she effectively translates the Plan into annual development programs with proper budgeting. At present there is no proper budgeting for development expenditure - the foreign assistance component of development expenditure remains completely outside the budget. A separate annual development budget showing all public investment projects, their costs and the sources of financing would greatly improve plan implementation, and help the government to identify more clearly its own resources for development. Creation of a development budget will require a detailed classification of expenditures by "current" and "capital" so that the Ordinary Budget contains only the current expenditures, and all capital expenditures are included in the Development Budget. 100. The prospects for exports are reasonably good; both banana and livestock have a promising future. Though diversification of exports will not be easy, it is expected that exports of grapefruit, fish and processed meat will increase. Between 1961 and 1965 exports increased at an annual rate of 8 percent, but fell sharply in 1966. Between 1961 and 1966, the rate of growth of exports works out at less than 5 percent. However, it is expected that the difficulties faced in 1966 in live- stock, as a result of drought, and banana as a result of changed mar- keting arrangements will soon be overcome. In view of the many uncer- tainties at present surrounding both the supply of export commodities and marketing conditions for them, it is not possible to make detailed quantitative projections of exports but it is roughly estimated that in the future years Somalia's export earnings could increase at an average rate of about 6 percent per annum. Imports increased between 1961 and 1965 at about 13 percent per annum but fell sharply in 1966, 25 percent -33 - less than those of 1965. In 196b and 196" there were large -peculative imports in anticipation of import restrictions which were stiictly applied in 1966. Increased domestic food supply will reduce the coun- try's future food imports, but this may take some time. With better planning and implementation, and some increase in absorptive capacity, there could be an increased import of capital goods, largely externally financed. While no sound projections of imports are possible, it is roughly estimated that imports of Somalia will increase by about 9 percent per annum over the next few years. Creditworthiness 101. By the end of 1966, Somalia's total external public debt, including undisbursed amounts, amounted to US$61.6 million. This figure excludes the non-contractual portion of a Rbls.37.5 million "frame agreement" with USSR; contracts exist for Rbls.20,63,39. Service payments (interest and amortization) on the total outstanding debt cannot be estimated because the terms of repayment for as much as $28.6 million are not known. Service on the loans for which repayment terms are known amount to $1.2 million for 1967 and $2.2 million for 1972. To these have to be added the service payments on $28.6 million mentioned above, as well as on the portion of the Russian loan not yet contracted (US$18.8 million). Though it is not possible to make a precise estimate of service payments on the total o'istanding external public debt, these would be in the neighborhood of $2.b and $b.b million for 1967 and 1972, respetively, if the known terms of repayment are applied to that portion of t'he USSR loans for which such terms are not available. These figures correspond to about 6.5 percent of export earnings in 1967 and 9 percent in 1972, assuming a 6 percent increase in export earnings. 102. In the past years Somalia received more foreign grants than loans, but there was a continued decline in the amount of grants. It is therefore assumed that in the future Somalia will have to depend mainly on loans for implementing her development plan, grants being confined to financing budget deficits. The average annual inflow of long-term public capital (excluding grants) for 1963 to 1965 was Sh.So.75 million. Inflow of foreign capital in the past was limited by absorptive capacity, but there are indications that the absorptive capacity is increasing. It is assumed that in the coming years the average annual inflow of foreign public loans might be around Sh.So.92 million ($13 million). If all this borrowing were contracted on conventional terms (6 percent interest and repayment period of 15 years with two years' grace), service payments would be around $10.5 million in 1972, or about 20 percent of export earnings, again assuming a 6 percent increase in earnings. 103. This indicates that, despite her reasonably satisfactory perfor- rance and longer-run growth prospects, it would be imprudent for Somalia to obtain all her future official capital requirements on conventional terms. Her present relatively low level of development and income, with the implication that Somalia will need a net capital inflow for a con- siderable period, further suggests that a considerable part of future aid should be on concessionary terms. Africa Department STATISTICAL APPENDIX Table 1- : External Mbdium and long Term Public Debt Table 2 s Estimated Contractual Service Payments on External Debt Table 3 : Snmary of Sugar Situation - 1960/61 to 1965/1966 Table 4 a Banana Production and Exports - 1960 to 1966 Table 5 f Development Expenditure from 1960 to June 1966 Table 6 : Government's Ordinary Budget Table 7 : mnetary Survey - 1961 to 1966 Table 8 : Main Assets and Liabilities of Somli National Bank Table 9 : Main Assets and Iabilities of Commercial. Banks Table 10 a Balance of Payments Table 11 s Imports by Commodities Tablt 12 t Exports by Commodities Table 13 s Direction of Foreign Trade Table 114 s Foreign Aid to Somlia from 1960 to June 1966 Table 15 1 Foreign Private Investment in Somalia Table 1: SOMALIA - EXTERNAL MEDIUP- AND LONG-TERM /1 PUBLIC DEBT OUTSTANDING INCLUDING UNDISERSED AS OF DECEMBER 31., 1966 Debt Repayable in Fbreign Currency (In thousands of U.S. dollar equivalents) Debt outstanding Item December 31, 1966 Net of Including undisbursed undisbursed TOTAL EXTERNAL PUBLIC DEBT /2 39,919 61 586 IDA credits - 6,200 U.S. Government loans - AID -,600 Loans from other governments 12,330 17.964 Germany 6,500 8, 00 Italy 4,164 4,164 Saudi Arabia 1,666 5,000 Loans from U.S.S.R. /3 27,589 33,822 71Debt with an original or erMended maturity of one year or More. /2 Excludes non-contractual portLons of Rbls. 37,500,000 "frame agree- ment" with U.S.S.R.; contracts exist for Rble. 20,643,439. /3 Includes $539,000 principal and interest, unpaid by reason of a dispute between U.S.S.R. and Somalia. Statistical Services Division Boonomica Department May 8, 1967 Table 2: SOMALIA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1966 1V Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) GRAND.TAL DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD --N--WLU[Q-DING AMQRILm------------------------ YEAR UNDISBURSED ZATION INTEREST TOTAL 1967 32,999 722 4622 1968 32,278 1,180 459 71638 19 69 ------ &51 d 04----------LAl 1970 29,918 1,445 426 1,871 1.971 _--6-- .84. 1972 27s011 1,879 337 2,216 1971 25133 12.879 292 2.171 1974 23,254 1,701 249 1,950 21,54---1- 61--- --2 L97.- 1976 19,791 1,483 178 1,661 1978 16,757 1,489 137 1,626 .1979 15.268 1,421 118 10S52* 1980 13,048 1,153 104 i19257 162al IDA CREDITS DEBT OUTST (BEGIN OF PERIGO) PAYMENTS DURING PERIOD INCLUDING AMORTI---------------- YEAR UNDISBURSED ZATION INTEREST TOTAL - mmu ------ --- 1967 6,200 5 1968 61200 23 23 1969 1970 6r200 41 47 1971-------- _6j.?Q- .47 47 1972 6,200 41 47 6720 - 47 47 19746,200 - 47 47 6_200 -4764 1975 6ZQ ----- _-- 4 ----------1M. 1976 6.L38 62 46 108 1977 ----6,0762-------- ------------107. 1978 6,014 62 45 107 1979 5,952 62 45 J07 1980 5,890 62 44 106 1981 5,828 62 44 See footnote at end of table. Table 2: SOMALIA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1966 (coNT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Page 2 AID LOANS - DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMCRTI- YEAR UNDISBURSED ZATION INTEREST TOTAL 1967 3 600 2 1968 3,600-11A 199 3t6QQ 1 1969 3, 0 -------- 2G0------ 20 1970 3,600 - 21 27 1971 1 _q60--------360 ---- - 27 1972 3,600 - 27 27 1973 3,600 - 27 27 1974 3,600 - 27 27 1975 3,600 27 1976 3,600 27 27 1977 _----- -3, 600 118 2 145 1978 3,482 118 26 144 1979 39364 118 25 143 1980 3246 118 24 142 1981 3L_@18214 -------------- 11 --2 11 .-------------OTHER_GOVER-NMENT-LOCANS- TQTA ... -2G____DEBT OUTST__ BEI N O- FP PE RIOD) PAYMENTS DURING PERICD INCLUDING AMCRTI- YEA UNISBRSE ZAION INTEREST TOTAL _L%k7 lt39 482i- 2_75 7 1968 15,542 823 253 1,p076 _- 19_27 2 1969-------------------- 1-115k 1970 13,896 840 202 19041 -19 71---- -Alt-13,05------- 851 ......--13.--------Lt0 3L 1972 12,199 1,274 143 1,416 -19-73- 19211826 1448-7- 1974 9,652 1,096 85 1181 I 95. A 5 57-.1 0 9 -----6.3 ---------- ! *15 9 1976 7,461 816 45 860 19771 ~§ 7 -------33. 9------------61-5- 1978 5r869 776 35 811 1979 ,__ _52-09.4 776 3 1 ?06 1980 4,318 776 24 802 1981 3,542 759 23 781 See fooTote at eBT of table. Table 2: SOMALIA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UINDISBURSED AS OF DECEMBER 31, 1966 (CONT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) LOANS FRCM GERMANY DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURIKG PERIOD INCLUDING AMORTI- YEAR UNDISBURSED ZATION INTEREST TOTAL 1967 6,875 - 65 66 1968 6,875 325 68 393 1969 6,550 325 68 393 1970 6,225 342 68 410 1971 ____35 --883 -359 65 424 1972 5,524 359 61 420 1973_ 5 165 39 56 415 1974 4,806 359 52 411 1975-- _----4, 447___ 359 -------4 40-----------47. 1976 4,087 359 44 403 1977 3,728 359 -------3- ----------- 398 1978 3,369 359 35 394 1979 3,.010 359 31 390 1980 2,651 359 26 386 1981 ----------2tZ9-_ 342 2-------2- 3 LOANS FROM ITALY DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURING PERICD INCLUDING AMORTI- YEAR UNDISBURSED ZATION INTEREST TOTAL 1967 4,164 498 210 708 1968 3,667 498 185 682 1969 _-3,169 498 159- 657 1970 2,671 498 133 631 1971 _--2173 498 108 606 1972 1,676 498 82 580 1973 1,178 498 57 554 1974 680 320 33 353 1975 __360. --------320 --------l335. 1976 4C 40 1 41 S3e footnote at end of table. Table 2: SOMALIA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERAL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1966 (cONT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Page h LOANS FRCM SAUDI ARABIA DEBT OUTST IBEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- YEAR UNDISBURSED ZATION INTEREST TOTAL 1967 5,000 - - 1968 5,000 - 1969 __5t-00_ -- 1970 5,000 - 1 9 7 1 - -_ 5 , 0 0 - - 1972 5,000 417 -417 1973 4_5_83 417 -17 1974 4,167 417 417 1975 ,750_ 31--------17 -1J 1976 3,333. 417 417 1977 2,917 417 --- 1978 2,500 417 - 417 1979 2,083 417 - 417 1980 1,667 417 - 417 1981 1,250 417 - j1 LOANS FROM U.S.S.R. DEBT OUTST (BEGIN OF PERIOD) PAYMENTS OURING PERIOD INCLUDING AMORTI- YEAR UNDISBURSED ZATION INTEREST TOTAL 1967 7p160 224 179 403 1968 6,936 357 171 528 1969 6579 __ 357 162 519 1970 6,222 605 151 756 1971 5,617 605 136 741 1972 5,012 605 121 726 1973 4,407 605 106 711 1974 3,802 605 91 696 1975 3197 605 75 680 1976 2,592 605 6C 665 1977 7 4,987 595 45 640 1978 1,392 533 31 564 1979 859 465 18 483 1980 394 197 9 206 1981 197 197 5 202 See footnote at end of table. Table 2: SOMALIA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDI3BURSED AS OF DECEMBER 31, 1966 (coNT.) Page 5 /1 Includes service on all debt listed in Table 1 prepared May 8, 1967 ex6ept $28,587,000 for which the terms of repayment are not avail- able. Statistical Services I)ivision Economics -Department may 8, 1967 Table 3: SUMMARY OF SUGAR SITUATION: 1960/61 - 1965/66 Year Area Sugar Cane Sugar Sugar 1 Cultivated Production Production Import (hectares) (tons) (tons) (tons) 1960/61 1,174 116,792 11,785 10,136 1961/62 1,390 128,842 12,511 10,604 1962/63 1,614 117,338 21,781 18,820 1963/64 1,100 90,595 8,806 17,342 1964/65 1,662 149,708 16,153 10,533 1965/66 3,120 280,000 30so50 4,818 1/ Import data relate to the first calendar year of the crop year Source: Somalia - Statistical Abstract 1965 Zahb"k BANANA PRODUCTION AND EXPORTS 1960-66 Area Exports Years Cultivated Production Yield Exports Value 000 hectares 000 tons Tonintare 000 tons Mil.Sh.Ss. 1960 9.1 91.0 10.0 77.0 74.4 1961 11.0 98.0 8.9 78.5 90.3 1962 12.1 107.0 8.8 75.6 81.1 1963 11.0 126.0 11.4 94.5 102.3 1964 9.8 140.0 14.3 104.8 112.6 1965 10.7 157.0 14.7 99.3 108.2 19661/ (7.5) (126.8) (16.9) (91.0) (94.1) 1/ 1966 figures are provisional Source: Somalia - Statistical Abstract 1965 and Ministry of Planning and Coordination. Table-5: DEVELOPMENT EXPENDITURE FRO 1960 RQ JUNE30, 1966 (Million Sh,"So.) ExPenditure up to June 30, 1966 Expenditure Expenditure Total on on of Completed On-Going Total Sectors Projects Project Project Expenditure 1. Agriculture, Livestock, Fishing & Forestry 372.9 4.3 102.3 106.6 2, Water Survey, irrigation drainage 149.7 14.7 16.5 31.2 3. Industry 405.0 68.4 69.9 138.3 h. Power 31.6 10.8 3.7 14.5 5. Transport 771.0 94.0 105.4 199.4 6. Post and Telecommunication 24.9 3.8 0.6 4.3 7. Housing, settlement and water supply 152.6 2.1 17.9 20.0 8. Tourism 7.6 - - - 9. Information 27.9 9.9 1.4 11.3 10. Education & Training 105.0 31.8 0.1 31.9 11. Health 64.0 28.2 0.5 28.7 12. Social welfare, public safety and Community Development 32.0 - 15.5 15.5 2,144.2 268.0 333.8 601.7 Source: The Progress of Development Projects in Somalia - prepared by German Planning and Economic Advisory Group, Dr. Hendrikson, Ministry of Planning and Coordination. Table 6s SOMALI GOVERNMENT'S ORDINARY BUDGET (Million Somali Shillings) I. Ordinary Budget 1963 1964 1965 1966 1967 A. Revenues Budget Actual Budge 1. Taxes on income of property - 11.2 17.8 15.8 16.3 2. Taxes on production consumption - 40.8 42.6 53.4 63.7 and domestic transaction 3. Taxes on international trade and transacticns 87.8 101.1 90.3 128.0 127.0 4. Other taxes - 12.6 13.1 15.5 18.2 5. Fees, service charges and fines 2.3 1.8 2.0 2.6 2.4 6. Propery receipts 10.5 9.2 10.0 14.5 14.3 7. Other revenues 3.5 0.9 1.6 1.5 3.7 Total 150.4 177.6 177.5 231.3 193.2 245.6 B. Expenditure 1. General administration 67.7 68.5 74.7 89.5 78.8 87.7 2. Defense Rnd police 55.9 67.1 64.6 74.4 81.0 85.0 3. Community and economic services 27.3 29.1 29.2 51.2 46.8 58.6 6. Social Services 29.6 32.9 30.9 39.2 26.4 38.3 5. Unclassified - 1.2 - - - - Total 180.3 198.8 199.4 254.3 232.92' 269.6 C. Deficit -29.9 -21.2 21.9 -23.0 -39.7 -24.0 1/ Provisional - data supplied by Somali Government. Revenues for December for Northern Region esti- mated by the mission. 2/ Includes some capital expenditures. Source: Data supplied by Somali authorities to IMF but data for 1966 to 1967 supplied to the mission by Somali Government Table 78 NDNETARY SURVEY (1961-1966) 7In millions of Somali Shillings) Items/End of Period 1961 1962 1963 1964 1965 1966 Foreign Assets (net) 121.1 113.7 98.1 32.9 11.8 22.5 Somali National Bank 120.9 113.4 97.9 28.9 8.6 26.3 Commercial banks 0.2 0.3 0.2 4.0 3.2 -3.8 Domestic Credit 36.5 79.4 122.1 205.6 215.5 226.0 Claims on Government (net) -0.5 8.9 16.2 26.3 22.6 31.8 Claims on private secter 37.0 70.5 105.9 179.3 192.9 194.2 Money 150.2 169.1 198.7 200.5 196.1 207.6 Currency in circulation 75.9 79.9 97.1 101.2 90.8 110.8 Private deposits with SNB 13.0 22.7 25.1 27.1 34.5 31.1 Demand deposit with comercial 61.3 66.5 76.5 72.2 70.8 65.7 banks Quasi Money 17.8 20.8 24.3 27.7 28.0 30.4 Somali National Bank 1.3 1.8 2.9 4.7 4.2 6.6 Commercial banks 16.5 19.0 21.4 23.0 23.8 23.8 Source: IMF and Somali National Bank Table 8: MAIN ASSETS AND LIABILITIES OF THE SOMALI NATIONAL BANK (In millions of Somali shillings) Items/End of Period 1961 1962 1963 1964 1965 1966 Foreign Assets (net) 120.9 113.4 97.9 28.9 8.6 26.3 Assets 125.7 139.5 140.0 138.2 131.5 151.0 Liabilities 4.8 26.1 42.1 109.3 122.9 124.7 Short-term ( * ) (26.1) (13.5) (41.4) (16.3) ( * ) Medium & long-term ( * ) ( - ) (28.6) (3.3) (33.0) ( * ) Drawings from F (*) (-) ( - ) (33.6) (73.6) (*) Domestic Credit 4.4 21.6 60.7 133.8 133.8 142.0 Claims on Government (net) - 0.5 8.9 16.2 26.3 22.6 31.8 Advances ( - ) (8.9) (19.3) (30.5) (23.8) (44.6) Less deposits (0.5) ( - ) (3.1) (4.2) (1.2) (12.8) Claims on private sector 1.5 10.6 43.8 102.3 108.1 107.1 Claims on commercial banks 3.4 2.1 0.7 5.2 3.1 3.1 Reserve Money 114.9 124.8 147.1 146.8 132.8 152.7 Currency outside banks 75.9 79.9 97.1 101.2 90.8 110.8 Private deposit 13.0 22.7 25.1 27.1 34.5 31.1 Deposit of commercial banks 20.9 18.5 20.8 15.6 3.6 6.3 Vault cash 5.1 3.7 4.1 2.9 3.9 4.5 Quasi-Money 1.3 1.8 2.9 4.7 4.2 6.6 Capital Accounts 2.0 3.0 4.3 5.8 5.8 8.7 Other Items (net) 7.1 5.4 4.3 5.4 - 0.4 0.4 (*) means information not available, and (-) means nil. Source: International Monetary Fund and data supplied by the Somali National Bank. Table 9: MAIN ASSETS AND LIABILITIES OF THE COMMERCIAL BANKS (In millions of Somali Shillings) Item/End of Year 1961 1962 1963 1964 1965 1966 Reserves 23.6 19.9 24.6 18.3 9.3 10.2 Cash 5.1 3.7 4.1 2.9 3.9 4.5 Deposit with Somali 18.5 16.2 20.5 15.4 5.4 5.5 National Bank Foreign Assets (net) 0.2 0.3 0.2 4.0 3.2 -3.8 Claims on Private Sector 35.5 59.9 62.1 77.0 84.8 87.1 Credit from Somali 0.5 2.1 0.7 3.1 3.1 3.1 National Bank Deposit Liabilities 77.8 85.5 97.9 95.2 94.6 89.0 Demand 61.3 66.5 76.5 72.2 70.8 65.7 Time 16.5 19.0 21.4 23.0 23.8 23.8 Capital Accounts 8.0 7.8 8.5 9.2 9.2 9.4 Other Items -27.0 -15.3 -20.2 - 8.2 -9.6 -6.7 Source: International Monetary Fund and data supplied by the Somali National Bank. Table 10& OF PAYMENTS (In milons of Somali shillings) 1961 1962 1963 1964 1965 1966- Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit A. GOODS AND SEVIE 21 3628 9 29 418 2. Nonmonetary gold - - -- -- -- -- -- -- -- -- -- -- 3,4. Transportation & insurance 1 11 1 20 1 20 1 17 1 12 1 18 5. Travel 2 6 3 13 5 11 7 19 7 20 5 9 6. Investnent income -- 2 6 7 3 3 4 3 1 2 2 8 7. Government, n.i.e. 27 48 25 79 35 60 28 49 46 65 43 18 8. Other services 13 10 5 9 6 8 2 3 5 5 10 6 Net goods and services -- -- 206 -- -- 208 -- 212 -- 8 Trade balance (1 and 2) -- -- IE -- m -- Ig -- 17U -- 0 Net services (3 through 8) -- 34 -- 88 -- 52 - 49 -- 42 2 -- B. TRANSFER PAYMNTS 1 2 208 26 3,5 27 104 22 19 24 11 9. Private 23 29 3' 27 20 27 7 22 19 11 10. Central government 116 -- 173 1 130 -- 97 -- 124 -- 16 -- Net transfer payments 110 -- 182 -- 12 -- 82 -- 111 -- 13 -- Net total (1 through 0 --1- -- --25 -- --- 88 Net totl through 10) 11 -- -- -- -- -- 101 -- 2 C. CAPITAL AND MONETARY GOLD 1 -- -- 61 -- 171 -- -- 64 -- Nonmnetar sectors -- -- 2 -- 10L -- -- 67 -- 11,12. Direct investment & other private long-term 13 -- 30 -- 2 -- 31 -- 12 -- 10 13. Oher private abort-term 15 -- -- -- 1 -- -* -- -- 10 -- -- 14. Local government -- -- -- -- -- -- -* -- -- -- -- -- 15. Uentral government 26 -- -- 15.1. Ians-refte"d -- -- (9) -- (4) - ) -- (6) (3) 15.2. U.S. Government holdings of Somali shillings (2) -- -- (2) (1) -- -- -- -- -- .- 15.3. Other liabilities (17) -- -- (34) -- -- .. .. .. -- . 15.4. Subscriptions to IBRD, IDA, and IFC -- -- -- (15) -- -- -- (1) -- -- -- -- 15.5. Other assets (7) -- (3) -- (1) -- (1) -- -- -- -- -- Mbnetary sectors -- ! 6 -- -- 22 70 -- 22 -- -- 16,17. Private institutions -- -- 12 -- -- 3 -- -- -- .. -. 18. Central institutions: liabilities 14 -- 33 -- -- 63 -- 15 -- 28 -- 18.1 IMF holdings of Somali shillings -- -- -- .. (67) -- (34) -- (41) -- (27) -- 18.2. IBRD and IDA holdings of Somali shillings -- -- (13) -- -- -- (1) -- -- -- -- -- 18.3. Payments agreements (4) -- (21) -- -- (13) (1) -- -- -- - -- 18.4. Other liabilities -- -- -- (1) -- - (27) -- -- (26) (1) 19. Central institutions: assets -- 57 1 -- -- 73 2 -- 7 -- -- 31 19.1. Subscriptions to IMF -- -- -- (13) -- (67) -- -- -- -- -- (27) 19.2. Payments agreements -- -- -- (4)) -- (31) -- (11) -- -- -- -- 19.3. Other claims -- (57) (18) -- (5) -- (13) -- (15) (8 ) -- (4) 19.4. Mbnetary gold -- -- -- -- -- -. .. -- .. -- - Net errors and omissions -- 12 -- -- 21 148 2 -- 8 -- Bapatriation orSomali banknotes -- 12 -- -- 11 10 -- Other net errors and omissions 1 -- 10 -- 38 -- Prelt in SExports mainlyV f.o.b., imports mainly c.i.f. Source: International Mbnetary Fund and the Somali National Bank. Table 11: IMPORTS BY COMMDITIES (1962-65) (Values in millions Somali shillings) 1962 1963 1964 1965 Value % Value % Value % Vqlue . Cereals and cereal products 33 12 38 12 53 13 62 18 Fruits and vegetables 16 6 18 6 19 5 13 .4 Sugar and Sugar products 15 5 l 5 27 7 4 1 Coffee, tea, and cocoa 8 3 9 3 12 3 7 2 Beverage and tobacco 9 3 10 3 11 3 11 3 Oils and fats 4 1 6 2 13 3 15 4 Petroleum ind related products l 5 l 4 18 4 16 5 Phaarmaeutical products 4 1 6 2 7 2 6 2 Paper and paper products 4 1 6 2 6 2 7 2 Textiles 37 14 36 11 41 10 27 8 Clothing 10 4 9 3 9 2 6 2 Betals 8 3 13 4 12 3 12 3 Metal Products 8 3 11 3 l 4 13 4 Building materials, 5 2 4 1 7 2 9 3 Electrical machinery 6 2 11 3 12 3 9 3 Non-electrical machinery 14 5 29 9 31 8 48 13 Miscellaneous manufactured articles 6 2 5 2 7 2 7 2 Transport equipment 22 8 33 10 42 11 27 8 Others 49 18 49 15 51 13 55 16 Total 270 100 321 100 391 100 353 100 Source: Somali Customs Statistics Table 12: EXPORTS BY COMMDDITIES (1962-65) (Values in million Somali shillings) 1962 1963 1964 1965 Value % Value % Value % Value Bananas 80 45 101 45 113 44 108 46 Live Animals 67 37 91 40 108 42 80 34 Sheep (41) (23) (56) (25) (68) (26) (33) (14) Cattle ( 8) ( ) (16) (7) (20) (8) (14) ( 6) Goats (14) (8) (10) (4) () ( 4) (20) ( 9) Camel,§ (4) (2) (9) (4) (10) (4) (13) (5) Hides and Skind 12 6 13 6 12 5 15 6 Wood products and charcoal 6 3 7 3 7 3 12 5 Fish and fish products 6 3 5 2 3 1 2 1 Meat and meat products 2 1 2 1 2 1 2 1 Others 7 5 8 3 12 4 18 7 Total 180 100 227 100 257 100 237 100 Source: Somali Customs Satistics Table 13: DIRECTION OF FOREIGN TRADE (millions Somali Shillings) COUNTRY IMPORTS EXPORTS 1962 1963 1964 1965 1962 1963 1964 1965 Italy 81 88 98 101 93 112 117 116 Aden 10 9 16 16 28 40 35 35 Saudi Arabia 6 5 7 2 43 52 66 58 U.A.R. 10 7 5 1 5 12 20 10 East Africa l 20 31 26 2 1 1 6 U.S.S.R. 9 45 h 28 U.K. 23 28 50 22 Ethiopia 9 10 6 7 Japan 20 21 25 19 India 18 15 15 8 China 1 1 4 l4 Other 69 72 90 109 9 10 18 12 Total 270 321 391 353 180 227 257 237 Source: Somali Customs Statistics Table 1kt FOREIGN AID TO SOMALIA FROM 1960 TO JUNE 1966 (In thousand U.S. dollars) DONOR GRANT LOAN TOTAL Italy 65,536 24,,8oo 90,336 U.S.S.R. 6,658 52,230 58,888 United States O,652 6,200 46,852 European Economic 26,833 - 26,833 Community Chinese Peoples 5,800 18,000 23,800 Republic West Germany 11,247 10,050 21,297 U.A.R. n.a. 11,200 11,200 United Nations 15,558 6,200 21,758 United Kingdom 12,860 - 12,860 India 279 - 279 France 115 - 115 Sudan 243 - 243 Ghana 97 97 Syria 35 - - . Total 185,913. 13,037 319,950 Source: U.N.D.P. Resident Representative's Office - Somalia Tab:le15: FOREIGN PRIVATE INVESTMENT IN SONALIA (as.of 1960) (In million Somali Shillings) Percentage of Sector Investment Total Agriculture 135.6 29.7 Industry 120.7 26.6 Mining 70.0 15.3 Commerce 5h.5 11.9 Services 34.6 7.6 Housing 40.6 8.9 Total 456.0 100.0 Percentage of Nationality Investment Total Italian 343.0 75.2 'Arabs 16.7 3.7 Pakistani 11.7 2.6 Indians 7.9 1.7 Others 76.7 16.8 Total 456.0 100.0 Source: Ministry of Planning and Coordination - Department of Statistics GULF OF ADEN AMulo /Dijibout Durbo. Ze %Booso 0 Løs Khoreh Condolo Bivec K.ri 0 Hord,o Berbera . riov Meledin0 Scuswiubon (100 \ ° B U R Å 0 Tug Wojali or,ghetso Gard D ender BE la Eil ET H OP p A 4z- 0 Golcao YaLocøt of Sotnoio < Dusa Morab Obbia El Goron IEl Bur D000 .r•• Oddu, Lugh auen Bul Bur S GeiolbU*gil El Uocolatess .. U.Me UASS eye roy i UBALTO G G u A o ' RordCO cran--ns INE P MOGADISCIO Gcgi. n 1X REPUBLIC OF oeo S.co Uen se olaombot \ "' -.ý SOMALIA . .... ...... . ----- International boundary IModu ' .. .-...... Regional boundary . Lit-~ s. G ......-....Main motor roads L,bý soioa rlib -0 Secondary motor roads BAk SSO (Dry weather only) i~~~~ G - h ~ -.- - - - Tracks sultable for trucks GIUBA Chismoio(Dry weather only) 0 100 200 300 400 k M JI.NE 9g-- IBRD-1239RI2