To many of us, Somalia is associated with civil war, piracy, failed state and recently, the most corrupted state in the whole world. As they say there is an economics in everything. It is clear that economics was only one factor in the causes of civil war in Somalia. Tribalism, poverty, political imbalances, corrupt and repressive State, land grabbing among other factors have been argued to be the causes of civil war. What ever the cause is, apparently there are consequences of civil war economically, socially, environmentally and politically. The legacy of these forces continues to influence political and economic dynamics in the country today.
Logically, war reverts the economic development of the country. In the immediate aftermath of the conflict, economic activities halt down and survival of the fittest becomes the norm. in the case of Somalia, financial institutions collapsed; domestic currency no longer had central bank; public utilities and service providers ceased; key installations that are essential for economic activity and social well-being, such as air and sea ports, power plants, oil and gas refineries, water generating and treating systems, and public hospitals and educational facilities were no longer functional. In nutshell, all state institutions disappeared, and informal systems of adaptation and governance rose in response to the absence of an effective central government.
Although, the prolonged absence of the effective government in Somalia has its negative effects of Somali economy, many authors have talked about the undeniable economic development in the country. One study by Leeson depicts clearly that Somalis are better off under anarchy than they were under government economically by comparing pre and post-stateless indicators of welfare comparisons, for example infant mortality rates was less compared to pre civil war. Benjamin Powell supports this stance to the extent that he calls Somalia an Economic Success despite the absence of central government
Filling the void created by the absence or weakness of state institutions, the private sector has grown impressively in recent years, especially in service activities. Unlike the 1970s and 1980s when most of the output of the small industrial sector and many services were provided by the public sector, virtually all industrial production, services provision, and trade is firmly today in the hands of the private sector. There have been significant (but unmeasured) private investments in commercial ventures, including in trade and marketing; money transfer services; transport; communications; airlines; telecommunications; other services including construction and hotels; education and health; and fishery equipment, largely funded by the large remittances from the Diaspora .
In these circumstances the private sector in Somalia has been surprisingly innovative. Competition thrives in markets where transactions are simple, such as retail and construction. In more complex sectors, such as telecommunications and electricity supply, the private solutions are flawed but impressive: coverage has expanded since the 1980s, and prices are attractive compared with those in other African countries (Nenova and Harford 2004). Remittance institutions who also serve as formal banks have sprouted throughout the country handling $200 Millions to $500 Millions of remittance annually. In this case, the Somali Diaspora also has their role in the booming of the private sectors.
In reality, during its two decades of statelessness, Somalia has made significant economic progress and improvements in economic well-being. Does these facts suggest that government is not always necessary for progress. But As with most controversial or delicate issues, I feel the need to first briefly preface: I do not intend to imply that anarchy in Somalia is preferable to the functioning state in Somalia, or the governments of many other countries in the world. in fact, it is interesting to look into what causes the phenomena and see if the phenomena could hold if an effective government comes into the picture.