To fully understand the initial reasons for the expansion of the shadow economy in Somalia analysis needs to be directed to the colonial and Cold War era, where foreign powers held great influence over the Somalia. In pre-colonial times Somalia was a relatively peaceful homogenous society that held very strong ties to the land. However, these were neglected by Italian and British colonisers, as Pietro Toggia and Pat Lauderdale writing in Columbia International Affairs Online point out; “land and its sacred identity of place was neglected by the colonialists with propriety of ownership and production becoming the central concept”.
Due to this negation by the colonial powers traditional trade relations between different clans within Somalia were strained or even destroyed. The major trade relationships that had served many of the Somali people well for centuries were between the primarily agricultural clans in the South that held territory in and around fertile river valleys and those that occupied drier regions and dealt mainly in livestock. Colonialism disrupted the trade between such groups as Somali’s were dictated to by their colonial administrators in order to create a situation of dependency upon their colonial power. The North of Somalia (now the defacto state of Somaliland) was affected differently from the South by their British colonisers. British colonialism did not employ the same coercive technique of breaking up trade routes as Italian colonialism. Instead they pursued their political and economic goals by keeping the native population underdeveloped to a degree. In many ways due to Cold War benefaction colonial dependency in Somalia did not end until the fall of the Barre regime. A further factor from the colonial era that has had recriminations today was the arbitrary drawing of a national boundary around the Somali clans, creating tensions that would have served the colonial powers divide and rule techniques well. When administering state boundaries the colonial powers showed little regard towards clan heritage and traditional living such as the nomadic lifestyle of some sub clans of the Darood, Ishaak, Hawiya and Dir that traditionally lived nomadically, sometimes venturing across borders into Ethiopia and Kenya establishing trade routes.
Cold War support for Somalia was mainly a reaction to politics within Ethiopia. This was primarily concerned with the militarization of Somalia rather than the establishment of progressive politics. This meant that there was little social and political development made while arms were pouring into Somalia, as Stephen Zunes Professor of Peace and Justice at San Francisco University outlines in Foreign Policy in Focus “as the US poured in more than $50 million worth of arms annually to prop up the Barre regime, there was virtually no assistance offered that could help build a self-sustaining economy”.
During the Barre regime the official economy failed to diversify away from what Somalia’s colonial powers had dictated. Somalia’s trade was primarily regional with its main export markets being Saudi Arabia that brought much of Somalia’s exported beef, and Kenya. However, trade with both Kenya and Saudi Arabia was subject to irrational economic circumstances as both the Saudi Arabian and Kenyan border was shut to Somali trade at various times during the 1980’s. The Kenyan President Daniel Moi shut of trade with Somalia periodically due to regional violence and instability. This had severe consequences for those who imported and exported the mild stimulus ‘qat’ that grows in the Kenyan highlands that is very popular with Somalis.
Although the shadow economy was prevalent in Somalia prior to the collapse of the state in 1991, it’s growth was embedded within the collapsing of the regime. Western liberal policy advocated by the major International Financial Institutions (IFIs),( the International Monetary Fund (IMF) and the World Bank) dictates that a large shadow economy can lead states to collapse as governments raise taxes to increase their revenue that in turn causes a flight into the shadow economy, further weakening government authority. IMF researchers Friedrich Schneider and Dominik Enste claim “a heavily regulated economy combined with weak and discretionary administration of law provides especially fertile ground for shadow economy activities”. Initially the Barre regime followed a policy of heavily regulating the economy in line with their socialist doctrine. On the 8th May just one year after taking control the regime authorised guidelines for the tight control of the economy including the nationalisation of the Italo-Somali Electric Society (SEIS), oil distributing companies and all foreign banks. Such a situation was complicated in Somalia due to regime rule, a poor failing official economy, foreign aid, intervention, and clan rivalries. All of these factors enabled and led to the expansion of the shadow economy as Somali’s sought security and food.
Warlords are able to generate extra revenue through involvement with the illegal trade of qat, which according to a 2003 panel of UN experts has been used to generate revenue to buy weapons and prolong Somalia’s internal strife. Qat use increased dramatically after the outbreak of civil war possibly due to its illusions of escapism. International aid agencies have cited the use of qat, commonly known in Somalia as khat, as a primary cause of the continued fragmentation of Somali society as researchers have estimated 75 percent of adult males use the stimulus that has addictive properties that can lead men away from traditional family and work responsibilities.
When the Kenyan border closed Somalia entrepreneurs turned to the shadow economy in order to smuggle ‘qat’ across the Somali / Kenyan border to sell in provincial Somali markets. Through the illegal cross-border trade Somali smugglers were able to avoid paying tariff chargers and trade licenses for the ‘qat’ making it more lucrative to smuggle on the shadow economy than to import officially. As the Barre regime became increasingly oppressive, corrupt and de-legitimised, expansive networks began to form for shadow economic activity. By the late 1980s trading in small arms was prevalent within the Somali shadow economy as private Somali entrepreneurs often with links to the Barre regime sold small arms to Somali clans, and resistance fighters in regional states such as Sudan, Ethiopia and Eritrea. However, at the same time as this upsurge in small arms sale upon the shadow economy the Barre regime was becoming increasingly violent towards political opponents with incidents of mass jailing, attack on civilians and the indiscriminate use of landmines in dissident regions as Julius Ihonvbere writing in ‘Somalia: The Real Background Issues’ claims that “the Majareeten, the Isaacs, and the Hawiye clans were ruthlessly suppressed.” Such action did not have the results the regime intended or expected as opposition to the Barre regime and inter-clan violence began to erupt. Moreover, increasing numbers of weaker minority clans and sub-clan groups became displaced from their territory, further worsening the official economy and security in Somali society.
Written by Liam Taylor
Covertaction.org – Michel Choussudovsky – ‘The Globalization of Poverty: Impacts of IMF and World bank Reforms’
Foreign Policy in Focus – Stephen Zunes – ‘Somalia as a Military Target’ (Updated)
Hii Dunia – Somalia related articles
Review of the African Political Economy – Publications’ Home Page
The Washington Post – ‘Khat Trade Rules in Somalia’