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Published On: Sat, Sep 20th, 2014

Somaliland: Which Wheel to Ride on in Order to Achieve Economic Growth?

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Hargeisa Somalilands center of commerce and government is a safe and bustling metropolis when compared to ravaged Mogadishu

Hargeisa Somalilands center of commerce and government is a safe and bustling metropolis when compared to ravaged Mogadishu

By Muhumed Mohamed Muhumed (Khadar)

Economic growth represents the expansion of a country’s potential GDP (Gross Domestic Product) and/or national output. Living standards, measured by output per capita or consumption per household, are primarily determined by the level of productivity and growth of a country. Economists figured out that countries can attain economic growth by riding on four wheels. It is not necessary to ride on them as a whole, but each country can ride on which suits it. The four wheels of growth are:

First human resources including labor, education, discipline, motivation etc. This factor is crucial to economic growth. The quantity of labor is important, however quality is more important. The largest economies in the world like Japan have achieved growth by improving the literacy of their people to 99%. Second natural resources which comprise land, minerals, fuels, environment etc. Canada and Norway achieved economic growth by exploiting agriculture, fisheries and forestry. Qatar which currently has the highest per capita income in the world accomplished this stage from natural resources such as petroleum and oil. The third wheel of growth is capital formation such as machines, factories, roads etc. Britain is good example since it became a world leader in the 1800s by pioneering the industrial revolution. Infrastructure and other large projects facilitate growth. This factor clarifies the role of government. Government projects like roads, irrigation and water projects involve external benefits that private firms cannot capture, so government is necessary to provide them. Finally the fourth wheel is technology like science, engineering, management, entrepreneurship etc. Since we are in the science and technology era, nations lead the world as they develop their science and technology. Technological changes are the changes in production processes and/or the introduction of new products or services.

Apart from these four wheels economists state two other important factors for growth. A nation must fully employ its expanding supply of resources to reach its potential so aggregate demand must grow. The other factor is the efficiency factor. A country must achieve productive efficiency by using resources in the least costly way. A country must also achieve allocative efficiency: the specific mix of goods and services must maximize society’s well-being.

According to the case of Somaliland, it is possible to ride on several wheels. However the most important wheels are human resources and natural resources. Human resource seems to be essential to all other factors. So far the education has dramatically improved in Somaliland. From learning under the shade of trees by sitting empty cans to universities offering up to postgraduate level is a vital leap taken forward. However civil servants and other employees are still suffering from lack of education, skills and training. In Somaliland, rural literacy rate is 47% while the urban literacy rate is 59% (World Bank 2013). It is obvious that illiteracy rate is still high and needs to be addressed. There is no doubt that labor is less in Somaliland however this does not mean that it can’t accomplish economic growth. We have to keep in mind that quality is better than quantity. Hence we should improve the quality of employees by training, motivation and other ways as well. The educational institutions must be developed and their quality must be improved. We need strong ministry of education which improves the quality of the education from primary level to university level.

The backbone of Somaliland economy is the agriculture particularly livestock which is one of the natural resources. In 2012 the GDP of Somaliland was $1.4 billion where 30% was generated from livestock (World Bank 2013). Researches show that 60% of the population in Somaliland depends on livestock directly or indirectly. Only 8.2% of the GDP was generated from agriculture since 10% of the country’s land is cultivation land. Unfortunately only 3% of this portion was exploited. Somaliland has a coastline of 850 km; however fishing generates less than 2% of the GDP. Obviously, this factor – natural resources – could be sufficient and enable for us to attain growth if we try our best and work hard. We must protect the environment which provides good and healthy life to the livestock. The impact of environmental degradation as well as climate change needs to be reduces or eliminated. The rest unexploited 7% of the land should be cultivated soon so as to increase the total output of the nation. Likewise we need to use the resources in our seas. Our people need to learn more about sea creatures, fishing and how to use them. The other two wheels are not as important as the previous wheels; nevertheless we cannot ignore the significance of infrastructure on economic growth. However these two factors focus on the role of government. The government must invest infrastructure and other crucial capital goods. Not only government but private businessmen should reduce imports and carry out import substitution. It is not big deal to establish small factories instead of importing goods that worth millions of dollars. According to the World Bank, the contribution of capital formation to GDP in 2012 was 11.1%. This is unambiguous example that savings are very low. Consequently we must save more to invest more. We need to encourage entrepreneurship, establishing small businesses, microfinance and any kind of self-employment to address the problem of unemployment.

To sum up fulfilling the above mentioned activities will enable us to achieve economic growth, sustainable development, import substitution and export promotion as well. Nonetheless we have to keep in mind that the people need good government which guides, leads and organizes them. Good governance and justice are so vital and necessary.

Muhumed Mohamed Muhumed (Khadar)

MS in economics candidate, Dhaka, Bangladesh.


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