Economic history of Somalia is related to the development of Somalia's economy in the last two centuries.
Colonial economy The colonial era did not spark foreign economic investment despite the competition of two major European powers in the area of present-day Somalia. Italy controlled southern Somalia; Britain northern Somalia, especially the coastal region. Italian parliamentary opposition restricted any government activity in Somalia for years after European treaties recognized Italian claims.
The economy of Somalia italiana was initially based only on primitive agriculture, fishing, commerce and pastoralism of subsistence with great infusion of money from Italy since the end of the 19th century. In the early twentieth century, projects aimed at using Somalia as a settlement for Italian citizens from the crowded homeland failed. Although in the early 1930s Benito Mussolini drew up ambitious plans for economic development, actual investment was modest in comparison to what was done in Italian Eritrea."Somalia : a country study." Federal Research Division, Library of Congress. Edited by Helen Chapin Metz. 1993.
There was still less investment in British Somaliland, which British India had administered. During the prime ministership of William Ewart Gladstone in the 1880s, it was decided that the British Indian government should be responsible for administering the Somaliland protectorate because the Somali coast's strategic location on the Gulf of Aden was important to British India. Customs taxes helped pay for British India's patrol of Somalia's Red Sea Coast. The biggest investment by the British colonial government in its three-quarters of a century of rule was in putting down the rebellion of the dervishes. In 1947, long after the dervish war of the early 1900s, the entire budget for the administration of the British protectorate was only £213,139. If Italy's rhetoric concerning Somalia outpaced performance, Britain had no illusions about its protectorate in Somaliland. At best, the Somali protectorate had some strategic value to Britain's eastern trading empire in protecting the trade route to Aden and British India and helping assure a steady supply of food for Aden. The two major economic developments of the colonial era were the establishment of plantations in the inter-riverine area and the creation of a salaried official class. In the south, the Italians laid the basis for profitable export-oriented agriculture, primarily in bananas, through the creation of plantations and irrigation systems. In both the north and the south, a stable petty bourgeois class emerged. Somalis became civil servants, teachers, and soldiers, petty traders in coastal cities, and small-business proprietors.
The plantation system began in 1919, with the arrival in Somalia of Prince Luigi Amedeo of Savoy, Duke of Abruzzi, and with the technical support of the fascist administration of Governor Cesare Maria de Vecchi de Val Cismon. The Shebelle Valley was chosen as the site of these plantations because for most of the year the Shebelle River had sufficient water for irrigation. The plantations produced cotton (the first Somali export crop after colonization), sugar, and bananas. Banana exports to Italy began in 1927, and gained primary importance in the colony after 1929, when the world cotton market collapsed. Somali bananas could not compete in price with those from the Canary Islands, but in 1927 and 1930 Italy passed laws imposing tariffs on all non-Somali bananas. These laws facilitated Somali agricultural development so that between 1929 and 1936 the area under banana cultivation increased seventeenfold to 39.75 km2. By 1935 the Italian government had constituted a Royal Banana Monopoly (Regia Azienda Monopolio Banane—RAMB) to organize banana exports under state authority. Seven Italian ships were put at RAMB's disposal to encourage the Somali banana trade. After World War II, when the United Nations (UN) granted republican Italy jurisdiction over Somalia as a trust territory, RAMB was reconstituted as the Banana Plantation Monopoly (Azienda Monopolio Banane—AMB) to encourage the revival of a sector that had been nearly demolished by the war.
Plantation agriculture under Italian tutelage had short-term success, but Somali products never became internationally competitive. In 1955 a total of 235 concessions embraced more than 453 km2 (with only 74 km2 devoted to bananas), and produced 94,000 tons of bananas. Under fixed contracts, the three banana trade associations sold their output to the AMB, which exacted an indirect tax on the Italian consumer by keeping out cheaper bananas from other sources. The protected Italian market was a mixed blessing for the Somali banana sector. Whereas it made possible the initial penetration by Somali bananas of the Italian marketplace, it also eliminated incentives for Somali producers to become internationally competitive or to seek markets beyond Italy.
The investment in cotton showed fewer long-term results than the investment in bananas. Cotton showed some promise in 1929, but its price fell following the collapse in the world market. Nearly 1,400 tons in 1929 exports shrank to about 400 tons by 1937. During the trust period, there were years of modest success; in 1952, for example, about 1,000 tons of cotton were exported. There was however, no consistent growth. In 1953 exports dropped by two-thirds. Two reasons are given for cotton's failure as an export crop: an unstable world market and the lack of Somali wage labor for cotton harvesting. Because of the labor scarcity, Italian concessionaires worked out coparticipation contracts with Somali farmers; the Italians received sole purchasing rights to the crop in return for providing seed, cash advances, and technical support.
Another plantation crop, sugarcane, was more successful. The sugar economy differed from the banana and cotton economies in two respects: sugar was raised for domestic consumption, and a single firm, the Italo-Somali Agricultural Society (Societa Agricola Italo-Somala—SAIS), headquartered in Genoa, controlled the sector. Organized in 1920, the SAIS estate near Giohar had, by the time of the trust period, a little less than 20 km² under cultivation. In 1950 the sugar factory's output reached 4,000 tons, enough to meet about 80 percent of domestic demand; by 1957 production had reached 11,000 tons, and Italian Somaliland no longer imported sugar.
Labor shortages beset Italian concessionaires and administrators in all plantation industries. Most Somalis refused to work on farms for wage labor. The Italians at first conscripted the Bantu people who lived in the agricultural region. Later, Italian companies paid wages to agricultural families to plant and harvest export crops, and permitted them to keep private gardens on some of the irrigated land. This strategy met with some success, and a relatively permanent work force developed. Somali plantation agriculture was of only marginal significance to the world economy, however. Banana exports reached US$6.4 million in 1957; those of cotton, US$200,000. But in 1957 plantation exports constituted 59 percent of total exports, representing a major contribution to the Somali economy.
The colonial period also involved government employment of salaried officials and the concomitant growth of a small urban petty bourgeoisie. In the north, the British administration originally had concentrated on the coastal area for trading purposes but soon discovered that livestock to be traded came from the interior. Therefore, it was necessary to safeguard caravan routes and keep peace in port areas, requiring the development of police forces and other civil services. In British Somaliland, many of the nomads scorned European education and opposed the establishment of Christian missions. Consequently, only a small pool of literate Somalis was available to work for the British administration. Kenyans therefore were hired. In the south, however, Somalis sent children to colonial and mission schools, and the graduates found civil service positions in the police force and as customs agents, bookkeepers, medical personnel, and teachers. These civil servants became a natural market for new retail businesses, restaurants, and coffee shops. Baidoa in the precolonial period had almost no permanent commercial establishments; by 1945, nearly 500 businesses were registered in the district. The new salaried class filled the ranks of the Somali nationalist movement after World War II. Literate in Italian or English, these urban Somalis challenged colonial rule.
Furthermore, the Italian Somalia economy was even improved by the salt industry. Indeed, in 1930, an Italian firm invested capital to exploit salt deposits in Hafun, then called "Dante". By 1933–34, the Hafun salt works were producing more than 200,000 metric tons of salt, most of which was exported to the Far East. It was one of the main salt facilities in the world and had a cable-transport system of 24 km. In 2014 there were made plans to revive this huge factory
In the 1930s Italian Empire, the Italian government promoted auto & moto competitions in order to increase the image of Italy (inside the colonial populations and in the world) as a technological country with state-of-the-art mechanical industry. Indeed, Italian Mogadiscio Italian Mogadishu in 1938 was the second manufacturing city -after Italian Asmara- in the Eastern Africa's Italian Empire. The triangle Mogadiscio-Genale-Villabruzzi (actual Mogadishu-Afgoi- Jowhar) was the most developed area of the Italian colony, with one of the biggest vehicles concentration (per inhabitants) of all Africa: nearly 3000 vehicles in 1939. It is noteworthy that in British Somaliland there were no vehicles for civilians until after WWII (the few were only for military use ).
Development during the Italian Trust Administration
In 1950, during the beginning of the ten years of the Trust Administration of Somalia under Italy, the "Cassa per la Circolazione Monetaria della Somalia" (Cassa for the monetary circulation of Somalia) was set up, established officially in a public law institution in 1954; in the same year the "Somali Credit" was established. At the same time, in British Somaliland, the National and Grindlais Bank (former Indian National Bank) opened some branches in Berbera and Hargeisa.
On 1 July 1960 the former Italian Somalia merged with the State of Somaliland, still under British jurisdiction, to form the fully independent Republic of Somalia. In this perspective, the government of the former Italian Somalia, led by Abdullahi Issa Mohamud, established the Somali National Bank (decree of 30 June 1960): the new bank would have carried out the central bank activities, previously done by the "Cassa for monetary circulation". Indeed the Italian government provided Somalia with technical and financial assistance and ordered the liquidation of the "Cassa".
Furthermore, on 1 July 1960, the newly independent Republic of Somalia established that the "Banca Nazionale Somala" (National Bank of Somalia) to take over the activities of the "Cassa" and the Mogadishu branch of Banca d'Italia. The new bank combined central banking activities with commercial banking activities.
During the 1950s, with UN aid money pouring in and the presence of experienced Italian administrators who had come to see the region as their home, infrastructural and educational development blossomed in the region. The decade passed relatively without incident, and was marked by positive growth in virtually all aspects of local life.