Thursday, 28 March 2013

Growth Potential in Somalia



Growth Potential in Somalia



The following statistics show the growth potential of Somalia, based on its abundant natural resources and position relative to global trade routes. Of course, to optimize its geographic advantages and resources this divided nation on the horn of East Africa would have to at least stabilize and possibly re-unite. 


Somalia has some prime real estate in terms of accessing global trade. Let’s have a look at this fun little map of global trade: http://bioval.jrc.ec.europa.eu/products/gam/index.htm

Source: http://bioval.jrc.ec.europa.eu/products/gam/index.htm


The ochre and brick-to-brown palette indicates travel time to major cities (in hours and days).
The light blue is shipping lane density based on the thickness of the lines in the ocean.
Now a zoom to Somalia:



As you can see the sea trade that passes Somalia is substantial.  Nearly 8% of global trade pass through the Gulf of Aden (the space between Somalia and Yemen). 

  • In slightly easier-to-imagine terms that’s 20,000 ships and 30% of Europe’s oil imports.  
  • Most of the news around the Gulf of Aden in the past years has been about the piracy. 
  •  It is important to note that piracy is in decline and is now at a 6 year low.
Sources: http://www.bloomberg.com/news/2011-01-31/egypt-s-suez-canal-carrying-8-of-world-trade-remains-open-amid-violence.html
http://www.reuters.com/article/2009/04/15/us-somalia-piracy-shipping-factbox-idUSTRE53E2JR20090415
http://www.businessweek.com/news/2012-10-22/somalia-piracy-attacks-plunge-as-navies-secure-trade-route


This means if Somalia could tap that trade through locally owned businesses then it could have a growth boom like Singapore, as pictured at the center of the spider web below.


Source: Singapore Bureau of Statistics



Singapore serves as a trade hub with 25% of global trade passing by. They have developed an oil processing infrastructure, buying unprocessed oil (cheaper than processed stuff), and selling the processed oil to passing vessels. They don’t have their own domestic oil resources they just import.

You may be asking: why stop to refuel? When the boats are fully fueled they are heavier. Heavier sitting lower in the water sitting lower in the water more water has to be displaced for the boat to move more oil has to be used for the vessel to move more expensive. Ergo, more frequent refueling stops are less expensive.

So if Somalia could have its own oil processing infrastructure then they could sell to vessels going to and from Africa, Asia, Europe and the Middle East. When a country has a large proportion of global trade passing nearby, a wide variety of products pass your shores. The variety available provides opportunities, as many of the products can be combined to create more valuable products. For example, different countries are more efficient at producing different types of fruits and vegetables. So, Somalia could import a variety of those agricultural products and export overpriced fruit smoothies.

Warning: classes in international econ are incredibly difficult.

Granted Somalia gets a 8% of trade passing by to Singapore’s 25%, but with the Economic growth of the sub-Saharan nations on the east coast of Africa the volume of trade passing Somalia could increase.  As you can see on the map:
Source: http://www.economist.com/node/21541008


A large portion of the trade that these economies engage it will be with Europe and Asia and a lot of that trade will pass by Somalia. The top trading partner for 2007 to 2010 for every sub-Saharan African country on Africa’s east coast including was the European Union. With the exception of Tanzania who’s largest trading partner was Switzerland. 

  •  There have been some major shake ups in the oil markets of east Africa, the breakup of Sudan has left the South seeking new paths of export. This along with the discovery of oil in Uganda has lead to plans to construct new oil pipelines connecting Uganda and South Sudan to Kenya.
  • This means that a major market for oil has been delivered to Somalia’s door step.
 Sources: http://stat.wto.org/CountryProfile/WSDBCountryPFHome.aspx?Language=E
2 http://allafrica.com/stories/201301290304.html


Uranium:
Estimated to exceed a quarter of global reserves So more than 200,000 tons
http://news.google.com/newspapers?nid=1314&dat=19680316&id=hbVWAAAAIBAJ&sjid=gOkDAAAAIBAJ&pg=7276,235261

Even though the price of uranium  got as high as $120/pound ever since the fucashima disaster it seems fluxulate between 30-50 $ a pound.
http://online.wsj.com/article/SB10001424127887324034804578344583621600670.html

So: 200,000tons converted to pounds
200,000 X 2000 = 400,000,000 pounds
Then into US$

$16 trillion in deposits
 
Sources: http://maps.nationmaster.com/country/so/1 or /images/motw/africa/somalia_nat_res_2002.jpg 






Now If you look at that map you will see that Uranium deposits are in the south. It is around Mogadishu just north and to the Northeast.

Unfortunately these areas have had severe problems with stability. Hopefully this wont go the same direction as the Kivu  regions in the DRC, especially because Uranium is especially dangerous to extract, both for the people mining it and for the environment.

Fish
Fishing could generate 1.2 billion annually. 1 But it is important to note that fishing needs regulation to maximize the good which it provides to a country. Large stocks of fish do not guaranty wealthy fishers and without proper regulation fishing to extinction is a very real danger. Naturally, a large port which could export the fish for consumption by the wealthy along with factories for processing the fish would be key components.

Fisheries as Public Resources
The problem with fish is that they are a public resource to which everyone has access. If Somalis were to gain access to exporting fish then anyone with a boat would immediately start fishing as large of a quantity of fish as possible due to the high prices which foreign consumers would be willing to pay. So immediately the supply of fish would jump upwards and as a result the price would decrease. And the price could get very very low before the typical Somali fisher would stop fishing. This is because the prices of goods in poorer countries are lower and Somalia is exceptionally poor. Foreigners would happily buy up the exported fish and freeze it to be sold later and in the meantime overfishing would destroy the domestic stocks of fish.

For the solution this problem let’s look at Iceland. It may seem counter intuitive to turn to Iceland for economic advice given its spectacular failure in 2008, but the fact remains that it was one of poorest nations in Europe in 1900 and now it is one of the richest. The change in Iceland came in the mid-1970s when after two years of poor fishing the government took radical action and implemented a tradable quota system. What this meant was they set a overall cap on the total amount which the fishermen could extract from the seas annually and gave out permits to fishers based on their historic catch. The fishers could then sell the permits to one another. The successful fishers would gradually accumulate more and more permits. This decreased the proportion of population of Iceland which was employed in fishing while maintaining a sustainable level of production which allows for profits.




(Source: http://www.irinnews.org/report/97049/SOMALIA-Potential-goldmine-for-fishermen-as-piracy-declines)

Finally, I could not locate stats for the accumulated wealth of the Somali Diaspora, but it could be a boon to Somalia if they were to start re-emigrating, in terms of their movable or liquidated physical capital, access to connections useful to FDI and their human capital.


I am aware that that this essay ignores major political issues and I apologize for that. Africa’s history is full of colonial and corporate and exploitation of such overwhelming economic potential.  Subverting the advances of rapacious international concerns will be an enormous challenge, but there is potential!

Mohamed Hassan

 



1 comment:

  1. Some good read here. Only wonder if we can witness all this potential

    ReplyDelete