SOMALIA: THE SOCIALIST REVOLUTION FACES A STIFF ECONOMIC CHALLENGE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700020020-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 15
• Document Creation Date: December 22, 2016
• Document Release Date: March 2, 2010
• Sequence Number: 20
• Publication Date: August 1, 1971
• Content Type: IM

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 (AloE%
Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Somalia: The Socialist Revolution Faces A Stiff Economic Challenge
Secret
ER IM 71-167
August 1971
Copy No. e 9
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
August 1971
SOMALIA: THE SOCIALIST REVOLUTION
FACES A STIFF ECONOMIC CHALLENGE
Introduction
1. Somalia's Supreme Revolutionary Council (SRC), established by
a coup in October 1969, has attempted to mobilize the country's meager
resources and manpower for economic development. Vigorous programs
under the collective label of scientific socialism are being promoted by the
SRC to make the Somalis less dependent on foreign influence. However,
a devastating drought has sapped the country's resources, weakening the
government's ability to promote self-reliance and prolonging the need for
substantial foreign assistance. Traditional Western foreign aid sources have
been drying up, but large-scale Communist Chinese assistance has been
announced. This memorandum examines the SRC's economic policies and
evaluates the prospects for economic improvement as influenced by the
drought and foreign aid.
Discussion
Background
2. A military coup on 21 October 1969 ended nine years of
pro-Western parliamentary government in Somalia. J The new
government - the SRC headed by Major General Siad Barre - adopted
"scientific socialism" as the means to achieve accelerated economic
development and social reform. Scientific socialism represents increased
authoritarian control of the economy and implies closer cooperation with
Note: This memorandum was prepared' by the Office of Economic
Research and coordinated within the Directorate of Intelligence.
1. For locatic.w! and principal place names, see the map, Figure 1.
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O C E A N
DOUNDARY REPRESENTATION IS
NOT NECESSARILY AUTHORITATIVE
50 100 150 Mlles
0 50 100 150 Kilometers
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SOMALI
REPUBLIC
-??- International boundary
- ?-?-- Region boundary
National or colonial
capital
O Region capital
Railroad
Road
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Communist countries. The SRC desires to minimize reliance on external
guidance and assistance and gives priority to developing agriculture, grazing,
infrastructure, water and mineral resources, and technical training. The
regime's goals, while ambitious, are more pragmatic than those of its
ineffectual predecessor, and the leadership, though inexperienced, is earnest
and energetic.
3. The SRC inherited a Herculean task. The country is and and
lacking in resources, the economy is simple and undeveloped (see Table
1), and most of its 2.8 million people depend on nomadic herding and
subsistence agriculture for their livelihood. Past development programs,
overly ambitious and inefficiently administered, accomplished little except
to give Somalia a reputation for squandering foreign aid. A devastating
drought and declining foreign aid posed further problems for the council.
Economic Indicators for Somalia
Trade
Exports :
Of which:
31.8 27.8 29.7 32.5
Live animals 12.7 13.7 17.4 18.5
Animal products 2.1 1.6 2.1 2.8
Bananas 14.2 9.6 8.4 7.8
Imports: 44.7 40.1 47.6 51.8
Estimated value of gross
industrial output N.A. 11.2 11.4 17.0
Million Kilowatt-hours a/
Electricity production
in Mogadiscio 9.3 14.1 16.0 18.2
Asphalt roads 375 375 375 375
a. Mogad+.acio consumes nearly half of the
country's total production of electricity. Only
Mogadiscio and Hargeisa have electricity 24 hours
per day. No nationwide power grid exists.
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4. Since its beginning in 1968, the drought has intensified steadily.
The entire population has been affected -- suffering, disease, and death are
widespread. Hardest hit has been the nomadic population (70% of total),
whose per capita annual income, always very low, has dropped sharply.
Thousands of destitute farmers have been placed in special camps with the
promise of government support.
5. The government's radical reputation and its alienating actions,
such as repeated detention of American ships transiting Somali waters, have
offended the former Western sources of economic aid. Continued trading
with North Vietnam by Somali flag ships J has resulted in a phase-out
of US aid - which included $60 million in grants and $20 million in credits
extended between 1960 and 1970. Recognition of East Germany has caused
West Germany - which provided $12.6 million in grants and $16.6 million
in credits between 1960 and 1969 -- to reassess its aid program. Italy, the
largest aid source at present, has reduced its aid disbursals from the $11.2
million annual average of the 1960s to about $5.5 million annually -- which
is used mainly to assist the Italian-dominated banana industry.
6. Prior to the coup, Communist aid had not been great. Most Soviet
assistance since 1964 was military; out of a $63.2 million economic
commitment during the 1960s, only about $2.5 million was in the form
of grants, and only about $39 million was disbursed. The bulk of Somalia's
public debt was owed to the USSR, and inability to pay led to several
reschedulings of repayments. Very little of a Communist Chinese credit of
$18.6 million extended in 1963 ;iad been utilized.
Economic Actions by the Council
Nationalization
7. On 7 May 1970 General Siad announced the nationalization of
all foreign banks, petroleum distributors, the Italian-Somali electric power
company servicing Mogadiscio, and Societa Nazionale Ag-icola Industriale
(SNAI), the sugar complex at Giohar. J In addition, a new national
2. The Foreign Assistance Act prohibits UU aid to countries whose flag
ships trade with North Vietnam.
.:Z. The nationalized banks are Nat?';nal and (irindlays, D.C.O. (British),
P,inco di Napoli (Italian), Banco di Roma (Italian), and Bank of Port Said
(Egyptian). Nationalized Petroleum distributors included AGIP (Italian),
Shell (Dutch), Mobil (American, but the franchise was wholly owned by
a Somali), and Caltex (American). The Giohar sugar complex had been a
partnership between the government and a private Italian group.
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insurance company was established with exclusive rights in Somalia, thus,
edging out the primarily Italian foreign companies. Compensation was
assured all nationalized interests, but settlement negotiations still have not
been completed.
8. Despite these nationalization measures, Siad maintained that
foreign and domestic private investment would be encouraged and
safeguarded from nationalization if it were geared to Somalia's development
plans. Neither Somali businesses n ,r the foreign-owned banana producing
companies were nationalized, and operations the Somalis lack the skills to
perform, such as oil and mineral exploration, have not been threatened.
Siad reassured the Somalis that neither herds nor small businesses would
be taken over.
Short-term Developme,lt Programs
9. Of the emergency development actions taken by the SRC,
self-help projects, in which communities cooperate to build something on
their own with a minimum of outside money or materials (see the
photograph, Figure 2), have received major emphasis and publicity. These
projects provide at least temporary employment and directly involve the
Figure 2. A low-cost housing project in Mogadiscio typical of self-
help projects. The photograph reflects the and character of Somalia.
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population in the development effort. Projects have included a general
cleanup of cities and the building of schools, classrooms, clinics, hospitals,
public buildings, wells, irrigation canals, roads, post offices, and libraries.
10. Crash programs, similar to self-help projects, emphasize
agriculture, road construction, and forest protection. They were organized
mainly to obtain an immediate increase in agricultural production while
longer range plans were being formed. About 2,500 volunteers have been
recruited from the urban unemployed; they serve one year and receive food,
lodging, and pockei money as compensation. Apparently military personnel
are being used in the pilot programs, providing leadership, discipline,
administrative support, and a certain amount of technical supervision. The
programs are financed by the government, and rations are supplied by the
World Food Program (WFP).
11. The two major crash programs involve reclaiming farm land south
of Mogadiscio near Scialambod (12,400 acres) and Genale (2,500 acres).
Oilseeds, corn, and sorghum are being grown on irrigated land previously
not under cultivation. Part of the land used in the Genale program was
confiscated from Italians.
Austerity Measures
12. The new government's exhortations for sacrifice were backed
quickly with unprecendented austerity measures. Civil service and military
salaries were reduced on a sliding scr'e ranging from 5% to 40%, and a
development tax of similar magnitude was levied on the private sector.
Funds obtained from these measures were to be used for the self-help and
crash programs. Additional measures included increased cigarette prices and
increased fiscal duties on liquor (from 200% to 300%) and qat J (from
42 cents to 56 cents per pound).
13. To soften the impact of these measures on living standards, the
government attempted to reduce living costs through price and rent controls.
The first price list set for basic commodities, such as pasta, flour, edible
oils, and cloth, however, was received with such complaints from the
business community, that prices quickly were revised upward. On the other
hand, housing rents - reduced by 40% in Mogadiscio and 30% in Hargeisa,
the largest cl y in the north - were very popular and were not protested
by the landlords, probably because of a National Security law, concurrently
passed, which provided death for a long list of offenses or criticisms against
the State.
4. Qat is a mild stimulant widely used in the Horn of Africa. It is taken
in a number of ways, most common of which is chewing.
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The Situation in 1971
14. In 1971 the SRC is faced with a seriously deteriorating situation.
Positive accomplishments of its aggressive and well-intentioned actions are
countered by the ever-growing impact of the drought. Forced to abandon
its goal of independence from foreign assistance, the SRC is exploring the
possibilities of more aid from both Communist and non-Communist sources.
15. Government control over nationalized companies apparently has
proceeded without much disruption. After a period of reorganization and
training of Somali personnel, the four banks affected were amalgamated
on 1 January 1971 into two banks, the Somali Commercial Bank and the
Somali Credit and Savings Bank, both under Somali management. Petroleum
distribution, which was reorganized under a new semi-public Somali
Petroleum Agency, has proceeded more slowly, with some continuing
uncertainties as to the fate of Mobil and Caltex franchise holdings.
Operations continue normal, however, as is the case with the electric utility
and sugar complexes.
16. Of the two types of emergency economic programs, the self-help
program is achieving some success and support. The projects appear to have
caught the imagination of the people, who take pride in what has been
accomplished, and periodic introduction of new projects has served to
regenerate enthusiasm and bolster support for the government. The crash
programs, however, are in difficulty - the daily wage of two shillings (28
cents) and workers' rations are becoming difficult. to obtain. Farm
machinery is in poor condition and needs replacements and additions. Much
of the government's resources are now redirected to drought relief, thus
limiting food and funds available for crash programs.
17. As the drought continues, its effects on agriculture become
increasingly severe. During the first six months of 197 1, drought-related
livestock losses were estimated at $45 million. Mortality rates (see Figure
3) increased sharply, and sales of immature and underweight stock have
added to the drain on herds. Many herds may be too weal: to trek to
the fall market, a further potentially disastrous loss. In the same period,
foodstuffs grown, in dryland farming areas have accounted for most of a
$6 million crop loss. Losses in the February-March harvest include 65,000
metric tons of corn, 4,200 tons of sesame, and 600 tons of cotton.
Furthermore, the weakened state of many farmers will impair their ability
to plant, tend, and harvest the fall crops.
18. The drought has seriously strained government finances. In April
1971, before it became apparent that spring rains also would be below
normal, government expenditures directly attributable to disaster relief were
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Livestock Mortality Rates in Somalia Figure 3
Normal
Mortality
Rate
Mortality Rate
During the First
Six Months of
1971
Cattle Sheep
511946 8.71
forecast at $5.5 million, more than 12% of the year's budgeted revenues.
By the erd of May, $4.2 million had been spent, with little indication
that the situation was improving. Moreover, the shrunken economy has
reduced the domestic -tax base, and a concomitant lower demand for imports
probably will reduce the level of import duties, Somalia's largest revenue
source.
19. Disaster relief from foreign sources has helped to keep famine
under control. Contributions of medicines and foodstuffs were received from
Communist China ($422,500), the USSR ($100,000), and Italy. By June
the Communist relief materials had been distributed quietly by the
government with no attribution except to itself, and the Somalis were
negotiating with the European Community (EC) for 50,000 tons of cereals
and $1.5 million in financial assistance. The EC agreed to supply only 8,000
tons of corn, which are to be shipped in August. Unfortunately, the Somali
government, believing that EC assistance would be sufficient to tide them
over in the short term, refused a British offer of $720,000 in food and
other supplies and failed to request assistance from the FAO/WFP when
given the opportunity.
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20. The USSR, after coasting more than a year in its favorable
position achieved by the assumption of power by a Soviet-trained and
Soviet-supplied military regime, increased its aid efforts somewhat in 1971.
In addition to famine relief, it reportedly wrote off approximately $2
million of past debts, postponed by five years the date on which repayments
of the $40-$45 million debt were to begin, and offered a $5.5 million grant
to construct oil depots (see Table 2). An $11 million donation to the UN
Development Program (UNDP) for use in mineral exploration in Somalia
and financing for several minor construction projects was offered also.
However, no evidence of construction has yet been seen.
21. Communist China may have altered Somalia's aid prospects
considerably. Somalia still has some $17 million to draw on Chinese
Communist credits extended in 1963. These credits included the
construction of cigarette and match factories and some agricultural
assistance. Also mentioned was a road from Mogadiscio to Burao. In June
1971, new Chinese assistance of $109 million - approximately equal to
total Italian aid to date - was announced following a Somali mission to
Peking. The aid, which may include some of the outstanding 1963 credits
is primarily for roadbuilding. Over the initial objections of the Somalis,
Peking will be allowed to use a large number of Chinese laborers on the
road projects.
22. Somalia also is receiving some aid from international
organizations. UN grants, providing about $2 million to $3 million in
technical assistance annually, are expected to continue. The EC, through
the European Development Fund (EDF), is considering a grant for the next
four years that could run as high as $40 million. A portion of an $8.5
million IDA credit for highway construction between Hargeisa and Berbera
remains to be used, and a $3.3 million credit for education was signed
in June 1971.
Planned Economic Development
23. The SRC is attempting to replace the patchwork effort of self-help
and crash programs. Details of a new Three-Year Plan (1971-73) are not
yet available, but livestock and agriculture apparently are priority sectors,
followed by basic physical infrastructure. Industry -- overemphasized in the
past - will have a low priority, except for some programs to increase
existing industry's efficiency and to stimulate small-scale manufacturing.
24. Despite more pragmatic approaches, economic progress may be
hampered severely by a lack of funds. Because the government's exact policy
toward the private and public sectors' relative roles is not clear, the climate
for private investment is unfavorable. To attract foreign private investment,
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Table 2
Major Sources of Foreign Aid to Somalia a/
Million US $
Committed up to 1970
Aid Offers Since
Grants Loans Total b/ the Coup
Italy
102.8
9.6
112.4
11.0 c/
United
States
59.6
20.2
79.8
--
West Germany
12.6
16.6
29.2
--
USSR
2.5
60.7
63.2
5.5 c/
Communist
China
4.7
18.6
23.3
109.2 d/ e/
United
Nations
24.3
--
24.3
N.A.
International
Development
Association
(IDA)
8.5
8.5
3.3 d/
EC
27.3
--
27.3
40.0 c/ f/
Other
15.6
23.0
38.6
N.A.
Total
248.4
157.2
406.6
N. A.
a. The information on foreign assistance ~-o
Somalia is incomplete, and some types of grants are
not valued in monetary terms.
b. Only the Italian loans were completely dis-
bursed by 1970.
c. Grants.
d. Loans.
e. No conclusive proof of commitment as yet.
f, Still under consideration.
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the government will have to fulfill its promise to compensate nationalized
companies, and the resulting outflow of private capital probably would
offset the inflow of new capital. Even if private entrepreneurs overcame
their apprehension, they face a limited scope for profitable investment
because of the small market and the difficulty in finding profitable projects.
Public savings would be difficult to generate under favorable conditions;
in addition, the current drought not only has reduced the revenue base
but also has placed a heavy burden on government finances for famine
relief. The Chinese aid, if it actually is supplied, would be for a narrow
range of projects, mainly roadbuilding. Thus, even with improved prospects
from the Chinese aid, the SRC cannot possibly achieve its development
goals without substantial additional foreign assistance on concessionary
terms.
Conclusions
25. The SRC's policies generally represent a more pragmatic approach
to Somalia's economic problems than those of its predecessor and, while
they have not achieved any marked success, they have not directly caused
the economy's d?terioration. The self-help and crash programs provide a
low-cost method for achieving basic economic improvements with the
population's direct participation. The nationalizations have created some
apprehension in the private sector, but they did not cause the disruption
and demoralization that characterized contemporary nationalizations and
confiscations in nearby Sudan. Although experience and know-how is in
short supply, management of development projects under the new
Three-Year Plan probably will be an improvement over previous efforts.
26. The drought has destroyed any hope for economic self-reliance
for quite some time. Livestock production, the country's major industry,
has suffered a serious setback, and it will take several years to rebuild the
depleted herds. Chances are very slim for achieving self-sufficiency in food
production during the 1970s. The drought has strained the government's
finances and seriously impaired its ability to accumulate domestic savings
for development. A contracted economic base and an already high degree
of austerity will make it very difficult to obtain the further sacrifices
necessary to enable Somalia to generate development from within.
Substantial foreign aid will be required for even modest economic
development during the 1970s.
27. At this critical moment, Somalia's traditional Western sources of
aid have declined sharply, and the USSR is unlikely to -ommit much
additional economic aid, if any. The proposed $109 million Communist
Chinese credit would make China the dominant donor. However, the Chinese
CrOD rT
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aid would be for a narrow range of projects, and drawdowns normally tend
to be slow. The only immediate hope for significant grant aid lies with
the w40 million from the F C, which is still under consideration. Because
of its economic interests in Somalia, Italy may supply additional aid in
the future but not on the scale of the 1960s.
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