Somalia and The East African Community1
Somalia’s accession to the East African Community (EAC) presents opportunities for the country, as well as challenges and risks. This paper identifies the key channels through which Somalia can gain from its membership to the EAC, which include trade diversification, accelerated state-building and fiscal reforms, stronger incentives for consensus-formation across the FGS and FMS, and capacity support from the EAC. It also maps some of the challenges and risks associated with joining the EAC and provides policy guidance on managing them.
A. Background
1. In March 2024, Somalia joined the East African Community (EAC), a regional economic community established in 1999 that comprises eight countries: Kenya, Tanzania, Rwanda, Burundi, Uganda, South Sudan, Democratic Republic of Congo, and now, Somalia.2 The EAC aims to broaden and deepen economic, political, social, and cultural integration, with the objective of improving the quality of life of the people of East Africa through increased competitiveness, value-added production, trade, and investment. The market bounded by the EAC comprises an estimated 302 million people and a GDP of approximately US$345 billion as of 2023. It is a de jure customs union, with duty-free intra-EAC trade and a common external tariff. The EAC is also a de jure common market, with Partner States required to ensure free movement of labor and capital within the EAC’s borders. The EAC aims to establish a monetary union, with a current target date of 2031,3 in the context of greater economic and political integration. Further, the EAC ultimately aims to achieve a political confederation as a long-term goal, including having common foreign and security policies. Given the long-term nature of goals related to the establishment of a monetary union and political confederation, this paper focuses on Somalia’s near- to medium-term engagement in the customs union and common market.
2. Upon a country’s acceptance into the EAC, integration is undertaken through a gradual process. Partner States are currently at different levels of integration, especially in the context of the customs union and common market. Following Somalia’s membership into the EAC, the FGS and EAC Secretariat jointly prepared an ambitious roadmap for Somalia’s integration into the EAC, outlining the plan and timeline for achieving alignment of Somalia’s national laws, regulations, and administrative guidelines with the EAC’s legal and regulatory framework, with the objective of meeting requirements under the integration pillars, especially the customs union and common market. Further, the authorities are planning to initiate full participation in the EAC’s legislative and judicial bodies, by appointing nine members to the East African Legislative Assembly (EALA), and a member to the East African Court of Justice (EACJ).
B. Opportunities for Somalia of Joining the EAC
3. Integration into the EAC’s customs union can be a strong incentive to further modernize and harmonize the customs regime, which would boost Somalia’s fiscal position. Somalia has taken significant strides in building infrastructure for collecting domestic revenues since 2013. However, at close to 3 percent of GDP, domestic revenues remain extremely low. Even including external grants, Somalia has one of the lowest revenue-to-GDP ratios in the EAC (6 percent in 2023). As a member of the EAC, Somalia will be expected to collect ad valorem customs duties on imports from outside the union, based on the value of invoices at ports. Prior to joining the EAC and as part of the HIPC process, Somalia harmonized its tariff rates at ports in Mogadishu and Kismayo (partially) using the community’s tariff structure. As part of EAC integration, aligning valuations (to invoice value) with those used in the customs union, and harmonizing customs across all major ports in the country is expected to significantly increase customs revenues.
Revenue/GDP in 2023
(Percent)
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
Source: WEO and IMF Staff estimatesNote: For Somalia, data is only reported at the central government level.4. Accession to the EAC presents a strategic opportunity to strengthen trade and economic growth. By joining the EAC’s regional economic bloc, Somalia stands to benefit from expanded access to a larger and more integrated market, which could significantly boost export potential and attract investment inflows. The reduction of both tariff and non-tariff barriers within the EAC will facilitate the movement of goods and services, thereby expanding the export market for Somalia. The customs union could also play an important role in supporting Somalia’s export diversification by easing trade restrictions and fostering interconnectivity among Partner States. However, this will require adequate transport infrastructure, structured and regulated cross-border markets,4 and structural reforms to enhance productivity. As a member of the EAC, Somalia could benefit from regional infrastructure projects and harmonization of trade policies which would help enhance connectivity, lower transportation costs, and improve trade efficiency. Somalia’s exports to EAC Partner States amounted to approximately $0.8 million in 2022 and $0.75 million in 2023, with livestock representing the primary export product. This low level of trade can be elevated if Somalia effectively leverages the benefits of integrating into the EAC by implementing structural policies that provide essential infrastructure, improve institutional quality, and build both human and physical capacity. Such measures would enable Somalia to consolidate its position in the existing exports markets and lay the foundations for broader diversification.
Somalia Imports of Goods
(Millions of US$)
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
Source: Authorities’ data and IMF staff estimations.Somalia Exports of Goods
(Millions of US$)
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
Source: Authorities’ data and IMF staff estimations.5. Somalia has the potential to become a more attractive destination for foreign direct investment (FDI). Accession to the EAC could significantly enhance this potential by creating a more stable and predictable economic environment. By aligning with the EAC’s harmonized policies and reducing barriers to entry, Somalia would present a more favorable landscape for investors. Increased FDI inflows can stimulate economic growth through increased capital, technology transfer, and employment opportunities.5
6. Integrating into the EAC will allow Somalia to accelerate reforms aimed at building critical institutions. The need to align with the EAC on areas such as the judiciary and governance can provide momentum for institutional reforms. For example, the EAC requires Partner States to establish court systems that can effectively and equitably adjudicate between civilians and entities – both public and private – across Partner States. Doing so will allow Somalia to jumpstart judicial reforms. Given that the scope of policies that Partner States need to converge on remains broad, Somalia can use the goal of convergence and experiences of other Partner States to accelerate the development of state institutions and civic infrastructure.
7. Somalia can benefit from the EAC’s regional projects and programs to improve its infrastructure and human capital. Somalia’s road and transportation systems are underdeveloped, with only a small fraction of roads that are paved and many transport networks in need of significant repair. The country’s unit price for electricity is one of the highest in Africa.6 Somalia ranks as one of the lowest on the World Bank’s Human Development Index (HDI). In this context, Somalia could benefit from a variety of regional infrastructure and social sector projects implemented through the EAC, for example oil and gas pipeline projects, that are currently projected to service five Partner States including Kenya, Uganda, Burundi, Rwanda, and Tanzania; six existing road development projects expected to service five Partner States; and education and health initiatives such as educational scholarships at the EAC Regional Centre of Excellence for Vaccines, Immunization, and Health Supply Chain Management.
Human Development Index in 2022
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
Source: United Nations Development ProgrammeNote: The Human Development Index (HDI) measures a country’s average achievements in human development through indicators of life expectancy at birth, mean and expected years of schooling, and gross national income (GNI) per capita.8. Somalia could benefit from the EAC Financial Sector Development and Regionalization Project (EAC-FSDRP), designed to promote deeper financial integration within the community. By leveraging the East African Payments System (EAPS), Somalia can enhance cross-border financial transactions, enabling smoother and more efficient trade settlement, reducing transaction costs, and facilitating greater financial inclusion. The harmonization of financial laws and regulations across the EAC will also provide Somalia with a more robust regulatory framework, fostering investor confidence and enabling Somali financial institutions to operate across the region.
C. Challenges Related to Somalia’s Integration into the EAC
9. Integrating into the customs union and common market on a national level will require agreement between the FGS and FMS. However, such integration is a gradual process and will take time. While it can be challenging to reach agreement on key issues related to labor and capital mobility, and tariff rates and valuations, the EAC creates strong incentives for doing so. For example, the requirement for the harmonization of tariff structures and valuations across all ports under the customs union can be used as an anchor for finding common ground with the FMS.
10. Aligning domestic regulations and administrative guidelines with those of the EAC presents a complex challenge for Somalia. The existing disparity in regulatory practices between FGS and FMS makes it difficult to establish a cohesive national framework. This lack of uniformity could hinder a seamless transition to the EAC’s regulatory environment, complicating integration efforts. FGS will need to reach a political consensus with FMS to successfully harmonize laws, regulations, and administrative guidelines at a national level.
11. Capacity and resource constraints along with potential resistance to change can adversely impact the ability of FGS to meet the EAC’s integration requirements. Limited human capital, weak financial development, and dearth of technical resources within the FGS and FMS could hinder the development and enforcement of policies needed for full integration, specifically for the customs union and common market in the near-term. Any material resistance to change that might arise as the authorities move towards implementing the ambitious roadmap developed by the FGS and EAC Secretariat can hamper efforts at integration.
12. Maintaining macroeconomic stability in Somalia will be crucial to fully benefit from the country’s integration into the EAC. A stable macroeconomic environment, characterized by low inflation, prudent fiscal deficits, and sustainable public debt levels will be essential for enhancing trade, bolstering investor confidence, and ensuring equitable participation in the common market. Somalia currently has one of the lowest inflation rates and fiscal deficits within the EAC, along with the lowest government debt ratio following the achievement of the HIPC Completion Point in December 2023. However, Somalia remains highly vulnerable to natural and external shocks including natural disasters, supply chain disruptions, and security issues, which makes it particularly challenging to maintain macroeconomic stability. Instability, together with increased labor and capital mobility under the common market, can potentially lead to capital flight and labor migration to more stable EAC Partner States, in the process also hurting the competitiveness of Somali exports. Moreover, the interconnected nature of the common market means that external shocks, such as sharp declines in commodity prices, can rapidly propagate and intensify across the region. Somalia’s increased trade openness within the EAC could increase its vulnerability to such shocks, making it more challenging to address an adverse scenario.
Nominal GDP in 2023
(Billions of USS)
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
Inflation Rate
(Percent)
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
Fiscal Deficit in 2023
(Percent of GDP)
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
Source: WEO and IMF Staff estimations.Government Debt in 2023
(Percent of GDP)
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
D. Risks from Joining the EAC
13. The negative fiscal impact of tariff removals is expected to be limited due to the high level of informality in Somalia’s trade with EAC partners. Given that most imports from EAC Partner States to Somalia come through porous land borders, especially from Kenya (95 percent of imports in 2022), it is likely that the loss of revenue from lower tariffs on these imports will be more than compensated by increased revenue from the common external tariff (CET) and corresponding valuation base imposed imports from non-EAC states. There could also be a negative impact on domestic revenues due to reduced customs duties that are currently received from Khat imports from Kenya, as well as due to the elimination of visa fees on travelers from EAC Partner States, under freedom of movement under the common market.
14. Freedom of movement can increase the risk of spillover of security threats. Despite the significant progress that Somalia has made in its fight against al-Shabab, the security situation remains challenging. The spillovers of security risks within the region is likely to increase as the flow of people across borders in the EAC becomes less regulated under a common market.
15. Somalia’s participation in the EAC risks widening trade imbalances with EAC Partner States. Given significant trade imbalances skewed in favor of other EAC Partner States vis-à-vis Somalia, there is a risk that the customs union and common market lead to a further widening of such imbalances. The nascent state of industry, weak agricultural sector, and low human capital levels imply that there is potential for more developed Partner States to dominate trade relations.
Somalia’s Imports to EAC Countries
(Millions of US$)
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
Source: FGS Revenue Department and IMF staff estimations.Somalia’s Exports to EAC Countries
(Millions of US$)
Citation: IMF Staff Country Reports 2024, 347; 10.5089/9798400297168.002.A002
Source: FGS Revenue Department and IMF staff estimations.E. Mitigating the Risks of EAC Accession
16. Somalia can mitigate the risk of trade relations being dominated by Partner States by undertaking structural reforms to increase productivity and enhance the competitiveness of domestic producers. Such measures will be critical for spurring innovation and growth and preventing Somalia from becoming merely a consumption hub for EAC exports. Somalia can also mitigate associated risks by concentrating on comparative advantage in the near-term and developing human and physical capital over the medium-term, supported by the potential increase in FDI flows due to improved investor confidence achieved from joining the EAC.
17. Regional coordination on security policy can mitigate the risk of security spillovers. For instance, coordination with Partner States on security issues under the EAC’s Regional Strategy for Peace and Security could support the ability of Somalia and the broader east African region to counter security threats more effectively.
18. Somalia can minimize the expected small negative fiscal impact of eliminating intra-EAC tariffs by considering a gradual, phased approach. There is scope for Somalia to negotiate a gradual reduction of tariffs from other Partner States and there are precedents for such flexibility, with Tanzania and Uganda negotiating such a gradual removal of tariffs with Kenya over a number of years.7 Under Article 7 of the EAC treaty on the principle of variable geometry that enables Partner States to integrate at varying speeds across different dimensions, Somalia will likely go through a protracted period of discussions and negotiations with the EAC on tariff arrangements.
19. To surmount the lack of capacity and human capital required for the ambitious implementation of the integration roadmap, a sustained commitment to institutional reform will be needed. Targeted investment in technical assistance and capacity-building initiatives will also be critical. It will also be important to effectively communicate the benefits of joining the EAC to all stakeholders, as well as actions to be taken towards mitigating risks from joining the community.
20. To maintain macroeconomic stability, Somalia should continue its efforts to build resilience against climate shocks, strengthen tax capacity, and reduce imports dependence. Given the frequency and intensity of climate shocks in Somalia and their profound economic repercussions, climate change adaptation is essential to maintain macroeconomic stability. This will require substantial investments in infrastructure, human capital, and the agriculture sector. To support these efforts and to maintain buffers against shocks in the medium- to long-term, Somalia needs to create fiscal space, improve public spending efficiency, and seek financial and technical assistance from international partners.
21. Membership to the EAC can support the strengthening of relations between the FGS and FMS. Somalia’s integration into the EAC can boost incentives for the FMS to increase collaboration with the FGS and harmonize policies and institutional frameworks. As an EAC member, Somalia will have direct access to the domestic markets of Partner States together with access to regional projects and programs. These benefits can be used to incentivize country-wide harmonization of laws, regulations, and administrative guidelines.
This note was prepared by Ali Abbas (SPR) and Dallal Bendjellal. The authors would like to thank Dr. Abdusalam H. Omer, Somalia’s Presidential Special Envoy for the EAC, and the Somali authorities for helpful comments and suggestions.
Somalia was admitted as a full member of the EAC on November 24, 2023. The Federal Parliament of Somalia ratified the Treaty of Accession in February 2024, and the instrument of ratification of the Treaty of Accession was deposited by the authorities with the EAC Secretary General on March 4, 2024, making Somalia officially, the eighth Partner State of the EAC.
In 2022, the target date for the East African Monetary Union (EAMU) was postponed from 2024 to 2031.
Shepherd, B., & Wilson, J. S. (2007). Trade, infrastructure, and roadways in Europe and Central Asia: New empirical evidence. Journal of Economic Integration, 723–747.
Baldwin, R.E., & Venables, A.J. (1995). Regional Economic Integration. In G.M. Grossman & K. Rogoff (Eds.), Handbook of International Economics (Vol. 3, pp. 1597–1644). Elsevier.
Authorities can also negotiate for certain items to be marked as sensitive or excluded, allowing for intra-EAC duties to remain on them in some form.
