"Failed State", "civil war": These words generally elicit images of destruction, destitution, and widespread poverty. The example of Somalia urges us to distance ourselves from these common representations and think about the conditions under which its economy was able to develop in a context of war without relying on a State but maintaining vital links with full-fledged members of the international order such as Dubai, Ethiopia, and Kenya.

As a poor State among the poor, Somalia subsisted thanks only to Soviet assistance during the Cold War (until 1977) and Western assistance thereafter. Yet this ability to get the two opposing camps to compete for its favours did not enable the military dictatorship to rebound after its failed Ogaden war in early 1978. The growing popularity of the armed opposition movements in first the north and then the south of Somalia in the late 1980s is explained by a series of factors that has not been sufficiently taken into account: exponential under-employment in urban areas, the rapid collapse of industrial production following the East Bloc's technical assistants' departure, and economic implosion characterised by a massive international debt (Somalia was the first African country forced by the IMF to implement a structural adjustment plan).

The paradoxes of a Failed State
Today, the situation appears to have improved in some respects, even though security remains very precarious, especially in the South-Central Region. In 1991 and 1992, when Somalia was torn by civil war and famine, humanitarian workers already noticed that the country's markets were correctly supplied and goods came not just from the plundering of humanitarian aid. The crisis was less one of scarce food supplies than that of the abject poverty in which a large proportion of the population was plunged at the time. This assessment remains valid to a great extent even today. For those with sufficient income, living conditions and access to consumer goods of all kinds pose no problem in Somalia: State-of-the-art cell phones are available in Hargeysa and one can get a laptop computer or 4-by-4 vehicle in a couple of days.

Various airlines offer direct flights to the United Arab Emirates, Jeddah, Djibouti, Nairobi, Sanaa, and Addis Ababa several times a week. Today it is possible in practically every town, and even in many villages, to phone not only inside the country but everywhere around the world at completely reasonable prices (often for less than a dollar a minute) compared with the rates in effect on the rest of the African continent. Relatives living in Australia and Canada can transfer money to Somalia in a matter of hours, just as Somali businessmen can wire the funds that they need to Dubai or Bangkok. Every type of merchandise can be shipped by special delivery to the hinterland, thanks to a multitude of cargo flights and admittedly rustic but functional airports at which old ex-Aeroflot propeller planes can land. Finally, FM radio stations broadcast from Mogadishu and other towns of the former Italian colony. Their absence from Somaliland (former British colony), although they are authorised by the Constitution, is due to the fact that the authorities in that part of Somalia refuse to relinquish their monopoly over information.

In addition, Somalia's market spills well beyond its borders. Indeed, its ports and airports are transit areas for goods that are shipped on to neighbouring countries. So, the bulk of Berbera and Kismayo's harbour operations are aimed more at Ethiopia and Kenya than at the domestic market and involve primarily foodstuffs (sugar, but also rice and pasta) and basic necessities (soap, batteries, footwear, second-hand textiles, and electrical products). This re-export activity obviously generates a service sector, for lorries are needed to carry the goods, restaurants and hotels are needed for the many people involved, and so on.

All basic services are available as well, provided that one has the means to access them: Primary schools, secondary schools, and even institutions called "universities" exist in Mogadishu, Bossasso, Hargeysa, and elsewhere, but there are also countless language and computer science institutes to be found in the country, often even in the smallest towns, and Internet cafés, which have sprung up all over since 2004. Hospitals are less common and of questionable quality, but for many of them the current situation, while not satisfactory, is better than it was in the last years of General Mohamed Siyad Barre's dictatorship (he was overthrown in 1991), when the country's health centres were admittedly public but throttled by costly endemic corruption.

Urban life in Somalia thus seems to be at the antipodes of the usual clichés of a country devastated by war or its consequences. However, the picture is quite different when it comes to rural life.

A truly liberal economy?
How were such developments possible when civil peace and relative stability reigned only in two parts of the country, Somaliland (in the north-west) and Puntland (in the north-east), where just a minority of the population lives? The explanations are to be found in Somalia's social structure and recent economic history, on the one hand, and the singular global or regional context on the other hand.

The backbone of this system is its ability to get funds into or out of the country. The emigration of workers had a significant impact on the economy as of the start of the 1970s. This wave of emigration was then outstripped by the exodus of political exiles starting in 1991. Given powerful kinship ties and clan identities, the emigrants' relations with the old country continued to run deep. Most of the new migrants settled down in Western societies and helped their relatives back home financially as much as or more than other immigrant groups. In the early 2000s, this movement doubtless generated close to 400 million dollars a year (the estimates vary). This link between the Diaspora and home country is the foundation of the new Somali economy: It effectively guarantees the existence of a social group, such as the middle class, that can consume and thus structures a certain domestic economy based on trade, urban real estate investment, and building. These ties also guarantee the potential availability of capital and expertise to start up new activities in Somalia, such as the small industrial "boom" going on in Mogadishu since 1998 and the satellite-link Internet cafés that have been flourishing since early 2004.

The availability of means of communication also played a major role in Somalia's economic development. Its economy benefited from the accelerated information and communication technology (ICT) revolution in the industrialised countries and thus the rapid obsolescence of ICT equipment, which could thus be acquired at lower cost for use in Somalia. The world's leading phone companies moved into the country between 1994 and 1997 and are still operating there today. This first revolution was followed by a less sweeping but just as important transformation on another front: the global deregulation of air transport and Aeroflot's decomposition, which enabled Somali entrepreneurs to rent old Soviet propeller planes - which could land on earth landing strips - in the Gulf at cheap rates.

Another advantage for Somalia is the proximity of Dubai, a veritable duty-free area for South-east Asia. Dubai has served as a city cum warehouse, with unabated success, since the mid-1980s, offering a growing range of goods and services. Until the events of 11 September 2001 the Somalis paid for their purchases there in cash, despite the inherent risks of money laundering. When they were not engaged in smuggling with Iran and Iraq (two countries under embargoes at the time), the Somalis could hire boutres in Dubai to ship merchandise to their country's harbours or beaches. Above all, Dubai was truly generous in issuing transit visas, unlike Somalia's traditional trade partners before the civil war.

The new Somali economy also benefited from its regional environment, comprising Kenya and Ethiopia. Whereas these countries claimed to have opted for a liberal economic model, they effectively maintained very high tariff barriers. This made smuggling extremely lucrative for the Somalis, who did not have to pay import taxes on top of that. As the years went by, these smuggling activities were either curbed, while remaining profitable (the case of Somaliland and Ethiopia), or drastically redirected to escape customs inspections (Kenya), but they still remain essential and make it possible to achieve real economies of scale for certain goods and commodities (sugar, cement, textiles, and electrical products).

Moreover, despite partitioning of the country - Somaliland is clamouring for independence, Puntland is going it alone, and the South is split into fragile and contested zones of influence - the Somali market has remained unified: Indeed, merchants in central Somalia do not hesitate to play products unloaded at Berbera, Bossasso, and Mogadishu off against each other. This unity ensures greater re-export flexibility and participates in the economies of scale mentioned above. Clan ties and factional allegiances do not (or no longer) determine economic behaviour…

So, the undeniable talent of Somalia's economic operators must not make one forget the other explanatory factors, which highlight the singularity of this situation rather than holding it up as an example.

The limits of the model
Such a description of the Somali economy might lead one to believe that, at the end of the day, the State is no longer necessary and this undeniable growth in services and market activity can be equated with development. That is completely wrong.

What about the major investments that are often made by the State? Very little new infrastructure has been built in Somalia. While airstrips and roads have been rehabilitated, it has often been thanks to international aid, not market rules.

The absence of an internationally recognised State is a true handicap in many areas. The impossibility of establishing a central bank, for example, hampers the financial sector, which is necessary for true reconstruction, immensely and leads to the circulation of fiduciary notes printed by private individuals, as has occurred numerous times.

The absence of a State also hobbles the implementation of economic regulatory mechanisms that are indispensable for the market to function smoothly. As Ricardo already pointed out well before Marx, the cartel rather than the free market prevails; [it's an economy of] waste rather than productivity. So, the phone companies did not become interconnected in Mogadishu and Hargeysa until May 2004 and September 2005, respectively. For years, a call to one's neighbour was billed at the international rate. This situation also meant duplication of telephone investments, as each company had to lay down its own lines, and thus questionable use of rare strong foreign currency.

The absence of state control also means that shoddy goods or products that are no longer valid (notably medication) may be sold on the market and undermine competition. Similarly, no one can guarantee the validity of a teacher's, doctor's, or manager's diploma. The Somali passport, for its part, has little value. For example, the Kenyan and UAE authorities no longer accept it as one's sole travel document, to small traders' great dismay.

Business circles have gradually become aware of these dysfunctions and the need to correct them. Instituting a functional minimal State would definitely be a good solution, but this option does not currently have all the operators' sincere backing. Too many factors oppose it: the country's history, the behaviour of Puntland's and Somaliland's authorities, and the operators' own tendencies to circumvent the rules. Everything indicates that such a State will remain out of reach for a long time.