Addis Abeba – When Prime Minister Abiy Ahmed unveiled his ambitious Homegrown Economic Reform (HGER) agenda—backed by a $3.4 billion extended credit facility (ECF) by the International Monetary Fund (IMF) and additional funding from the World Bank—it was presented as a transformative vision for Ethiopia’s economic landscape. The aim was to stabilize the macroeconomy, resolve foreign exchange shortages, and alleviate unsustainable debt through market liberalization and fiscal discipline. In theory, these reforms were to catalyze equitable growth, bridging the gap between Ethiopia’s center and peripheries. However, for the Somali Regional State, these promises have proved to be little more than a mirage—a shimmering vision of prosperity that dissipates upon closer scrutiny.
Rather than economic rejuvenation, the region has faced deeper socioeconomic shocks, widening inequality, and a growing sense of abandonment by the central government. As the saying goes, “A rising tide lifts all boats,” but in the Somali region’s case, the tide appears to have left many boats stranded on the shore.
Although the Somali region, with the support of international partners, successfully mitigated recent disasters such as droughts and floods, the above-average rainfall over the past three years provided much-needed relief and helped cushion the region from severe shocks. However, this temporary reprieve has masked the underlying structural vulnerabilities that remain alarmingly exposed. The reality is that even a minor economic shock—let alone another disaster, God forbid—could prove catastrophic, unraveling the fragile gains made and plunging the region back into crisis.
The region’s heavy reliance on subsistence pastoralism and informal trade, coupled with limited financial reserves and institutional capacity, means that it is ill-prepared to withstand further shocks. With inflation already surging and essential goods becoming increasingly unaffordable, any additional pressure—such as fluctuations in global commodity prices or disruptions in federal transfers—could have a domino effect, crippling local markets and triggering widespread food insecurity.
If the federal and regional governments do not urgently address these structural vulnerabilities with targeted investments and a robust risk management framework, the Somali region may soon find itself grappling with a perfect storm of economic and humanitarian crises. The need for a comprehensive disaster preparedness strategy, enhanced social safety nets, and a diversified economic base has never been more pressing.
Overlooked Periphery
The Somali region has long been Ethiopia’s economic and political periphery, characterized by chronic underdevelopment, limited infrastructure, and a predominantly pastoralist economy vulnerable to climatic shocks.
The reform’s centralist approach, with its focus on debt restructuring and a market-determined exchange rate, was akin to fitting square pegs into round holes—policies designed for regions with robust industrial bases, not for a region where subsistence livelihoods and informal trade dominate.
The introduction of a floating exchange rate, which led to a rapid depreciation of the birr, disproportionately affected the Somali region, where reliance on imported goods like fuel and food is significantly higher due to limited local production.
By failing to tailor the reforms to the Somali region’s economic realities, the federal government has inadvertently widened the economic chasm between the center and the peripheries.”
This policy misalignment highlights a critical oversight: economic reforms cannot be universally applied in a country as diverse as Ethiopia without considering regional disparities. By failing to tailor the reforms to the Somali region’s economic realities, the federal government has inadvertently widened the economic chasm between the center and the peripheries. The result is a region caught between the hammer of inflation and the anvil of underdevelopment—its pastoralist economy buckling under rising costs while federal investments flow elsewhere.
Unintended Consequences
Inflation, which surged to over 40% by mid-2024, has been one of the most immediate and severe consequences of the reforms. For the Somali region, where over 80% of the population depends on pastoralism and small-scale trade, the skyrocketing prices of food and essential goods triggered widespread food insecurity. The IMF’s push for subsidy cuts, particularly on fuel and food items, further strained the fragile livelihoods in the region, exposing the reforms as a double-edged sword—promising stability but delivering hardship.
The federal government’s assurances of expanded social welfare programs have rung hollow in the Somali region. Reports from local NGOs and humanitarian agencies highlighted that emergency aid was either delayed or inadequate, leaving millions at risk of severe food insecurity and widespread hardship. This stark contrast between federal rhetoric and on-the-ground realities underscores the failure of the reform to bridge the socio-economic divide. As John Maynard Keynes once remarked, “In the long run, we are all dead,” but for the Somali region, even the short-term outlook appears grim under the current economic trajectory.
The liberalization of the financial sector, a cornerstone of the reform agenda, was supposed to democratize access to credit and spur entrepreneurial growth across Ethiopia. However, for the Somali region, this promise has remained unfulfilled. Major banks, citing security risks and limited profitability, have been reluctant to expand operations into the region, leaving a vast majority of the population unbanked. The absence of effective financial intermediation has stunted entrepreneurial growth and limited access to credit for small businesses and pastoralists alike, making the talk of a “vibrant private sector-led economy” little more than wishful thinking.
Moreover, the decision by the National Bank of Ethiopia (NBE) to tighten monetary policy and curb inflation inadvertently choked credit availability in the region. Micro, small, and medium enterprises (MSMEs), which constitute the backbone of the region’s economy, were the hardest hit, with many forced to shut down due to a lack of working capital. The Somali region’s financial landscape has become a desert where the few oases of credit are inaccessible to most, leaving the local economy parched and struggling.
Political Marginalization: The Elephant in the Room
The economic exclusion of the Somali region is intrinsically linked to its long-standing political marginalization. For the past seven decades—excluding the more recent seven years under the current administration—the federal government’s overwhelming focus on security, often through heavy-handed military deployments and centralized control, has systematically undermined local governance capacity and diverted crucial resources away from development initiatives.
Limited political representation in the reform process has challenged strengthening understanding and cooperation between Jigjiga and Addis Abeba, making inclusive reform and mutual confidence harder to achieve. As a result, the region’s leadership has experienced reduced engagement, limiting the Somali region’s ability to influence and shape its economic landscape effectively in the future.
If the blame for the Somali region’s deepening socioeconomic shocks is to be assigned, it must fall squarely on the shoulders of the region’s politicians who represent it at the federal level—both in the executive and political spheres. Their passive acceptance of policies conceived in Addis Abeba, without regard for local realities, reflects a profound dereliction of duty.
The regional government, too, must bear the brunt of these shortcomings by proactively engaging in policymaking and using data-driven advocacy to demand equitable resource allocation and policy adjustments.
Bridging the Divide
To bridge the widening economic gap between the Somali region and the rest of Ethiopia, a comprehensive and nuanced approach is imperative. The federal government must move beyond one-size-fits-all policies and adopt a region-sensitive economic strategy that genuinely addresses local realities. This should include the establishment of a Regional Development Fund specifically tailored for marginalized areas, managed autonomously to prioritize infrastructure, healthcare, and education based on the region’s unique needs.
Moreover, revisiting the fiscal federalism framework is essential to ensure that revenue allocations accurately reflect not only population sizes but also land mass, poverty indices, and existing development disparities. Such reforms would create a more equitable foundation for growth and empower the Somali region to leverage its own potential effectively.
On the other hand, the regional government must formulate a comprehensive economic development plan that aligns with the national framework yet emphasizes local priorities—such as enhancing drought resilience, bolstering livestock development, and facilitating cross-border trade.
Establishing a regional investment council, composed of local business leaders, economists, and civil society representatives, could provide a pragmatic platform for advancing these priorities.
To bridge the widening economic gap between the Somali region and the rest of Ethiopia, a comprehensive and nuanced approach is imperative.”
Additionally, improving transparency and accountability in resource management is critical, not just to restore public trust but also to attract both federal and private investments more sustainably.
Furthermore, the regional government must urgently address the imbalance between government-funded institutions and the struggling private sector. With over 130 budgeted institutions expanding while the private sector shrinks under the weight of inflation and other economic shocks, a strategic plan is needed to recalibrate this disparity. This plan should focus on narrowing the gap by fostering robust public-private partnerships, reducing the government’s footprint in sectors where the private sector can thrive, and creating an enabling environment for entrepreneurship and investment. By doing so, the region can revitalize its private sector, enhance job creation, and reduce dependency on federal transfers—transforming its economic landscape from one of vulnerability to one of resilience and growth.
Time for Rethinking
The socioeconomic shocks that have beset the Somali region in the wake of Ethiopia’s macroeconomic reforms reveal a deeper governance crisis—one that requires a fundamental rethinking of federal-regional relations and development priorities. Unless the federal government, alongside international lenders, acknowledges and addresses these regional disparities, the vision of a prosperous and unified Ethiopia will remain elusive.
To quote the economist Amartya Sen, “Development is freedom,” and until the Somali region is empowered to shape its own economic destiny, the promises of reform will remain shackles rather than wings.
Only by addressing the unique needs of each region, with a focus on inclusive growth and genuine representation, can Ethiopia transform the mirage of prosperity into a reality for all its people. AS
Mohamud A. Ahmed (Prof.) is a columnist, political analyst, and researcher at Greenlight Advisors Group, Somali Region State.
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