Document of The World Bank FOR OFFICIAL USE ONLY Report No. 75212 - SO INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL FINANCE CORPORATION INTERIM STRATEGY NOTE (FY14 - FY16) FOR THE FEDERAL REPUBLIC OF SOMALIA November 11, 2013 Sudan, South Sudan & Somalia Country Management Unit Africa Region International Development Association International Finance Corporation This document has a restricted distribution and may be used by recipients only in the performance of their official Duties. Its contents may not otherwise be disclosed without World Bank authorization. The date of the previous Somalia ISN was June 21, 2007 Government Fiscal Year January 1 - December 31 CURRENCY EQUIVALENTS US$ 1.00 = Somali Shillings 19,4791 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank OAG Office of the Auditor and Accountant General AIFR Audit Investigative Financial Report OECD Organization for Economic Co-operation and Development AMISOM African Union Mission In Somalia PFM Public Financial Management CCSD Center on Conflict Security and PPP Public Private Partnerships Development CSO Civil Society Organizations PREM Poverty Reduction and Economic Management DDR Disarmament, Demobilization and PSD Private Sector Development Reintegration DPA Department of Political Affairs PSG Peace and State Building Goals FAO Food and Agriculture Organization RDP Reconstruction and Development Program for Somalia FDA Financial Diagnostic Assessment SABER Systems Approach for Better Education Results FGS Federal Government of Somalia SBF Somaliland Business Fund FSNAU Food Security and Nutrition Analysis SDR Special Drawing Rights Unit GFDRR Global Fund for Disaster Risk SDRF Somalia Development and Reconstruction Reduction Facility GFRP Global Food Crisis Response Program SFF Special Financing Facility GPFD Global Program on Forced SKOPE Somalia Knowledge and Political Economy Displacement Program HIPC Heavily Indebted Poor Countries SPF State and Peace-building Fund IDP Internally Displaced Person SRSG Special Representative of the Secretary General IFC International Finance Corporation SSR Security Sector Review IGAD Intergovernmental Authority on StAR Stolen Asset Recovery Initiative Development IRC International Red Cross TFG Transitional Federal Government JNA Joint Needs Assessment TFI Transitional Federal Institution JSC Joint Security Committee UNPOS United Nations Political Office for Somalia JSDF Japan Social Development Fund USIP United States Institute for Peace LOGiCA Learning on Gender and Conflict in WBG World Bank Group Africa MICS Multiple Indicator Cluster Survey WDR World Development Report MIGA Multilateral Investment Guarantee Association MPF Multi Partner Fund Food Security and Nutrition Analysis Unit- Somali, Market Data Update, August 2013 i IDA IFC Vice President Makhtar Diop Jean-Philippe Prosper Country Director Bella Bird Adamou Labara TTL Hugh Riddell Markus Scheuermaier 11  TABLE OF CONTENTS EXECUTIVE SUMMARY ...................................................................................................... 4 I. COUNTRY CONTEXT.................................................................................................... 7 A. Introduction........................................................... 7 B. Recent Political Economy and Security Developments .............................. 8 C. Drivers of Fragility and Conflict........................9...... ...............9 D. Economic Developments ........................................... ....... 10 E. Poverty & Social Developments ..................... .................. 12 F. Statistics ............................................................. 13 II. GOVERNMENT STRATEGY AND PROGRAM.................................................. 14 III. THE WORLD BANK GROUP IN SOMALIA............................................................ 17 A. Implementation of the FYO8-09 ISN.......................................... 17 IV. THE INTERIM STRATEGY: FY14-16....................................................................... 19 A. Objectives and Approach ......................................... ........ 19 B. Cross-cutting issues ..................................................... 26 C. Towards a Results Framework.................................... .............. 27 V. PARTNERSHIP, COORDINATION AND DELIVERY......................................... 27 A. Innovative partnerships for delivery ............................. ............... 27 B. Coordination and alignment............... .................... ................ 28 C. Operational policy and procedure .............................................. 29 V I. R ISK S............................................................................................................................... 30 A N N EX E S: .................................................................................................................................. 33 Annex I: Somalia ISN Monitoring Framework ................................... ..... 34 Annex II: Compact Partnership Principles & the World Bank ISN. ........................... 37 Annex III: Knowledge and Policy Dialogue Under Priority One............................ 38 Annex IV: Estimated Economic and Social Indicators ............................. ...... 40 Annex V: Key Gender and Conflict Issues in Somalia............................... ..... 41 Annex VI: Map of Somalia ...................................................... 46 Box 1: Key Lessons from the FYO8-09 ISN..................................... 19 3  EXECUTIVE SUMMARY i. Somalia is a country deeply affected by conflict: Over the course of 22 years, Somalia's conflicts have engendered extreme poverty, vulnerability and a complex set of political and social grievances that remain a threat to the country's current positive transition. The majority of Somalis today live in poverty and vulnerability: 2.3 million live on the margins of food insecurity and 1.1 million are internally displaced.2 Poverty is estimated at 73 percent and extreme poverty at 43 percent.3 Gross Domestic Product (GDP) per capita is estimated to be only US$2884. Humanitarian support is a life-saving reality for many, where access is possible. On its own, however, humanitarian action cannot develop the sustainable livelihoods necessary for poverty reduction. For that, Somalia needs stability and investment in legitimate institutions that can enable basic service delivery, infrastructure financing and inclusive growth. ii. A transformational moment: In August 2012 the Federal Government of Somalia (FGS) was brought to power with a four-year term under a provisional constitution approved by a new parliament - ending Somalia's long period of revolving transitional government at the federal level. Since its establishment, the FGS has emphasized improved governance and economic management as key pillars of its development plan and is also laying the foundations for the implementation of a federal system of governance. The new government is responsible for meeting important political, security and economic milestones during its term, including the passage of a permanent constitution and the preparation for national elections in 2016. Regional countries and international actors have re-doubled efforts to support and sustain this window of opportunity, endorsing a New Deal for Somalia at the September 2013 Brussels Conference and pledging US$2.4 billion against the Somali Compact ("the Compact"), which includes a "Special Arrangement for Somaliland". A Special Financing Facility (SFF), developed by Norway with World Bank support, has been put in place to finance critical expenditure in the first phase of the transition. iii. The binding constraints to poverty reduction are stability and the rudimentary elements of state-building: While Somalia's trajectory is now positive, transitions are rarely linear and the situation is likely to remain fragile unless progress is made on the following three issues: * Achieving consensus on a federal system that provides for inclusive representation and political accommodation among the regions on power and wealth-sharing; * Establishing core institutions that can deliver basic services to citizens, including security, and can manage the economy transparently and effectively; * Redressing the elite capture and economic exclusion that has resulted in widespread vulnerability among the Somali population. 2 FSNAU- Somalia World Bank and United Nations, Socioeconomic Survey of Households in Somalia, 2002, cited in 2012 UNDP Human Development Report. UNDP Human Development Report, 2012. The US$2.4 billion in pledges is for the full range of Peace and State-building Goals, including inclusive politics, security, justice, economic foundations and revenue and services. 4 iv. To tackle these issues, the Compact commits international and domestic actors to priority peace- and state-building goals, whose implementation will demand strong domestic political will and sustained international engagement. Important steps on the political front have already been taken: key legislation has been passed to enable the constitutional review process and political dialogue has been initiated with the regions. The August 2013 agreement on the formation of an interim administration in the southern region of Jubbaland is an important milestone. Progress has also been commendable on economic governance issues. This is important given the need for Somalia, an IDA-only country, to address its stock of debt and arrears, and the intention of the authorities to engage Somalia's creditors through the Heavily Indebted Poor Country Initiative (HIPC). Nevertheless, deep rooted issues of economic governance and mistrust between regions remain and building inclusive governance will require concerted efforts by Somalia's leadership. v. A renewed World Bank Group engagement: The ISN aims to lay the foundations for poverty reduction and shared prosperity by delivering selected activities in two priority areas: (a) strengthening core economic institutions; and (b) expanding economic opportunity.6 The ISN aligns the Bank's work fully within the framework of the new Somali Compact that is committed to priority peace and state-building goals necessary to address the binding constraints to poverty reduction in Somalia. In preparing this ISN, the Bank has renewed its engagement with a dejure government in Mogadishu while also strengthening its dialogue and engagement with regional authorities. Maintaining this balance will be critical to the successful delivery of the ISN, given a spectrum of contexts across Somalia's regions, and the sensitivity of economic resource allocation. The proposed program will rely on trust fund resources and will build on the activities initiated under the FYO8-09 ISN (mainly in Somaliland and Puntland). In addition to the US$19.5 million committed under the State- and Peace-Building Fund (SPF), additional resources will be mobilized from international partners through a Bank-administered Multi- Partner Fund7 (MPF) to implement the ISN. The MPF will be a discrete fund that will share the governance structure of the Somalia Development and Reconstruction Facility (SDRF), a coordinated financing architecture proposed as the centerpiece of Compact implementation. vi. Somalia and the region: The Horn of Africa - home to 140 million people, many of whom are dependent on pastoralism and livestock exports - is a region of weak formal integration but intensive cross-border and informal trade facilitated by interlinked communities, providing livelihood opportunities to many Somalis. Fluid social and economic patterns amid scarce resources lead to frequent local-level conflict over rangeland, water points and trade routes, which feed local instability and political tension. Somalia's fragility and conflict have spillover effects, impacting regional stability in the form of refugees, proxy conflict and even terrorism. These factors, combined with broader inter-state competition over access to markets and resources, have stalled formal economic integration, despite the considerable economic benefits that would result. With its strategic location as a trade gateway, Somalia's peace, if sustained, could help re-shape wider relations within the Horn of Africa, un-locking the potential 6 The experience of other countries emerging from conflict, such as South Sudan, is that peace itself is a powerful driver of increases in income. However, peace on its own is generally not sufficient to guarantee inclusive development. 7 While the pledge in Brussels was US$2.4 billion, only a small share is estimated to be channeled through the Bank's Multi- Partner Fund. Preliminary estimates put the pledge for the Multi-Partner Fund at between US$70 - 140 million in the first two years, followed by annual contributions of around US$20-70 million. A separate Board Paper has been prepared for the approval by the World Bank's Executive Directors alongside this ISN. 5 for economic integration, widening regional stability and improving livelihoods - potentially through participation in the regional pastoral livelihoods projects and the Horn of Africa Initiative. vii. High risks but need for international engagement: There are considerable risks associated with the ISN and its implementation. However the risks of international inaction in Somalia are even higher. Somalia today has its best opportunity for peace and stability in decades. Lessons from international experience and the 2011 World Development Report show that countries coming out of conflict and political instability can experience setbacks - political, security or socio-economic - along their path to development. Strong international engagement is critical to facilitate the current transition, and mitigate the risk of Somalia back-sliding into old patterns of conflict and fragility with serious repercussions in the region. 6 I. COUNTRY CONTEXT A. Introduction 1. Somalia has been in conflict for over twenty years and has not had a legally recognized government for most of this period. Since the collapse of the Siad Barre government in 1991 southern Somalia has experienced cycles of conflict that fragmented the country, destroyed legitimate institutions and created widespread vulnerability. Between 1988 and 1993 civil war destroyed Mogadishu and Hargeisa, resulted in 50,000 civilian deaths in north-west Somalia alone and exacerbated the 1991 famine which had 250,000 victims. Peace conferences finally led to the formation in 2000 of the Transitional National Government, and then the Transitional Federal Government in 2004, but both were undermined by warlordism, mismanagement and international interference, giving rise to militia-based opposition and today's al Shabab movement. Shaped by long years of conflict, a dynamic has developed in Somalia's economy in which economic and political actors face incentives to perpetuate conflict in order to sustain and divert associated revenue streams. 2. Somalia's economy and population of around nine to ten million8 remain vulnerable to shocks. In the absence of stable institutions, the combination of conflict, environmental degradation and harsh climate have resulted in a series of natural disasters resulting in full-scale humanitarian crises. Somalia is still recovering from the 2011 drought, which resulted in 260,000 deaths in Somalia and affected 13 million people in the Horn of Africa. Although food security has improved, 870,000 people remain food insecure and an additional 2.3 million - one fourth of the population - remain vulnerable to food insecurity. Displaced by conflict and famine, over one million Somalis live as refugees in the Horn of Africa and Yemen and 1.1 million remain inside Somalia as internally displaced persons (IDPs). Poverty is estimated to be 73 percent; extreme poverty 43 percent - however statistical and data work is required to validate the country's poverty profile.9 3. In contrast to the war-town south, Somalia's northern regions are relatively stable and have put in place functioning institutions, although considerable development challenges remain. Following their declaration of independence and semi-autonomy respectively, Somaliland and Puntland have developed hybrid forms of governance combining modem institutions with religious authorities, civil society, the private sector and diaspora organizations, which have guaranteed higher levels of peace, security and institutional development. While substantial development challenges remain, the starting point for development work is nevertheless different in the north. Both Somaliland and Puntland are able to collect some revenues from Berbera and Bossasso ports sufficient to maintain basic administrative structure and security, but not enough to invest substantially in social and economic development. Nevertheless, the two regions seek very different futures: while UNFPA is undertaking a population estimation survey that will help firm up population data which have fluctuated given famine and displacement. 9 The poverty estimates provided here are from the UNDP Human Development Report 2012. 7 Somaliland's constitution envisages an independent existence, Puntland is committed to participate in Somalia's federal system. 10 4. Somalia's entrepreneurial private sector community is one of the country's main assets and an important partner for development actors. Despite a long period of instability, three industries have thrived: livestock, remittance services and telecommunications. The livestock trade remains the backbone of the economy: 60 percent of the population derives a livelihood from pastoralism-based livestock production. In the absence of a formal commercial banking sector, remittance companies have enabled the diaspora to remit around US$1.3 billion annually to families in Somalia. Telecommunications companies employ around 25,000 Somalis, generate substantial profit and have enabled a mobile penetration rate of 20 subscriptions per 100 people. While these achievements are impressive, further growth is constrained by under- investment, insecurity and inappropriate or absent regulation. This is reflected in low internet penetration rates (one of the lowest in Africa); the unsustainable management of natural resources and rangelands that threatens the livestock trade; and remittance companies facing exclusion from international transactions in the absence of a sound domestic regulatory framework that is enforced. A dialogue between public authorities and the business community is required to establish consensus on the role of the state in the market and the economy, and the value that appropriate regulation can bring in restoring public confidence and fostering private investment. This issue is also pertinent to the delivery of social services, where the private sector remains the key provider of health and education services. B. Recent Political Economy and Security Developments 5. The August 2012 transfer of power from a transitional to a full federal government in Mogadishu generated domestic political momentum and triggered international re- engagement. For the first time since 1991, Somalia has a federal (rather than transitional) government and a widely supported provisional constitution. The September 2013 Brussels Conference galvanized further domestic and international support for the government, and endorsed a Compact whose Peace-building and State-building Goals provide an important roadmap for the coming three year period. While positive momentum has been generated, sustaining domestic confidence through the translation of international support into improved security, governance, and economic benefits on the ground is an increasingly pressing challenge.1 6. Addressing one of the country's most challenging issues, the FGS has initiated political dialogue with the regions as a basis for incremental state formation. The new government's main political priority is to enable consensus on a federal model, navigating a variety of positions that segment along regional or clan lines. Since coming to power it has initiated political outreach and dialogue, resulting in the August 2013 compromise agreement on the establishment of an interim Jubba administration, brokered by the Intergovernmental Authority on Development (IGAD); political dialogue has also been initiated with Galmudug, 10 Although Puntland is committed to participate in the federal system, Puntland is currently concerned that the FGS is itself not fully committed to implement the federal system. Tensions have arisen during 2013 that will need to be addressed at the political level, but also through the balanced and transparent allocation of development effort across Somalia. " The departure of successive governors of the Central Bank of Somalia, tied to allegations of corruption in public institutions, is one recent example of such governance challenges. 8 Hiraan, Himan and Heeb regions. In July 2013 the Federal Parliament passed legislation enabling the constitutional review process to begin, and has adopted draft legislation on the establishment of provisional regional and district administrations. Meanwhile, bilateral talks between Somaliland and Somalia continue, hosted by Turkey. In a sign of progress, the talks were able to resolve the dispute over the management of Somalia's airspace, with the two parties agreeing to share management responsibilities, to develop a formula for dividing the revenues that accrue to Somalia and to establish a new civil aviation base in Hargeisa, Somaliland's capital. Despite this progress, political volatility is likely to remain high during the ISN period given the sensitivity between regions as well as the political cycles within regions. 7. Following an 18 month period of important military gains in southern Somalia, improvements in the security situation stalled in early 2013, and conditions on the ground remain volatile. The African Union force - AMISOM - has played an important role in re- taking key cities in the south opening the way for political dialogue and stabilization. However, with increased territory to hold in central and southern regions - and with no additional troops or force enablers - AMISOM is operationally stretched. Meanwhile a leadership struggle within the insurgent group al Shabab has resulted in a campaign, during 2013, of asymmetric, high profile attacks on the government and its international military and civilian partners. The June 19 attack on the UN compound in Mogadishu and the Nairobi Westgate Mall attack in September demonstrate the movement's evolution into an extremist and increasingly internationalized militant group. C. Drivers of Fragility and Conflictl2 8. Somali society is highly segmented, complicating the development of a unifying vision of the Somali state. Somalia's political development has been oriented around clan and geography-based identities, where groups resolved disputes through a system of collective compensation and consensus. More recently, competing concepts of the state in Somalia have manifested themselves in stark and often violent opposition, and today defacto authority remains contested between traditional, customary, religious and modern institutions. Which institutions are vested with the authority to direct state formation is itself a source of dispute, complicating the process to establish local and regional administrations. While the legal framework evolves, political negotiations - as in the case of the recent Jubbaland agreement - will continue to play a key role. This process is further complicated by actual and anticipated competition over access to and division of revenue streams, land, grazing, water and the potential exploitation of sub-soil assets13; in other words the sharing of Somalia's wealth and resources. 9. Against this backdrop of fragmentation and resource competition, Somalia's institutions have developed into agents of extraction and have failed to build inclusive coalitions, further contributing to a crisis of legitimacy. From Siad Barre's policy of 12As part of the New Deal process the Bank undertook a series of literature reviews on the underlying sources of conflict and fragility in Somalia. While the sources of Somalia's fragility are complex - and contested among Somalis themselves - the repeated patterns of Somalia's history are important signposts for the process intending to support the country's state formation. In a participatory and inclusive process, bringing government, MP's and civil society together, the literature reviews underpinned the agreement on Compact priorities. In a very summary format, this section draws out the main findings of the analysis which informs the ISN discussion on binding constraints. 13 This fragility driver is set to intensify during the ISN period with mounting interest in Somalia's potential oil and gas deposits. 9 nationalization through to the previous Transitional Federal Government's mismanagement, Somalia's state institutions have tended to seek private or clan elite's gain from public resources, undermining public trust. During the conflict, armed non-state groups took control of key revenue generating assets such as the ports of Mogadishu and Kismayo, presenting today's leadership with a key institutional and fiscal challenge. In the absence of effective public financial management and integrity institutions, international assistance and humanitarian supplies proved vulnerable to diversion. The 2012 UN Monitoring Group Report underscored the linkages between corruption and legitimacy, highlighting that "corruption, embezzlement and fraud are no longer symptoms of mismanagement, but have in fact become a system of management."14 The new government's prioritization of the reform of public institutions is recognition that a failure to do so could undermine the legitimacy of the state.15 10. In the absence of an effective strategy to generate livelihoods and jobs, Somalia's interlinked crises of unemployed youth, forced displacement, contested land, drought and natural resource depletion will always present a risk to Somalia's peaceful development. An input for the UN's strategic assessment mission in 2012 noted that "the wider humanitarian and livelihood context of Somalia remains alarming, and is a critical contextual factor for conflict and political violence. Rates of internal displacement, food insecurity, and unemployment are extraordinarily high, as are the number of refugees in neighboring countries. This creates a large cadre of idle young men who are easily recruited into criminal gangs, clan militias, or jihadi movements."16 UNDP's Human Development Report 2012 reported that youth were already major actors in the conflict, constituting the bulk of the participants in militias and criminal gangs, including al Shabab.17 Overall unemployment among people aged 15 to 64 is estimated at 54 percent in Somalia, up from 47 percent in 2002. Somalia's youth (aged 14 to 29) unemployment is 67 percent - one of the highest rates in the world, warranting its special focus in the Compact priorities. D. Economic Developments 11. Somalia's economy has been shaped by sustained conflict and remains vulnerable to shocks. In the absence of state regulation and institutions, a vibrant informal sector has developed, financed by remittances from the one million Somalis living outside the country. While verifiable data is not available, remittance flows are estimated at between US$1-2 billion annually, benefiting populations in urban areas with start-up capital for small and medium-sized enterprises and financing trade flows. While the informal sector has thrived, the absence of regulation means growth does not translate into inclusive development and the expansion of economic opportunities: elite capture in key economic sectors and the illegal export of charcoal has had a serious impact on the environment. More recently, Barclays' decision to close Dahabshil's UK accounts reflects the urgent need for regulation by which to supervise the financial sector and to build enforcement capacity. External assistance (including both 14 UN Monitoring Group on Somalia and Eritrea, report 27 June 2012. It should be noted that the 2013 UNSMEG report highlighted the challenges the new authorities are facing in re-establishing the basis for accountability. 15 The fact that the transition has already seen two central bank governors inhabit and leave the post (one replaced, one resigned) highlights the challenge of reforming public institutions in Somalia. 16 Input from Somalia Expert Ken Menkhaus as a basis for the UN's strategic assessment mission in 2012. 17 The UNDP report notes that: "Lost opportunities, unclear identity and a growing sense of marginalization among youth in an environment of state collapse, violent conflict and economic decline provide fertile ground for youth radicalization." 10 humanitarian and development assistance) amounted to approximately US$750 million in 2012, but is largely humanitarian, especially in southern Somalia, and is not translated into sustainable development. Somaliland and Puntland have attracted more than double the development assistance received by southern Somalia.18 Nevertheless, Somalia's service sectors (remittances and ICT), as well as the natural resource sectors (fishing and extractive industries), have growth potential but will require investment to upgrade infrastructure and clarify key legal and regulatory frameworks. Meanwhile, Mogadishu's relative stability has resulted in a peace dividend: Somalis are returning to the city - 63,000 in 2012 alone according to the UN - bringing scarce capital and skills. Reports claim dramatic increases in shipping using Mogadishu port - the economic lifeline of the city - and flights to the city have risen with Turkish airlines opening a new route. 12. The livestock sector is the backbone of the economy and the main source of livelihoods. For centuries, the majority of Somalis have lived as nomadic or semi-nomadic agro- pastoralists. Pastoralism represents a way of life and a livelihood for about 60 percent of the population generating about 40 percent of GDP from livestock production.19 The industry is primarily export-oriented, although a quota is retained for domestic consumption and social exchange (dowry payments). Exports earn the major share of Somaliland and Puntland's revenues: the ports of Berbera and Bossasso exported more than four million heads of livestock in 2011 to Arab states such as the UAE and Yemen. While exports of livestock (sheep, goat, cattle and camels) have grown by 56 percent between 2008 and 2011, further growth in the sector is constrained by a weak capacity for processing and veterinary support, and increased quality assurance and animal health demands from importing nations. More fundamentally, population growth and displacement is leading to heightened competition for land and environmental degradation threatening the sector's sustainability. Beyond its economic value, pastoralism and livestock production underpin traditional rural life. During non-crisis periods, men and women in pastoral communities maintain a well-defined, synergistic partnership in livestock and crop production, with women playing a significant, specialized role in the pastoral system.20 13. Somalia's macro-economic framework reflects the country's underlying fragility. Reliable macro-economic data for Somalia is not available - however regional fiscal and economic data does exist and broader estimates can be aggregated. Public expenditure is estimated to account for 7.7 percent of GDP21 compared with private sector consumption of 73 percent of GDP. Agriculture and services are the key contributors to GDP. Based on regional fiscal data, Somaliland controls the largest budgetary resource envelope, generating US$127 million in revenue during 2012, compared to US$35 million at the federal level and US$38 million in Puntland. Somalia's trade deficit is said to have grown in recent years, reaching more than US$350 million in 2009, up from US$165 million in 2000 (financed by assistance and remittances). Imports consist mainly of manufactured and petroleum products from regional 1s Per capita development aid in Somaliland stands at US $32.20; Puntland is close behind at US $31.30. In south central Somalia, where the majority of the population is concentrated, development aid per capita is a mere US $13.80. Source: UNDP Human Development Report 2012. 19 These numbers will need further verification - estimates are from the 2006 Country Economic Memorandum. 20 Women account for 45 percent of those involved in livestock management or crop and natural resource harvesting. 21 In the UNDP Human Development Report, Somalia's GDP is estimated to be US$2.6 billion and per capita GDP is estimated to be US$288 based on the World Development Indicators and Economist Intelligence Unit. 11 trading partners such as Yemen, UAE and Djibouti. The economy is largely dollarized and the Somali shilling - used only for smaller transactions - is volatile and has appreciated against the dollar during 2013 with inflows of investment and aid. The shillings in circulation are old and depreciated which limits their use in transactions. With little or no control over domestic money supply and little foreign reserves, the Central Bank has no influence over the exchange rate. E. Poverty & Social Developments 14. The consequences of conflict are clear and devastating: Somalia's human development indicators are among the lowest in the world. Poverty incidence is 73 percent - 61 percent in urban centers and 80 percent in rural areas, with extreme poverty estimated to be 43 percent. 22 Most Somalis live in rural areas where traditional coping mechanisms, clan affiliations and pastoral mobility have been undermined by conflict. Only 7 percent of the rural population enjoys access to improved water sources, in contrast to 66 percent of people living in urban areas. Nationally, only 23 percent of the population has access to sanitation, with access rates of 52 percent in urban centers and only 6 percent in rural areas. Somalia is a young country, with over 70 percent of the population under the age of 30. High fertility rates, estimated at 6.2 births per woman between 2010 and 2015, means the youth population will continue to increase for the foreseeable future. Economic exclusion - 67 percent of 14-29 year olds are unemployed in Somalia - puts youth at risk, especially in the context of insurgency and gang violence. Indicator % of population Poverty 73 percent of which extreme 43 percent Geographical distribution Urban 61 percent Rural 80 percent Source: World Bank and United Nations, Socioeconomic Survey of Households in Somalia, 2002, cited in 2012 UNDP Human Development Report 15. The state's collapse undermined basic service delivery, with a severe impact on human development outcomes. With the disappearance of formal education systems national gross enrolment rates are estimated to be around 31 percent (22 percent for girls as compared with 34 percent for boys). Secondary school participation falls even lower for both boys and girls, with net attendance ratios of 12 and 8 percent respectively. Barriers to education include limited or unavailable operational primary and secondary facilities, prohibitive school fees, and household demands. Girls in particular are less likely to attend school due to domestic responsibilities. Nearly 75 percent of females between 15-24 years are illiterate. The situation is similar for the health sector. As of 2009, there were an estimated 625 health posts and 225 maternal and child health centers in Somalia. Assuming a population of 9 million, this amounts to just one health post per 15,200 people. Existing services are provided by the private sector, including pharmacies and drug stores, which may account for high service fees. Life expectancy 22 The poverty line is defined as US$2 a day and extreme poverty is defined as US$1 a day, using Purchasing Power Parity. 12 at birth is 51 years and infant mortality rates are estimated to be 108 deaths per 1,000 live births (or 180 per 1,000 live births for under-5). 16. Food insecurity and forced displacement have led to sustained vulnerability and dependence for a large share of the population. The 2011 Horn of Africa drought led to the worst famine in 60 years, with over 13 million in need across the region, 4 million in Somalia alone. Although good harvests in the last two years have improved food security, 870,000 people remain food insecure and an additional 2.3 million - one third of the population - are vulnerable to food insecurity. Regular food security crises - in 1991/92, 2006, and 2008 - combined with conflict, has led to massive forced displacement affecting almost a quarter of Somalia's 23 population. Today, there are over one million Somalis living as refugees in the Horn of Africa and Yemen. Inside Somalia, there are around 1.1 million IDPs, at least 30 percent of which arrived in camps in 2011-2012 as a result of the drought. Women and girls comprise a significant proportion of Somalia's IDPs and face particularly precarious conditions, as displacement heightens vulnerability to sexual and gender-based violence, both en route to, and within, settlement camps. 17. Gender equality indicators - across health, empowerment and economic measures - are among the worst in the world, following only Yemen, Afghanistan, Mali and Papua New Guinea. Despite the dynamic role women have historically played in Somali society as community mobilizers and peace-builders, social and cultural norms circumscribe women's broader participation in political and public decision-making fora. Realization and enforcement of human rights is uneven and women and girls still confront significant vulnerabilities and protection challenges. Youth populations, particularly young men, face numerous barriers to meaningful social, political and economic participation and there is still insufficient understanding of the impact of conflict across gender and age groups. Women have made some gains in the economy, expanding into employment and livelihood sectors traditionally held by men, particularly as more women assume responsibility for household income generation. Concerted attention is needed, however, to consolidate these gains. F. Statistics 18. Effective policies targeting poverty and development are constrained by a chronic lack of reliable data. The most recent population census was carried out in 1986, but the results from this survey were never published. There is no national accounts data (the last reliable GDP figure dates from 1990) and the last nationally representative household survey providing information on household income, consumption and poverty was conducted in 1985. There is no recent national data on agriculture, labor markets or the external and financial sector, as the last comprehensive and representative survey in Somalia was the UNICEF Multiple Indicator Cluster Survey (MICS) in 2006. There is currently no statistics legislation or regulations governing the collection, production and dissemination of official statistics. The data that does exist is fragmented and aligned to specific collecting agency requirements. Statistical capacity in the FGS is extremely low: the Department of Statistics in the Ministry of Finance and Planning is underfunded, and is neither sufficiently equipped nor staffed to carry out its mandate. Quality control on line ministry data is absent and data dissemination is problematic given the lack of 23 Data in this paragraph are from UNHCR 2012 as well as the UN Human Rights Council. 13 funds and the absence of an effective data dissemination platform. Based on a multi-institution rapid assessment mission (World Bank, AfDB, DFID and UN) a national strategy for the development of statistics will be formulated with the Department of Statistics to begin to address the data, knowledge and capacity gaps. The Bank will support this exercise under Priority One of this ISN. II. GOVERNMENT STRATEGY AND PROGRAM A. Government Priorities and Plans 19. From the first days of its government, the FGS embarked on a broad-ranging program of reconstruction and reform with support from development partners. The Government's Six Pillar Policy provided an initial framework for reforms and deliverables in the areas of Security, Economic Recovery, Justice, Basic Services and Infrastructure, and Governance and Rule of Law. 20. The Compact translates the Six Pillar Policy into highly selective political, security, and development priorities for the next three years (2014-2016) based on a set of Peace- building and State-building Goals. The preparation of the Compact included a diagnostic of the binding constraints to stability and development in order to prioritize only those activities that were critical. While consultations on the completed Compact are set to continue, the preparation process was inclusive of Somali and international stakeholders and of Somalia's different regions. With the inclusion of a Special Arrangement for Somaliland, Compact priorities also build on the existing plans and strategies of both federal and regional governments and will be the basis for donor alignment and monitoring across the country. 21. Donors endorsed the Compact at the Brussels Conference, pledging US$2.4 billion and committing to align their programs with its priorities and nine Partnership Principles (see annex II). The Compact also establishes a new aid framework - the Somalia Development and Reconstruction Facility (SDRF) - which provides a single governance platform for coordinating international assistance with Compact priorities delivered through windows administered by technical agencies including the Bank. The SDRF, described in greater detail in Section V, will also enable a phased and calibrated approach to increasing the use of country systems based on clear benchmarks of performance. 22. Accompanying the Compact, the Federal Ministry of Finance and Planning prepared an Economic Recovery Plan (ERP) with a focus on core economic priorities. The ERP, prepared with technical support from the World Bank, sets out a vision for economic recovery focusing on the 11 regions of southern Somalia in the areas of public administration, infrastructure, natural resource management, and social services. Preliminary costing of the Economic Recovery Plan totals US$662 million for the two-year period 2014 - 2015. Given limited resources and capacity, the ERP prioritises five flagship programs and emphasises the 24 role of the annual budget in linking resources to government priorities. 24 The five flagships include (i) rapid upgrading of state capacity at federal, regional and local authority level, (ii) productive infrastructure (crops, livestock, fisheries), (iii) rapid rehabilitation of infrastructure (ports, urban water and waste), (iv) basic health services; and (v) one million children back in school. The flagships have an indicative price tag of US$222 million. 14 PSGl: INCLUSIVE POLITICS Achieve a stable and peaceful Somalia through inclusive political processes Priority 1: Advance inclusive political dialogue to clarify and settle relations between the FGS and existing and emerging administrations and initiate processes of social reconciliation to restore trust between communities. Priority 2: Finalize and adopt a Federal Constitution by December 2015 Priority 3: Prepare for and hold credible elections by 2016 PSG2: SECURITY Establish unified, capable, accountable and rights based Somali Federal security institutions providing basic safety and security for its citizens Priority 1: Strengthen the capacity and accountability of state security institutions to recover territory, stabilize and provide basic safety and security Priority 2 Integrate security forces into Federal Institutions Priority 3: Implement National programme for the treatment and handling of disengaged combatants. Priority 4 Develop an effective maritime security strategy within the framework of the Maritime Resource and _ Security Strategy. PSG3: JUSTICE Establish independent, accountable and efficient justice institutions capable of addressing the justice needs of the people of Somalia by delivering justice for all. Priority 1 Key priority laws in the legal framework, including on the reorganization of the judiciary, are aligned with the Constitution and international standards. Priority 2 Justice institutions start to address the key grievances and injustices of Somalis. Priority 3 More Somalis have access to fair and affordable justice. PSG4: ECONOMIC FOUNDATIONS Revitalize and expand the Somali economy with a focus on livelihood enhancement, employment generation, and broad-based inclusive growth. Priority 1: Enhance the productivity of high priority sectors and related value chains, including through the rehabilitation and expansion of critical infrastructure for transport, markets access, trade, and energy. Priority 2: Expand opportunities for youth employment through job creation and skills development. Priority 3: Promote the sustainable development and management of natural resources by developing legal and I regulatory frameworks and building capacity in key NRM institutions PSG5: REVENUE AND SERVICES Increase the delivery of equitable, affordable, and sustainable services that promote national peace and reconciliation amongst regions and citizens and enhance transparent and accountable revenue generation and equitable distribution and sharing ofpublic resources. Priority 1: Increase the provision of equitable, accessible, and affordable social services by creating a regulatory environment that promotes decentralized delivery and prioritizes key investments that extend and increase access to services. Priority 2: Enhance transparent and accountable revenue generation Priority 3: Strengthen PFM to enable the different levels of governments to better manage financial resources in a transparent and accountable manner in of support national priorities 23. The ERP, together with the regional plans for Somaliland and Puntland, informs the ISN's priorities and provides the basis for an integrated and national Interim Poverty Reduction Strategy Paper (I-PRSP). The Bank will continue to provide technical assistance to 15 the government to develop the ERP into a national document that meets the criteria of an I- PRSP. Three additional steps are foreseen: (a) integration of the country's three plans to support inter-governmental dialogue on economic management; (b) extension of the ERP scope to cover security and justice sectors, at least in the macro-fiscal framework; and (c) a national consultation to foster a broader base of ownership, especially among private sector actors and civil society. 24. Federal and regional authorities are taking incremental steps towards improving economic management and institutional capacity. Since the start of the year concrete steps have been taken to implement a new public finance management reform agenda, including public disclosure of the 2013 budget, an audit of the 2012 annual financial report and the piloting of an interim financial management information system with a new chart of accounts and single treasury account. The federal government is also implementing a PFM Reform Action Plan.25 However, capacity within the government remains thin and the broader transition objectives will not be met if gaps are not urgently addressed and leadership addresses deep-rooted issue of inclusive governance. The context in the north is different: the self-governing regions of Somaliland and Puntland have basic public administration processes and structures. In the absence of donor funding, these regions have relied on customs revenues as well as credit lines provided by businessmen. In Somaliland, domestic revenue was successfully doubled in 2011 following revenue reforms. While many of the necessary structures are in place in these regions, human resource and financial capacity remain limited and most ministries are not able to provide a comprehensive package of basic services. B. Somalia's Re-engagement with International Financial Institutions 25. The Government is keen to normalize relations with the World Bank and other International Financial Institutions. Somalia has US$1.5 billion26 in outstanding public and publicly guaranteed multilateral debt, of which 79 percent (US$1.2 billion) is in arrears. As of end-September 2013 arrears to IDA amounted to US$267 million. Access to regular financing from IDA and other providers of multilateral concessional financing will require a 27 comprehensive settlement of arrears , and subsequent access to debt relief under the enhanced 28 HIPC Initiative as well as under the Multilateral Debt Relief Initiative (MDRI). Somalia has been grandfathered for debt relief under the enhanced HIPC Initiative's framework and is one of three remaining countries yet to qualify for HIPC debt relief. 26. With sufficient overall evidence to treat the FGS as the government in power, the Bank officially changed its legal position on Somalia in early 2013, re-opening direct relations with the authorities. In the short term, this provides the basis for a paradigm shift in the Bank's engagement, positioning the Ministry of Finance and Planning as the official recipient 25 The plan has four platforms: (i) PFM fundamentals for budget credibility; (ii) effective budget execution and financial accountability; (iii) improved policy formulation, planning and budget preparation; and (iv) institutional and human resource reforms. 26 In net present value terms. 27 Somalia is eligible for exceptional arrears clearance support under IDA's systematic approach to arrears clearance, which includes potential early IDA support in the form of pre-arrears clearance grants. 28 Somalia is also in arrears to its bilateral and commercial creditors. Bilateral and commercial debt data are under reconstruction in preparation for an official debt reconciliation process once the HIPC process starts. 16 and counter-signatory of World Bank agreements for trust fund-financed projects. While the FGS will be the primary counterpart at the national level, the Bank will retain the option to engage with sub-national authorities within the Bank's operational framework for dealing with sub-national entities. Provided these projects are well-designed, this shift enables the Bank to work in closer partnership with Somali institutions and to develop sustainable capacity and accountability. It also permits the initiation of the normalization process, leading to potential arrears clearance support and access to debt relief through the HIPC Initiative. However the timing of this process is uncertain and may well go beyond the ISN period. 27. This ISN supports the government to establish a track record of economic governance by investing in institutional capacity and knowledge. A satisfactory track record of economic management under an IMF Staff Monitored Program (SMP) is a critical pre- condition for HIPC. However, establishing the SMP itself will require three broad pre-conditions to be in place: (a) a basic level of data and statistics by which to judge the effectiveness of the authorities' economic policies; (b) rudimentary institutional capacity to design and deliver reforms, in particular on public finance management; and (c) a reconstruction of the country's debt database as a basis for formal debt reconciliation with creditors' records. The important measures taken by the authorities on public finance management and macro-economic planning will be further strengthened with technical assistance as part of this ISN. In addition, the Bank will work with the African Development Bank, the UN and the IMF to strengthen the statistical base for sound macro-economic reporting and management, including on the poverty profile of Somalia's population. A Technical Working Group (TWG) on Somalia's debt has been established to convene bilateral and multilateral creditors together with the authorities to: clarify the road-map towards arrears clearance and HIPC debt relief, including key milestones; identify relevant technical assistance and data gaps; provide a platform for monitoring the government's track record of reform implementation. III. THE WORLD BANK GROUP IN SOMALIA A. Implementation of the FYO8-09 ISN 28. Despite Somalia's non-accrual status the Bank has developed a platform for knowledge creation and project delivery over the last ten years. Since re-engagement in 2003, the Bank has played an important role in international strategic coordination through co- leadership of the 2006 Joint Needs Assessment and subsequent Reconstruction and Development Program. The FYO8-09 ISN was developed in response to the Reconstruction and Development Program, with a proposed envelope of US$6.5 million to deliver support in four areas: accountability and PFM, decentralized service delivery and community-based work, the business enabling environment, and economic analysis. Based on the ISN, the Bank developed a set of activities, with funding from internal Bank trust funds. Given the evolving security and political environment the ISN objectives were delivered mainly in the north, however some activities were delivered directly by NGOs in southern regions. The ISN achieved some important results: * The Bank established a trust-funded analytic program that continues to be the main platform for knowledge generation today. The US$2 million Somalia 17 Knowledge and Political Economy project (SKOPE) funded by the State- and Peace-Building Fund (SPF) focuses on core economic data and political economy analysis. In Somaliland, the Bank has maintained an intensive policy dialogue with the authorities through the SKOPE-financed household survey, a public expenditure review, and the process of building a set of national accounts. In 2011, SKOPE commissioned a Financial Diagnostic Assessment (FDA) of a Somali whistleblower's account of financial mismanagement inside the former TFG government. A public summary of the FDA was picked up in the news media and in the UN's Monitoring Group report for 2012, and strengthened both Somali and international resolve to tackle public finance management under the new government. More recently, SKOPE has facilitated the Bank's support to the Economic Recovery Plan and debt data reconstruction. * The Bank's engagement with the private sector - developed and delivered in partnership with the IFC - is the largest in the portfolio. The Somalia Private Sector Re-engagement project (SOM-PREP), a private sector development platform financed by the SPF, Danida and DFID, is in its second phase. Active only in Somaliland to date, the project has a programmatic approach allowing for flexible and adaptive work, based on requests from government and covers investment climate and regulatory reforms, PPPs in the ports and waste management sectors, and banking supervision. The project also engages at firm level through value chain work and has established the Somaliland Business Fund, a matching grant window to support enterprise development. The SBF has now awarded US$4.6 million in grants to 80 small and large investment projects, crowding in total private investments exceeding US$10 million and generating an expected 1,500 additional jobs. * The Bank's Community Driven Recovery and Development project (CDRD) was developed in partnership between the Bank and donors. Although the Bank stopped its funding in 2010, the project remains active across Somalia as a platform for bottom-up delivery of community-based support delivered by NGOs. * With funding from the LICUS (Low-Income Countries Under Stress) Trust Fund, the Bank stayed engaged in Public Finance Management, focused mainly on the legal framework in Somaliland. Since the transition, this earlier engagement has allowed the Bank to step up rapidly and support the FGS to establish PFM credibility through a self-assessment process and the auditing of the 2012 financial statements, both key signals of commitment. * Working in partnerships with technical agencies, the Bank also demonstrated responsiveness to urgent needs. Most critically in 2011, the Bank and the Food and Agriculture Organization (FAO) designed and delivered a rapid response to the drought, funded by the Global Fund for Disaster Risk Reduction (GFDRR) and the SPF, that was able to build on and scale up existing FAO operations for drought resilience at the community level in southern Somalia. The Tsunami Livelihood Recovery Project - also delivered in partnership with FAO - 18 supported fishing communities in Puntland impacted by the 2004 tsunami, providing capacity and equipment and resulting in income increases of around 20- 30 percent. Through this work and the Puntland Fisheries project (funded by the Japanese Fund for Social Development), the Bank and FAO have established a strong partnership which will be developed further during the ISN period. Box 1: Key Lessons from the FY08-09 ISN * Integrity and financial management issues demand close attention. Given constraints on access and day-to- day close project supervision, operational risks are high and a great degree of caution and care is required when working with implementing partners. Through its Risk Management Unit (RMU), the UN has developed an innovative approach to manage risks related to implementing partners and contractors. The Bank will partner with the RMU during the ISN period to allow for third-party monitoring, spot checks and multiple layers of supervision. * Flexible operating platforms can allow for course correction and responsive work. Both SKOPE and SOM- PREP have allowed the Bank the flexibility to respond to government and donor demand by establishing a wide framework of activities at the design stage. The projects have also enabled the Bank to allocate funds only when projects are ready to execute, thus avoiding locking up resources in un-disbursing operations. In a highly fluid context the Bank will need to continue to prepare flexible and adaptive operations. * Leveraging innovative partnerships with organizations that have networks that can deliver on the ground. Looking ahead, the Bank will depend increasingly on partnerships in order to deliver. However, partnerships work well when they involve close cooperation and dialogue - outsourcing is not an approach that has worked well. * Providing relevant and timely analytical work can influence important policy outcomes. Extensive and comprehensive analysis is high risk, given the fluid context. The work of the Joint Needs Assessment is a case in point - strong technical work, but rapidly out of date given the changing context. However, smart, concise, timely and easy-to-use work can have high returns, as in the case of the financial diagnostic from 2012 which - thanks to good timing and a precise message - leveraged a powerful policy agenda ahead of the 2012 transition. IV. THE INTERIM STRATEGY: FY14-16 A. Objectives and Approach 29. The objective of the Somalia ISN is to lay the foundations for poverty reduction and shared prosperity by delivering on selected priorities in the Compact's Peace- and State- building Goals. As discussed in the 2011 World Development Report, basic security and political stability are important binding constraints to sustainable poverty reduction in fragile and conflict-affected contexts. The critical measures by which Somalia will address those binding constraints are articulated in the Compact and address three key drivers of the country's fragility: (i) The absence of a political consensus on a federal system based on inclusive representation and wealth-sharing among Somalia's communities and regions; 19 (ii) The absence of functioning institutions that can deliver basic services to citizens, including security, and manage the economy effectively and transparently; (iii) Elite capture and economic exclusion resulting in widespread vulnerability. The ISN proposes to initiate and scale up a few activities to address these critical issues and 29 thereby to enable poverty reduction and shared prosperity. In aligning with the Compact and working in areas of comparative advantage, the Bank will contribute to a well-coordinated international effort in Somalia, based on partnership between agencies that engage across the interlinked areas of politics, security and development. The ISN's activities will be clustered around two priorities: * Priority One: Strengthening Core Economic Institutions * Priority Two: Expanding Economic Opportunity 30. While highly selective, the ISN program will remain flexible, noting both the limitations on effective World Bank Group work in Somalia, as well as the need to remain responsive in a highly fluid context. The selectivity criteria that the Bank has applied in developing the ISN are: (a) alignment with the Compact and the country's binding constraints, (b) alignment with World Bank Group comparative advantage in the Somali context, (c) operational feasibility given security and access, and (d) conflict sensitivity, in particular the need for regional balance. This approach ensures that the Bank focuses scarce resources and capacity in areas of its comparative advantage while also leveraging partnerships for peace- and 30 state-building in other important areas. 31. To deliver the ISN, the Bank is mobilizing internal and external trust fund resources, in a coordinated approach with key partners. The two key financing sources for the ISN are the SPF, which has committed US$19.5 million to support the Somali transition, and a new Bank-administered Multi-Partner Fund (MPF), which will be anchored within the wider aid architecture as set out in the Compact. The MPF will be established from the start of the ISN period, but will scale up incrementally based on the speed of delivery and absorption capacity. The current estimate of MPF pledges are between US$70 - US$140 million in the first two years, with potential for iterative annual contributions thereafter of between US$20 - US$70 million. Given resource uncertainty, the ISN proposes core focus areas that can provide a platform for potential scale up. 32. The Bank will stress a differentiated regional approach, within an emerging national framework. For years, Somalia's donors have dealt with its regions independently of one another. While this approach has been supported by the regions themselves given differentiated needs, it has not fostered a national framework. The Bank's approach under this ISN, in line with the objectives of the Compact, will balance a respect for regional differences while supporting the emergence of national foundations through policy and knowledge work and through activities that connect the country. The development of sector programs under the ISN 29 As noted earlier, the experience of other countries emerging from conflict is that peace is itself a powerful driver of increased incomes although it is not, on its own, a guarantee of inclusive development. 30 These include partnerships for justice, health and security sector work, enabled by aligning World Bank technical and analytical strength with implementing agencies. One early example of this is a security sector Public Expenditure Review that the government has requested and that can help shape dialogue on the establishment of a sustainable security sector. 20 will be based on dialogue with the federal authorities in Mogadishu, as well as with regional authorities responsible for the delivery of services within the regions. Over time, and in line with the emerging constitutional framework, the Bank will support the government to develop a procedure and norms-based system for resource allocation. 33. Security, improved governance and the political transition will remain overriding influences on ISN delivery. The program will need to remain flexible in terms of sector and geography, as well as engagement modality, depending on security, governance and political conditions. Assuming conditions continue to improve in southern Somalia, the Bank will gradually increase its engagement there in line with other international actors. Given historical sensitivities, any increase in Bank programming in southern Somalia should not be at the cost of regional balance. If the situation deteriorates, the Bank will maintain an engagement in areas that are safe and accessible while continuing to invest in knowledge generation, reverting to the approach that the Bank has pursued since 2003. PRIORITY ONE: STRENGTHENING CORE ECONOMIC INSTITUTIONS Focus areas: * Improving economic governance, including macro-fiscal and public finance management, as well as statistical capacity. * Supporting the establishment and implementation of a sound regulatory framework in strategic economic sectors. Indicative Bank activities: * Knowledge and policy dialogue (SKOPE Project) * PFM Strengthening project (US$4.5m, SPF) * Recurrent cost window (MPF) * Regulatory and Policy Dialogue in Strategic Economic Sectors (ICT Project, US$2m, SPF; Somalia Private Sector Re-engagement Project (Phase III), US$2-4m, SPF; Extractive Industry TA) * Potential service sector investments (2015 onwards from MPF) 34. Strengthening core economic institutions in fragile and conflict-affected states requires concerted investment over many years.31 Although Somaliland and Puntland have developed their institutions over the last twenty and fifteen years, respectively, capacity building will be a continuing necessity, especially at the district level where most services are expected to be delivered. In southern Somalia, the federal authorities have inherited institutions with little or no record of sound public finance management or service delivery, and immediate capacity injection is necessary to generate public confidence. The Bank's immediate focus is to improve rudimentary elements of macro-fiscal management and to support improved regulation to unlock investment in key sectors of the economy. Progress under Priority One will feed into International Financial Institutions (IFI) normalization efforts by supporting the FGS to establish 3 The WDR 2011 finds that building successful core state functions takes around 20 years even in 'fast reformers'. 21 a track record of economic governance to underpin the HIPC process and unlock multilateral concessional financing for Somalia's priority sectors. 35. Priority One emphasizes knowledge investments to fill critical data and statistical gaps and to enhance the knowledge of delivering services in Somalia. Knowledge investment is critical at this stage in Somalia's development in order to provide an evidence base for sound economic policy and to contribute to national dialogue on the drivers of poverty, vulnerability and exclusion, including in relation to gender. The previous ISN demonstrated that light-touch, demand-driven, and well-timed and communicated knowledge can have an impact in Somalia - but that products requiring large-scale investment in time and resources are often not sufficiently adaptive to the context and client demand. It will also be important to ensure the knowledge base is disaggregated to ensure gender-sensitive policy-making and programming. 36. Three knowledge themes have been developed for the ISN under priority one: (i) poverty, macro-economic management and growth; (ii) political economy and dialogue; and (iii) service delivery and vulnerability. These areas have been selected based on areas where authorities and key partners are already working, assuring the capacity to absorb and use the analysis. This work will build on the Bank's existing knowledge platform under the SKOPE project and will be closely coordinated with the IMF, AfDB and UN agencies, where relevant. It will be adjusted to the different development needs of the regions based on dialogue with counterparts. Analytic work under theme three is expected to build a knowledge base for future investments. Annex III presents further details on the Bank's knowledge and policy dialogue work. 37. In addition to building the knowledge base, the Bank will invest in essential core state capacity, at national and regional levels. In the early phase, the Bank will focus on: (a) essential capacity building in public finance management; and (b) regulatory norms and standards in key sectors. Depending on how the context and dialogue evolves, the Bank will consider projects that support accountability through citizens' engagement in key economic - * *32 issues as well as leadership training. 38. PFM is closely linked to state legitimacy in Somalia. The lack of basic PFM systems or capacity under the TFG - and related corruption problems - undermined government legitimacy and credibility. Since the start of the recent transition, the Bank has moved swiftly to establish the foundations for a transformation in Somalia's PFM framework. However, given deep-seated governance issues, commitment of the political leadership to sustain and deepen these reforms will be essential. Based on the PFM self-assessment in early 201333, the Bank and DFID have financed a financial management information system pilot and an audit of the 2012 financial accounts, generating momentum for the government's reform agenda. The Bank now chairs the 32 Lessons from other fragile and conflict affected countries underlines that without the demand for good governance and without strong leadership, supply-side capacity injection will not be sustainable. DFID has developed an accountability platform in Somalia which will engage with a consortium of non-state actors on a range of areas including PFM. 3 The PFM self-assessment revealed the following key weaknesses: inadequate controls for revenue management; absence of long term planning and policy analysis to underpin annual budget formulation; budget execution and procurement processes lack adequate transparency and efficiency; inadequate banking supervision mechanisms by the Central Bank; lack of comprehensive reporting on the use of state resources; weak Parliamentary oversight over PFM functions; absence of a truly independent Auditor General; the existing PFM legal framework is inadequate and requires modernization; and HR and logistics challenges. 22 PFM working group and is prioritizing the delivery of the PFM Capacity Strengthening Project to support the government's PFM reform action plan through the establishment of rudimentary systems for financial management, procurement and expenditure management. The project aims to enhance the government's ability to coordinate PFM reform as well as enhance financial accountability and strengthen sustainability through a strong skills and education component.34 The Bank's PFM work will be initiated at the federal government level, but provides for future scale-up to regional governments. In Somaliland, the Bank's PFM work is closely linked to the Somaliland Development Fund, which is supporting a country systems approach to the management of international assistance and which will open an incentive window based on PFM benchmarks. 39. While PFM will be an early focus, Somalia's federal institutions face an immense capacity gap and a concerted and coordinated approach is urgently needed if the transition is to be sustained. Somaliland and Puntland also need sustainable capacity development investments including in civil service reform. Working closely with technical UN agencies, the Bank will support the development and delivery of a national framework that balances the need for capacity substitution approaches in the short term with longer-term capacity enhancement. 40. Consistent with lessons emerging from fragile and conflict-affected countries, supply-side reforms are more effective when they are linked with demand for good governance and effective leadership. As an area for potential scale-up, the World Bank Institute may further develop the Bank's engagement with civil society and parliamentary groups, and will draw on an expanding portfolio of global experience with demand side accountability work and leadership development. 41. Federal revenue is insufficient to cover civil service salaries and specialised instruments are needed to finance the fiscal gap given Somalia's high risk context. The Special Financing Facility (SFF) established by Norway with World Bank support is a bridging mechanism providing urgent post-transition recurrent cost support to the federal authorities as well as financing short-term employment generation and basic rehabilitation projects. The Bank's involvement in its design and delivery will mean that the SFF is coordinated with the PFM reform agenda, and can also graduate smoothly into a recurrent cost financing vehicle to be established within the Bank-administered MPF in early 2014.35 The MPF's recurrent cost window will provide a platform for performance benchmarking and a policy dialogue platform related to the establishment of a track record of economic governance. It will also provide an entry point to develop models for a future inter-governmental fiscal framework as a prototype for negotiated revenue-sharing and expenditure targeting. 34 The project proposes that young graduates be enrolled in the PFM Education and Training Program that includes face-to-face lectures supplemented by mentorship and on-the-job learning. These graduates will complement the current staff and together will be transformed into the professional PFM cadre capable of managing public funds (include external assistance) in a transparent and efficient manner. 3 In a similar arrangement, the Bank financed recurrent costs in Afghanistan following on from the bridging mechanism established by the UNDP. There, the recurrent cost financing window has developed from fiscal back-stop into policy platform, and has evolved a strong and layered fiduciary risk management system that can inform the design of the Somalia recurrent cost window. 23 42. In finance, ICT and extractive industries, increased compliance with international regulatory standards can unlock investment, facilitate increased integration in regional and global economies, and build confidence in the role of the state in managing the economy. Policy and standard-setting are key functions of effective government and can generate confidence within Somalia's business community if properly consulted, prepared and implemented. The Bank will strengthen policy dialogue with the authorities in developing sound regulatory frameworks in these sectors. The transition to a regulated financial sector will require policy and regulatory technical support, including Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT)36, as well as a sensitive public-private dialogue. A proposed ICT Sector Support project aims to enhance competitiveness and employment by encouraging efficiency and equity in access to connectivity while promoting further investment in the sector. The project will leverage increased connectivity provided by the Eastern Africa Submarine Cable System (EASSy) undersea fiber optic cable. In the extractive industries sector, the Bank will seek to provide selected technical assistance and will pursue dialogue on pragmatic mechanisms for revenue and wealth-sharing. 43. Based on knowledge and innovation work, the Bank's MPF will provide a platform for potential service sector investments. Building on knowledge work on service delivery for the poor and service delivery models in Somalia, future service sector investments in areas including health and education would be financed through the MPF to allow for the gradual transfer of responsibilities from UN agencies currently delivering services to government institutions.37 Moving these programs to the MPF in a phased manner over time would bring implementation into government systems and processes, while maintaining the critical role of non-state actors. Potential investments would be undertaken with goals of building public sector capacity and strengthening demand-driven approaches with a focus on community-led development models and gender mainstreaming. PRIORITY TWO: EXPANDING ECONOMIC OPPORTUNITY Focus areas: * Supporting job creation through private sector investment through PPPs, public private dialogue and targeted financial support. * Financing basic rehabilitation of infrastructure for employment generation and productivity Indicative Bank activities and financing: * Puntland Youth Employment Initiative (US$4.8 million, SPF) * Somalia Private Sector Re-engagement project (Phase III) (US$2-4 million, SPF) * Urban Sector Support project (US$2 million, SPF; MPF) * Sustainable Livestock Production project (US$2 million, SPF; MPF) * Knowledge and policy dialogue (SKOPE Project) 36 Anti-money laundering and combating the financing of terrorism has recently become a critical issue in Somalia's transition, with the decision by Barclays Bank to shut down Dahabshils' UK accounts, with a potentially considerable impact on the cost and volume of remittance flows. 3 Currently the UN is implementing flagships in the health sector and education sector as well as local governance through UN joint programs that are closely integrated with technical ministries. 24 44. The ISN's second priority is to mobilize resources and partnerships to expand economic opportunity, building short-term confidence and laying the foundations of sustainable development in Somalia. While the Somali economy has demonstrated impressive resilience, sustainable and inclusive growth will face key challenges beyond those posed by insecurity: economic marginalization among the young, particularly in urban areas; increasing competition over scarce natural resources; and low levels of public and private investment given a lack of regulation, access to finance, and degraded or missing infrastructure. The government plans to address these issues through the delivery of flagship programs to increase the productivity of key sectors and rehabilitate core economic infrastructure, as well as through regulatory reforms supported through Priority One focus areas. Since the start of 2013, the Bank has developed short sector policy notes38 that have informed the ERP, identifying entry points for potential investments during the ISN period and for future scale-up. 45. Livelihoods and job creation, particularly for Somalia's excluded youth, is a Compact priority which requires both short- and long-term approaches. Overall unemployment is estimated at 54 percent, while youth unemployment rates are estimated at 67 percent - one of the highest rates in the world. To initiate its support in this area, the Bank plans to pilot a youth employment initiative through private sector participation in the renewable energy sector. The new initiative, based on the recently-completed joint FAO/World Bank Tsunami Livelihood Recovery Project, will target youth employment through the establishment of renewable energy facilities around rural fishing communities in Puntland. More broadly, the Bank will seek to create linkages between skills development and vocational training approaches and private sector demand. 46. The Bank will continue to address the enabling environment for private investment through the provision of targeted technical assistance, knowledge generation and direct engagement with the business community. The Somalia Private Sector Re-engagement Phase II project39 is planned to expand from Somaliland to include both Puntland and southern Somalia. As part of the roll-out, IFC's Investment Climate team will initiate a series of public- private dialogues convening the business community in the three regions and the Bank will continue to invest in foundational knowledge on the sources of, and constraints to, growth at the enterprise level. 40 Public private-dialogue and knowledge generation can help identify constraints to private sector investment and build support in the business community for key public sector regulation in strategic sectors (see Priority One and Annex III). The Bank will also consider the roll-out of a matching grant and innovation fund for Somalia, building on the model of the Somaliland Business Fund (SBF). The current SBF builds in targeting of youth and women, recognizing the need for inclusive growth approaches in Somaliland; 20 percent of small grants and 30 percent of large grants under the first round were won by female applicants. 47. Sustainable and inclusive expansion of economic opportunity requires investment in strategic infrastructure to increase market access, lower the costs of production and 38 Policy notes focused on pastoralism and livestock, youth employment, energy, water, and urban infrastructure and services. 39 The State and Peace-building Fund project is supported by a multi-donor trust fund that has generated US$29 million for project activities under phase I and II. Under a third phase the operation will shift its financing source to the new WB- administered Multi-Partner Fund under the SDRF. 40 The Bank has engaged MIGA in a preliminary dialogue. Somalia represents a good test of a One World Bank Group approach to support a fragile transition, especially given the key role that foreign diaspora-led investment can play in the reconstruction. 25 improve living conditions in urban areas. Many parts of Somalia, notably Puntland, have suffered from systematic under-investment since independence, while other regions, notably south-central Somalia, need financing to rehabilitate destroyed or degraded infrastructure. In the absence of multilateral concessional funds, innovative regulatory and financing models are needed to leverage private sector participation and diaspora remittances for investment. The Bank's Somalia Private Sector Re-engagement project in Somaliland is developing models for effective public-private partnership frameworks and a new phase of the project would continue to develop options for ports and other key infrastructure management, including in Mogadishu. The Bank's Water and Sanitation Program (WSP) is supporting the water utility in Hargeisa to put in place corporate governance mechanisms, and this utility could become a training facility to strengthen the capacity of other urban and small town utilities across Somalia. In addition, the Bank's rapid assessment of the urban sector in the three regions of Somaliland, Puntland and southern Somalia will inform the development of a national urban flagship program that benefits the main urban centers across the country. A number of investment opportunities have been identified focusing on water and sanitation, solid waste and roads upgrading that can be developed using labor-intensive methods to maximize employment generation in the near-term. The timing and scale of these activities will be responsive to the situation on the ground, as well as resources committed to the MPF. Given the concentration of IDPs in urban areas, this work would also address vulnerability and exclusion among the urban poor. 48. The Compact highlights natural resource management as a priority "backbone" for the economy and a foundation of sustainable stability. Natural resources are also a conflict driver, with competition over land and water, resource degradation from overgrazing and deforestation for charcoal exports, and increased tension over the ownership and exploitation rights of potential oil and gas resources. Based on the development of policy notes and on established partnerships, the Bank plans to initiate work in two areas: livestock production for resilience and extractive industries. Livestock production represents a key livelihood for the majority of the rural population and a project will be developed that can potentially link Somalia into the Bank's Regional Pastoralist Livelihoods Recovery and Resilience program which currently covers Kenya, Uganda and Ethiopia within an IGAD framework. The Bank's Water and Sanitation Program can support work on resilience through knowledge generation on water management and water-point mapping in collaboration with FAO and others. As noted under priority one, the Bank will provide technical assistance to establish a sound regulatory framework for the extractive industries and a framework for revenue and wealth-sharing linked to the constitutional review process. B. Cross-cutting issues 49. In developing its renewed engagement through the ISN, the Bank will apply particular focus on three cross-cutting and strategic challenges: (i) Inter-regional dynamics, (ii) Vulnerability, and (iii) Capacity. i. While primarily a political issue, the Bank will ensure sensitivity to inter-regional dynamics in the development of focus area activities in order to "do no harm", particularly in relation to the allocation of resources. This will include consultations with counterparts in the different regions of Somalia to inform resource allocation decisions. 26 This approach will engage regional actors in dialogue with the FGS, consistent with the parallel constitutional review process. Over time, Somalia seeks to develop decentralized systems for financing local and municipal development in line with the emerging constitutional framework. The UN's Joint Program on Local Governance and Service Delivery is currently active in the north of the country and the Bank is engaging on a policy framework within which this approach can scale up in southern Somalia as a vehicle for financing local-level development needs. ii. Addressing vulnerability will be critical to lay the foundations for tackling extreme poverty over the longer-term in Somalia. The ISN proposes knowledge work which can inform MPF investments to address different dimensions of vulnerability and marginalization, starting with IDPs and gender-based issues. Expanding economic opportunities through private sector engagement, but also through labor-intensive works and vocational education, may be critical programming entry points. iii. As noted above, Somalia's chronic capacity gap will impact the transition as well as the delivery of the ISN. The Bank will work to develop a project to support capacity injection in the public sector in the short term while framing longer-term models for capacity development. Across the portfolio, Bank projects will identify strategies for short-term capacity injection that can transition towards durable capacity development. Given the debate on the role of the state in Somalia, the Bank will also help to develop frameworks for public-private partnerships. C. Towards a Results Framework 50. Annex I presents an ISN Monitoring Framework, a simple tool for progress monitoring based on Compact milestones. Achieving clear output and outcome results data will take many years in Somalia and firm commitments on results would be unwise at this point given the need for flexibility in the program. Nevertheless, the ISN Monitoring Framework allows the Bank to assess Somalia's progress against Compact milestones and whether the ISN is on track to deliver in areas where the Bank is taking a lead. Looking ahead, a more comprehensive results framework will be established that supports the Somalia Development and Reconstruction Facility (SDRF) and, within it, the Bank's MPF. In addition, the Bank and the UN will build counterpart capacity for monitoring Compact milestones and benchmarks. Future Somalia strategies will aim to incorporate a more comprehensive results framework based on firmer programming and scaled-up access to resources. The Bank will ensure that its results reporting takes account of the need to disaggregate results by region, and by gender. V. PARTNERSHIP, COORDINATION AND DELIVERY A. Innovative partnerships for delivery 51. Collaboration is fundamental in Somalia and the ISN identifies partnerships to ensure successful projects built on knowledge and innovation. The Bank will partner with technical agencies to bring global best practice, innovation and knowledge work into project design. Project pipeline development across sectors will build on effective activities that are 27 underway rather than starting afresh. The MPF's proposed recurrent cost operation will graduate the SFF into a multilateral program linked to policy reform. The urban sector program will leverage UN-Habitat's long-term investment in municipal infrastructure and management, while the proposed agro-pastoralist project will expand previous World Bank collaboration with FAO under a new government-led paradigm. 52. Civil society and the private sector are critical stakeholders in Somalia's development. Through the New Deal process the Bank has participated with parliament, civil society and the private sector in a series of consultations on national priorities, and will support further consultation during the development of the I-PRSP. The Bank will further develop these linkages - especially with parliament and civil society - as part of its work to strengthen PFM accountability. Bank teams will also engage with indigenous academic and analytical bodies so that knowledge generation builds sustainable capacity for analysis. B. Coordination and alignment 53. The ISN supports a "paradigm shift" towards alignment, coordination and mutual accountability. Somalia's national leaders face significant coordination challenges resulting from the combination of weak domestic capacity and a multitude of development partners operating across a wide range of sectors. Political fragility, conflict and humanitarian emergency have fragmented assistance in Somalia into projects and programs with different financing channels and governance structures. The lack of effective and recognized central government has - until now - meant that no overarching arrangement has existed to provide strategic guidance, coordination, or implementation follow-up across a wide range of activities. Today it remains difficult for government and development partners to get an aggregate picture of international assistance in Somalia, to know what is happening where, or to take decisions based on robust evidence of what is working. As a result, accountability is weak and fragmented, sustainable institution-building remains marginal and the opportunities for real strategic policy dialogue between the government and its partners are limited. The transition is an opportunity to overhaul the arrangements in place for coordination, alignment and mutual accountability. To this end, the Somali Compact sets out nine Partnership Principles that the Bank and Somalia's development partners have committed to. Annex II provides an overview of how the Bank, through the ISN, will align with these principles. 54. The Bank will establish the MPF within the government-led SDRF.41 The MPF will provide an umbrella for the Bank program in Somalia during the pre-arrears clearance phase of engagement, complementing the US$19.5 million SPF "Strategy Initiative".42 The SDRF is the centerpiece of the new partnership between the government and its international community, based on mutual accountability. From inception, the SDRF will address the two key principles of the paradigm shift: alignment and use of country systems. The objectives of the SDRF are: 41 A separate Board Paper, setting out the full details of the MPF, is under development for approval by Executive Directors in parallel with this ISN. 42 In April 2013 the Somalia country team won the endorsement of the State and Peacebuilding Fund Committee for a US$19.5 million Strategy Initiative. The Strategy Initiative financing will support the Bank's re-engagement under the ISN and is providing additional financing for FPD's private sector work and PREM's knowledge program as well as new financing for PFM, agriculture, youth employment and ICT. These activities will be rolled in under the new Multi-Partner Fund to ensure access to scale-able funding. 28 * to align international resources behind Somali priorities set out and agreed in the Compact and ERP and ensure follow-up and monitoring of their delivery; * to develop sustainable institutional capacity within Somali authorities by putting Somali institutions in the lead of a core set of pooled funding instruments or "windows"; * to facilitate a transition towards the use of country PFM systems by establishing, strengthening and using those systems, and by ensuring robust monitoring and oversight; * to increase the transparency and accountability of domestic and international resources in Somalia; and * to reduce transaction costs through coordinating policy dialogue, and by pooling resources, operational approaches, risk management and results reporting. 55. Building on international good practice, the SDRF - as a facility, not a fund - establishes the mechanism required to ensure broad coordination and flexible delivery. The SDRF includes two levels: (a) a delivery platform that includes several core pooled funds that are positioned to develop and deliver projects and programs that address the PSG priorities; and (b) a governance or strategic level that provides a platform for joint oversight, coordination, decision-making and information sharing on new and existing programs to ensure alignment of resources with PSG priorities agreed in the Compact and to ensure the use of funds as intended. Through regular monitoring, the SDRF system will ensure that measures are introduced to tighten controls and increase international oversight where necessary. The Bank's MPF will focus on delivering in line with the ISN, and will complement the work of UN agencies focusing on stabilization, social service delivery, justice and security sector reforms. Depending on the evolution of the context, the absorption capacity within Somalia and the resources available, the MPF can ensure successful initiatives scale up and achieve real impact.43 C. Operational policy and procedure 56. Successful delivery of the ISN will require the application of operational procedures consistent with the country context. The Bank will apply "alternative implementation modalities"44 where capacity constraints or political dynamics require flexible or alternative approaches, including arrangements for direct execution or third-party implementation.45 The Bank is also considering, jointly with partners in the SDRF, the potential for a third party monitoring agent, independent of the government, that can ensure and validate project delivery to augment the Bank and the UN's ability to oversee the use of funds. Where these arrangements 43 This incremental and flexible approach has worked well in Afghanistan, where the Afghanistan Reconstruction Trust Fund started with small projects and scaled up incrementally. The ARTF is now the main financier of Afghanistan's national programs, all led by government agencies and relying on country systems. The same phased and incremental approach will be tested in Somalia with the Multi-Partner Fund. 4 The Bank's new operational policy for investment project financing includes a section on "Special Considerations for Projects in Situations of Urgent Need or Capacity Constraints", including the use of special procurement and environmental and social safeguards arrangements, high levels of project preparation advances, and alternative legal and operational project implementation arrangements for example where the Bank executes on behalf of the client, or channels funding directly to relevant UN agencies, NGOs, private actors or other third parties at the request of the client. 45 These arrangements will be developed in collaboration with the Implementation Support Team of the Bank's Global Center on Conflict, Security and Development. 29 are applied, the Bank will also integrate capacity building elements to ensure an exit from capacity substitution. As the ISN evolves and counterpart capacities and systems develop, the Bank will increase the use of country systems based on an iterative assessment of performance. VI. RISKS 57. The risks associated with the ISN are considerable; however the risks of 46 international inaction in Somalia are even higher. Analysts agree that Somalia today has its best opportunity for peace and stability in decades. If the current progress of the transition is not sustained, the country could back-slide into old patterns of conflict and fragility with serious repercussions in the region. In line with the lessons of the WDR 2011, the ISN proposes that the Bank engages early - but gradually - to support the momentum of the transition through confidence-building activities in areas of institutional comparative advantage. The risks in implementing the ISN closely mirror the risks facing the implementation of the Compact. This section describes the three most critical risks and proposed approaches to risk mitigation and management. Risk One - Insurgency, conflict and security: 58. While northern Somalia (Puntland and Somaliland) have operating conditions on par with many other African countries, much of southern Somalia remains inaccessible given ongoing conflict between and among al Shabab militants, factional militia, government forces (the Somali National Army) and AMISOM (the African Union force). It is estimated that al Shabab has access to around half of Somalia's territory. It is unlikely that the group will seek to expand its territory in southern Somalia during the ISN period. However, asymmetric attacks to destabilize the transition will continue on FGS personnel and international sponsors, including in Mogadishu. These attacks aim to demoralize citizens, force NGO withdrawal, and push back the presence of the international community to bunkerized protected zones, such as the Mogadishu International Airport. Under these circumstances, the roll-out of programming in southern Somalia will not be feasible. However, firm international commitment to Somalia and to the Somali Compact is likely to ensure sustained support to AMISOM, to strengthening Somali forces and to international counter-terrorism operations in Somalia targeting the leadership of militant groups. If combined with a well-calibrated political strategy engaging IGAD and regional countries, these efforts could lead to gradual expansion of secure space from Mogadishu across the territory of southern Somalia, permitting the authorities - with the support of key partners - to extend their authority and reach. Even under those circumstances, the Bank's ISN will be exposed to the risks associated with volatile security contexts. In the 12 months since the first mission to Mogadishu in September 2012, the Bank's security team and the country team have agreed a set of operating modalities for secure travel to Somalia, including accommodation and transportation, as well as for monitoring risks and decision making. The World Bank Group's travel and presence in Somalia is undertaken within the security framework provided by the UN's Department of Safety and Security. Based in Nairobi, the Bank has a security adviser dedicated to Somalia who will strengthen links with security analysts. The Bank is also putting in place a third-party security and logistics contractor in Mogadishu to facilitate the provision of 46 Conservative estimates put the cost to the international community of the conflict since 1991 at US$55 billion - which does not include the cost of lost development and growth. Norris and Bruton, Foreign Policy 201. 30 World Bank-financed technical assistance and advisory services to the authorities, as well as project monitoring and verification capabilities. Risk Two - Political: 59. During the ISN period, Somalia's political leadership faces several challenging political tasks: outreach and dialogue with the regions; constitutional review and a referendum; and preparation for national elections in 2016. Already in 2013, some of the key political risks have emerged: the deterioration of relations between the new federal authorities and regional governments, which could complicate program development, absorb counterparts in protracted political negotiation or even undermine the government. In August, Puntland announced the severing of ties with the FGS over a disputed interpretation of the interim constitution. Bilateral talks between Somaliland and the FGS, hosted by Turkey, also faltered following the reinstatement by the UN of Somalia's sovereign airspace rights to the federal authorities in Mogadishu. However, in both cases concerted efforts to find political accommodation allowed for a normalization of relations: President Farole of Puntland attended the Brussels Conference, and the management of civil aviation will be hosted in Hargeisa, the capital of Somaliland, under a shared arrangement with a notional split in the over-flight fees accruing to Somalia. These examples highlight Somalia's capacity to reach negotiated political solutions. During the ISN period, the Bank will ensure its work supports the political process and is done in close partnership with UNSOM - the UN mission in Somalia that provides good offices along with IGAD. The Bank has international experience with revenue and wealth-sharing deals, and can provide a neutral platform for dialogue on technical options for federal models in areas such as public finance management, central bank governance and service delivery and sector regulatory frameworks. The Bank will also support an open dialogue between the three regions, including through the integration of the Economic Recovery Plan with the Puntland 5 year plan and the Somaliland National Development Plan to ensure endorsement as an I-PRSP. This process will be linked with the broader political dialogue and outreach process. Finally, while the country team maintains close linkages with the UNSOM and the UN country team, it will also partner with the Bank's Global Center on Conflict, Security and Development in Nairobi which can facilitate an ongoing political economy watching brief.47 Risk Three - Capacity and integrity: 60. Somalia's ability to absorb Bank funds effectively and transparently is low, and the Bank will need to balance these risks with the goal of establishing and using country systems in Somalia. Public institutions have weak capacity and no experience managing World Bank- financed recipient-executed grants. In addition, the recent resignation of the newly appointed central bank governor has highlighted the pressures that senior Somali officials face in the context of fighting systemic corruption that has evolved over years of mismanagement.48 A priority intervention under the ISN addresses this risk: the PFM Capacity Strengthening Project institutes a rudimentary framework for World Bank-financed grants, including for procurement, financial management and expenditure control, as well as establishing improved internal controls 47 The country team and CCSD are discussing a joint contract with a political economy analyst with funding from Sweden. 48 The 2013 UN Somalia Eritrea Monitoring Group report highlighted that while a new and robust PFM reform agenda may have been articulated, governance and integrity issues will remain challenging. 31 for domestic funds. The Bank has also collaborated in the design of the SFF, which will pilot the use of country systems based on biometric verification for salary payments. The establishment of licensed financial institutions with deposit and payment functionality remains a critical step necessary to facilitate transactions, including those financed from Bank grants. The Bank fiduciary, procurement and disbursement teams have developed a draft fiduciary framework for Bank operations to be adapted on a project-by-project basis and that will evolve over time as capacity expands. Based on experience in other weak capacity, post-conflict countries, procurement is likely to be a major bottleneck and risk factor - and the Bank has already mobilized to bring a dedicated procurement specialist to Nairobi to support the Somalia portfolio and the development of sound procurement systems in Somalia. A joint assessment of risk and risk mitigation with development partners will also be developed and reviewed regularly as a basis for government/partner dialogue. Finally, within the framework of the SDRF the Bank will work in close partnership with the UN technical agencies that have developed sophisticated networks and risk management approaches. The SDRF facilitates a joint approach to risk and will adopt and further strengthen the practices of the UN Risk Management Unit within the Resident Coordinator's Office focusing on contractor verification and vetting as well as onsite spot-checks of projects. The ISN allows for flexible operational approaches that can be used in agreement with the client in cases where institutional capacity is too weak to implement projects. In addition, the Bank will work with the World Bank's Institutional Integrity Department (INT) including the preventive services to support the government's anti-corruption efforts. 32 ANNEXES: 33 Annex I: Somalia ISN Monitoring Framework The monitoring framework is based on the structure of the Somali Compact. The objective is to provide a comprehensive picture of how the Bank Group ISN supports critical Compact priorities through its leadership in some areas (notably PSGs 4 and 5) and through complementary partnerships in others. The references to World Bank work are assumed to be for coverage of Somalia and Somaliland, in line with the Somaliland Special Arrangement. The monitoring framework does not commit to definitive results because the ISN's resource envelope will evolve through the establishment of the Multi-Partner Fund under the SDRF arrangement. Until resources are clear, outputs cannot be planned in detail. However, sector engagements are by now clearly established and project design is underway - particularly PFM, the WB economic policy dialogue and some investments under Priority Two (urban). World Bank Partnerships Compact Priorities Selected Milestones ISN Priority & WB Approach (planned) /International project Leads PSG1 - Inclusive Politics: Achieve a stable and peaceful federal Somalia through inclusive political processes 1. Political dialogue * Reconciliation commission Priority one: WB to support I-PRSP process BB & SKOPE to UNSOM, IGAD & (both with the established through regional technical dialogue as well as support dialogue bilaterals regions and with * Inclusive consultations conducted civil society consultations communities) * Decision on federal model (2015) 2. Constitutional * Borders and Federation Priority one: WB to provide policy support on BB & SKOPE to UNSOM, IGAD & Review Commission Established issues relating to economic foundations and support dialogue bilaterals public finances (including technical revenue and wealth sharing options) 3. Elections in 2016 * Electoral legislation passed -- -- UNSOM, IGAD & bilaterals PSG2 - Security: Establish unified, capable, accountable and rights based Somali Federal security institutions providing basic safety and security for its citizens 1. Capacity & * Mechanisms to pay, train, Priority one: WB to undertake security sector BB & SKOPE AU, UNSOM accountability of equip and sustain the police public expenditure review state security and military established institutions * National Security Commission established 2. Integration of * Dialogue and outreach with the -- -- AU, UNSOM security forces into clan militia federal institutions * Vetting & screening procedures 34 World Bank Partnerships Compact Priorities Selected Milestones ISN Priority & WB Approach (planned) /International project Leads established 3. Disengaged * Transitional facilities & vetting Priority one: WB requested to support DDR TA under design IOM, AU, UNICEF combatants procedures established program of the FGS in partnership with A U for Mol * Minimum protection for children 4. Maritime security * Ratification of "Maritime Security -- -- AU, EU, UNSOM and Resource Strategy" PSG3 - Justice: Establish independent and accountable justice institutions capable of addressing the justice needs of the people ofSomalia by delivering justice for all. 1. Establishment of * Legal policy & drafting unit Priority one: Joint WB / UN mission during BB to support UN legal framework established (2014) 2013 to support the development of the Rule of policy dialogue and key legislation * Constitutional court and judicial Law window under the SDRF. service commission established (2014) 2. Capacity of justice * Judicial training institute UN institutions established and refreshers offered for MoJ staff * Merit based recruitment 3. Access to justice * Consultations on legal aid policy UN * Access law adopted PSG4 - Economic Foundations: Revitalize and expand the Somali economy with a focus on livelihood enhancement, employment generation, and broad-based inclusive growth 1. Enhanced * ERP flagships developed for Priority two: WB to review ongoing activities SOM-PREP III AfDB, UNDP, productivity in key Productive Sectors and in PSD and livelihoods as a basis for scaleable ICT Sector Support FAO, UNHabitat sectors through Infrastructure Sector programs Urban Sector value chain and WB has developed policy notes during 2013 as Support infrastructure basis for potential investments in 2014- 2016, Pastoralism & investment financed under the SDRF. Livestock Priority focus areas will be ICT, pastoralism/livestock production and urban sector engagements. WB will work in close partnership with AfDB for longer-term scaled up investment in infrastructure sectors based on A)DB needs assessment. 2. Youth employment * ERP flagship short-term Priority two: WB will focus on piloting youth SOM-PREP III UNDP, UNICEF 35 World Bank Partnerships Compact Priorities Selected Milestones ISN Priority & WB Approach (planned) /International project Leads & skills employment initiatives developed employment through a renewable energy Youth employment development project. pilot (wind energy) PSD engagement targets employment through matching grant fund in Somaliland - to be extended across Somalia. Investment in urban infrastructure rehabilitation willfocus on labour intensive approaches. 3. Natural Resource * Consultation and dialogue on Priority two: Oil & gas/agro-pastoralism Potential TA and UNDP, UNEP, Management regulatory frameworks for NRM, policy notes will provide the basis for dialogue investment projects AfDB, DFID, including the extractive industries & TA based support to the development of Netherlands, US regulatory frameworks. PSG5 - Revenue & Services: Increase the delivery of equitable, affordable, and sustainable services that promote national peace and reconciliation amongst Somalia's regions and citizens and enhance transparent and accountable revenue generation and equitable distribution and sharing ofpublic resources 1. Equitable service * First phase of "Go-to-school" Priority one: The Bank will work closely with BB & SKOPE UNICEF/UNESCO delivery initiative implemented and complement the work ofkey UN technical * First phase of health strategy agencies to support innovation and quality of implemented critical services. * Dialogue on functional In addition, the Bank's household survey and assignments poverty assessment work will support poverty- focused project design. 2. Revenue * Revenue strategy developed Priority one: WB policy dialogue on revenue BB & SKOPE IMF, AfDB, UNDP generation and macro-fiscalframework - ongoing. This is part of a broader effort by the WB to support economic policy through data and statistics capacity. 3. PFM * Chart of accounts established & Priority one: WB leadership to the PFM PFM (SPF UNDP, DFID, EU, PFM training school coordination effort, and investment in basic financed) Norway * Treasury Single Account PFM systems. New project on established in central bank Under the Multi-Partner Fund the WB will Recurrent Costs. develop a recurrent cost financing operation based on the Special Financing Facility to enhance PFM dialogue. 36 Annex II: Compact Partnership Principles & the World Bank ISN Compact "Partnership Application in the WB ISN Principles" 1. Development is Somali-owned * Support to the govemment's I-PRSP development on the basis of the ERP and led * Support to govemment to prepare and appraise national flagship programs 2. Aid is aligned with overall * ISN ensures alignment of Bank programs with the broader Compact Government priorities and sector priorities, particularly in PSG 4 as well as the core ERP program areas policies and plans . Bank support to PFM and budget framework reform will allow for broader donor community alignment 3. Aid operations are designed * All Bank operations will aim to use or move towards recipient executed and delivered in partnership with work, which puts the govemment firmly in the lead on design and government institutions implementation of WB financed activities * Some WB operations will build partnerships between govemment institutions and non-state actors including the UN, NGOs and the private sector. Services delivered by NGOs or the private sector on behalf of the govemment will fall under a govemment-led framework agreement, and will increasingly be contracted by the govemment as it builds its capacity. 4. Aid is provided in line with the * WB is providing leadership on PFM reform to support donor alignment govemment budget cycle and with the budget framework, including gradual increases in the use of full helps to strengthen govemment country systems Public Financial Management * The Bank will support the development of performance benchmarks to be (PFM) monitored by the SDRF steering committee 5. Aid is channeled through * The majority of WB operations will be funded through the Multi-Partner preferred instruments of the Fund within the SDRF framework, the govemment's preferred channel. government * Through its work on the Multi-Partner Fund the Bank is also providing the framework for other donors to also channel their funding through preferred instruments. 6. Aid supports institutional * The Bank is contributing to the development of govemment policy on capacity development capacity development, including on the status of salary scales for technical assistance based on its intemational experience. * The Bank will consider the development of a capacity development initiative under the Multi-Partner Fund. * The Bank's programming, through its recipient execution modality, will put Somali institutions in the lead on delivery of sector programs. 7. Aid is provided in a coherent * The Bank will contribute to the coherence and coordination of the broader and coordinated way and intemational community in Somalia by investing in the aid coordination fragmentation is avoided secretariat envisaged to support the Somalia Development and Reconstruction Facility. 8. Aid is transparent and * The Bank will support transparency and predictability in two ways: firstly predictable through support to evolving the macro-fiscal framework to ensure transparency over resource flows; secondly through its participation in the Somalia Development and Reconstruction Facility which will facilitate a common results format and increased planning and predictability on aid flows. 9. Aid is provided in a conflict * The Bank will invest in analytical capacity within its team to ensure sensitive manner contextual analysis is undertaken in each of the areas where the Bank will consider programming * Particular attention will be paid to equity in the distribution of resources between the different regions of the country. 37 Annex III: Knowledge and Policy Dialogue Under Priority One Knowledge Area 1: Poverty Analysis and Macro-Economic Management Statistics * The Bank and key partners (IMF, UN, AfDB) will support the development of a National Strategy for the Development of Statistics (NSDS) to help build institutional capacity and ownership within the government for statistical work that supports policy-making. Systematic disaggregation by gender and region, critical to inform good policy, will be pursued. * Linked to the development of the NSDS, the Bank is financing a set of household surveys to build a national picture of the economy and poverty. Data is already emerging from the Somaliland household survey, a tailored "high frequency" household survey in Mogadishu is being rolled-out, and a Puntland survey is being planned. This work complements the UN's efforts to establish a population estimate and an index of resilience to track vulnerability and populations at risk. Macro-fiscal and debt dialogue * The Bank will intensify its macro-economic dialogue with the federal and regional authorities, based on the ERP's draft three-year revenue, expenditure and financing schedule. Working with the IMF, the Bank will continue to support the establishment of a budget framework to integrate domestic and donor-financed activities and will provide technical assistance in support of revenue generation. * The Bank will support the further development of the ERP into a national framework that is consistent with an Interim Poverty Reduction Strategy. This will involve dialogue with regional governments to integrate their development plans, encouraging - in turn - broader inter-governmental economic planning. * Finally, the Bank is supporting government to reconstruct its bilateral debt database as a preliminary step towards official debt reconciliation within the HIPC Initiative. Knowledge Area 2: Political Economy and Dialogue * The review of the Somalia constitution is a priority task of the Compact, and its success will depend on agreement on the fair distribution of natural resources, national assets and revenue streams, including aid. The Bank will mobilize cross-country experience, advise on technical options, and provide a neutral platform for stakeholders to develop solutions. * The Bank will also support government to extend the national dialogue on Compact priorities across Somali society, linking consultations on the ERP with political outreach and generating Peace- Building and State-building Goal indicators to monitor progress towards sustainable peace and stability. Knowledge Area 3: Service Delivery and Vulnerability Service delivery * The Bank will leverage its global experience in service delivery for the poor - in health, education and justice - to inform the design of ongoing and new government-led programs. It will also generate analysis of the different service delivery models that have been, or could be, used in Somalia, taking account of the country's special circumstances and the role of the private sector. Vulnerability * Tackling Somalia's extreme poverty will require a cross-cutting approach, based on a robust poverty profile and mapping. Marginalized groups including IDPs, women, and youth-at-risk will represent a key focus area. The World Bank's Global Program on Forced Displacement (GPFD) will work to 38 support programming and develop policies to integrate IDPs into the economy, especially in urban areas. The Bank will also undertake social and gender analysis to identify and investigate factors underpinning and influencing gender dynamics across multiple sectors, using the Learning on Gender and Conflict in Africa (LOGiCA) Trust Fund 39 Annex IV: Estimated Economic and Social Indicators Average life expectancy (years) 51 Population 9,000,000 Internally displaced persons 1,100,000 Refugees (neighboring countries) 1,020,504 GDP (US$) 2,600,000,000 GDP per capita (US$) 288 Poverty (%) 73 Urban (%) 61 Rural and nomadic (%) 80 Infant mortality rate (per 1,000 live births) 108 Under-five mortality rate (per 1,000 live births) 180 Maternal mortality rate (per 100,000 live births) 1,600 Fertility rates (births per woman) 6.2 HIV/AIDS prevalence (%) <1 Gross primary school enrolment (%) 31 Boys 34 Girls 22 Gross secondary school enrolment (%) 10 Boys 12 Girls 8 Adult literacy (%) 19.2 Population with access to safe water (%) 29.5 Urban (%) 66 Rural and nomadic (%) 7 Population with access to sanitation (%) 49.8 Urban (%) 93.0 Rural and nomadic (%) 28.2 Unemployment (% of 14-29yrs) 67 ODA (including humanitarian aid, US$ in 2012) 750,000,000 Remittances (US$ in 2012) 1,200,000 Severe data limitations, data estimations and extrapolations as at 2012; main sources: UNDP Somalia Human Development Report (2012); UNHCR and FSNA U / FEWSNET (2012); UNDP and World Bank JNA (2008), World Bank CEM (2006); UNDP and the World Bank Somalia Socio-Economic Survey (2002). 40 Annex V: Key Gender and Conflict Issues in Somalia I. Introduction This note is intended to inform the World Bank's Interim Strategy Note for South Sudan to ensure gender considerations are incorporated into any operational and analytical priorities identified.49 The aim of this analysis is to provide a brief delineation of gender disparities in Somalia through a review of existing literature and interviews with relevant actors and organizations.50 Findings of this analysis and proposed recommendations reflect consideration for the development priorities outlined within the World Bank's Operational Policy on Gender and Development (OP/BP 4.2),1 the Africa Regional Strategy, the WDR 2011 and WDR 2012, previous Bank initiatives within Somalia including the 2006 UN-World Bank Joint Needs Assessment, the resulting Reconstruction and Development Program and the 2007 ISN for Somalia. II. Background: Key Gender Issues Somalia's development challenges are significant. Socio-economic indicators are among the lowest in the world for both males and females and gender disparities are stark.52 According to the 2012 Human Development Report for Somalia, gender inequality indicators-across health, empowerment and economic measures-are among the lowest in the world, following only Yemen Afghanistan, Mali and Papua New Guinea (UNDP 2012). Women have historically played a dynamic role in Somali society as community mobilizers and peace-builders, particularly as mediators between clans. Traditional and religious norms, however, limit women's roles outside the domestic sphere and circumscribe their presence and participation in political and public decision-making fora. Economically, women have made some gains, expanding into employment and livelihood sectors traditionally held by men, particularly as more women assume responsibility for household income generation. Despite these advances, however, realization and enforcement of human rights is uneven and women and girls, particularly among displaced populations, still confront significant protection challenges, including vulnerability to sexual and gender-based violence. Youth populations, and particularly male youth, also face numerous barriers to meaningful social, political and economic participation, while insufficient 49 This summary note reflects findings of a preliminary review of key gender and conflict issues developed in March 2013 for the ISN. 5o Agencies and organizations interviewed included: UNDP, UNHCR, UN Women, UNFPA, UN OCHA, FSNAU/FAOSO, and IOM, as well as representatives from Sweden, DFID, USAID, the European Union, Norway, Denmark, and SAACID. Individual interviews were conducted with Tanja Chopra, Judith Gardner, Rakiya Omaar, and Anji Yoder-Maina. A meeting was also attended with the UNCT Gender Theme Group. 51 The World Bank's Operational Policy on Gender and Development (OP/BP 4.2) is to assist member countries to reduce poverty and enhance economic growth, human well-being and development effectiveness by addressing the gender disparities and inequalities that are barriers to development, and by assisting member countries in formulating and implementing their gender and development goals. 52 Gender and human development indicators vary widely across and within the three regions of Somaliland, South Central and Puntland. Although this notes presents data and summary information of Somalia as a whole, strategic engagement or analytical work related to gender will require more nuanced consideration for the unique and variable conditions within all three areas. 41 understanding of the impact of conflict on men and boys presents serious challenges to broader social cohesion and communal security. A. Institutional Framework and Political Participation The Provisional Constitution, passed in August 2012, enshrines several commitments to gender equality and rights in Somalia, including prohibition against discrimination on the basis of gender, inclusion in political structures, protection against sexual abuse, segregation or discrimination in the workplace and promotion of gender equity principles under labor laws and practices. These statutes constitute a significant, positive shift from previous legal frameworks as they offer improved protections and freedoms to women under the law than in years past. Realization and enforcement of these rights, however, is a significant challenge, particularly where they overlap and potentially conflict with traditional and customary frameworks. Notably absent from the constitution is language providing for a political quota for women in representative bodies of government, as articulated in the Garowe II Principles which advocate for 30 percent participation of women in representative bodies. This movement toward affirmative action quotas connects to broader efforts to improve women's rights and access to voice in Somali public life. Throughout the varying phases of civil conflict and political instability in Somalia, women have advocated to occupy a more visible space in political and social spheres, also leveraging their historically dynamic role in peace-making. At the community level, women have acted in accordance with their traditional role as domestic interlocutors mediating confrontations across family and clan divisions. At the national level, women have employed a variety of activities to influence decision-making and support peace processes, including the Arta Conference in Djibouti. Women's associations and organizations have proliferated since independence in 1960, contributing to a vibrant civil society in Somalia and playing a central role in the delivery of essential services including healthcare, education and trade (UN INSTRAW 2008). While these developments signify important, incremental advances towards women's presence in public discourse, there are still extreme limitations on women's political inclusion and participation. Concerted effort is still needed to enable translate women's growing agency and voice into effective participation. B. Human Development Education: The collapse of the Somali state in 1991 resulted in the disappearance of formal education systems, leaving most children without an opportunity to receive an education (UNDP 2012). This has had a dramatic impact on education indicators to date and has exacerbated severe gender disparities in literacy and enrolment. Nearly 75 percent of females between 15-24 are illiterate (MICS 2006; UNDP 2012). National gross enrolment rates are estimated to be 31 percent, with a GER of only 22 percent for girls and 34 percent for boys. Secondary school participation falls even lower for both boys and girls, with net attendance ratios of 12 and 8 percent respectively (UNICEF 2012). Women comprise only 15 percent of teachers, and few teachers-male or female-have received any formal training (UN OCHA 2013). As with other socio-economic indicators, education statistics are generally higher and more readily available in Somaliland and Puntland as compared with South Central Somalia. However, disparities remain severe across all regions. 42 Barriers to education include limited or unavailable operational primary and secondary facilities, prohibitive school fees, and household demands. Girls in particular are less likely to attend school due to domestic responsibilities, especially in female-headed households in which mother's pursue economic opportunities and require additional support in the home. The 2012 HDR reports that with the potential onset of political stability and improved security conditions, Somalia will likely witness an increase in demand for education services, which will put pressure on already limited facilities and capacity. There is a need for expanding operational spaces and resources and improving overall access while also ensuring quality and relevance for future transitions to livelihoods and employment (UNDP 2012). Health: The overall health status of men and women in Somalia, including access to services, is extremely poor. Infant mortality rates are estimated to be 108 deaths per 1,000 live births, while under 5 mortality rates are 180 per 1,000 live births (UNICEF 2012). Life expectancy at birth is 51 years (UNICEF Somalia 2012). Maternal mortality rates (MMR) are extremely high at 1, 600 per 100,000 live births (UNICEF 2008) and potentially even higher with 90 percent of deliveries taking place in the home and therefore unrecorded (WHO/UNFPA 2009). A high fertility rate at 6.3 aligns with low contraception prevalence (15 percent), resulting in poor birth spacing, which increases risks to mothers. (WHO 2012). Only 9 percent of pregnant women are attended by skilled health personnel during birth, while only 6 percent receive antenatal care (of 4+ visits) (WHO 2012). There is an absence of decent emergency obstetric care in Somalia, which further contributes to death and disability of women of reproductive age (WHO/UNFPA 2009). Socio-cultural factors play a further role in the health status of women in Somalia. Family planning decisions, e.g. access to contraceptives, may be restricted and subject to consent of husbands. Responsibility for decisions related to health-seeking behavior, such as when to travel to clinic for treatment, may also reside with male members of the household and contribute to delays in seeking care. Early marriage is considered a significant factor in high maternal mortality rates, as it leads to early age of first pregnancy. FGM/C is a deeply entrenched, near universal, cultural practice in Somalia, with 98 percent of women between the ages of 15-49 having undergone either Type II or Type III FGM/C.53 The practice has a dramatic impact on maternal and reproductive health indicators as it is a likely factor contributing to infections, obstructed labor and fistulas. C. Economic Development/Livelihoods Development Decades of conflict in Somalia, compounded with recurring drought and famine, have precipitated significant shifts in gender roles and dynamics particularly as related to the household economy as men and women adopt different coping strategies to increase household resilience. The extended absence of males, whether due to conflict or abnormal migration (e.g. family splitting strategy), has resulted in a significant number of female-headed households, as well as households in which women become the primary or contributing breadwinners for the family. Somali women are becoming increasingly active in non-traditional economic activities such as livestock trading and marketing activities in multiple sectors (Ibrahim 2004). Women in Somalia have also assumed more responsibility for key household decisions, for example as related to income use and expenditures. These changes, and women's overall increased 5 According to WHO, Type III FGM/C entails "Excision of part or all of the external genitalia and stitching/narrowing of the vaginal opening (infibulation)." (UNFPA: http://www.unfpa.org/gender/practices2.htm) 43 economic empowerment, appear to have had some positive impact on perceptions of women's status in Somali society (Gardner 2004). Available economic opportunities, however, are still quite limited for both men and women and female- headed households remain among the most vulnerable populations. The unemployment rate for females is higher in Somalia than for males, while gender gaps in income persist as well, with men receiving higher wages for informal work, for example, in construction, than women similarly engaged in casual employment (FSNAU 2012c). Women also continue to bear the double domestic burden of earning an income and taking care of the home. The consequences of this burden often fall to girls in the family, who are expected to contribute to the maintenance of the home, often at the expense of education and skills development. Additionally, there is an incomplete understanding of the impact of these shifting gender roles and how these changing dynamics affect men's sense of identity and self in Somali society, as well as their productive capacity overall. Unemployment is pervasive in Somalia and job prospects for men, particularly in urban centers, are shattered. The emergence and reliance on women as income earners and breadwinners has transformed traditional male identity as men struggle to fulfill their main responsibilities as provider and protector. There is evidence that changing gender roles is a significant source of stress and distress for men, which can in turn have implications for household dynamics and broader social cohesion, manifesting for example in increased khat addiction or domestic violence. Particular attention should also be given to identifying mechanisms to promote and empower Somali youth. Expanding youth populations with little education and training are exerting extreme pressure on already saturated labor markets, as they confront limited opportunities for earning an income. Unskilled, uneducated youth populations are most vulnerable to economic shocks and least likely to find work in the formal economy, and the absence of educational and job opportunities may heighten inequalities and impede poverty alleviation efforts. Frustrated ambitions and feelings of deprivation may further contribute to a breakdown in community participation and social cohesion and may leave youth populations vulnerable to mobilization into criminal activities, including participation in gangs, drugs and other illicit networks. D. Protection Sexual and gender-based violence: Sexual and gender-based violence constitutes a significant protection concern throughout Somalia. Incidents of sexual and physical violence are widespread and have been a prominent feature of the ongoing conflict, with hostile clans engaging in assault to destabilize, disempower and humiliate local communities and opposing clans. Of the limited information available, prevalence rates appear most pronounced in IDP and settlement camps. Domestic violence is widespread, though unreported, and generally regarded as an accepted practice. Human trafficking has also been described as a serious, largely under acknowledged challenge in Somalia. A culture of impunity prevails as there is limited legal recourse for survivors of violence, who face a number of impediments in access to services or justice. These include, among others, (i) prevailing cultural attitudes, stigma, shame and fear preventing survivors from reporting SGBV or seeking care, (ii) high costs associated with medical care combined with limited availability, (iii) limited access to confidential reporting mechanisms, and (iv) 44 breakdown or absence of traditional or statutory structures within communities to seek redress, particularly within displaced populations. Displacement: Displacement and forced migration constitute another significant development challenge in Somalia. Most recent estimates from UNHCR indicate that 1.1 million people are currently displaced internally, the majority of whom are located in South Central Somalia (UNICEF Somalia 2012). Motivations driving movement both internally and across borders include escape from insecurity resulting from conflict, hardship and dislocation resulting from drought and famine and lack of access to livelihoods or broader economic opportunities (Jureidini 2010). Conditions confronting female IDPs are particularly precarious. Women and girls comprise a significant proportion of displaced populations. Some reports have described that 50-60 percent of IDP households are headed by women (UNICEF 2011 a), while others have suggested that 70-80 percent of IDPs and refugees are women and children (UNDP 2012). Women, particularly female IDPs, are still reliant on charity through social protection mechanisms such as zakat, and contributions from the Diaspora in the form of remittances. Among the numerous challenges already facing female IDPs and refugees, displacement also heightens women and girls' vulnerability to sexual and gender-based violence, as experienced both en route to and within settlement camps. 45 IBRD 33483 SOMALIA o SELECTED CITIES AND TOWNS MAIN ROADS e REGION CAPITALS RAILROADS ® NATIONAL CAPITAL REGION BOUNDARIES RIVERS - - - INTERNATIONAL BOUNDARIES 4EERITREA REP. OF 45E50E YEMEN, REP. OF YEMEN Aden C To DJIBOUTI Of GUlf Say/lac maydh g Boosaaso sur,.dAdo .ulAWAL8 m Ceerigaabo bl,l Hurdiyoo Bullaxar BA RI Xa'aiuun 10°N SAN,AAG r 10°N Burao.LBGaradagaoQardho Bandarbeyla adHargeysa ...... ........ Addis,aao xtuq uuobrd . TOGDHEER S O Laascaanood 'Garoowe NUGAAL y Gaalkacyo . MUDUIG Hialaya /* Dhuusa Mareeb To GA,GUDUUD 5°N Mengist ................Fed . 5°N .Beledweyne CeelkBur B AKOOL Xuddur <.H IRAA Buuad INDIAN .Garbaha arey .Baydhabo SH ABE E LAH AOCEAN G E DO, DHEXE >Buurhakab Wnaen•JwroCadale B AY Baardheere< JUBBADA eDIB TODHEXE S \ 0 'Marka K EN YA •Bu'ale Baraawe Bilis 7 0AI 0.Qoogaani SOMALIAe O 0° Narabi ··OOSEz Kismaayo 0 50 100 150 200 Kilometers 0 50 100 150 Miles This map was produced by the Map Design Uit of The World Bank The bondaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Groop, any judgment on fhe legal status of any teritory, or any endorsement or acceptance of soch boundaries. 45°E 50°E NOVEMBER 2004