The colonial era did not spark foreign economic investment despite the competition of three major European powers in the area of present-day Somalia. Italy controlled southern Somalia Britain northern Somalia, especially the coastal region and France the area that became Djibouti (see Imperial Partition , ch. 1). Italian parliamentary opposition restricted any government activity in Somalia for years after European treaties recognized Italian claims. In the early twentieth century, projects aimed at using Somalia as a settlement for Italian citizens from the crowded homeland failed miserably. Although in the early 1930s Benito Mussolini drew up ambitious plans for economic development, actual investment was modest.

There was still less investment in British Somaliland, which India had administered. During the prime mininstership of William Gladstone in the 1880s, it was decided that the Indian government should be responsible for administering the Somaliland protectorate because the Somali coast's strategic location on the Gulf of Aden was important to India. Customs taxes helped pay for India's patrol of Somalia's Red Sea Coast. The biggest investment by the British colonial government in its three-quarters of a century of rule was in putting down the rebellion of the dervishes. In 1947, long after the dervish war of the early 1900s (see Mahammad Abdille Hasau's Dervish Resistance to Colonial Occupation, ch. 1), the entire budget for the administration of the British protectorate was only £213,139. If Italy's rhetoric concerning Somalia outpaced performance, Britain had no illusions about its protectorate in Somaliland. At best, the Somali protectorate had some strategic value to Britain's eastern trading empire in protecting the trade route to Aden and India and helping assure a steady supply of food for Aden.

The two major economic developments of the colonial era were the establishment of plantations in the interriverine area and the creation of a salaried official class. In the south, the Italians laid the basis for profitable export-oriented agriculture, primarily in bananas, through the creation of plantations and irrigation systems. In both the north and the south, a stable petty bourgeois class emerged. Somalis became civil servants, teachers, and soldiers, petty traders in coastal cities, and small-business proprietors.

The plantation system began in 1919, with the arrival in Somalia of Prince Luigi Amedeo of Savoy, duke of Abruzzi, and with the technical support of the fascist administration of Governor Cesare Maria de Vecchi de Val Cismon. The Shabeelle Valley was chosen as the site of these plantations because for most of the year the Shabeelle River had sufficient water for irrigation. The plantations produced cotton (the first Somali export crop), sugar, and bananas. Banana exports to Italy began in 1927, and gained primary importance in the colony after 1929, when the world cotton market collapsed. Somali bananas could not 1000 t compete in price with those from the Canary Islands, but in 1927 and 1930 Italy passed laws imposing tariffs on all non-Somali bananas. These laws facilitated Somali agricultural development so that between 1929 and 1936 the area under banana cultivation increased seventeenfold to 3,975 hectares. By 1935 the Italian government had constituted a Royal Banana Plantation Monopoly (Regia Azienda Monopolio Banane--RAMB) to organize banana exports under state authority. Seven Italian ships were put at RAMB's disposal to encourage the Somali banana trade. After World War II, when the United Nations (UN) granted republican Italy jurisdiction over Somalia as a trust territory, RAMB was reconstituted as the Banana Plantation Monopoly (Azienda Monopolio Banane--AMB) to encourage the revival of a sector that had been nearly demolished by the war.

Plantation agriculture under Italian tutelage had short-term success, but Somali products never became internationally competitive. In 1955 a total of 235 concessions embraced more than 45,300 hectares (with only 7,400 hectares devoted to bananas), and produced 94,000 tons of bananas. Under fixed contracts, the three banana trade associations sold their output to the AMB, which exacted an indirect tax on the Italian consumer by keeping out cheaper bananas from other sources. The protected Italian market was a mixed blessing for the Somali banana sector. Whereas it made possible the initial penetration by Somali bananas of the Italian marketplace, it also eliminated incentives for Somali producers to become internationally competitive or to seek markets beyond Italy.

The investment in cotton showed fewer long-term results than the investment in bananas. Cotton showed some promise in 1929, but its price fell following the collapse in the world market. Nearly 1,400 tons in 1929 exports shrank to about 400 tons by 1937. During the trust period, there were years of modest success in 1952, for example, about 1,000 tons of cotton were exported. There was however, no consistent growth. In 1953 exports dropped by two-thirds. Two reasons are given for cotton's failure as an export crop: an unstable world market and the lack of Somali wage labor for cotton harvesting. Because of the labor scarcity, Italian concessionaires worked out coparticipation contracts with Somali farmers the Italians received sole purchasing rights to the crop in return for providing seed, cash advances, and technical support.

Another plantation crop, sugarcane, was more successful. The sugar economy differed from the banana and cotton economies in two respects: sugar was raised for domestic consumption, and a single firm, the Italo-Somali Agricultural Society (Societa Agricola Italo-Somala--SAIS), headquartered in Genoa, controlled the sector. Organized in 1920, the SAIS estate near Giohar had, by the time of the trust period, a little less than 2,000 hectares under cultivation. In 1950 the sugar factory's output reached 4,000 tons, enough to meet about 80 percent of domestic demand by 1957 production had reached 11,000 tons, and Italian Somaliland no longer imported sugar.

Labor shortages beset Italian concessionaires and administrators in all plantation industries. Most Somalis refused to work on farms for wage labor. The Italians at first conscripted the Bantu people who lived in the agricultural region. Later, Italian companies paid wages to agricultural families to plant and harvest export crops, and permitted them to keep private gardens on some of the irrigated land. This strategy met with some success, and a relatively permanent work force developed. Somali plantation agriculture was of only marginal significance to the world economy, however. Banana exports reached US$6.4 million in 1957 those of cotton, US$200,000. But in 1957 plantation exports constituted 59 percent of total exports, representing a major contribution to the Somali economy.

The colonial period also involved government employment of salaried officials and the concomitant growth of a small urban petty bourgeoisie. In the 828 north, , the British administration originally had concentrated on the coastal area for trading purposes but soon discovered that livestock to be traded came from the interior. Therefore, it was necessary to safeguard caravan routes and keep peace in port areas, requiring the development of police forces and other civil services. In British Somaliland, many of the nomads scorned European education and opposed the establishment of Christian missions. Consequently, only a small pool of literate Somalis was available to work for the British administration. Kenyans therefore were hired. In the south, however, Somalis sent children to colonial and mission schools, and the graduates found civil service positions in the police force and as customs agents, bookkeepers, medical personnel, and teachers. These civil servants became a natural market for new retail businesses, restaurants, and coffee shops. Hargeysa in the precolonial period had almost no permanent commercial establishments by 1945, nearly 500 businesses were registered in the district. The new salaried class filled the ranks of the Somali nationalist movement after World War II. Literate in Italian or English, these urban Somalis challenged colonial rule.