Investment Climate in Somalia

Economy

The International Monetary Fund (IMF) resumed relations with the country in April 2013 and followed with the review of the economy for the first time in over two decades. IMF noted that between 2012 and 2014 the real GDP grew by 3.7%. IMF projected growth of 2.7% and inflation of 4% in 2015. The medium term GDP growth was projected to average 5% report provided that Somalia’s security situation continued to improve and there was no drought.  The long civil war has prevented Somalia from developing a coherent and coordinated domestic marketplace. According to the African Development Bank, Somalia is “characterized by a severe lack of basic economic and social statistics resulting from the civil war and institutional collapse.  However despite the long civil war, the country has maintained an informal economy, based mainly on livestock, remittance/money transfers, and telecommunications. According to a 2007 British Chambers of Commerce report, there has been substantial  private   investment in commercial activities in the  areas of  trade and marketing, money transfer services, transportation, communications, fishery equipment, airlines, telecommunications, education, health, construction and hotels financed by the Somali Diaspora. According to the Central Bank of Somalia, about 80% of the population are nomadic or semi-nomadic pastoralists, who keep goats, sheep and camels. The small tax base and weak public financial management are a major challenge to revenue collection leaving the country dependent on foreign assistance and remittances.

According to the Food and Agriculture Organization (FAO), in 2014, Somalia exported over five million livestock including 4.6 million goats and sheep, 340,000 cattle and 77,000 camels to the market of Gulf States. The country realised an estimated value of $360 million that contributed about 40% to the country’s gross domestic product.

Political

After decades of civil war a provisional constitution was made in 2012, elections were held and a new internationally-backed government was installed. Somalia has been slowly moving towards stability, but the government has   faced a challenge from al-Shabab insurgents.The government was unable to hold a direct vote for president in 2016 and scheduled an indirect election in parliament for February 2017.

Population

United Nations Population Fund Population survey of 2014 estimated the population to be 12 million people distributed as follows;

  • Urban 5million
  • Rural 3 million
  • Nomadic 3 million
  • Internally displace peoples (IDPs) 1 million

The 2012 Human Development Report estimated per capita GDP to be $284, compared with an average across sub-Saharan Africa of $1,300 per capita. About 43% of the population lived on less than 1 US dollar a day, with about 24% of those found in urban areas and 54% in rural areas.

Urbanisation

About 42% of the population of 12 million people live in urban areas. Somalia’s capital city, Mogadishu, has witnessed the development of the gas stations, supermarkets, and airline flights to Turkey. Mogadishu’s main market offers a variety of goods from food to electronic gadgets. Hotels continue to operate with the protection of private-security militias. In the absence of a formal banking sector, money transfer/remittance services have sprouted throughout the country, handling up to $1.6 billion in remittances

Doing business in Somalia

The highlights of World Bank score of doing business in Somalia is summarised as follows;

Topic World Bank 2017 rank World Bank 2016 rank Change
Overall 190 190  
Starting a business 184 183 -1
Dealing with Construction Permits 187 186 -1
Getting electricity 188 188  
Registering property 148 149 1
Getting credit 185 185  
Protecting Minority Investors 190 190  
Paying taxes 190 190  
Trading across the boarders 156 156  
Enforcing contracts 109 107 -2
Resolving insolvency 169 169  

The country is still in war situation and it is therefore quite difficult to do business in the country.

Credit Rating

The country is not rated because of a number of challenges the country is currently facing.

Remittances

Imports account for more than two thirds of GDP, creating a large trade deficit, mainly financed by remittances and international aid. Remittances, estimated at $1.3 billion, not only provide a buffer to the economy but also are a lifeline to large segments of the population cushioning household economies and creating a buffer against shocks. Therefore Somalia does have adequate foreign currency reserves to support the remittances .of money in foreign currency from Somalia.

Arbitration

The institutions and legal system are weak to be trusted to resolve business disputes. In the interim the Federal Government of Somalia has set up Arbitration and Alternative Dispute Resolution (ADR) division to oversee dispute resolution and a New York Convention (NYC) taskforce to prepare the country to ratify the convention.

Key development challenges

  • Literacy rate of 37.8%
  • Informal economy
  • Weak institutions and legal system
  • Lack of peace and security
  • Poor infrastructure
  • Lack of skilled staff in public sector
  • Low health standards

Corruption

According to Transparency International Somalia is perceived to be among the most corrupt countries in the world. Somali had a score of 10 and ranks number 176 out of 176 in the global rank.

Security

Somalia is slowly becoming an attractive business destination in East Africa, due in part to the improving security situation. Since 2012 the Somali government and the African Union–run peacekeeping mission in Somalia, AMISOM, has carried out joint operations to improve the security situation. The security situation is however still very delicate.

Unemployment and skilled labour

Somali development and humanitarian indicators are among the lowest in the world yet with a swelling population due to high fertility rates, estimated at 6.2 births per women between 2010 and 2015. Over 70 percent of the country’s population is under the age of thirty. Overall unemployment among people aged 15 to 64 is estimated at 54 percent in Somalia compared to 47 percent in 2002. The unemployment rate for youth aged 14 to 29 is 67 percent—one of the highest rates in the world; women unemployment rates average at 74%, compared to men at 61%. 40% of youths are actively looking for work, while 21% are neither working nor in school. Unemployment and poverty in Somalia have forced many young people to emigrate in search of a better life. Over 60% of youth have intentions to leave the country for better livelihood opportunities. Major Causes of unemployment in Somalia include the following;

  • Lack of viable education
  • Young women are mostly forced to take on traditional occupations due to entrenched traditional gender roles.
  • Small formal sector
  • The country cannot attract investments to create employment due to security situation in the country.

Attitude to investors

No effective institutions have yet been established to attract investors due to the security situation in the country.

Restrictions on Foreign investment

No guidelines for foreign investment have yet been developed

Intellectual Property (IP) Rights

The rule of law is not yet quite entrenched in the country. It may be quite cumbersome if not impossible to enforce intellectual property rights in the country

Natural Resources

The key natural resources include uranium, iron ore, tin, gypsum, bauxite, copper, salt and natural gas among others. The country is also believed to contain substantial unexploited oil reserves.

Investment Climate in Somalia have been summarised to include the following

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