29.11.2022: Mogadishu, Somalia
For decades, Somalia has been facing political and security challenges including a lack of government, terrorism and clan violence which has consistently steered foreign investment away from the country for decades.
If we go back to the early 1990s, the country’s contracts with major oil companies were put on hold due to the collapse of the central government and since then, we have not seen any major international investment in a country that is full of potential and opportunity.
History of Foreign Direct Investment in Somalia
Somalia has seen limited to almost no direct foreign investment throughout its history.
Upon assessing the World Bank official figures on Foreign Direct Investment or FDI in Somalia, we see between 1970 (which was one year after the military coup that toppled the central government) and 1987, there was virtually no FDI in Somalia, with the figure standing a staggering $0.00.
This is understandable as the government led by former Somali President and Military Dictator, Said Barre was centred on Socialism and the notion of self-dependency without external financial or political support – despite his government consistently obtaining investment and support for the Armed Forces at the time.
We begin to see an increase in FDI in 1987, where the World Bank records $0.06 billion worth of investment before falling down to 0 and eventually into negatives figures with 1988 and 1989 seeing many foreign companies pulling out of the country. This is again understandable because this was during the onset of the Somali Civil War. During this period, we would see armed clan militia invading Somalia from Ethiopia with the SNM in the North and USC in the South among others. Eventually, the globe would see the once powerful Horn of African nation capitulate and become a humanitarian catastrophe.
Between 1991 and 2004, Somalia would see no FDI. However, following the formation of the Transitional Federal Government which would eventually begin to settle into Somalia with the support of African Union Mission sending troops to Somalia, we would see a slow increase in FDI.
Between 2005 and 2007, we would see FDI increase from $0.02B to $0.14B. However, we eventually see a major spike in data following the formation of the official Federal Government of Somalia. The first central government in Somalia internationally recognised since 1991. Here we would see FDI investments increase from $0.11B in 2012 to $0.46B in 2020 with figures only expected to rise. Currently FDI makes up about 6.6% of the Somali GDP.
Indeed, Somalia continues to be resilient despite the economic and political challenges both globally and domestically. For instance, despite the structural challenges and COVID-19 pandemic, Somalia’s economy has shown a measure of resilience, attributable to increased private sector activities, particularly in the transport, telecommunications, money transfer and business services sectors. The latest World Bank Somalia Economic Update, projects gross domestic product (GDP) growth to reach pre-COVID-19 levels of 3.2% in 2023.
The various factors above demonstrate that this is the prime time for Somalia to begin slightly opening its doors to limited investment as the country continues to develop its financial laws and regulations as well as government policy to encourage private business.
The Conference & what was discussed
The International Investment Conference saw a multitude of delegates from various nations that partner with Somalia participate including Ambassadors of China and the United States.
Indeed, various interesting topics were discussed that are essential to Somalia economic and social growth. One of the most interesting was the Blue Economy that the Federal Government has been working for the past few years.
Somalia’s strategic position in the horn of Africa coupled with an ample coastline to facilitate international trade and investment remains highly untapped. The waters off Somalia are some of the richest fishing grounds with up to 2.4 million tons of fish have been caught by foreign fleets off Somali waters in the past three decades. While a significant contributor to GDP growth, Somalia’s infant fishery and maritime sector offers significant growth opportunities. The potential for private sector value chain development in Fisheries remains considerable, with potential spinoff and catalytic impacts on growth, jobs and revenues.
We see various countries already competing to obtain influence over Somalia’s rich coastline. For instance, UAE & Ethiopia have influence at Berbera Port, UAE also owns Bosaso Port and there have been discussions of UAE interest in the recently opened Garacad Port as well as Kismayo Port in Southern Somalia. We have also seen Kenya attempt to take Somali waters by force, resulting in a decade-long legal and political battle, at its height during the Presidency of Farmaajo, which resulted in Somalia regaining control of its southern coast, at least de jure.
Another interesting topic of discussion was the investment of Somalia’s agricultural sector, a key sector to Somalia’s economy and a critical part to Somalia’s war against hunger.
At present, Somalia remains heavily dependent on food imports, however this dependence is beginning to weaken. The ‘first movers’ investing in Agribusiness opportunities in Somalia are finding the advantages of local food production, enabling the company to establish strong brand recognition as well as product/service loyalty before other entrants to the market.
Other points discussed include Somalia’s Banking & Financial sector, one of the fastest growing sectors in Somalia’s economy. According to the IMF, the commercial banks’ total assets and credit to the private sector were about 4.5 percent and 1.5 percent of GDP
Lastly, Somalia’s growing Technology sector. Somalia boasts cutting-edge technologies, expanding wireless solutions and some of the most cost-competitive rates in telecommunications in Africa. The sector now accounts for up to 11% of GDP
Overshadowing Security Situation
Nevertheless, the great work down by SOMINVEST and the Ministry of Planning has been overshadowed by a spike in violence across the nation over the weekend, particularly the Al-Shabab attack and siege of Villa Rays Hotel, only a few yards away from Villa Somalia, the State House.
If Somalia wants to obtain any foreign investment, it must first resolve its security situation which continues to scare away Somali nationals, let alone foreign investors.