Somalia Business Overview

Business and Economic Overview

The Somalia economy is not diverse nor developed and over half the population live below the poverty line.[1] It is highly dependent on remittances, estimated at US$1.3 billion annually, and agriculture-livestock, both domestically and for export. Import values also account for over 66% of GDP.

Meanwhile, real GDP growth is predicted to remain low at 3.5-3.8% annually over 2018-2022, over a percentage point below the average predicted growth for emerging and developing economies.[2] The Somali shilling, however, has appreciated drastically against the US dollar in recent years, outperforming almost every other currency.

There are a number of serious obstacles to doing business in Somalia, such as the security situation, poor performing economy, weak institutions, embedded patronage networks and corruption. This is reflected by Somalia’s position in the World Bank’s 2018 Ease of Doing Business Index: Somalia ranks 190 of 190. Somalia also ranks 187 of 190 in the World Bank’s 2018 Starting a Business Index.[3]

Yet, for patient and risk-tolerant investors there are opportunities within Somalia. Normality is beginning to return to large portions of the country, foreign investment is increasing and the Somali diaspora is returning for economic opportunities.[4]

Somaliland has been the focus of much of this foreign investment, given its comparative stability and written commercial laws. For example, Coca-Cola runs a large bottling plant near the region’s capital, Hargeisa, and in 2017 UAE based DP World committed a US$442 million investment into Berbera Port, with the aim of transforming it into a regional trade hub.[5]

The UAE are also funding transport infrastructure improvements to link Berbera with Ethiopia and the African interior.

Opportunities in Somaliland exist in further developing transport infrastructure as well the service, health, education and power sectors, which are predominantly provided by the private sector and Somali diaspora.[6]

There are also a number of opportunities in federal Somalia. Somalia’s waters have rich fishing grounds which are farmed at a level far below their potential sustainable capacity: commercial fishing is almost non-existent.

Similarly, the livestock and agricultural sectors are underinvested, lacking livestock export infrastructure and commercial farming capability. Perhaps most lucrative, however, is the future potential for offshore hydrocarbon extraction, following exploration research by Spectrum Geo. The mining sector is also relatively young and unexploited deposits include gold, uranium, tin and bauxite.[7]

Security Overview

There is a substantial risk of terrorism in Somalia owing to the presence of a number of groups opposed to the Federal government, notably al-Shabaab. Terrorist attacks may occur through a number of vectors, including kidnapping, armed assaults and suicide bombings, and can occur at any time; Both state and civilian targets are seen as legitimate. Particular threats have been made against foreigners working in the region.[8]

Crime levels are also high, driven by the high poverty rate as well as the numerous armed militias and clans present in Somalia which regularly clash, with incidents of murder, kidnapping and armed robbery. Furthermore, the spectre of maritime piracy continues to hang over the High-Risk Area (HRA): following a five-year respite, attacks have increased in 2017.[9]

References

[1] http://www.worldbank.org/en/country/somalia/overview#1.

[2] http://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/SOM.

[3] http://www.doingbusiness.org/data/exploreeconomies/somalia#starting-a-business.

[4] https://frontera.net/news/africa/why-you-should-invest-in-somalia/.

[5] http://edition.cnn.com/2017/08/01/africa/somaliland-new-gateway-africa/index.html.

[6] https://www.adamsmithinternational.com/explore-our-work/west/somalia/improving-investment-flows-to-somaliland.

[7] http://www.tradeinvestsomalia.com/opportunities-maritime-and-fisheries.html; http://www.tradeinvestsomalia.com/opportunities-agriculture.html; https://www.reuters.com/article/us-africa-oil-somalia/prospect-of-offshore-oil-offers-mixed-blessing-for-somalia-idUSKBN1321IW; http://www.tradeinvestsomalia.com/opportunities-mining-and-mineral-resources.html.

[8] https://www.gov.uk/foreign-travel-advice/somalia/terrorism.

[9] http://edition.cnn.com/2017/05/25/africa/piracy-resurgence-somalia/index.html.