Somalia Business Overview

Business and Economic Overview

In December 2023, Somalia reached the Heavily Indebted Poor Countries (HIPC) Initiative Completion Point, marking a significant milestone in its development. With it, Somalia achieved debt service savings of $4.5 billion and got access to critical additional financial resources that will help Somalia strengthen its economy, reduce poverty, and promote job creation. As a result, Somalia’s external debt fell from 64% of GDP in 2018 to less than 6% of GDP by end 2023, improving debt sustainability. Despite multiple climatic shocks and complicated security situation, Somalia maintained progress on structural reforms and implemented thirteen of fourteen HIPC Completion Point triggers.

Severe droughts, floods, locust infestation, the pandemic, volatile global prices, as well insecurity and conflict have slowed the transition from fragility.  Real GDP growth has been low and volatile, averaging only 2% per year in 2019–23 while real GDP per capita averaged -0.8% per year.

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 2023 Ease of Doing Business Index: Somalia ranks 190 of 190. Somalia also ranks 188 of 190 in the World Bank’s 2023 Starting a Business Index.

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.

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.

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.

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.

Reference

• https://www.worldbank.org/en/country/somalia/overview#1
• https://archive.doingbusiness.org/en/rankings