COUNTRY FEATURE
FEDERAL REPUBLIC OF SOMALIA
(SOMALIA)

Article by:

Dr. Mohamed Abdi Dahir Sh. Hassan.
Head of the Commercial & Industrial Office
Embassy of the Federal Republic of Somalia in Kuala Lumpur
E-mail: comattache.somembassy@gmail.com;
Malaysia.attache@moci.gov.so

The Commercial & Industrial Office at our Embassy will be dedicated to providing free, comprehensive and confidential information, advice, assistance and all manner of support to all southeast Asian investors.

A Brief on Trade and Investment Opportunities in Somalia – Presented to Malaysian Investors

General Information

Pro-Business Climate – Political and Security Context

Somalia was recovering in the last view years and consolidating gains in peacebuilding, the government was focusing its efforts on setting up strong national institutions and promoting inclusive political & Development processes, ensuring security, promoting equal access to justice and the current government struggles to provide basic social services including security, health, education, water, electricity, employment etc. to ordinary citizens.

Political stability, Peace building, security and the rule of law are among the priority topics listed in the current National Development Plan (2020-2024). The tasks listed by the government include revising the constitution, establishing a multi-party democracy with fair and credible elections, strengthening the federal system and the political dialogue on national reconciliation, and reforming the security sector and the legal system.

The security issues may be a concern for some investors and trade partners, however significant efforts have been made by the FGS in cooperation with international partners, to strengthen security in Somalia. Both the frequency and impact of insecurity incidents are on the decline and the biggest misconception is that Somalia is continuously in a state of conflict and operating in the country is impossible.

The Current Government looks the security as an important aspect to pay attention and the Government aims to eliminate Al-Shabaab by the year’s end as the Somali President Launched in June last year a major Offensive, which liberated a large area of the southern and central Somalia.

Economic Performance

Over the past decade, Somalia has shown resilience and gradual economic improvement despite facing significant challenges. Key indicators such as GDP, GDP per capita, and GNI have increased, reflecting a slow but steady economic recovery. The agriculture and livestock sector remains the backbone of the economy, while the services sector has been growing, particularly in telecommunications and financial services. The industrial sector remains small but has potential for growth with proper investments and stability.

• – According to the International Monetary Fund, Somalia’s “economic activity was expanding and the GDP Growth was good by average of 3.5% per year from 2012 till 2018, driven by growth in agriculture, construction, and telecommunications.
• – From 2019–2022 Real GDP growth has been low and volatile, averaging around 2% per year while real GDP per capita averaged -0.8% per year because of the Covid-19 Pandemic and severe drought.
• – In 2022/ 2023 The GDP in Somalia was worth 10.5 Billion US dollars and the GDP growth was around 2.8%, as the country recovered from drought, however the Somali’s economy is expected to record GDP growth of 3.7% in 2024 and 3.9% in 2025. Fiscal restraint combined with a favorable international environment for food and fuel costs has helped to reduce inflation.
• – Somalia’s GDP by economic Sectors: Agriculture/ Livestock: 58.3%, Services: 23.2%, Industry: 18.5%

IMF, World Bank and African Development Bank group Reports.

Efforts to improve infrastructure, governance, and security are crucial for sustaining this economic growth and ensuring a stable and prosperous future for Somalia.

Government Economic Strategy

The Somali Government’s economic strategy aims to address key challenges and leverage opportunities to foster sustainable development, enhance economic stability, and reduce poverty. Here is a conceptual overview of the strategy based on various sources:

1. 1. Macro-Economic Stability and Fiscal Policy

Objective: Achieve and maintain macroeconomic stability by implementing sound fiscal policies and budgetary processes to enhance transparency and accountability. Implementing tax reforms to broaden the tax base and increase domestic revenue. Reduce external debt and enhance debt sustainability through prudent borrowing and effective debt management.

2. 2. Economic Diversification and Private Sector Development

Objective: Diversify the economy to reduce reliance on agriculture and build a resilient economy by promoting private sector investment in key sectors such as fisheries, manufacturing, and services. Improving the business environment by simplifying regulations, reducing bureaucracy, and enhancing access to finance for SMEs. Fostering public-private partnerships (PPPs) to attract investment in infrastructure and key economic sectors.

3. 3. Infrastructure Development

Objective: Develop critical infrastructure to support economic growth and improve living standards by investing in transportation infrastructure, including roads, ports, and airports, to facilitate trade and connectivity. Enhance energy infrastructure to ensure reliable and affordable access to electricity. Improve water and sanitation infrastructure to support public health and economic activities.

4. 4. Human Capital Development

Objective: Invest in human capital to build a skilled and productive workforce by expanding access to quality education and vocational training to equip the workforce with relevant skills. Improving healthcare services to enhance the overall health and productivity of the population. Promoting gender equality and empower women to participate fully in economic activities.

5. 5. Agricultural and Rural Development

Objective: Enhance agricultural productivity and promote sustainable rural development by supporting smallholder farmers with access to modern agricultural inputs, technology, and training. Promoting sustainable agricultural practices to ensure long-term productivity and environmental protection. Developing rural infrastructure, such as irrigation systems and rural roads, to support agricultural activities and improve market access.

6. 6. Governance and Institutional Capacity Building

Objective: Strengthen governance and build institutional capacity to implement economic policies effectively. Enhance the capacity of government institutions to design and implement economic policies and programs. Promote good governance practices, including anti-corruption measures, to build public trust and ensure effective service delivery. Foster inclusive governance by ensuring participation from all segments of society in the decision-making process.

Foreign Direct Investment in Somalia

Somalia’s NDP outlines the government’s strategic objectives for economic development, including reforms in the business environment, public financial management, infrastructure development, and laws to attract foreign investment.

There has never been a better time to invest in Somalia. The government is determined to restore the country as the regional hub for commerce, transportation, trade and industry.  Our strength in agriculture, fisheries and livestock can help to overcome the food security challenges of many parts of the world, our unique wind and solar capabilities can pioneer a new age of affordable and clean energy to Spur further economic growth across the region. We welcome investors to participate in the rebuilding of hope, opportunity and prosperity in the Horn of Africa.

The Somali Parliament passed a foreign investment law in 2015, to promote and protect foreign investment, the law also provides flexible incentives to ensure the investor’s needs are met effectively and efficiently including Tax advantages, guarantees against expropriation & revenue sharing agreements to attract investment

The FGS has enacted the Investors and Investment Protection Bill into law on 20 March 2023, which will enhance investors’ confidence through providing legal protection to their investments, legal framework for investor-state dispute settlement, fair treatment, and a robust dispute resolution mechanism, as well as it will address Competition and anti-trust laws, expropriation and the transfer and repatriation of investments

The Federal Government of Somalia (FGS) welcomes foreign direct investment and offers a variety of opportunities for investment, especially in the key national priority sectors like Food Security Sectors [Livestock, Agriculture and fishing], Energy, and Infrastructure as well as finance and Health sectors.

The FGS and the Federal Member States (FMS) have a positive attitude towards all foreign direct investment (FDI) forms including public private partnerships, Joint Venture Partnership and other alternative investment financing Modalities. “Somalia is open for business” is the message that the Federal Government of Somalia is sending out to the world loud and clear and In line with this, our Government is making every effort to further enhance the investment environment.

Under the Foreign Investment Law Somalia Investment Promotion Office (SOMINVEST) Was established to promote foreign investment, provide potential investors with guidance on investing in Somalia and continuously advocate for improved investment policies.

Performance Requirements and Incentives

Somalia imposes no performance requirements on foreign investors  all foreign investors with eligibility for incentives and facilities, incentives shall include the ability to have long term leases for up to 99 years for substantial investment in accordance with the applicable legislation governing such incentives and facilities.

Private Ownership Rights

There are no restrictions on the establishment of private businesses, size of investment, sources of funds, marketing products, source of technology, or method of training in Somalia.

Reasons to Invest in Somalia

Investing in Somalia presents a mix of opportunities and challenges, investing in Somalia presents significant opportunities, driven by economic expectations, financing possibilities, strategic location, and government reforms. While there may be some challenges, including political, infrastructure, or regulatory challenges, these can be mitigated through careful planning, due diligence, and leveraging international support. By focusing on sustainable development and building strong local partnerships, investors can tap into the burgeoning opportunities in Somalia and contribute to its long-term economic development.

1. 1. Economic Expectations
   • 1.1 Strategic Location:

• > Gateway to Africa and the Middle East: Somalia’s location along the Horn of Africa provides strategic access to major shipping routes, making it a potential hub for trade between Africa and the Middle East.
• > Ports and Trade: Major ports like Mogadishu, Berbera, and Kismayo are critical entry points for regional trade. Investments in port infrastructure can enhance trade and logistics capabilities.
• > Economic Regional and global integration: EAC (2023), COMESA (2018), IGAD, AFCFTA, AGOA, WTO, MIGA, OIC and Arab League. 
  • 1.2 Government Reforms and Stability:

• > Policy Reforms: The Somali government is implementing reforms aimed at improving the business environment, including regulatory improvements and anti-corruption measures.
• > Stabilization Efforts: International and domestic efforts to stabilize the political and security situation are creating a more conducive environment for investment. 

• 1.3 Economic Growth Potential:

• > Untapped Resources: Somalia has vast untapped resources, including minerals, oil, and natural gas. The potential for exploration and development in these sectors is significant.
• > Agricultural Sector: With appropriate investment, Somalia’s agricultural sector can be revitalized. The country has arable land that can be developed for commercial farming. 
• 1.4 Growing Population and Urbanization:
• > Demographic Dividend: Somalia has a young and growing population, which can be a significant driver of economic growth. A youthful demographic can provide a labor force that is adaptable and trainable.
• > Urbanization: Increasing urbanization is creating new markets for goods and services, driving demand for housing, infrastructure, and consumer products.

2. 2. Financing Possibilities
   • 2.1 Access to International Financial Institutions: 

• > IMF and World Bank Support: Somalia has re-engaged with international financial institutions like the IMF and World Bank, which provide financial support and technical assistance.
• > Development Assistance: Various international donors and development agencies are active in Somalia, providing grants and concessional loans for development projects. 
• 2.2 Private Equity and Venture Capital:
• > Growing Interest: There is increasing interest from private equity and venture capital firms in emerging markets, including Somalia. Investors are looking for high-growth opportunities in frontier markets.
• > Diaspora Investment: The Somali diaspora is a significant source of investment. Remittances from the diaspora contribute to local business funding and development projects.
  

• 2.3 Microfinance and Local Banking:
• > Microfinance Institutions (MFIs): MFIs are expanding their reach in Somalia, providing much-needed credit to small and medium-sized enterprises (SMEs).
• > Banking Sector Development: Local banks are improving their services, and there is potential for partnerships with international banks to enhance access to finance.

National Investment Priority Sectors

Somalia: Trade in goods

Trade Performance

Somalia has traditionally been a net importer of goods, but the government has been working to promote exports of products like livestock, fish, and agricultural goods. In 2016, the government launched the National Export Strategy, which aims to promote exports and increase competitiveness in key sectors such as agriculture, livestock, and fisheries. This has involved investing in infrastructure like ports and roads, as well as providing support to small and medium-sized enterprises (SMEs) that are looking to export.

In the past ten years, Somalia has experienced consistent export growth, averaging 2.4% annually; however, the growth of imports has been much more significant, leading to a negative trade balance. However, Somali Exports are consistent across multiple sources, showing Somalia’s Total Exports at Over 1 Billion with modest growth projected for 2024 and Beyond.

Somalia offers opportunities to invest in its farming sector as it is currently heavily import dependent on food and other food related products. Export promotion and increased investment in domestic supply chain development would be attractive for investors.

Somalia’s exports by product category.

Over the past decade From 2013 to 2023, Somalia’s export landscape have been consistently dominated by a few key product categories, The main exports include live animals, gums and resins, precious stones and metals, fish, and various agricultural products. These categories have remained relatively stable in their contribution to Somalia’s export economy, with minor fluctuations based on market demand and production capacities, reflecting the country’s reliance on its natural and agricultural resources.

The key trading partners for these exports include the United Arab Emirates, Oman and Saudi Arabia, reflecting the regional trade dynamics and the demand for these specific products in these markets.

Somalia’s imports by product category.

Over the past decade, Somalia’s imports have shown significant growth, reflecting the country’s reliance on foreign goods to meet domestic needs. It has primarily included food & fuel (This category has consistently been the largest, accounting for above 50% of total imports.), then construction materials, Electric and Electronics, Manufactured goods, Chemicals & pharmaceuticals and lastly Machines and transport vehicles.

Key import partners were the United Arab Emirates, China, India and Turkey, reflecting Somalia’s trade relationships and geographical trade dynamics. The import trends indicate a consistent increase over the years, from 2013 to 2023, the total value of imports has seen a steady increase with notable growth in construction material categories.

Market Potential for Exporters

1. 1. Strategic Geographic Location: Somalia’s strategic location along major maritime routes enhances its potential as a key market for exporters looking to expand their reach in the Horn of Africa and beyond.
2. 2. Market Growth: With an increasing demand for various manufactured goods, Somalia presents a growing market for exporters.
3. 3. Rising Middle Class: The growing middle class with increasing purchasing power is a significant driver for demand in these categories.
4. 4. Urbanization and Consumer Trends: Rising urbanization and changing consumer preferences leads to higher consumption of modern goods and create opportunities for exporters to introduce new products and brands.
5. 5. Diaspora Influence: The Somali diaspora maintains strong ties with the home country, influencing market preferences and creating demand for international products.

Exporters looking to enter the Somali market should focus on competitive pricing, quality, and understanding local consumer preferences to maximize their potential in this emerging market. These insights highlight the critical role of international trade in Somalia’s economy.