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Complex Coverage In-Brief

Opportunities for Economic Development in Somalia
Foard Copeland
Desk Officer, Horn of Africa foard.copeland@cimicweb.org July 2013

International stabilisation efforts continue to expand in Somalia as al Shabaab militants are pushed out of former strongholds and acts of piracy1 further decline. While security conditions remain tenuous, the Somali Federal Government (SFG) stewarded a new system of governance that includes judicial reform, administrative accountability and democratic initiatives. Civil society organisations (CSOs) are emerging after decades of war and the international community seeks channels for further cooperation within the war-torn country. These changes were accompanied by opportunities for economic investment that will require multilateral support, coordination between the private and public sectors, and public financial management. Humanitarian assistance will continue to play an essential role in providing services, food and shelter to millions of Somalis who do not benefit from the countrys nascent economic growth. Additionally, recent calls by the UN for public-private coordination suggest that humanitarian assistance might be coupled with infrastructure development and support from the commercial sector to achieve a broader stabilisation agenda. Many Somalis are capitalising on newfound economic and investment opportunities that have been largely absent for decades, hoping that large-scale investment projects will soon be underway. Economic Overview As the African Development Bank (AfDB) notes, survey data and statistical analysis on a range of factors, such as household income, are practically non-existent for Somalia. However, where they can be measured, economic indicators for average Somali citizens continue to rank near the bottom of most global indices. Unemployment rates are 50 per cent and average life expectancy in 2013 was 51 years. According to the World Bank, 43 per cent of the population lives on less than USD 1 per day. Livestock and agriculture are the backbones of the economy, accounting for 65 per cent of gross domestic product (GDP). Livestock also accounts for 50 per cent of all export earnings; additional mainstays include fish, charcoal, bananas, sugar, corn and sorghum. Since 1991, the country has averaged a trade deficit of USD 190 million per year, according to ADB. Somalia survives predominantly on an informal economy. International trade is controlled by a cadre of wealthy elites while the majority of the population subsists on meagre incomes earned through petty trade, farming and small-scale business. As All Africa notes, key areas for economic investment include ports and fishing, international trade and infrastructure.

Source: The Economist

Donors A series of international conferences were held in 2013 to steer investors toward Somali markets. At the largest of these, a donor conference held in London on 07 May, the European Union (EU) announced that Somalia will receive USD 279 million. The Intergovernmental Authority on Development (IGAD), a regional economic body, outlined stabilisation goals adopted at the conference. They focus primarily on political, security, and justice issues, as well as public financial management, health and infrastructure. The Somali Reconstruction and Investment Conference (SORIC) was held in Nairobi on 28-29 May 2013. The

Somalia experienced a unique form of piracy wherein criminal organisations sought to capture individuals rather than pilfer cargo. Somali pirates began hijacking ships for the sole purpose of ransoming captured crew. Millions of dollars were paid in ransom by governments, businesses, and victims families. In 2011, at the height of the epidemic, 200 vessels were captured. The international community curbed Somali piracy by adopting a land-based solution that imposed law and order in Puntland, Somalia while interrupting illicit revenue streams and increasing EU and NATO navy mandates.
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summit showcased opportunities for investment in Somalia with a special focus on Somaliland2. Conference leaders highlighted key sectors such as infrastructure, health, banking, and energy for potential investors. The International Labour Organization (ILO), United Nations Development Programme (UNDP) and the Food and Agriculture Organization (FAO), in addition to private sector donors, sponsored the conference. In July 2013, the Somalia Economic Forum (SEF) will host the Somali Investment Summit (SIS) in Nairobi, Kenya. Private sector investors, such as Chase Bank, Dahabshiil Group and Ernst & Young, have already agreed to participate. The conference will provide an opportunity for ministries and government agencies to coordinate with regional and international investors. The SEF advocates for joint cooperation between industry partners and the Somalia government to outline critical infrastructure projects, improve service delivery and accomplish long-term state-building goals. Private Sector Investment Somalia has been a regional trading centre for centuries, leading The Economist to note that nascent business opportunities provide a reason for hope. Recent security gains attracted talent and entrepreneurs from Somalias broad diaspora to return to Mogadishu in the largest migratory wave in recent history. According to Somaliland Press, property value has skyrocketed and hotels are often filled to capacity due to the influx. Many are investors with short-term itineraries, but many also return with technical skills, advanced education, and an intention to help rebuild the country. A recent UN investment strategy encourages returnees to invest in agriculture and food security. Youth represent a disproportionate percentage of the returning population, providing muchneeded human capital. Many dedicate their talent and expertise to initiate development projects in the financial sector, real estate, shipping, education and banking. Even the tourism industry has seen a recent boon. A film series, Return to Somalia, was made about diasporic youth relocating to the country. Women have also taken a lead in economic development, opening shops and small businesses in a way that was unimaginable under al Shabaabs repressive presence. Money-lending Somali companies move USD 1.6 billion in remittances each year. Private enterprises like Dahabsiil, Somalias largest money-lending firm, recently expanded into other African countries, hoping to capitalise on the continent s USD 40 billion remittance market. Many hope that remittances can spur local entrepreneurship. UNDP leveraged diaspora communities to deliver communications infrastructure and other basic services through the Qualified Somali Technical Support Programme (QUEST) and the Transfer of Knowledge Through Expatriate Nationals (TOKEN) programme. In addition to providing expertise and capital, diaspora entrepreneurs also behave like potential investors, monitoring financial transactions and maintaining accountability standards. After years of delivering humanitarian assistance to the country, the UN concluded that public-private partnerships will be essential to rebuilding infrastructure. To this end, the UN established a list of local subcontractors that provide skills and services to international operations. Service providers are vetted through a risk management unit that ensures local entrepreneurs do not have ties to terrorist organisations. Financiers seem particularly willing to invest in Somaliland, which has made significant efforts to foster private sector growth. The UK Department for International Development observed that by loosening restrictions on construction permits and property licenses, the government made it easier for companies to invest in Somaliland than any other conflict-affected state. According to the World Bank, it is cheaper and faster to import or export containers through the Berbera port than any Sub-Saharan African port. It also attracted Coca-Cola to invest in a USD 17 million bottling plant, the largest private investment in the country since 1991. Economists are looking for signs that multinational corporations (MNCs) will continue to invest in large-scale economic recovery programmes, such as the Coca-Cola factory. Thus far, regional companies have taken the lead. The OGF Group, Coca-Colas main investor for its Somaliland plant, has ties to Djibouti. China has partnered with Djibouti on several port projects. Ethiopia and Kenya are also keen to capitalise on the opportunities in their increasingly stable neighbour, according to Standard Media. Athi River Steel Plant, a Kenyan MNC, plans to ship ten per cent of its total exports to Somalia in anticipation of a Mogadishu construction boom. Meanwhile, regional banks and natural gas enterprises also moved into the country in 2012 and 2103.

Source: Business Africa

Somaliland is an autonomous region in northwest Somalia on the Gulf of Aden. Although not internationally recognised, it has a functional government, police forces, and its own currency. Its capital is Hargeisa and its primary port, Berbera, serves both Somaliland and landlocked Ethiopia. In June 2012, political leaders agreed to hold talks with the SFG, a concession they have refused since 2004. Despite occasional attacks during the civil war, the region is relatively more stable and secure than the rest of the country, according to BBC.

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Opportunities for Economic Development in Somalia

Shipping Industry Somalias coastline, which totals over 3,300 km, presents the greatest potential for the countrys long -term economic recovery. Sectors such as shipping, fishing, and energy, all of which deteriorated after the fall of the Siad Barre regime in 1991, could experience a resurgence if security conditions continue to normalise. The fishing industry remains largely underdeveloped, restricted by storage limitations, refrigeration and opportunities for export. Once crippled by offshore piracy, it saw growth in 2012 and 2013 and could trigger an economic stimulus and provide an alternative income for would-be pirates. According to Integrated Regional Information Networks (IRIN), the EU will invest USD 6.5 million into a project that seeks to increase Somalilands fishing capacity to 120,000 tonnes per annum. If goals are achieved, it would generate USD 1.2 billion in revenue. Somalias strategic location on the Gulf of Aden and the Arabian Sea could open valuable routes with Gulf countries as well as India, China and Southeast Asian partners. Home to four major ports, the country can also benefit from trade with landlocked neighbours in need of access to natural harbours to export goods. Specifically, ports could serve South Sudan, Ethiopia and Uganda. Kenya and, more recently, Djibouti have monopolised this commercial opportunity for years due to insecurity in Somalia. However, a wave of international investors could provide the country with the resources to improve port infrastructure and reclaim its prospects for becoming a regional shipping partner. According to Reuters, a potential conflict could emerge between autonomous regions and the SFG, or perhaps even between MNCs coordinating with authorities in autonomous regions and the SFG. In December 2012, Somalia President Hassan Sheik Mohamoud stated his administrations intention to oversee operations of the countrys four major ports in Berbera, Bosaso Kismayo, and Mogadishu. Three of these, Berbera, Kismayo, and Mogadishu, are deep water ports, and the port in Bosaso underwent a recent expansion. Two of these ports lie within autonomous regions and are operated by local authorities, potentially in opposition to SFG. Control of the Kismayo port, located in semi-autonomous Jubaland, led to gunfights between rival warlords in June 2013. The port once provided an economic lifeline to al Shabaab and it remains unclear how Mogadishus weak central government will exert authority over it in the near future, reports Agence France-Presse. Indeed, federal administration of the ports might necessitate economic and political arrangements with local authorities at each port. Port of Berbera The Berbera port, located on the Gulf of Aden in Somalias autonomous northwest region of Somaliland, serves as a lifeline for the Somaliland economy and one of the centres of livestock export for the country. In 2010, 2.5 million cattle were transported from the harbour. The biggest trading partners are Saudi Arabia, Egypt and Yemen and livestock, as of 2012, exports to those countries accounted for 60-65 per cent of the facilitys operations. The majority of Somalilands residents are pastoralists and international trade has offset periods of drought in the past. When food stocks decline due to dry conditions, herders - benefitting from an economic stimulus of overseas trade - have been able to purchase food staples. For this reason, the Berbera port manager, Ali Omar Mohamed, wanted in 2012 to increase the berth from its current level of 12 meters to 20 meters, which would accommodate the worlds largest container ships of 300,000 tonnes. Current depth allows for ships weighing only 35,000 tonnes. Bollor Africa Logistics, a French conglomerate, hoped to expand capacity in Berbera in 2009 by linking the trade zone with landlocked Addis Ababa. Known for developing port infrastructure despite insecure conditions (the company worked through wars in Cote dIvoire and Rwanda), it postponed its Berbera investment strategy for undisclosed reasons. Nevertheless, economists in 2013 pointed to the prospects for a lucrative expansion. Since 2009, rumours circulated widely about secret deals from companies like Bollor, UAEs Dubai World Africa (DWA) or Chinas PetroTrans, that might re-invest in the project or potentially lease the port. Port of Bosaso Located on the Gulf of Aden in northeast Somalia, Bosaso is the commercial centre of Puntland and the regions largest city. It is a strategic livestock trading post for much of the Arab world, dealing primarily with the transport of goat, sheep and camels. The citys port was built in the 1980s under the Barre regime. The Italian government initiated a project to convert Bosaso s port into a deep water facility, but abandoned it during the civil war. Many residents still hope to see a conversion, noting the population increased from 40,000 to over 650,000 in just two decades. Local officials planned construction of a new port in 2012 that will support small-scale fishing operations; however, details of the projects progress are limited. In March 2013, the World Food Programme (WFP) completed a multi-year special operation project to dredge Bosasos harbour, improving capacity by over fifty per cent. Officials noted the two-fold improvements would affect both delivery of humanitarian aid and potential for exports from the region. Kismayo The city of Kismayo, the capital of Jubaland, is positioned halfway between Mogadishu and the Kenyan border. It is the most important political and economic centre in southern Somalia. Due to the recent deployment of Kenyan and Ethiopian troops under the African Mission in Somalia (AMISOM) banner, external stakeholders in Jubaland include Ethiopia, Kenya and al Shabaab.
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The terrorist group controlled most of Jubaland since 2009, but has ceded much of its territory in the last year. Recent Kenyan involvement could improve conditions between the SFG and autonomous regions, or worsen the political climate and lead to further strained international tensions. In May 2013, the Jubaland state formation conference elected Ahmed Madobe as the territorys president. The SFG refused to recognise the Jubaland administration. Intense fighting, which killed eighteen people, then broke out in Kismayo between Madobe and a rival, Iftin Hassan Basto, on 08 June, according to Al Jazeera. Armed members of Ras Kamboni, a group led by Madobe, attempted to arrest Basto when a gunfight erupted between militias loyal to the two men. AMISOM troops skirmished with al Shabaab militants in the city in May and June and control over the port remains in flux. Substantial port revenues render the city valuable to would-be warlords. Historically, control over port access has been a driver of local conflict. Until security and political conditions improve among various stakeholders in the region, including its numerous clan groups, use of the port for economic redevelopment remains improbable. Port of Mogadishu Somalias main port in Mogadishu opened in October 2006. In March 2013, the UAE re-opened a container shipping route between Mogadishu and Dubai that had been closed for several years. Dubai Ports World (DPW), the UAEbased company responsible for re-establishing the Mogadishu-Dubai trade link, has supported counter piracy efforts in the region since 2011 and called development one element of a long-term strategy to undergird Somalias economy. Following improved access by the UAE shipping route, Djibouti and China announced a joint reconstruction venture in June 2013. Details were not immediately available but Chinese officials, accompanied by the director of Djiboutis port, said Somali port officials will receive regular updates on the progress of renovations. Additionally, Africa Review reported that an Iranian company will manage the ports operations, operating under the name of Mogadishu Port Container Terminal (MPCT). Benefitting from the same WFP special operation as Bosaso, the Mogadishu port was expanded from three berths to six. The original project concluded in 2013, but will now be extended through 2015. With the extension, WFP plans to construct a warehouse that will increase humanitarian assistance supply, a key to addressing the requirements of nearly two million displaced Somalis across the Horn of Africa. WFP notes the impact of the project, which totals USD 16 million, should generate cost savings for the commercial sector and increase business opportunities. Additionally, the project will improve technical capacity of port authority staff by providing a series of training exercises.
Source: BBC

Conclusion Though security remains tenuous in Somalia, the country has stabilised in recent months to an extent that allows development and reconstruction opportunities that were not possible several years ago. Western donors and regional organisations are investing resources to strengthen governance and reshape business practices. Diaspora communities have returned to provide technical assistance and deliver key services. Although poverty and underdevelopment remain chronic problems, the UN and other organisations have undertaken efforts to spur economic growth, rebuild major ports, and initiate reconstruction projects while continuing to provide humanitarian assistance. Growth in key sectors like transportation and financial services will require international investment, as well as local expertise. Extensive work remains to be done, but leaders hope that long-term development initiatives will continue to stabilise the country. As President Mohamoud remarked during the 2013 London conference, My vision is for a Federal Somalia at peace with itself and its neighbours and which poses no threat to the world; a Somalia with a resurgent economy, thriving small and medium sized business ventures and sustainable employment so that families are properly provided for.

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