What is driving Somalia’s foreign investment push?

When, in February 2019, the Federal Government of Somalia (FGS) rolled out the road infrastructure program with financial help from the African Development Bank (AfDB), Abdulwahab Ahmed Ali was apprehensive about the government prioritizing the people’s needs.

The father of four, who is a livestock keeper in the Adado area of Galmadug state, wished that the Somalia government had instead addressed the setback of livestock losses owing to drought and prevalence of (vector-borne) disease as a priority.

While the FGS reacted to Ali’s concerns as part of the ongoing rapid response measures, its officials similarly focused on the road infrastructure program as a long-term remedy to livestock production among other crucial sectors and services in the country.

Today, Ali and members of his family can afford a smile – thanks to the infrastructural investment measures by both the FGS and Federal Member States (FMSs). Although the AfDB-financed project, whose execution ends in 2023, is yet to be completed, Ali and other livestock keepers in Adado are already enjoying dividends of the venture.

In an interview last September, Ali was quoted by local media as saying that although his family’s primary concern was weathering the instant effects of drought and related poor livestock production, he was grateful that the construction of new roads had improved access to markets, production resources and services, thereby adding value to the overall livestock production and marketing.

Ali’s is a typical tale of livestock keepers in Somalia, which is replicated across the country’s regional states. And as aptly observed by this livestock keeper from Adado, improvement in the transport network is one of the driving factors in spurring a country’s economy.

Indeed, it is this type of improved transport network that in turn attracts local investment as well as foreign direct investment (FDI). Besides transport, other FDI priority sectors in Somalia include livestock, farming, fisheries, energy and the banking or financial sector. The information communication technology (ICT) sector, which is credited for the growth of the digital economy for Somalia, the manufacturing and service sectors are also priority areas.

The aforementioned are some of the key sectors identified by the National Investment Promotion Strategy (NIPS), which is a product of consultations involving FGS, the FMSs, as well as representatives from the private sector.

The FGS has not done well in foreign investment over the past three decades partly owing to internal strife, political nascency and climatic shocks, suggesting that the notion to attract and sustain foreign investment is a laudable effort.

The execution of the NIPS over the next five years is to be aligned to Somalia’s 9th National Development Plan. This is a further statement of commitment by the government in addressing this crucial economic requisite through a structured approach.

Drive for foreign investment

However, is the point simply that Somalia is in dire need of foreign investment to boost its economy? Or is the government keener on opening up the national economy and providing job opportunities as well as the exchange of skills for its citizens?

Many economists argue that the economy requires a sufficient amount of foreign exchange, in terms of investment, transfer of skills and access to the global market. It is an exercise of great mutual benefits, and Somalia is not an exception.

There is, accordingly, a reasonable argument to be made that part of what has ailed Somalia’s economy is the successive governments’ challenge to get immersed deep in FDI. For instance, the importance of the identified sectors such as transport and infrastructure in attracting investment cannot be overstated.

In 2016, for instance, the Transport Sector Needs Assessment (TSNA) and Investment Program for Somalia developed a comprehensive transport demand assessment for roads, aviation and ports in Somalia. Backed by population figures, this gives a network load, which determines the important road routes and the traffic flow. This has informed an investment plan of $1.1 billion over a 10-year period. The plan includes airports, ports, road networks and bridges aimed at attracting and facilitating business.

The infrastructure development programs necessitate that all infrastructural projects consider factoring in the ICT components into their design and construction stages. This will help avoid parallel ICT infrastructure development, which is a rather costly affair for the exchequer.

It is worth noting that the Somali economy relies heavily on the agriculture sector, cash remittances from overseas and investments in telecoms, a factor that firmly establishes the ICT sector as a central and key driver of economic prosperity.

And what can be done to the foreign exchange inflows, with no apparent contribution from the manufacturing and industrial sectors? Without a solid manufacturing or industrial sector, very little value is added to the agricultural and livestock products before exportation or internal consumption. The heavy dependence on primary commodities as the major source of export earnings mirrors the country’s narrow economic base, hence the current focus on FDI in the manufacturing and tourism sectors.

But all of those supposedly brilliant financial engineering sectors are backed by the service sector, which enables an environment for investment to take root. Ideally, a healthy investment environment requires operational and viable health and education sectors, with the latter expected to feed into the human capital sector. Good amenities in the hospitality industry, including sports and of course a vibrant media, complete this picture.

According to the latest NIPS report, the FDI inflow into Somalia has been on the increase since 2012. In recent years, FDI has largely focused on joint ventures and on subsidiaries of transnational corporations. The Somalia Investment Promotion Office (SOMINVEST) projects that a vast percentage of investment will be mobilized from the private sector, international financial institutions and development partners.

Somalia as an FDI destination

Turkey, Germany and the U.S. remain the main investors in Somalia – courtesy of bilateral trade agreements. Because FDI is linked to job creation, technology transfer and infrastructure development, a well-balanced FDI is expected to help Somalia prosper. In other words, the Somali government is continuously considering hammering out more preferential trade deals that give Somalia a favorable trade balance.

In principle, though, simply raising the export and import trading load as well as advancing infrastructure and the transport network is not enough to get Somalia fully back on the economic recovery path.

That explains precisely why some countries, particularly Turkey, have purposed to offer FDI as well as contribute to the process of peace-building in Somalia. SOMINVEST makes efforts to explore and source more FDI from nontraditional sources, particularly from North and Southeast Asia.

One is persuaded to believe that the U.S., Turkey, the United Arab Emirates (UAE) and Kenya, in particular, know better – that FDI thrives in a war-free and nonvolatile environment. The FGS is accordingly committed to working in overdrive to execute the NIPS plan, which promises to attract FDI in Somalia while contributing toward the peace-building process. The beckon to “kill two birds with one stone” is too alluring to ignore.

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