Fostering Somalia’s business environment – the pathway via natural resources

Somalia, situated in the Horn of Africa, lies along the Gulf of Aden and the Indian Ocean. It is bounded with Djibouti in the northwest, Ethiopia in the west and Kenya in the southwest. Somalia’s size is approximately 637,657sq.km with an estimated population of 10 million. It is regarded to be as one of the world’s poorest and most troubled regions.

Mohamed Siad Barre was the military dictator and President of the Somali Democratic Republic from 1969 to 1991. Between 1991-2000, Somalia had no working government. A fragile parliamentary government was formed in 2000, but it expired in 2003 without establishing control of the country. In 2004, a new transitional parliament was instituted and elected a president.

Political conflicts, non-governance, civil wars, piracy, economic imbalances along with environmental hazards have affected and exacerbated to a great extent Somalia’s well-being, development and economic conditions. After 22 years of various political changes, Somalia established in September 2012 the first permanent government and elected Hassan Sheikh Mohamud as the country’s president. The new government faces a lot of obstacles in getting the nation’s economy back on track.

As a resident of Greece, I come across on a daily basis Somali immigrants who have left their country Somalia and departing to Europe in hope of a better life, got trapped and stayed in Greece legally or illegally. But what if Somalia was a country of prosperity and progress? A place where economic growth could increase in order to offer Somalis a good quality of life, foster Somalia’s economy and transform the country into a safe place for business with high economic indicators, more job vacancies and skilled labor force?

The answer may hide in Somalia’s natural resources. Somalia does not lack of natural resources as it is highly believed. On the contrary, Somalia is full of natural resources, natural fertile lands and minerals like uranium and largely unexploited reserves of iron ore, tin, gypsum, natural gas and oil. Somalia has shaped a healthy informal economy and is now facing up a better entrepreneurship thanks to enormous natural resources. According to the Central Bank of Somalia, Somalia’s Gross Domestic Product is estimated to be around 2.6 billion (US dollars) in 2010, while the GDP per capita is 333 US dollars which is lower than that of Kenya (350 US dollars) and better than that of Tanzania (280 US dollars), Eritrea’s (190 US dollars) and Ethiopia’s (180 US dollars).

Investments in agriculture sector

Within the framework of entrepreneurial activities, agriculture is the chief and most important economic sector in Somalia and it accounts for about 64% of the country’s GDP. Entrepreneurs are seeing new business opportunities in agriculture. In December 2012, Fruit Some, a new banana export company was established in Mogadishu in order to gather small Somali farmers and export the produce of high-quality bananas to the rest of the world with main aim to meet foreign market demands. However, the government and the business society have to deal with a variety of problems that hinder agricultural production: drought, famine, violent outbreaks, low quantity production, ongoing insecurity.

Charcoal production

Somali people are also benefited from charcoal production which is very profitable and according to the UN office in Somalia, a quarter of a million tonnes of charcoal is exported to Gulf countries yearly. However, charcoal production is very harmful for agricultural lands and accelerates the process of desertification. Thus, on April 2013, a new charcoal use reduction program was launched by the government and three United Nations agencies so as to acknowledge the negative consequences of charcoal production and promote a sustainable and healthy business model that does not destroy the environment but boost development and economy.

Business opportunities via livestock production

Livestock production is much like significant as agriculture and it contributes about 40% to GDP and more than 50% of export earnings. Most of the livestock is exported to countries of the Middle East. In response, Persian Arab Gulf States such as Saudi Arabia and the United Arab Emirates are seeing Somalia as a valuable opportunity to invest in the country by building livestock export infrastructure and purchasing large farmlands.

Potentials for fishing industry

Another industry that is fundamental for Somali people is the fishing industry. Somalia´s coastlines have some of the richest fishing grounds in Africa and a range of species live in Somali waters- the tropical spiny lobster, swordfish, and multiple species of tuna. According to the Central Intelligence Agency. The average yield from fishing in Somali waters was approximately $46 million per year between 1997 and 2006, which is only 1% of Somalia’s estimated 2010 GDP. If we have a look at the fisheries of nearby countries, we see that is very low compared to these countries: fisheries account for 4% of Malawi’s GDP, 2% of Kenya’s, 2.9% of Tanzania’s, and 2.2% of Uganda’s.

This shows that in the past Somalis were not mainly interested in fishing industry and despite the investments that were made by the local government and international aid agencies, the fishing industry did not take off. Nonetheless, now that Somalia is more stable and secure, Somalis have a higher demand for fish and a greater potential for success in the fishing sector.  What needs to be done related to fishing industry and its success depends on the Somali government and international partners. Helping Somali fishermen, providing them with more advanced equipment and knowledge with regard to new fishing techniques and methods, fighting against illegal fishing and waste dumping and introducing legislation in line with international law will improve the profitability of Somalis businesses, boost food security and economy and improve their quality of life.  Therefore, Somalia can develop fishing industry in such a way in order to be more competitive, start making exports globally and increase revenues that will be very efficient in various ways to the country’s economy.

Mineral and oil industry

Furthermore, given that Somalia has untapped reserves of numerous natural resources included uranium, iron ore, tin, gypsum, bauxite, copper, salt, natural gas and oil, it can be definitely a prosperous country with large corporations and small and medium-sized enterprises that will establish themselves and invest in Somalia. Due to the fact that Somalia’s mineral sector was not adequately explored and surveyed up to now, the country offers countless opportunities to companies to venture into.

In a recent meeting, the Minister of Natural Resources, Abdirizak Omar Mohamed, said: “Given that the security condition of the country is improving at a rapid speed and the presence of a legitimate transparent government, companies of the past and the new ones are all welcome. Somalia will be open for business in 2013 and we honour the agreements of the companies who filed “force majeure” and left the country due to the civil war. We are now working to review the Petroleum Law and make it more competitive and attractive to oil companies and investors.”

Somalia has already started exploring oil and natural gas in Somaliland, Puntland regions and off Somalia’s southern coast, offers several job vacancies to local people and hopes to gain revenue from the exploration of hydrocarbon resources. Somali can readily be a strong opponent of Kenya, Uganda, Tanzania and Mozambique that stand out in oil and gas discoveries and it will provide financial autonomy in the country and its people. Companies either international or local must be transparent, socially responsible and free of corruption, should be aware of environmental degradation and will contribute to local communities, reduce unemployment rate and support entrepreneurship, community cohesion and development.

Partnerships and international aid

The Somali Economic Forum alongside with the Eastern African Economic Chambers of Commerce and the government are two organizations that are responsible for supporting entrepreneurs and the wider business community on one hand and improving Somalia by engaging all leaders of society such as business, political and academic leaders one the other.

Moreover, the United States Agency for International Development (USAID) works with local authorities and private businesses in Somalia, assists in improving the environment for local businesses and investors, supports small livestock businesses, provides business skills training to youth, supports local farmers and veterinary institutions in order to increase agriculture production and protect the health of livestock. USAID’s Partnership for Economic Growth program, a $13 million initiative, supports Somali people to strengthen business environment, achieve stability and improve economic growth. In addition to this, USAID helped Somalia to adopt business laws by reforming policies with reference to trade and investments.

Even though Somalia has suffered the last two decades from several difficulties and obstacles that undermined the economy and the standard of living of Somalis, it is now the right moment to tap natural resources and explore new business and economic capacities in agriculture, livestock, fishing, mineral and oil industries. With a stable government that has garnered so far positive reviews, the country has a lot to offer. A number of reforms that have been made so as to attract investments combined with labour force can boost Somalia´s economy and prosperity, while big challenges related to lawlessness and corruption still remain and need to be dealt with.

References

  1. http://sabahionline.com/
  2. http://www.somalia-business.com/
  3. http://www.rangeresources.com.au/
  4. http://allafrica.com/
  5. Central Intelligence Agency (2010), The World Factbook: Somalia
  6. Food and Agriculture Organization of the United Nations. (2005) “Fishery Country Profile: Somalia.” http://www.fao.org/fi/oldsite/FCP/en/SOM/profile.htm
  7. http://www.worldbank.org/
  8. Kaija Hurlburt, Roberta Spivak (2013), The fishing sector in Somalia/Somaliland, www.Shuraako.org
  9. http://www.centralbank.so/

elve1987

Eleana is an Economist with a strong background in Statistics. She obtained her Bachelor’s Degree in Statistics from the University of Piraeus and her Master’s degree in International and European Economics from Athens University of Economics and Business in Greece. She has been involved in research and policy analyses at national and European level in terms of social affairs and policies, economic issues and development and cooperation aid and has carried out several projects that focus on EU policies. Her main areas of interest are Social policies and affairs, Education Economics, Development Economics and Cooperation.

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