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The investment climate is not yet right for foreign investors to gamble on Somalia

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Investing in a conflict zone like Somalia can be suicidal for global businesses even if the rate of return for their faith is higher. There is the need to worry about Corporate Social Responsibility, staff security, eruption of spontaneous violence, poor infrastructure and no legal recourse if things go wrong. Moreover, in the absence of widely available opportunities and political voice, together with corrupted leaders that embezzled seven out of every ten dollars they received according to a UN report published in July and strong presence of Al-Shabaab, people have come to rely on their tribes for security, protection and welfare. As a result, it would be very hard for both local and foreign investors to just set up a business in a certain region, bring their chosen staff and get on with their business without employing local tribes men in key posts even if they lack the qualifications and experience. Where they do decide to employ locals, investors may have to make enormous investment in the education and training which can deter even those with the deepest pockets.

After more than two decades of civil war in Somalia, this week a new group of law makers were sworn in to Somalia Civil War form what will be the first (semi democratic) government since the collapse of the State in 1991. These law makers are tasked with not only legislating for a better future for the Somali people but also choosing its new leader and their commander in chief. The fact that the tribal elders led MPs selection process has gone smoothly with many female candidates also been chosen has created the kind of optimism in Somali politics that has been missing for the two violent, lost decades. Perhaps now, many Somalis are thinking, things will improve remarkably for them.

The improvement most wished for is not political as many of the presidential candidates have very little real powers or legitimacy in the eyes of the general public. They do not, as yet, control the entire Somali regions as Al-Shabaab still has a strong presence in many rural areas. And many of them still rely heavily on tribal numbers and do not have the ability to force their way into office.  However, what people hope for most is private sector led development and investment that can lift them out of poverty through better public services and employment opportunities.

There are early signs in Somalia, especially in major cities like Mogadishu that the economy is once again coming to life. The old markets are full of traders, houses are been sold, new businesses are opening every day, the Diaspora are returning to invest and even oil companies have planted their flags firmly in places like Puntland.

“You cannot imagine the amount of wealth returning from the Diaspora and neighbouring African states,” said Mohammed a British Somali clothes trader who returned to re-establish his family’s old business. “It is as if all people were waiting for was for Al-Shabaab to leave Mogadishu because as soon as they did everything started to change for the better.”

Mohammed’s optimism is shared by many who have already invested in Somalia and many more who are intent on it. However, despite offering new opportunities and an unrivalled, not yet explored market to try new and old things that have worked abroad, larger investors will not be rushing to splash their cash. This certainly is welcome news for the Small Medium Enterprises and family run businesses that are the majority of investors at present but it is not necessarily good for consumers and national development.

The sad irony is that the very group the public distrusts the most and least relies on is the same one that can bring the foreign investment required for the prosperity and progress of the Somali state. Investing in a conflict zone can be suicidal for global businesses even if the rate of return for their faith is higher. There is the need to worry about Corporate Social Responsibility, staff security, eruption of spontaneous violence, poor infrastructure and no legal recourse if things go wrong. Insuring against these for cash strapped, risk wary businesses already having to survive in a climate of fierce global competition and austerity in the developed world, can be more than any profit they may ever make without the guarantees a functioning government can provide.

In addition to the tax revenue, employment and skills transfer that foreign investment can bring with it if managed well, it will also serve to heighten the confidence the world has in the Somali nation, its people and government. It would also open opportunities for home grown professional service providers such as lawyers, accountants and management consultants which would further diversify the economy. Even more importantly, it would provide the impetus for higher education institutions and vocational training institutes to teach the right skills the growing economy and its investors need to keep the investment taps running.

Somalia has one of the largest ports in an almost landlocked East Africa and the discovery of oil makes it an even greater prospect for future investors. A clever government would use this to their advantage. The current issue is that the Somali government, whoever ends up leading it, will not have the sufficient funds to invest in infrastructure and public services like transport. However, with a good national business strategy and incentives, investors can be encouraged to depart with their dollars for the purposes of creating these very things they need to prosper in Somalia on the basis of fair, responsible public private partnerships.

Realistically speaking, post-conflict African nations that are now economically thriving – such as the Democratic republic of Congo and Rwanda – have raw materials that are desperately sought after by both the Chinese government and Western businesses who take enormous risks to invest there. Both of these groups would still invest there and have done so in the past even during periods of conflict because of the importance of the commodities to their interests. However, what has made the investment climate less risky and more attractive in recent years in these two places were political stability, the investment in infrastructure and education and a growing middle class who benefited from all this.

Foreign investors, as well as worrying about the availability of human resources which would be much cheaper than those they bring with them from their home nations and improve community labour relations in the host investment state, have to consider the safe mobility and relocation of skilled workers they prefer to employ. Somalia, like most of the African continent, is very tribal and the land is geographically divided along tribal lines dating back centuries. In the absence of widely available opportunities and political voice, people have come to rely on their tribes for security, protection and welfare. As a result, it would be very hard for local as well foreign investors to just set up a business in a certain region, bring their chosen staff and get on with their business without employing local tribes men in key posts even if they lack the qualifications and experience. Where they do decide to employ locals, investors may have to make enormous investment in the education and training which can deter even those with the deepest pockets.

With no real government institutions, official banking facilities, rule of law, tax revenue mechanism, poorly trained human resources and continuing political instability, it will be difficult for any sane company to put even a dollar into Somalia. Yet all over East Africa Somali businesses are reviving dead industries and through fierce competition and effective and efficient supply chain management, bringing down prices. They also bringing goods to the markets that Africans a decade ago could only have dreamt of let alone affording and purchasing. This enduring entrepreneurial spirit is very much alive in the Somali people today and the creation of strong institutions, better legal protection (for investors and the public), infrastructure and a balanced industrial relations policy will bring them the competition and partners they will need to grow and prosper in the form of foreign investors. However, to welcome these much needed guests, the Somali leaders must clean their house first and get it in order. Otherwise nobody will come.

Liban Obsiye

libanbakaa@hotmail.com

@LibanObsiye (Twitter).

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