Investment Opportunities in Somalia


One may raise eyebrows by reading the title of this topic. However, having travelled across Europe, the Middle East and Africa for the last 18 months, the interest shown by investors in opportunities in Somalia was far higher than most would expect.

There were three conferences and seminars of Investments in Somalia held in Dubai on March and April 2014, another investment conference held in Stockholm on June 2014 and I attended all of them to present and take part in the discussions. There were a number of other meetings on the same topic held in Amsterdam, Johannesburg, London and Paris in the same year, and a Diaspora Investment Forum in Nairobi this year. These conferences are often attended by delegates from large oil companies and conglomerates interested in the new potential of this re-emerging country. Few other countries have attracted as much attention recently as Somalia.

The question to ask is why such interest is placed on Somalia and what do we know about Somalia. For the first time since the collapse of the last government in 1991, The Somali Federal Government has been widely recognized and accepted as the country’s legitimate power. This recognition has coincided with relative peace and stability as well as financial, military and technical assistance from numerous governments and organisations to help rebuild the country’s infrastructure and economy. There has also been a large influx of Somalia’s diaspora setting up businesses and small firms, which has affected the micro-economic conditions of Somalia.


Many countries have resumed their diplomatic relations with Somalia by opening their embassies in the capital, Mogadishu. 

Somalia is one of the rare countries in the world that potentially has numerous types of natural resources. For example, Somalia is expected to be rich in oil and natural gas deposits although not yet extracted, and the government is in the process of awarding concessions to oil companies.

The oil and gas resources are expected to be available both on-shore and off-shore. There are also gold and other minerals deposits in Somalia like feldspar, gypsum, iron ore, kaolin, limestone, quartz, silica sand, tantalum, tin, and uranium. Somalia has the longest coastline in Africa and Middle East, more than 3,025 kilometers in length, and fishing resources is abundant. 

According to researchers, the fish migration that takes place in the Atlantic and Pacific regions meet at the tip corner of Somalia and that attracts fishing companies to the region. The land that is available for cultivation and agriculture was measured at 70% of total land in 2009, according to the World Bank Somalia is sitting on high quality pure and clean rivers of water. Not mentioning cement, mountains, and other rare sands that are available in the country, together with the potential for tourism.

Somalia is well positioned along the trade route of the world and can give access to landlocked countries in Africa. Since the emerging and large economy countries are looking for resources to develop their economies and productions, Somali if governed right, can become achieve long-term growth and sustainable development.

Recently, a new Bank, International Bank of Somalia (IBS) started operations in Somalia. IBS research team has identified 25 sectors that are available and ready for investment. The investment is structured in a partnership model.

The investors or clients pursuing interests in Somalia can have a local partner that takes care of the local business needs such as registration and licensing requirements. For example, international investors take a stake or share in a joint venture with the bank or a local partner to get expertise in managing the local customs and risks associated with the business. Alternatively, if the venture involves the production of goods, the finished product can be shipped to the necessary destination.

The role of IBS is to make ensure the partnership structure is right for the investor, perform the due diligence and make legal and risk assessment for the project. Depending on the type of project and investment threshold required, IBS can provide guarantee up to a certain level.

Somalia potentially has fast economic progress, stability and drastic develop for both the short and long term. The head starters are likely to be the beneficiaries in the long term.

 

No:Investment SectorsModelGuarantee
1Agriculture/farmingPartnership structure by forming local partner e.g. 70;30 ratioIBS provides guarantee up to certain level
2Fishing Industry
3Livestock
4Minerals
5Real estate
6Cement
7Diary product
8Hotel and Tourism
9Health sector
10Agricultural Processing Factories
11Cotton
12Electricity
13Water
14Sanitations and Sewerage system
15Consultancy firms
16Airline transport services
17Education /Primary schools
18Advertisement industry
19Salt processing factory
20Fast Food/Bakery and coffee outlets
21Construction of Highways/Roads
22Real estate construction
23Waste management & recycling
24Insurance Services
25Authorized agency services

 

How the partnership Model works

The partnership models work by identifying the local partner already engaged in the business sector that the foreign partner is interested in, for example, Somalia has capacity to produce thousands of tons of fruits and vegetables; one of the most famous is the Somali Banana.

The model works by creating a local company with joint ownership between the foreign/investor partner and local partner identified through IBS. The investor partner can, for example, provide 30% of capital for the venture. After completion of the process of assessment, background checks and legal due diligence is performed.

Capital is provided by both partners; IBS can help if it required. Now the business is ready, in our example, finished goods are shipped and the profits shared as agreed. Other service industry can use this model with some changes to how the business is structured.

 

Hassan Yusuf - CEO International Bank of Somalia

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