financial solutions to unlock financial opportunities in Somalia

1. BREAKING THE CHAINS
SOMALIA
THE NEXT FINANCIAL
HAVEN?

2. UNLOCKING FINANCIAL
OPPORTUNITIES IN SOMALIA
Chukwuma .C. Benedict

3. SOMALIA
Location: Horn of Africa
• Eastern Africa, bordering the Gulf
of Aden and the Indian Ocean,
east of Ethiopia
Area:
• total: 637,657 sq km
• land: 627,337 sq km
• water: 10,320 sq km
Land boundaries:
• total: 2,385 km
• border countries (3): Djibouti 61
km, Ethiopia 1,640 km, Kenya 684
km
Coastline:
• 3,025 km

4. SOMALIA
• Its strategic location
made it the focus of
contention during the
cold war, with both the
Soviet union and then the
United states pouring in
weapons to maintain
their influence
• weapons later fell into
the hands of clan
warlords when the
regime fell.

5. SOMALIA - Military
• There are no Somali armed
forces
• Various groups throughout
Somalia are estimated to
control militias ranging in
strength from hundreds to
thousands
• Some groups possess limited
inventories of older armored
vehicles and other heavy
weapons
• Small arms are prevalent
throughout Somalia.

6. SOMALIA
Climate:
• principally desert; northeast monsoon (December to February), moderate
temperatures in north and hot in south; southwest monsoon (May to
October), torrid in the north and hot in the south, irregular rainfall, hot
and humid periods (tangambili) between monsoons
Natural resources:
• uranium and largely unexploited reserves of iron ore, tin, gypsum,
bauxite, copper, salt, natural gas, likely oil reserves
Land use:
• agricultural land: 70.3%
• arable land 1.8%; permanent crops 0%; permanent pasture 68.5%
• forest: 10.6%
• other: 19.1% (2011 est.)
Irrigated land:
• 2,000 sq km (2012)

7. SOMALIA
• Population:
• 10,817,354 (2016 estimate)
• Ethnic groups:
• Somali 85%, Bantu and other non-Somali 15% (including 30,000 Arabs)
• Languages:
• Somali (official), Arabic (official, according to the Transitional Federal
Charter), Italian, English
• Religions:
• Sunni Muslim (Islam)

8. SOMALIA
• Demographic profile:
• Somalia scores very low for most humanitarian indicators; Sufferings from
• poor governance
• protracted internal conflict
• Underdevelopment
• economic decline
• Poverty
• social and gender inequality
• environmental degradation.
• Despite civil war and famine raising its mortality rate, Somalia’s high fertility
rate and large proportion of people of reproductive age maintain rapid
population growth, with each generation being larger than the prior one.
More than 60% of Somalia’s population is younger than 25, and the fertility
rate is among the world’s highest at almost 6 children per woman – a rate
that has decreased little since the 1970s.

9. SOMALIA
Natural hazards:
• recurring droughts
• frequent dust storms
over eastern plains in
summer
• floods during rainy
season
Environment - current issues:
• Famine
• use of contaminated water
contributes to human
health problems
• Deforestation
• Overgrazing
• Soil erosion
• Desertification

10. SOMALIA
• A lack of educational and job opportunities is a major source of
tension for Somalia’s large youth cohort, making them vulnerable
to recruitment by extremist and pirate groups.
• Somalia has a very low primary school enrollment rates – just over
40% of children are in school
• Among the highest youth unemployment rates
• A low life expectancy as a result of high infant and maternal
mortality rates, the spread of preventable diseases, poor sanitation,
chronic malnutrition, and inadequate health services.
• Third highest number of refugees after Syria and Afghanistan due
to internal conflicts in the last decades

11. SOMALIA - Economy
• Despite the lack of effective national governance, Somalia
maintains an informal economy largely based on livestock,
remittance/money transfer companies, and telecommunications.
Somalia's government lacks the ability to collect domestic revenue
and external debt
• Agriculture is the most important sector, with livestock normally
accounting for about 40% of GDP and more than 50% of export
earnings. Nomads and semi-pastoralists, who are dependent upon
livestock for their livelihood, make up a large portion of the
population.
• Economic activity is estimated to have increased by 3.7% in 2014
because of growth in the agriculture, construction and
telecommunications sector.

12. SOMALIA - Economy
GDP
• $5.8 billion (2014 est.)
GDP - real growth rate:
• 2.6% (2010 est.)
GDP - per capita (PPP):
• $400 (2014 est.)

13. UNLOCKING FINANCIAL
OPPORTUNITIES
• Somalia is in dire need of infrastructure
development and financing
• Very rough estimates indicate that at least $1
trillion of annual investment is required to
attain sustainable development goals in
Somalia
• Over the years, Somalia has been large
benefactors of official development assistance
from developed countries

14. • It is clear that official development assistance, on
its own, would be incapable of meeting financing
needs in Somalia.
• This is not to let off the hook, the countries that
have been helpful, as ODA could, through
leverage and catalytic support, help mobilize
substantially more private capital
• It will need a more ambitious financing for
development strategy that can mobilize much
more public, private, and “blended” finance

15. • Financing infrastructure projects would
require a multi-pronged approach that
combines and blends several forms of public,
private domestic and private foreign
investments.

16. Public financing
• This is an important but highly limited source of
financing.
• With a largely informal working class, the fiscal
tax system is barely existent. The tax to GDP ratio
dips well below the 10% seen in other developing
countries.
• The low GDP and low per capital is further
compounded by several systemic loopholes that
drives corruption.
• A poor legal system ensures that corrupt
individuals enjoy impunity and social idolization.

17. • Increasing public finance towards infrastructure
will require a committed and honest government
with a strong respect for the rule of law.
• Pastoral farming constitutes 40% of GDP and can
be further improved. Nomadic farming in Africa
has been associated with conflicts due to
destruction of farmlands and encroachment into
land territories. This is also seen by the activities
of the fulani herdsmen in Northern Nigeria.
• The government should introduce better and
modern structure for pastoral farming. Grazing
areas should be mapped out and use of irrigation
and other modern tools to boost agriculture.

18. • Natural resources if well managed, could be a
good source of revenue. Investments into mining
of uranium, iron ore, bauxite, tin etc may be a
profitable both short and long term
• Very importantly, the governmemt needs to plug
loopholes and curb corruption. This can me done
by strengthening the legal system and ending
impunity
• It is only after this, can it expand its tax coverage
to include the informal majority class

19. • With a coastline spaning over 3km, the trade
and tourism potential is vast. The government
should create an enabling environment to
attract private investors and grow the
commerce and hospitality industry

20. Public financing suggestions
• increase tax coverage
• Plug loopholes/ curb corruption
• Exploit natural resources
• Social / soft loans
• Create and grow industries to diversify the
economy

21. Foreign flows
• Several foreign options are available for
Somalia to get funds for development. They
include the following;

22. Foreign finances
Finances Source
Official development assistance OECD
Foreign direct investment Private international firms
Remittances Households
Concessions, loans Multilateral development financial
institutions
Grants NGOs, foundations, private philanthropy
Climate finance Industrialized nations
Equity International capital markets
Diaspora bonds
Soverign wealth

23. • The diaspora bond could potentially be a
viable source of financing. Somalia recieves
$1.6billion from remittances yearly. This is
presently being threatened by several
economies making it more difficult for money
to leave their system
• The government could set up a bond for the
diaspora, that gives citizens living abroad the
chance to invest in the development of their
home country at an interest

24. Private finance
• Domestic
• Foreign (FDI)

25. FDI
• Foreign direct investment in Somalia is low, 3% of
GDP.
• Foreign investors are reluctant to engage in Somalia
because of
1. Perceived political risks
2. Small size of markets limiting economies of scale and discouraging
competition
3. Macroeconomic and regulatory uncertainty making business risky
4. High transport costs and infrastructure bottlenecks elevating
production costs
5. Information asymmetries and coordination problems making
pioneering investments difficult

26. Private finance
• The private sector lies at the center of a
sustainable development model.
• Recognizing the pivotal role of the private
sector in supporting economic development is
key to financing development

27. Private financing
• This is potentially a HUGE source of financing
for infrastucture
• The logic and psychology driving private
finance is very different from the motivations
for public finance
• Private investments are driven by two
fundamental variables: risk and return.

28. • Although infrastructure investments are
potentially hugely profitable for the economy as
a whole, they are especially subject to market
failures.
• Markets alone will often fail to provide these
services – either because an infrastructure
project would not be profitable on its own, or
because the associated risks are too large or too
costly to insure.
• As a result, infrastructure investment from the
private sector in many cases cannot be realised
without some form of public support.

29. Why must government support the
private?
• The direct payoffs to an owner of an
infrastructure project may not cover its costs,
but the indirect externalities can still be
hugely beneficial for the economy as a whole.
• Externalities include large benefits of
infrastructure services to a wide range of
other sectors. Such benefits are
fundamentally difficult to measure.

30. • The development benefits from investments
made by private firms come from:
(1) the contributions provided to government
revenues
(2) the contributions provided to jobs and incomes
(3) the expansion of access to and quality of
infrastructure and social services to serve a
broader segment of the population, including
many poor and near-poor households
(4) the innovation and cost competitiveness that
private firms can generate.

31. • To accelerate support for the private sector in
Somalia, the government would need to work
more closely with multilateral development
finance institutions, world bank group and other
developmental agencies in order to channel
resources in the right direction
• This will improve accountability, efficiency and
prevent duplications

32. Innovative financing
• Financing infrastucture and development in
Somalia would need a blend of public and private
financing.
• Bold and innovative sources of finance may assist
to address the infrastucture deficits.
• The Somali government may invest in
international capital markets, trustfunds, and in
other countries with potentially high returns
using its savings or soverign wealth funds.

33. Equities and bonds now form a significant
% of GDP of developing countries

34. • Innovative financing can be sourced
domestically by taking advantage of large
pools of monies not needed immediately. This
includes
• Insurance funds
• Contributory pension funds
• Religious organizations
• University / institutional trustfunds

35. CONCLUSION
• Unlocking financial opportunites in Somalia will
require that several sources of financing be
harmonized by the collaboration of public and
private sectors
• The government of Somalia has alot to do to
ensure it creates an enabling environment for
private investors
• The private sector plays a critical role in
development, creating sustainable pathways out
of poverty for millions in Somalia.