Promoting economic growth and investment in Somalia

Project:
Promoting economic growth and investment in Somalia
Location:
East Africa
Conducting a study to inform DFID's re-engagement in private sector development in Somalia

After decades of violence, which have left the country’s economy largely dependent on its informal sector, aid and remittances, the process of conflict resolution and management is crucial for Somalia’s economic development. Private sector development programming is an integral part of this. Recognising the influence of the Somali private sector can help deliver peace dividends in the form of job and consequently income creation, access to services, security and stability, equitable resource distribution and good governance, and consequently lower levels of poverty for many people. Conversely, neglecting the private sector could allow the perseverance of spoilers in the business elite and would fail to create employment, income and business opportunities for the majority of the population, which would be detrimental to Somali’s stability and economic development.

In January 2013 the Department for International Development asked us to assess the overall business enabling environment, the main sectors of the economy, the binding constraints to growth and investment, and how the local and diaspora-funded private sector, which is particularly vital in the healthcare, education and water sectors, are overcoming these constraints. We carried out thorough analysis of the issues, combining research and field work in Mogadishu, Garowe, Bosasso, Nairobi, Dubai and London.

Using a market systems approach, our team identified a deficit both in technical and business skills and in market and regulatory information as binding constraints to growth and investment in the informal economy, in the short to medium term. We also recognised that over the medium to long term, the lack of a formal, functioning enabling environment would increasingly act as a constraint to growth.

On the basis of this analysis, we recommended a dual approach to address immediate impediments for businesses operating in the informal economy, whilst simultaneously laying the policy and regulatory foundations of a formal enabling environment, a process that takes many years. Within this framework we developed a selection of programme options for DFID. Firstly, we recommended establishing a business innovation centre that would offer skills and information. Secondly, we recommended an investment climate programme and thirdly, a means to ensure that the benefits of growth and investment are spread throughout the country.

A majority of ministers and civil servants expressed a clear commitment to a federal Somalia and acknowledged that the private sector would be the key driver of growth in the economy
Private Sector Investment and Barriers to Growth Analysis in South-Central Somalia and Puntland, June 2013