Somalia government starts talks with regional investors

Friday, March 22, 2013
By David Musyoka and Peter Mutai

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NAIROBI - The Somali government has started talks with East Africa Chamber of Commerce, Industry and Agriculture(EACCIA) as it seeks to attract regional investors to help rebuild its economy.

The Horn of Africa nation has not been in the mainstream regional business since the early 1990s when the central administration there collapsed, giving way to a civil war that has nearly ended following the intervention of the African Union through the African Union Mission in Somalia (AMISOM).

The discussions have been ongoing and will culminate in a visit there by members of the EACCIA later this week.

“We have been in discussions with the Chambers of Commerce of Somalia and the Ministry of Trade to scout for any business opportunities that regional investors can take up,” said Chairman of the EACCIA James Mureu in an interview with Xinhua on Monday.

The delegation will visit Mogadishu from Wednesday this week and will not be seeking opportunities in specific sector but will instead explore general opportunities that may interest regional business people.
Mureu said the delegation will thereafter write a report that will be circulated to all respective chambers of commerce in member countries.

Analysts say the Horn of Africa nation has improved security which has enhanced investor confidence, including those seeking contracts in reconstruction in a country where infrastructure has been reduced to a bare minimum by over 20 years of war.

Somalia is considered a virgin investment market usually characterized by high levels of return on investment, raising the appetite for regional investors.

Britain is due to convene an international investment conference for Somalia in London in May to discuss new approaches towards the Horn of Africa nation.

British Ambassador to Somalia said the conference will be attended by representatives from over 40 governments.

“We are seeing some significant political and security developments across the country—changes that offer great opportunities for long-term stability,” Baugh who is based in Nairobi said recently.

The country however has pockets of severe insecurity and active Al-Shabaab cells that are currently staging suicide bombings, a factor that may discourage some investors.

Investors venturing into the country will therefore require investing heavily in security and high insurance premiums for their premises and personnel because of the high risk nature of the country.

Investors will also face the challenge of poor infrastructure as most has been destroyed during the more than two decades of civil war.

Another challenge investors will face is lack of adequate mass pool of consumers with money to spend as most have been disempowered financially after many years of war.

Some of the sectors that will offer immediate business opportunities for investors include the reconstruction, as buildings, roads, power systems and communication infrastructure will need to be rebuilding from the scratch.

The development aid flow that is starting to flow in Somalia after the formation a widely accepted government last year is expected to provide financing for such projects that will largely be taken up by the private sector.
Humanitarian work, to help build schools, hospitals, housing among other humanitarian relief requirements will also provide opportunities for contractors.

The United Nations last week partially lifted an arms embargo to Somalia, offering opportunities for legitimate arms suppliers, especially of light weapons to cash on the demand.

East Africa Community (EAC) investors want to take the first steps to venture into the country to earn the early dividends of investing there before foreign companies that may be well capitalized set up base.
The investors will however face stiff competition from their counterparts in Turkey and Britain, the two countries that took early risk of setting up diplomatic presence in the country.

But EAC investors may benefit from the proximity to the country, pre-existing business relations that may have been forged when Somali business people set up operations in EAC during the war.

A huge segment of Somali business people have benefitted from hospitality offered by the EAC citizens, most prominent being their accommodation in Nairobi’s Eastleigh Estate where they set up thriving clothing import businesses supplying to the rest of the EAC.

Others have bought property in the region and set up joint businesses with locals, further offering opportunities for joint ventures between Somali and EAC business people.

Among the main immediate beneficiaries of the peace in Somalia could be Islamic finance institutions. In December, Takalful Insurance of Africa (TIA) said it will open new branches in Somalia and Somaliland this year.

The company said it will spend 10 million U.S. dollars for the expansion into greater Somalia and other EAC countries.

The African Development Bank (AfDB) said it is keen to enter Somalia but lending to the country will wait longer until the country is able to service the outstanding loans.

The regional director for AfDB’s East Africa Regional Resource Center Gabriel Negatu said in an earlier interview that despite the bank’s interest to re-engage with Somalia, loans are not possible.

“We have started to engage with sections of the Somalia republic that are peaceful. We are discussing to see what kind of projects we can work on and how much assistance we can commit but it will be purely on development assistance basis,” said Negatu.

Records from the AfDB indicate that un-serviced debts attributed to Somalia totaled 81 million dollars as of December 2010.

The bank’s operations in Somalia were discontinued early 1991 following the outbreak of the civil war.
It would have been much easier and more profitable however for EAC investors to get into Somalia if the country’s application to join the EAC had been approved last year.

EAC deferred the application, together with that of South Sudan, until the two countries are able to build relatively stronger institutions. An admission would have meant that EAC investors will move goods and manpower to Somalia more freely.

Somalia’s political leadership has taken bold steps towards political stability which is crucial for the Horn of Africa country, it is evident that the structures for doing business in Somalia.

Somalia has been undergoing a peace and national reconciliation process, with a series of landmark steps that have helped bring an end to the country’s nine-year political transition period and the resulting security vacuum which rendered Somalia one of the most lawless States on the planet.

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