The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
Somalia Investment Climate Statement Executive Summary
The Federal Government of Somalia (FGS) welcomes foreign direct investment and offers a variety of opportunities for investment, especially in natural resources and agriculture, but remains a difficult place to do business. The government’s collapse in 1991 led to a period of conflict and clan warfare. While there has been progress since the establishment of the FGS in 2012, potential investors still face challenges such as the lack of a comprehensive legal and regulatory framework, a civil judicial system incapable of solving disputes and enforcing contracts, and endemic corruption. Investors also face threats from the al-Shabaab terrorist group, which controls portions of the country and routinely extorts taxes from businesses. Businesses also face challenges moving money into and out of Somalia, enforcing protection of intellectual property, and maintaining access to inexpensive and reliable electricity.
The government has pursued a policy of economic reforms that broadened the government’s tax base and strengthened tax administration, resulting in steady increases in domestic revenue for the first time in two decades. These reforms enabled Somalia to re-engage international financial institutions and, in March 2020, the IMF and the World Bank approved Somalia’s eligibility for debt relief under the Heavily Indebted Poor Countries Initiative. If Somalia takes the additional steps required to reach “Completion Point,” the final stage of debt relief, the country’s total external debt will be reduced from $5.2 billion to $557 million, or nine percent of GDP.
Somalia’s economy is rebounding from the “triple shock” that ravaged the country in 2020: the COVID-19 pandemic, extreme flooding, and the locust infestation. GDP grew at two percent in 2021, mostly due to household consumption driven by increased remittances, as well as new export markets for goods. The IMF estimated 1,7 percent GDP growth in 2022 and forecasted 2.8 GDP growth in 2023.
Low human development indicators, expensive and unreliable electricity, poor roads, a lack of reliable internet access (especially outside urban areas), and pervasive government corruption constrain investment and development. Moving money into and out of Somalia remains difficult, and the financial sector is constrained by the lack of private sector correspondent banking relationships. The main obstacles are weak “know your customer” (KYC) capabilities and concerns that al-Shabaab is using Somalia’s financial institutions to collect, store, and move money. To address these concerns, the Financial Reporting Center (FRC), Somalia’s financial investigation body, hired its first investigators in 2019 and is slowly improving its capabilities to investigate illegal transactions. Additionally, the Central Bank of Somalia (CBS) is becoming increasingly professional and asserting its jurisdiction over additional financial activities, such as mobile money.
For more information, please visit the U.S. Department of State Investment Climate Statements website.