Somalia: 2020 Investment Climate Statements

Somalia Eligible for Debt Relief

Somalilandsun: Somalia moved from a transitional government to a globally recognized government in September 2012, after a new president was elected for the first time since 1991. In another successive peaceful transfer of power, the current government was elected in 2017 and has pursued an aggressive policy of economic reforms that allowed the country to re-engage the international financial institutions. The country has revived key economic institutions and ministries and initiated a capacity building programs for the existing ones, such as the country’s central bank. The ongoing economic reforms have broadened the government’s tax base and strengthened tax administration, leading to an increase in domestic revenue for the first time in two decades. However, the country still faces serious security challenges and political uncertainty. The leadership of the federal government and federal member states are in a constant political tussle that hinders efforts at state building, while the terrorist group al-Shabaab remains a threat to stability and security.

Generally, the government welcomes and seeks foreign direct investment; however, the current investment climate poses considerable risks for U.S. or other foreign investors. Formal economic activity is largely restricted to Mogadishu and the regional capitals that are under the control of the federal government or regional administrations. Somalia lacks a legal framework that would provide the basis for safe investment, including a strong judiciary, enforceable property rights and arbitration and dispute resolution processes. Corruption is rife in all government sectors and civil courts are largely nonfunctional. Despite economic reforms, according to Transparency International’s perception index, Somalia was perceived to be the most corrupt country in the world again in 2019.

Despite this, there has been a positive economic trend over the past couple of years. According to the International Monetary Fund (IMF), economic growth has rebounded, inflation has slowed, and the trade deficit has narrowed. Somalia’s Ministry of Finance reports domestic revenue collection in 2019 reached $230 million, up from $183 million in 2018. Economic sectors such telecommunications, agriculture and construction have experienced steady growth in recent years. The current administration has undertaken crucial reforms, including biometric registration of security personnel, paying civil servants by direct deposit, and fighting rampant corruption in the public sector. This has significantly raised the confidence of the Somali people, as well as Somalia’s international partners. Further, Somalia’s government is inviting bids for an offshore hydrocarbon licensing round.

Reflecting Somalia’s significant progress over the last five years, in March 2020, the IMF and the World Bank announced that Somalia has made commendable economic reforms under the successive IMF Staff Monitoring Programs (SMP), and reached debt relief Decision Point under the Highly Indebted Poor Countries (HIPC) program. This milestone will keep Somalia on an internally monitored program of assistance while allowing its economy to integrate into the global economic system after 30 years of relative isolation. Continue reading