Fostering a Vibrant and Inclusive Private Sector is Key to Somalia’s Resilient Growth

NAIROBI, June 26, 2024 — Since Somalia's private sector accounts for an estimated 95 percent of total jobs created, marshaling the private sector to support the country's development is critical for reconstruction, transitioning from fragility, and generating more inclusive economic dividends for it's people. The country also needs to focus on growth (to avoid falling back into debt), create jobs, and enhance economic opportunities for citizens.

Published today, the Somalia Country Private Sector Diagnostic (CPSD) notes that while private businesses have been remarkably resilient and presently provide most of the products and services on offer in the country, Somalia's productive tradable sectors remain subdued and fall short of providing a strong basis for structural transformation. Furthermore, private sector activity is concentrated on commerce and other, mostly non-tradable, consumption-driven services. This consumption-driven growth often benefits a few firms that leverage their market-dominating positions. Therefore, most Somali firms remain highly disadvantaged, leading to a "missing middle" and lower overall productivity and job generation. The report also finds that low economic integration and a minimal complexity of foreign direct investment (FDI) weigh on the productivity growth prospects of the Somali private sector, limiting opportunities for trade, technological advancement, and efficient resource allocation.

"Somalia can develop and deepen reforms that enable effective and equitable formal institutions and regulatory frameworks that facilitate private sector-led economic transformation," said Kristina Svensson, World Bank Country Manager for Somalia.

According to the CPSD, private sector development in Somalia is limited by: (i) critical policy constraints, including the country's deficient formal institutional, legal, and regulatory frameworks, the prevalence of informal institutions, the enduring impacts of corruption, the incidence of competing alternative governance arrangements, and the lack of an effective and inclusive national public-private dialogue (PPD) mechanism to ensure more effective, inclusive, and efficient reform processes; and (ii) the issues with access/availability and performance of a range of enabling sectors, including the financial sector, the energy sector, transport and logistics, ICT, water, education, and business services.

In this context, the CPSD highlights recommendations that could have the greatest impact on unleashing the Somali private sector, incentivizing short-term dividends, and enabling a private sector-led economic transformation in the medium to long-term. These recommendations are comprised in three groups:

1. Deepening reforms to establish legitimate, effective, and equitable formal institutions and regulatory frameworks for private sector-led growth;
2. Promoting private participation and improving public stewardship of key enabling sectors to facilitate an economic transformation in the medium to long-term; and
3. Improving growth and productivity of selected value chains for short- to medium-term dividends.

 
"Continued policy reforms will ensure that private sector participation continues to support Somalia's journey towards sustainable and lasting economic development," said Cheick-Oumar Sylla, IFC's Director for North Africa and the Horn of Africa. "The Country Private Sector Diagnostic highlights how the private sector can play an even greater role in unlocking the country's full potential."

The report also highlights private investment opportunities that are both feasible and critical to create markets in the near term, in key sectors such as energy and finance. In particular, the CPSD identified upgrading the on-grid energy infrastructure, supporting greater use of renewable technologies, investing in digital financial services, and expanding access to microfinance, as the opportunities with highest development impact and most feasibility in the current Somali context.

Fostering a vibrant and inclusive private sector in Somalia is crucial for inclusive and sustainable economic growth, job creation, and resilience against fragility, requiring concerted efforts to address policy and regulatory gaps, enhance infrastructure, and unlock investment opportunities across key sectors.

About the World Bank Group: The World Bank Group has a bold vision: to create a world free of poverty on a livable planet. In more than 100 countries, the World Bank Group provides financing, advice, and innovative solutions that improve lives by creating jobs, strengthening economic growth, and confronting the most urgent global development challenges. The World Bank Group is one of the largest sources of funding and knowledge for developing countries. It consists of the World Bank, including the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA); the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the International Centre for Settlement of Investment Disputes (ICSID). For more information, please visit www.worldbank.org, www.miga.org, and www.ifc.org.