Somali diaspora send home billions despite set backs

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By Somali Investor Correspondent

The men and women who went to search for better economic prospects outside the country have their investments distributed across 22 sectors, with the greatest concentration in agriculture, real estate and education.

Thousands of Somali in the Diaspora send home at least $1.3 billion every year to support their families in basic necessities like food education and health care.

A diaspora remittance survey commissioned by the International Fund for Agricultural Development and carried out in 33 countries also revealed that those in the diaspora sent an average of $430 per month to family and friends in Somalia regions.

In a rather little known business twist, the research shows that nearly 60 per cent of respondents reported being active investors with 33 per cent having recently invested in Somalia. Active investors responded from 12 countries across Africa, Europe and North America, the highest concentration of which (78 per cent) came from only four main areas: The Somali regions, the UK, Canada and the US (in descending order).

The researchers say this is a positive indicator for the country finding its feet after decades of conflict and economic turmoil. They however warn that more will need to be done to see the horn of Africa Nation on its stable financial footing.

“Diaspora communities around the globe contribute to the socioeconomic development of their home countries through remittances, investment, human capital transfer, trade facilitation and philanthropy. While the Somali diaspora has played a role in mitigating the worst of the humanitarian disasters through remittances, this is a short-term solution. Increased diaspora investment will be necessary if their financial transfers are to be effectively leveraged for sustainable, long-term economic development in the Somali regions,” note the Somali Diaspora Investment Survey seen by The Somalia Investor Magazine.

The World Bank estimates that $1.3 billion flowed into Somalia from the worldwide diaspora in 2014, equal to 24 per cent of the country’s Gross Domestic Product. In addition to remittances, which are largely spent on monthly household expenses, diaspora funds contribute significantly to private sector investment.

“The top five most frequently cited obstacles to investing are political instability, security concerns, absence of rule of law, corruption and an inadequate banking system. The top five obstacles are less about the actual number or quality of investment opportunities or logistics than the systemic institutional obstacles reflecting the current state of governance in the region,” Somali Diaspora Investment Survey.

Somalis across the borders are said to be currently involved in investments valued between $5,000 and $100,000, with the majority being between $5,000 and $50,000. The research also said nearly one third of respondents indicated having made investments in the Somali regions in the past three years.

The men and women  who went to search for better economic prospects outside the country have their Investments distributed across 22 sectors, with the greatest concentration in agriculture, real estate and education (in descending order).

According to the survey conducted between March and August 2015, Somalis in diaspora are most likely to trust business partners and local family members to originate and recommend investment opportunities. Friends and international institutions came in as the third and fourth most important sources of investment opportunities, but their influence on origination was less than half the level of the first two. The diaspora community, local chambers of commerce and other agencies play a significantly smaller role in investment origination.

Without clear channels and available investment vehicle back at home, the survey found out that a majority of those living abroad had resorted to directly investing in the country rather than be bridged through third parties.

“Many expressed a preference for direct investment into a single business, although this is more significant among active investors. In comparison, those who did not identify as active investors were more likely than those who did to prefer co-investments with other diaspora members and mutual funds as forms of investment, due to their greater risk aversion or relatively weaker wealth position,” said the survey done by Shuraako (a project of the One Earth Future Foundation).

While multiple motivations were found to influence investment decisions of those living abroad, certain trends including financial return, social good, and the potential for a future return to Somalia formed the key drivers for investment back home.

Prominent among the criteria was the motivation to protect and grow capital, though sizeable numbers of respondents also noted social good as being a motivating influence. To ensure capital protection and growth, investors seek three primary assurances: Well-developed business plans, profitability and high growth potential. When asked, 85 per cent of respondents claimed they placed capital with the goal (both express and in addition to profitability) to create jobs. They also indicated placing investments that pursue future financial security or housing for their own potential return to Somalia.

The survey found out that almost half of those in the diaspora identified themselves as having a “moderate” level of risk tolerance, with 34 per cent saying their risk tolerance as “low” or “very low,” while only 19 per cent  identifying as “risk tolerant” or “risk acceptant.”

The resilience was lauded with many of the diaspora communities having cut links with the country more than ten years ago. Active investors were moderately more likely to describe themselves as more risk tolerant than the total respondent population.

The Somali business community (including chambers of commerce, business associations, and the private sector); Somali financial institutions; diaspora members; the global community (including governments, multilateral organizations, development actors and international financial institutions would be crucial in identifying the gaps to address to create a smooth path home for potential investors.

There is also a growing need  to  develop financial and business infrastructure, improve the quality of Somali market information, connect diaspora investors around the world, develop diaspora-specific investment products, and leverage locked-up real estate value through hybrid mortgage products.