Creating a stock exchange for Somalia

Benchmarking with the Nairobi Securities Exchange ongoing as Somalia hopes to list her first company before the year ends

Abdirahman Yusuf

The Somali Economic Forum (SEF), a group of professionals and businessmen in and out of Somalia, is mooting the idea of establishing a stocks exchange to bring investors into the country’s companies. A stocks exchange will encourage more investors (both local and foreign) to buy stakes in listed firms and pump in capital to provide the finan­cial muscle necessary for expansion. The Forum’s Managing Director Hassan Dudde says their aim is to ensure that the companies in Somalia are able to create wealth to other people willing to put in capi­tal and reap dividends from profits.

“We have so many people who want to invest in this country but they have no formal channel to do so. We believe that once we have the stock ex­change running, it will be a smooth ride for invest­ments into this country. We hope to have several profiles with ready statistics to give, which is what listed companies provide to enable easer invest­ments,” Mr Dudde says.

Investment levels in Somalia are still very low, with net investments accounting for only about eight per cent of GDP, according to 2014 World Bank es­timates. Potential investors are in the dark about which companies to put money in for best returns. Pres­ently, nothing compels companies in Somalia to make their financial reports public.

SEF believes that a structured investment channel would enable even foreign investors to inject capital into significant industries such as livestock, which is today So­malia’s largest.

Livestock is the country’s major export commodity, ac­counting for more than 80 per cent of total exports. The industry has been recovering following the lifting of a nine-year ban on imports of livestock from Somalia to prevent the spread of Rift Valley fever. Today, exports of live animals from the country are on the increase at both the Berbera and the Bosaso ports.

According to FAO, Somalia exported slightly more than five million heads of livestock to markets in the Gulf of Arabia in 2014 (4.6 million goats and sheep, 340,000 cattle, and 77,000 camels), with an estimated to­tal value of U$360 million. Early March this year, Somalia exported over 2,000 camels to Egypt for the first time in two decades, following an agreement signed between the two countries.

Such lucrative opportunities have not received sufficient attention by foreign investors because of limited under­standing of the market. It is believed that listing of compa­nies would change all that.

“Starting from a scratch is not easy but we want to give venture capitalists a chance in Somalia. The idea is to pool in resources and create robust companies that can stand the test of time,”

– Hassan Dudde, Managing Director for the Somali Economic Forum

A stock exchange will also help investors to avoid risks, given the transparency associated with listed companies. Such companies will have to involve shareholders in deci­sion making and transparently share profits and losses.

SEF is now benchmarking with the Nairobi Securities Exchange (NSE) to understand the dynamics applicable in Somalia as the stock market hopes to list her first company this year. The forum would like major companies in Somalia to team up with it in setting up a stock exchange that has the confidence of the business community.

Companies will need to have existed for at least two years to qualify for listing. SEF says start-ups will be care­fully considered since they are the ones in greater need for capital.

“Starting from scratch is not easy, but we want to give venture capitalists a chance in Somalia. The idea is to pool in resources and create robust companies that can stand the test of time,” Mr Dudde says.

Bigger and stronger companies are crucial for achieving the high rates of growth, which is necessary to significantly reduce poverty in the country. This will require increased mobilisation of domestic and foreign savings to support higher rates of private sector investment.

The financial sector needs to build the correspondent banking relationships necessary for issuing letters of credit, and to provide banking services to the government, Soma­lia investors, and small and medium-size enterprises.

As a small country with low GDP, Somalia can ill afford to balkanise its economic space. To increase economic effi­ciency throughout the federal territory, goods, money, and people should be highly mobile.

Federal fiscal arrangements should be configured to promote a common domestic economic space to encour­age direct investment and an enabling business environ­ment.

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