As it finds pace for its next steps, Somalia drafts a National Investment Strategy. Here is what you need to know about it
The National Investment Strategy identifies itself as a deliberate attempt at promoting the attraction and retention of specifically targeted investment that will eventually lead to growth, revenues and employment for the people of Somalia.
The creation of the National Investment Strategy (NIS) was informed by the fact that in past few decades, billions of dollars from the international community has been spent in the country in the name of humanitarian and development assistance.
Knowing that the right kind of investment rarely occurs spontaneously (investment has to be planned and executed effectively if it is to be meaningful). In a new momentum to reform holistically the entire investment eco-system, the Ministry of Planning, Investment and Economic Development has embarked on formulating a national investment strategy that is widely consulted and can lead to sustained foreign investment inflow.
The National Investment Strategy outlines key steps, the rationale behind those steps, the structures needed and the execution processes, key partners and stakeholders and approaches from international experiences that have been successful elsewhere in the world.
The strategy is largely Enterprise Driven as it seeks to tap into the world of private equity that has direct impact into the local enterprises and create needed jobs. Why is the draft document so important? The document reads: “Investment levels in Somalia remain low, with far too great a percentage spent on humanitarian over development assistance.
While domestic investors have capital, this private capital does not build critical production (public) infrastructure. The transport sector master plan – for example – was completed three years ago and is yet to be implemented. Within this context, government is aware of the global investment trends, which the NIS will align with and benefit from, if the history of under-investment in Somalia is to be overcome.”
The trends referred to in the document include Somali Diaspora remittance trends (Which is critical to improving the balance of trade and a lifeline to key private sector investments.), Foreign Direct Investment -FDI- trends (Which fell by 19% in 2018, further down from 2017, bring the total level of FDI back to a level seen at the end of the great financial crisis. The decline was concentrated in developed countries where FDI inflows fell by 40%. In Somalia, levels of FDI have increased though.), trends in regional economic cooperation and integration (Which in the past few years has emerged as a critical driver of economic transformation in the Horn of Africa.), and finally trends in Overseas Development Assistance -ODA-(Which has shifted from grants and concessionary loans towards a blended finance modality where ODA is deployed to de-risk the expansion in private equity.).
“The NIS reflects on this shift at a critical time in Somalia’s history and accepts that meeting the Sustainable Development Goals (SDGs) will largely be achieved by private capital led trade and investment, not aid.”National Investment Strategy (NIS) document.
It is also known that the economy in Somalia is largely dependent on a small number of sectors creating economic activity, employment and wealth in the country.
The right types of investment
To do this, NIS targets the right types of development for Somalia, attracting and retaining both domestic and foreign investment, establishing investment modalities that increase both domestic and foreign investment and in a mobilization move, it seeks to improve the coordination of private, donor and public financing and aim them at development goals.
How exactly does the government plan on going about this?
As brought out clearly in the NIS document, “The overall approach adopted by government is to support reforms on structures that impede business decisions and accelerate investment promotion while improving investment promotion, building positive attributes, improving Somalia’s image abroad and targeting specific investments.”
The government hopes to use data about Somalia to identify the most viable development options. Using this evidence based approach; the government will have a better understanding and better focus on obstacles to expansion of private capital or land and labor markets, trade, not to forget the business and investment climates. It is universally agreed that working with accurate, verifiable scientific data increases the chances for success in any project.
Focus on reforms
At the moment, the government of Somalia is engaged in several reforms in different sectors of the economy. These reforms have been ongoing since 2017 or before, but at the moment the pace of implementation of the reforms has picked up. The IMF Staff Monitored Program (SMP), Pubic Finance Management (PFM), Public Administration Reform (PAR) and revenue collection are some of the ongoing reforms that the government wants to use to enhance business and trade environment in the country.
The NIS document further outlines that the government plans on; “Using considerable investments in improving the business environment in key growth sectors, including transport, power, telecommunications and fisheries. The NIS document shows how the government will concentrate on dealing with the most critical impediments to the expansion of private investment. This means paying
very keen attention to tax administration, public spending and the fiscal markets. The NIS document explains; “Unless regional cooperation is enhanced, the trade and transit potential of Somalia will remain impeded. Unless the export base is expanded, the trade and current account deficits will continue to threaten stability.
Unless jobs are created to absorb the youth bulge, migration and brain-drain will continue. Unless Small to Medium Enterprises (SMEs) is incentivized, and business development services equitably provided, critical sectors will remain constrained.”
Over the course of the next 10-20 years, the government plans to achieve a GDP growth rate of above 5%. This is achievable if the government prioritizes industries and markets, zeros in on product space development, pays attention to and prioritizes value chain enhancement and export promotion. This approach will focus on accelerating the output of Somalia’s production at all levels in various industries.
On investor protection, which is a very key aspect of accelerated growth in any country, the NIS document says that using various legislative measures including the completion and enforcement of the Company Law presented to the Cabinet on February 19th 2018 will come in handy. This law deals specifically with registration of companies, closure of business and the provisions that govern how foreign and local investors can set up business in the country. Additionally, Somalia eyes to formulate investor protection policy that will comprehensively address major investor protection requirements.
Verbatim, a section of the NIS document in part reads: “Government will focus on protecting investor rights, including minority shareholders, against misuse of corporate assets by directors for their personal gain. It will also protect shareholder rights, order governance safeguards and corporate transparency requirements that reduce the risk of abuse”.
Other strategies that the government plans on using to attain its NIS objectives include; infrastructure financing, developing the skills of the workforce, improving regional cooperation, accelerating revenue collection, courting foreign direct investment, aggressive investment promotion and blended financing.
Source NIS draft document