After decades in which the national conversation was dominated by security, humanitarian response and state-building, the country’s next defining challenge is economic transformation. The question is no longer whether Somalia deserves investment. It is whether Somalia is becoming the kind of place where investment can flourish.
By Abdikarim Jama
The release of the African Development Bank’s Country Focus Report 2026 for Somalia has come at a more important moment. Beneath its technical analysis lies a message that should resonate far beyond ministries, boardrooms and development agencies. Somalia’s future will increasingly be determined not by the generosity of donors but by the confidence of investors. For much of the past three decades, development financing has been shaped by humanitarian assistance, concessional lending and external support. That model, while indispensable during periods of crisis, is gradually giving way to a far more competitive global environment in which countries must attract private capital by demonstrating institutional credibility, sound governance and economic predictability. Somalia is no exception. Indeed, the report argues that mobilising development finance at scale has become the country’s defining economic challenge.
Somalia’s economy expanded by 3.0% in 2025, down from 4.0% in 2024, as drought once again exposed the vulnerability of an economy still heavily dependent on agriculture and livestock. Growth is expected to recover only modestly to 3.1% in 2026 and 3.4% in 2027, suggesting that resilience alone will not deliver the pace of transformation required to create jobs for one of Africa’s youngest populations.
AfDB’s Report 2026
The numbers tell a compelling story. Somalia’s economy expanded by 3.0% in 2025, down from 4.0% in 2024, as drought once again exposed the vulnerability of an economy still heavily dependent on agriculture and livestock. Growth is expected to recover only modestly to 3.1% in 2026 and 3.4% in 2027, suggesting that resilience alone will not deliver the pace of transformation required to create jobs for one of Africa’s youngest populations. More striking still is the Bank’s estimate that Somalia faces an annual development financing gap of approximately US$19.6 billion—a figure that dwarfs current domestic resources and illustrates the scale of investment required to finance infrastructure, productive industries and structural transformation. In a world where concessional finance is becoming scarcer and global capital increasingly selective, the implication is unmistakable: Somalia must compete for investment, not simply appeal for assistance.
This represents more than an economic adjustment; it is a philosophical shift in the way nations develop. Aid agencies naturally ask where needs are greatest. Investors ask where opportunities are safest. Development partners are often prepared to tolerate institutional weakness if the humanitarian imperative is sufficiently compelling. Capital markets rarely are. Investors assess regulatory certainty, contract enforcement, political stability, taxation, financial infrastructure and the efficiency of public institutions long before they examine geological surveys or demographic projections. Countries therefore do not attract investment merely because they possess opportunity. They attract investment because they reduce uncertainty.
That distinction is particularly relevant for Somalia. Few countries have demonstrated greater entrepreneurial resilience under more difficult circumstances. Long before the state had fully re-established itself, Somali businesses were building telecommunications networks, expanding mobile money services and maintaining one of Africa’s most vibrant trading communities. Markets evolved because necessity demanded innovation. Entrepreneurs solved problems that institutions could not yet address. Mobile payments became commonplace while many wealthier economies were still dependent on cash. Money transfer operators connected millions of Somalis across continents. The private sector proved repeatedly that economic activity could survive even when public institutions remained fragile.
Yet resilience should never be mistaken for a substitute for institutions. Entrepreneurs can build companies; they cannot independently finance ports, industrial zones, transport corridors or national energy systems. Families can establish businesses, but they cannot modernise an economy. Diaspora remittances can sustain consumption, but they cannot by themselves finance industrialisation. Sustainable development ultimately requires patient capital, and patient capital has always been remarkably patient about one thing above all else: waiting for institutions to mature before making long-term commitments.
Fortunately, Somalia possesses competitive advantages that extend far beyond resilience. Geography alone has endowed the country with extraordinary strategic significance. Situated along one of the world’s busiest maritime corridors and possessing Africa’s longest mainland coastline, Somalia occupies a position that connects African markets with the Gulf, Asia and beyond. Its youthful population represents a demographic dividend that many ageing economies increasingly envy. Its private sector remains among the most innovative on the continent, while its diaspora constitutes not merely a source of remittances but a global network of entrepreneurs, professionals and investors capable of transferring knowledge as readily as capital.
The financial sector offers another reason for cautious optimism. Although formal banking penetration remains relatively modest, Somalia has quietly become one of Africa’s most digitally connected financial ecosystems. According to the AfDB, mobile banking access has increased from 73% in 2017 to approximately 85% in 2025, while the Central Bank has introduced the Somalia Instant Payment System alongside a unified national QR payment standard and the adoption of the International Bank Account Number (IBAN). These reforms may appear technical, but they carry profound implications. Efficient payment systems lower transaction costs, improve financial inclusion, strengthen formalisation and ultimately make economies more attractive to domestic and international investors alike. They demonstrate that institutional progress is not measured only by new legislation but also by the quiet modernisation of systems that enable commerce to function more efficiently every day.
None of this should encourage complacency. If anything, it reinforces the urgency of reform. Somalia’s fiscal position illustrates both encouraging progress and significant remaining challenges. Tax revenues increased by 24% over the past year, lifting the country’s tax-to-GDP ratio from 1.1% in 2014 to 2.2% in 2025. This represents genuine progress in domestic resource mobilisation, driven in part by digitalisation, customs reforms and improved tax administration. Yet the figures also highlight how much work remains. Relative to most African economies, Somalia continues to raise exceptionally limited domestic revenue, restricting its ability to finance infrastructure, education, healthcare and productive public investment from its own resources. Expanding the tax base should therefore not be viewed simply as a fiscal exercise but as a cornerstone of national competitiveness. Countries that finance their own development inspire greater confidence than those perpetually dependent upon external support.
The lesson extends beyond taxation. Around the world, the countries that consistently attract long-term investment are rarely those that spend the most on promotion. They are those that spend the most time improving institutions. Investment promotion is often misunderstood as an exercise in marketing—organising roadshows, printing glossy prospectuses and announcing ambitious memoranda of understanding. Such activities undoubtedly have value, but investors ultimately judge countries not by the elegance of their presentations but by the efficiency of their administrations. They remember how long licences take to process, whether regulations remain consistent, whether disputes are resolved fairly and whether government agencies coordinate rather than compete with one another. The best investment promotion agencies are therefore not merely marketers. They are institutional problem-solvers whose greatest successes often remain invisible precisely because obstacles have been removed before investors ever encounter them.
Abdikani Jama is the editor-in-chief, Somalia Investor Magazine. Editor@somaliainvestor.so
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