Somali Economic Forum believes the country is leaning a bit too heavily and dangerously on consumer spending
A group of Somalia elites and members of the business community are working at a united front to push for more investments in the recovering nation.
The group, under the umbrella of the Somali Economic Forum (SEF), aims to convince the diaspora community to channel money into businesses for better yields instead of letting the country lean too heavily on consumer spending. SEF Managing Director, Mr Hassan Dudde, argues that the huge diaspora remittances should be channelled into viable business ideas for the residents.
“The community overseas remits a lot of money to support their relatives at home, but this trend will be of greater help if they find investments to put their money into and their families can then rely on the investments for even longer and bigger support. The money also gets to circulate in the country more and assists in its development. That is the best route we need to champion and that is why we formed this forum,” Mr Dude says.
SEF, which holds annual events, have since met members in Nairobi, Dubai and London as some of the areas with huge Somali diaspora presence. It is planning to hold another conference after mid this year to discuss several investment options available for those willing to join.
Mr Dudde believes that the Somali Community in the diaspora have established big business ventures abroad, and some of these should now be sliced back into the country to reduce poverty and remove the extreme dependency on remittances. “Remittances are good to support the households, but the saying that ‘it is better to give someone a fishing rod and teach them how to fish than give them fish’ perfectly applies here,” Mr Dudde says.
The SEF MD attended the East African Islamic Summit, where he engaged on a marketing mission to attract more members and drive investment into Somalia. The economist believes the SEF forum will be a key channel for wooing more investors, including non-Somali who have no idea about the environment.
The community overseas remits a lot of money to support their relatives at home, but this trend will be of greater help if they find investments to put their money into and their families.
Diaspora remittances have played a vital role in sustaining Somalia’s economy and supporting household incomes in the country. Somalia’s diaspora is estimated to have sent home more than US$1.3 billion in 2014—nearly twice the level of development aid (US$642 million) and five times the level of humanitarian support (US$253 million).
The remittances account for about 24 per cent of GDP, far outweighing government revenues. They help to support livelihoods for an estimated 40 per cent of Somalia’s population. This underlines the economic boom they can create if channelled to investments as well. The funds from relatives abroad also help to finance Somalia’s large trade deficit of more than 50 per cent of GDP, paying for about 40 per cent of total imports.
Figures from the World Bank indicate that Somalia’s GDP in 2013 was estimated at about US$5.4 billion. In current dollar terms, Somalia’s economy is larger than the economies of the Central African Republic, Djibouti, Burundi, Eritrea, and Malawi.
Total GDP estimates imply a per capita GDP of US$435, ranking Somalia the fifth-poorest country in the world (after Malawi, Burundi, the Central African Republic, and Niger). However, the country’s per capita income is 20-40 per cent higher than GDP per capita. This is because of the massive inflows of remittances, which allow households to top up own income.
In 2014, household consumption financed by remittances was more than 100 per cent of Somalia’s nominal GDP, with food and beverages accounting for about 60 per cent of the total. Non-food goods (cleaning products, medication, paper and paper products, office supplies, and other nondurables) accounted for about 34 per cent of the total consumption. Net investments accounted for only eight per cent of GDP.
Tapped for investments, the huge cash inflows from the diaspora have a great potential of creating substantial returns and allowing those overseas to invest even more in areas of big economic impacts.