NAIROBI, June 26, 2024 — Since Somalia’s private sector accounts for an estimated 95 percent of total jobs created, marshaling the private sector to support the country’s development is critical for reconstruction, transitioning from fragility, and generating more inclusive economic dividends for its people. The country also needs to focus on growth to avoid falling back into debt, create jobs, and enhance economic opportunities for citizens.
Published today, the Somalia Country Private Sector Diagnostic (CPSD) notes that while private businesses have been remarkably resilient and presently provide most of the products and services on offer in the country, Somalia’s productive tradable sectors remain subdued and fall short of providing a strong basis for structural transformation. Furthermore, private sector activity is concentrated on commerce and other mostly non-tradable consumption-driven services. This consumption-driven growth often benefits a few firms that leverage their market-dominating positions. Therefore, most Somali firms remain highly disadvantaged, leading to a “missing middle” and lower overall productivity and job generation. The report also finds that low economic integration and minimal complexity of foreign direct investment (FDI) weigh on the productivity growth prospects of the Somali private sector, limiting opportunities for trade, technological advancement, and efficient resource allocation.
“Somalia can develop and deepen reforms that enable effective and equitable formal institutions and regulatory frameworks that facilitate private sector-led economic transformation,” said Kristina Svensson, World Bank Country Manager for Somalia.
According to the CPSD, private sector development in Somalia is limited by: (i) critical policy constraints including the country’s deficient formal institutional, legal, and regulatory frameworks; the prevalence of informal institutions; the enduring impacts of corruption; the incidence of competing alternative governance arrangements; and the lack of an effective national public-private dialogue (PPD) mechanism to ensure more effective reform processes; and (ii) issues with access/availability and performance of enabling sectors such as financial services, energy, transport logistics, ICT, water supply systems education services business services.
In this context CPSD highlights recommendations that could have greatest impact on unleashing Somali private sector incentivizing short-term dividends enabling a private-sector led economic transformation in medium-to-long term. These recommendations are comprised in three groups:
- Deepening reforms to establish legitimate effective equitable formal institutions regulatory frameworks for private-sector led growth;
- Promoting private participation improving public stewardship key enabling sectors facilitate an economic transformation in medium-to-long term;
- Improving growth productivity selected value chains short-to-medium term dividends.
"Continued policy reforms will ensure that private sector participation continues to support Somalia’s journey towards sustainable lasting economic development," said Cheick-Oumar Sylla IFC's Director North Africa Horn Africa "The Country Private Sector Diagnostic highlights how the private sector can play even greater role unlocking country's full potential."
The report also highlights private investment opportunities feasible critical create markets near term key sectors such as energy finance In particular CPSD identified upgrading on-grid energy infrastructure supporting greater use renewable technologies investing digital financial services expanding access microfinance as opportunities highest development impact feasibility current Somali context
Fostering vibrant inclusive private sector Somalia crucial inclusive sustainable economic growth job creation resilience against fragility requiring concerted efforts address policy regulatory gaps enhance infrastructure unlock investment opportunities across key sectors
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