Partnership with Somaliland’s Private Sector Aims to Lay Foundation for Growth, Stability

March 16, 2012

For more than 20 years, efforts to end civil conflict and lawlessness in southern and central Somalia have been unsuccessful—yet the northern autonomous region of Somaliland enjoys relative peace and stability. Somaliland seceded from Somalia in 1991 and, though not internationally recognized, has managed to establish functioning governance structures and a vibrant private sector that has facilitated investment in sectors from livestock export to telecommunications and remittance distribution.

In summer 2011, an assessment team led by DAI and supported by our partners CNFA and AISDevelopment evaluated the private sector in Somaliland as the initial activity of the Partnership for Economic Growth, the U.S. Agency for International Development’s first economic development project in Somalia in 20 years. The Partnership is working with a broad range of government authorities and private sector actors to strengthen weak links and improve investment opportunities in Somaliland’s most productive and promising industries: agriculture and livestock. The program is also improving access to business development services, especially for women entrepreneurs, and developing regulatory policies to improve business opportunities and attract more investment.

The Partnership for Economic Growth is exactly that—a partnership. Together with Somaliland’s government and dynamic private sector, we are committed to promoting growth and stability through the following initiatives.

Strengthening institutions whose weakness constrains the business-enabling environment. Although free markets usually fare better with streamlined and simplified government regulation, the most pressing need in Somaliland is for stronger central, local, and regional governments to develop a more accessible, more reliable, and free marketplace. Public and private sector stakeholders largely agree that a stronger commercial law framework, with proper safety measures and industry standards, would help bring in new investment and protect existing business assets. Coordinating with other strategic donor efforts, the Partnership is filling critical gaps in Somaliland’s legal and regulatory framework that impede private sector development. The program is also supporting the formalization of a public-private dialogue mechanism to engage stakeholders on these issues.

**Improving business planning capacity. **Somaliland’s peace and stability has brought increased investment and enticed former residents to return in search of business opportunities. But these optimistic entrepreneurs often fail for want of adequate market research or feasibility studies. The Somaliland National Industry Association reports that 39 of the 54 small and medium businesses on its books were closed as of 2010. The Partnership will help to develop centers for business research at several of Somaliland’s 17 universities, expand academic and testing programs that produce certified graduates in fields such as accounting, and support apprenticeship programs to place business school graduates in traditional and family-owned businesses, which often lack modern management skills.

Promoting investment. Somaliland lacks a mechanism for connecting investors with entrepreneurs and there is a great need for market research to inform potential investors about business opportunities. The Partnership will support the Ministry of Commerce’s nascent Investment Climate Unit and the Somaliland Chamber of Commerce to develop investment promotion strategies including participation in local business fairs, investment conferences, investor tours, and regional Chamber meetings.

Lowering energy costs and improving energy regulations. Somaliland is confronted by dwindling vegetation for cooking fuel, expensive imported petroleum for power generation ($1/kilowatt-hour) and transportation ($1/liter), and a lack of financial mechanisms to explore or invest in new sources of energy. Awareness of energy regulations and energy conservation among businesses, government, and households is low. Solar and wind energy technology is not widely used and expensive where available. A lack of government oversight for energy services deters external/diaspora investment in energy enterprises. Partnering with the Ministry of Energy, the program is helping to create Somaliland’s first legal and regulatory framework to govern the region’s independent electricity producers, suppliers, and distributors. It will also ensure consumers pay fair prices for the electricity they consume and for renewable energy products, such as solar panels and wind generators.

Improving horticulture production to compete with imports. About 70 percent of the Somali people are pastoralists. Crop farmers account for about 25 percent of the population. Most farming activity is small-scale—from 0.5 to 3 hectares—but farms of 20 to 30 hectares are becoming more common. Large volumes of fruits and vegetables are imported from Ethiopia and Somalia. International Trade Centre statistics show 61,000 tons of fruits and vegetables imports, 85 percent of which come from Ethiopia. The Partnership’s assessment shows that Somaliland producers have an opportunity to capture market share from importers, and is working to increase vegetable production and rural incomes in the western Borama region by establishing irrigated demonstration plots with local agriculture universities and agribusinesses, building nurseries where varieties selected from these plots will be multiplied, training extension staff to advise farmers, and creating a business extension unit to provide training in marketing and business skills to farmers, traders, and vendors.

Developing the livestock value chain. Livestock production accounts for 60 to 65 percent of Somaliland’s gross domestic product. Among pastoralists, especially those classified as poor, 50 to 80 percent of their income and 25 to 30 percent of their food comes from livestock sales and products. Livestock value chain challenges include dependence on few countries for export (nearly 80 percent goes to Saudi Arabia), low retail prices due to poor finishing, inadequate provision of livestock extension services, and a need to improve quality control and distribution of veterinary drugs. The Partnership will work with government agencies to improve the regulation of veterinary pharmaceutical imports, train suppliers to recognize authentic medications, and inform consumers on proper use. In Burao, the center for the region’s livestock production, the program will partner with fattening farms to help producers earn more per animal while generating demand for locally grown feed. It will also work with milk marketers—nearly 80 percent of whom are women—to improve handling sanitation: for example, the importance of replacing plastic bottles, which cannot be sterilized, with hygienic aluminum containers.

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