With the 2016 presidential contest looming, political stakes are high in Somalia. Yet, it is no secret that this race falls way short of a democratic election. This is precisely why the economy should have every development partner’s complete attention.
Since the state was dismantled in 1991 with the overthrow of long-time ruler Mohammed Siad Barre, the private sector stepped in to fill the void. Somalia’s entrepreneurial spirit has safeguarded many, but it is now seriously hampered by limited access to liquidity and lack of opportunities to finance the country’s growth locally. Democratising access to finance in Somalia, for instance by betting on Information and Communication Technology (ICT) already prevalent in this highly-penetrated mobile money market, could seriously improve governance. Financial resources are not redistributed; they are used to ascertain political power instead of growing the people’s purchasing power.
Access to capital is scarce for Micro, Small and Medium Enterprises (MSMEs) in sub-Saharan Africa, according to McKinsey. In Somalia, this reality is felt even more as investors are wary and the absence of market mechanisms means MSMEs are essentially self-financed.
Premier Bank reached a deal with Mastercard in 2015 to distribute debit cards to customers Photo Credit: Mohamed Sheikh Nor for RFI
Crippled by the absence of a formal financial system, a limited number of manufacturing plants and an undiversified industry, the Somali economy is frail and lopsided. The industrial and manufacturing vacuum left by war has resulted in inflated prices because the majority of goods must be imported. The cost of living is high despite poverty and “people pay 2016 prices for 1990s services and infrastructure,” laments Hassan Yusuf, CEO of the International Bank of Somalia (IBS) and one of six registered banks in Somalia.
source: LSE Blog