Somalia: World Bank for Investment in Private Sector to Spur Growth

The CPSD highlights private investment opportunities that are feasible and critical to creating markets in the near term in key sectors such as energy and finance.

On Wednesday, the World Bank said in a new report that fostering a vibrant and inclusive private sector in Somalia is crucial for inclusive and sustainable economic growth, job creation, and resilience against fragility.

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In a report released on Wednesday evening, the World Bank said this will require concerted efforts to address policy and regulatory gaps, enhance infrastructure, and unlock investment opportunities across key sectors.

The Somalia Country Private Sector Diagnostic (CPSD) report notes that while private businesses have been remarkably resilient and presently provide most of the products and services on offer in the country, productive tradable sectors remain subdued and fall short of providing a strong basis for structural transformation.

“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.

After years of rebuilding, #Somalia is on the move. Progress will require a strong private sector. The @WorldBank Group just published the Country Private Sector Diagnostic for Somalia, highlighting opportunities for growth.
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— IFC Africa (@IFCAfrica) June 27, 2024

The report also finds that low economic integration and a 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.

The CPSD highlights private investment opportunities that are feasible and critical to creating markets in the near term in key sectors such as energy and finance.

In particular, the report identifies upgrading the on-grid energy infrastructure, supporting greater use of renewable technologies, investing in digital financial services, and expanding access to microfinance, as the opportunities with the highest development impact and most feasibility in the current Somali context.

The report says the private sector activity is concentrated on commerce and other, mostly non-tradable, consumption-driven services, noting that this consumption-driven growth often benefits a few firms that leverage their market-dominating positions.

Cheick-Oumar Sylla, IFC’s director for North Africa and the Horn of Africa, said continued policy reforms will ensure that private sector participation continues to support Somalia’s journey toward sustainable and lasting economic development.

“The Country Private Sector Diagnostic highlights how the private sector can play an even greater role in unlocking the country’s full potential,” Sylla said. According to the World Bank, Somalia’s private sector accounts for an estimated 95 percent of total jobs created, and 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.