Somalia’s Entrepreneurial Pursuits, Economic and Societal Wellbeing
- Author Abdifatah Mohamed
- Published June 6, 2023
- Word count 1,883
In a world that is digitally interconnected on a global scale, the unrestricted dissemination of inventive concepts, expertise, and knowledge serves as a catalyst for the pursuit of entrepreneurial endeavors and the establishment of long-term economic viability. In Somalia, a burgeoning movement towards entrepreneurship imbued with a distinct local flavor is catalyzing a novel wave of fledgling enterprises. Enterprises driven by innovation and possessing a global perspective are currently advancing at a remarkable rate. There has been a notable surge in the emergence of start-up companies that are spearheaded by women. Primarily, it is noteworthy that the endeavors of the government to create propitious surroundings for these developments are also materializing. Within the confines of this literary piece, we shall endeavor to encapsulate Somalia's burgeoning proclivity towards entrepreneurial pursuits and the consequential developmental ramifications it has engendered upon the nation's economic and societal well-being.
Establishment of an Apex Financial Institution- Gargaara
The Federal Government of Somalia has received financial assistance from the World Bank (WB) to carry out the Somalia Capacity Enhancement, Livelihoods, and Entrepreneurship Initiative through the Digital Uplift Program (SCALED-UP). Gargaara is one of the main micro finance institutions that gets assistance from SCALED-UP. GARGAARA is an apex Financial Institution, licensed by the Ministry of Commerce and registered by the Central Bank of Somalia, established as a dedicated and autonomous agency. It is a leading financial institution in Somalia, facilitating access to finance for Micro, Small and Medium enterprises (MSMEs) and takes a bold and innovative approach to drive reform within the financial sector to create financial inclusivity. Its development plan, market innovation and professional financial services formalize businesses to ensure they are properly structured to facilitate financial intermediation
Through this inclusion, guidance, and support, Gargaara strives to unlock the potential of MSMEs in Somalia and deliver economic empowerment and opportunities to the underfunded MSME sector. Gargaara’s direct and indirect beneficiaries include Participating Financial Intermediaries (PFIs) and MSMEs and provides knowledge and experience in lending and working with local financial institutions, as well as access to finance for expanding their businesses in Somalia. GARGAARA was incorporated in April 2019 by the Ministry of Finance of Somalia in acknowledgment of the country’s thriving private sector, well-connected business community, and desire for international trade and investment.
GARGAARA was formed with a $15 million convertible loan to encourage MSMEs to build their businesses and create jobs, of which US$13 million was made available for lines of credit to Somali Banks-PFIs. In addition, a $26 million financing was made available in 2021 through additional financing to expand the two lines of credit and introduce new offerings such as risk sharing mechanism, technical assistance to the PFIs, and business development services to MSMEs. Additional investors are interested in Gargaara, including the German Development Bank – KFW, Qatar International Development, and SILATECH.
GARGAARA targets Somali individuals, groups, businesses, and other direct and indirect beneficiaries including Somali banks, PFIs, and SMEs. GARGAARA has a current loan book of $10 million, which is expected to grow to $20 million in 2023, and $60 million in 2024
The proliferation of small enterprises is currently on an upward trajectory.
Since the establishment of Gargaara- the apex financial institution, The burgeoning of start-ups and small enterprises in Somalia experienced a notable upswing having financed close to 300 MSMEs engaged in the productive sectors with a loan value of 10 million USD within the second quarter of 2023. The discernible effects of their economic influence on the creation of employment opportunities are widely acknowledged. This achievement marks a noteworthy step towards the establishment of a more comprehensive and technologically sophisticated market within the nation, capable of producing employment opportunities and tackling persistent societal challenges.
The proliferation of technology and internet access has notably bolstered the emergence of start-ups and small enterprises in Somalia, enabling a conducive environment for innovative ideas to flourish. The advent of affordable internet connectivity in Somalia, coupled with a dynamic and enterprising youth population, has engendered a surge in entrepreneurial creativity within the commercial sphere. The conventional approach to establishing consumer-centric enterprises and merchandise is proving to be a challenging proposition in contemporary times. Emerging within the Somali markets are start-ups and other small businesses that are rooted in innovation. These ventures have garnered significant attention and interest from individuals seeking to capitalize on the burgeoning opportunities that they present.
The forefront of progress is currently being spearheaded by innovation.
The burgeoning of start-ups in Somalia is concomitant with their ingenious methods of resolving and tackling societal predicaments. The burgeoning prevalence of social enterprises in Somalia is noteworthy, as these entities strive to achieve both financial gain and social betterment. The emergence of a novel business model, which draws inspiration from the growing demand for environmentally conscious products and services, has witnessed a remarkable upswing in Somalia over the past few years. In light of the recognition that ecological concerns bear deleterious consequences on a nation's fiscal expansion and perspective, a considerable cohort of fledgling enterprises have presently redirected their focus towards this domain. Their contributions have had a favorable impact on the endeavors of both society and government to narrow said divide. These pioneering endeavors have provided ample opportunity and a platform for a substantial cohort of youthful individuals to establish and operate their own socially conscious enterprises, thereby making a valuable contribution to the prosperity of their households and localities.
There has been a notable increase in the number of start-ups led by women.
Whilst the Somali business sphere is predominantly male-oriented, there has been a notable surge in the number of enterprises spearheaded by women according to a recent survey conducted by the Somali national Statistics Bureau. With the onset of Somalia's tumultuous descent into anarchy some thirty years ago, the majority of the country's economic frameworks have regrettably ceased to exist. This has further exacerbated the pre-existing disparity in gender representation within the realm of business ownership in the rapidly expanding market. This resulted in a pervasive state of joblessness within industries that have historically been dominated by men. Enterprises, regardless of their size, have succumbed to the deteriorating economic and security circumstances of the nation during that period. This phenomenon has enabled women, who were previously subjected to marginalization in these domains, to explore novel avenues for market entry and establish a greater number of businesses led by women. In contemporary times, as the nation makes strides towards recuperation from prior hostilities, there has been a notable surge in entrepreneurial ventures spearheaded by women, which have been able to secure a more substantial portion of the market. The advent of innovation-driven small enterprises and nascent ventures has provided a pliable avenue for young women to engage in entrepreneurial pursuits, while simultaneously acquiring the requisite competencies and erudition to augment their occupational aptitude.
The MSME sector, while having made strides over the years, continuously faces challenges that have implications in its further development. The challenge is twofold. First, the overwhelming majority of enterprises in Somalia are very small and operate informally. They are trapped in informality and have not been able to grow into small, medium, or large enterprises. Second, entrepreneurial awareness and basic management skills need to be expanded and democratized, for young people to be able to achieve their aspirations within a fast-growing population. In this, Somalia can build on a strong tradition of entrepreneurship, both within the country and in the diaspora.
Access to finance
In general, Somali banks tend to prioritize big business borrowers because of higher gains, perception of lower credit risk, higher repayment rates, and the availability of collateral. Also, access to financing from traditional financial institutions is limited due to the lack of credit information.
Since interest rates are low and banks’ loanable funds are at a high level, this translates into more opportunities for MSMEs to borrow. One way is to create the necessary enabling environment that encourages banks to see MSMEs as a viable market. However, recognizing the relatively high risk, the government should also develop or support the development of credit enhancement mechanisms (e.g., guarantees, insurance) to address associated risks of borrower default.
Similarly, there is a strong need to enhance MSME financial literacy to make them more aware of financial resources and programs available. MSMEs need to be equipped to utilize diversified source
Business environment and the cost of doing business
Despite substantial improvements in streamlining the process of business licensing/issuance of several government procedures and requirements for business, still numerous, repetitive, and time-consuming in accomplishing, making it more costly for MSMEs to comply with. These are characterized by non-uniformity of rules, weak support for MSME, and poor coordination among themselves.
The business environment should be characterized by streamlined and simplified rules and procedures. Inter- and intra-government cooperation for MSME development is necessary to achieve aligned and applied policies and regulations that would promote synergies at the regional and national levels.
Access to market
Many MSMEs find it difficult to penetrate and sustain their presence in desired markets. Lack of technical knowledge hinders these enterprises from participating in regional or global value chains; as such MSME contribution to exports remains nonexistent at the moment. Another factor may be the low compliance of MSMEs with national and international standards such as quality and environmental standards, rendering them uncompetitive in the world market.
In order to support methods for enhanced market access and integration into regional and global value chains, there is a need to increase information on both domestic and regional markets. Promotion of partnership with large enterprises as well as the adoption of national and international standards of quality and environment may likewise be pursued. Further, the promotion of online-based information systems may also be intensified as one of the cost effective means of market access for the MSME
Impacts of climate change and ease of undertaking disaster recovery
Due to its geographic location, the country ranks high in terms of exposure and risks to natural hazards such as droughts and flooding. Since MSMEs are a key driver of local economic development, resilience to both natural and fabricated disasters should look not just into the context of shared community disaster risks but also in terms of business continuity. Efficient and effective business continuity programs should be made available to any enterprise, given their importance in the locality and their critical condition due to the risks they face. MSMEs should develop and strengthen their resilience by incorporating business continuity and emergency preparedness and response. Using a business continuity planning framework enables MSMEs to direct and control their activities in order to ensure the continuity of services and recover losses after a disaster
Obligations pertaining to regulatory endeavors.
The involvement of authorities is crucial in fostering and maintaining innovation-driven markets. The Somali government has been diligently collaborating with commercial entities and organizations to establish a framework of regulations and incentives that facilitate the flourishing of these enterprises. A proficiently operating free market, devoid of entry restrictions, unjust competition, and monopolistic practices, will not only foster the growth of small enterprises and nascent ventures but also facilitate the proliferation of advanced technologies and innovative solutions in the Somali commercial landscape. Despite the gradual pace of progress in governance and infrastructure development by successive Somali administrations following the civil war, noteworthy achievements have been made in fostering a conducive environment for start-ups and small enterprises to thrive.
Abdifatah Mohamed is an MSMEs monitoring specialist with more than ten years of experience working in both humanitarian and development settings in Somalia and outside. He is currently working as a Monitoring and Evaluation Specialist at Gargaara Financing Company, an Apex financial institution that facilitates credit access to MSMEs in Somalia while working closely with the Somalia Financial Institutions.Article source: https://articlebiz.com
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