Martin Boreham and Ed Rodge meet the First Lady of the Federal Republic of Somalia, Zahra Omar Hassan, at the Presidential Palace.
Following decades of civil unrest, reoccurring climatic disasters, terrorism and disease, Somalia is turning a corner. 2022 was a transformative year for Somalia, after presidential and parliamentary elections in August, there was a peaceful transition of power, underlining the leadership’s commitment to work towards state-building and stability, even in a challenging political environment. And while there remain a number of challenges, most notably the risk posed by Al-Shabab, there is a clear move towards stability, with Somalia’s private sector remaining a source of resilience and innovation.
At the end of November, representatives from our Liability, Kidnap and Ransom, and Political Violence and Terrorism teams were invited to Mogadishu to attend the inaugural International Investment Conference, hosted by the Somalian government, highlighting that: ‘Somalia is open for business’. In his address, President Hassan Sheikh Mohamud, committed to improving the country’s investment environment, including reform to economic and security laws to aid investors’ ability to conduct and develop businesses across the region. Areas of priority include the progression of the energy, ICT and telecoms, and finance sectors, alongside agri-business, mining and fishing.
While Somalia’s offshore oil and gas sector shows significant potential, in order to attract considerable international interest, the government will need to continue to improve the security environment in the country, while also ensuring foreign direct investment supports the diversification of its economy. Somalia’s progress was highlighted when it became the 182nd member to join the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, in March 2020. Our Director of Underwriting and Head of Liability, Martin Boreham and Ed Rodge, Kidnap and Ransom and Political Violence and Terrorism Underwriting Assistant, consider the biggest hurdles for the development of Somalia’s economy, and how improving the provision of corporate and specialty (re)insurance can unlock opportunity.
There is a limited domestic insurance market in Somalia with finite product offerings, which are mainly focused on health. The provision for coverage of major projects in the construction or energy space, for instance, are not presently catered for and will need international capacity to help reinsure these exposures. Additionally, securing insurance should be central to carrying out business operations and investments, it is vital for adequate risk mitigation and for mobilising private sector capital that specialist corporate insurance is obtained, political risk insurance and trade credit are an optimal starting point.
Incoming insurance legislations
In a bid to raise standards and make insurance more mainstream, the Somalian government is bringing in new legislation in the new year, that requires insurance for certain products, i.e. motor, household, health etc. Setting up a state-owned insurance body to support this new initiative would be helpful for two reasons:
– To create a competitive landscape, encouraging other providers to see Somalia as an attractive market with large opportunity,
– To provide the government with an income stream.
The development of the market with both domestic and international providers enables larger more complex projects to receive the cover required from international providers with greater capacity. In Somalia, we observed that the government has kept a close eye on Nigeria’s economic progress and is using some of the lessons learnt during its economic development. The need for economic diversification and the importance of investments from international organisations and regions was highlighted.
Development through education
What is encouraging is that Somalia is seeing a “reverse brain drain”. Many of the country’s citizens who moved abroad during more difficult times, are returning to the country. They are motivated to maintain peace and help improve the country’s quality of life. Since 2014, the UN Refugee Agency has assisted more than 80,000 returning Somali refugees, and many young and educated returnees have found jobs to fill existing skill gaps and contribute to their country’s development1. Somalia has the largest young population in Africa with 60% of the population under the age of 252, and education has become a key focus of the government in a two-pronged approach to drive up skill levels, and to reduce the number of people being recruited by terrorist organisations including Al Shabab. Education gives people better tools to determine their own future.
Fixing the energy mix
The other priority of the government is solving the energy crisis. This is critical for the development of industry, namely manufacturing and fishing. Being able to properly process and store raw stock, such as fish and bananas, will open Somalia up to being able to farm and trade commodities at a fairer price, rather than at the subsistence level currently seen. In October the Somalian government signed an oil-production sharing agreement with US-based Coastline Exploration Ltd., the latest step toward developing the nation’s energy industry3.
Construction’s part to play
Construction will be hugely important over the coming years as so much of the infrastructure needs to be redeveloped. There are plans for a new airport and seaport development in the north of the country, and more immediately there is an upgrade of the electricity transmission and distribution lines. This is key as the country looks for a combination of public and private investment in their energy production and distribution. Working with the renewables sector and opening up more solar farms will help the country reduce its reliance on diesel generators. Restoring the utility infrastructure is a key aim for the government as it will lead to the development of production and manufacturing facilities within the country. This enables producers to add value to the raw materials the country can produce and increase the earning power of the products.
A domestic insurance provider, with the assistance or international carriers will help support this, legislating mandatory insurance cover in certain areas, and international providers, such as Africa Specialty Risks, launching knowledge sharing programmes to local brokers and domestic providers, a blossoming insurance market could bring these critical projects to fruition.
We are encouraged by the progress made already and the optimism displayed by the people we met on our visit. Everyone recognises the challenges ahead, but we look forward to being part of the solution going forward and being at the heart of Somalia’s upcoming economic transformation. Now more than ever, establishing the foundations of a good risk insurance environment from initial investment to construction and operation is an essential element for an attractive business climate.
Martin Boreham and Ed Rodge meet Hon. Mohamud A. Sheikh Farah (Beenebeene), Minister of Planning, Investment and Economic Development at the SOMINVEST Conference in Mogadishu.
References
1 From Dadaab to Mogadishu: More refugees return to rebuild Somalia | Refugees | Al Jazeera
2 The Promise of Somalia’s Youth | RTI
3 Somalia Signs Oil Production-Sharing Agreement With Coastline Exploration – Bloomberg
Additional sources
Somalia Overview: Development news, research, data | World Bank
CRP_oil_and_gas_in_political_marketplace_somalia.pdf (lse.ac.uk)
World Economic Forum