VI. Finance and labour

Agriculture Investment Policy, Law and Regulation

The Federal Republic of Somalia has put in place laws and regulation related to attracting foreign direct investment to support economic growth. Over the last years, the government has undertaken deliberate effort to revise laws to promote investment in the multiple productive sector. Some key laws passed by the parliament include; • Somalia Investment Law 2015 • Somalia Agricultural Laws 2020 • Somali Agricultural and Inspection services (SARIS) • Somali Agrochemical policy • Seeds and Varieties Act • Plant Pr otection and Quarantine Law • National F ertilizer Policy • National P esticide Policy

Trade and investment are the key drivers of development in Somalia that will ensure Somalia plays the fullest role in a changing and interdependent world. In support of this goal, Somalia has adopted one of the most flexible foreign investment laws in the world. This Investment law, most importantly, treats both foreign and national investors as enjoying similar economic and social advantages. Foreign investors have free access to all sectors of economy unless investments infringe national security, environment, religion and heritage concerns or are deemed morally unviable. Sominvest is the national Investment Promotion Office which supports international investors, promotes and markets Somali products globally and interfaces to Somali ministries and government agencies.

The National Investment Strategy prioritises investment into agriculture and livestock, energy and the blue economy. A National Investment Promotion Strategy and Foreign Investor Protection Framework have also been developed.

Somali markets are relatively unregulated giving investors great flexibil ty. The Somali government is keen to work with businesses to develop regulatory frameworks which support them and improve their access to international markets and financ . The Somali Agricultural Regulatory Agency and Somali Bureau of Standards have been established to develop the regulations and standards.

The recently passed agricultural laws will provide a legal framework for agriculture regulation in the country, and also covers quality control of agri-inputs and agri-outputs. These frameworks have been deliberately put in place by the movement to facilitate trade and investment in the agricultural sector, which is a significant pillar in the National Development Plan.

Livestock ready for export at the Port of Mogadishu.

INVESTMENT POLICY & LAW

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Farm workers washing newly harvested bananas in Afgooye, before they are packed and ready for export.

Agriculture Sector Somalia’s agricultural production mainly relies on 2,300 kilometers of productive land in riverine regions. As such, the agricultural sector provides opportunities for investment with high returns, including: • Large scale specialist crop production • Agri-inputs and machinery • Grains and pulses pr oduction • Fruits and vegetable production • Food processing, distribution, and export • Agri-inputs including equipment and technology • Cold chains and war ehousing • Transport and logistics • Quality assurance and testing • Agricultural financ

Large Scale Crop Production Lack of water and the high cost of irrigation, energy, and mechanization mean that most large scale agriculture is not cost-effective and competitive as imports. Therefore, investors should focus on specialist crops indigenous to Somalia or those suited to the constraints of its climate. Fruit Production Somalia’s tropical climate is well suited for the commercial production and export of fruits and vegetables, including cultivation in climate-controlled environments for increased productivity. • High-value fruits lik e lemon, mango, grapefruit, and banana: • Banana is one of the major high-value export crops with lower production cost compared to major competitors in Latin America. Farmers in

Somalia have produced bananas for more than 100 years. With over 50,000 hectares available for cultivation, banana production and exports provide lucrative opportunities for investment.

Bananas grown in Somalia are not affected by endemic pest and disease and therefore require little or no chemical intervention to thrive, thus reducing production costs. Additionally, the governments of Somalia and Turkey signed a preferential free trade agreement, reducing import tariffs for the Turkish market. • Large intensiv e production and exports are achievable with a high risk of return.

The global banana industry generates around USD 8 billion a year. However, international exports only make up15 percent of these trades. The rest is consumed locally, especially in countries such as India, China, and Brazil.

Sesame harvested across Somalia, and processed in Mogadishu, packed and ready for export.

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Central pivot irrigation system in use at a fodder farm in Somalia.

Agro-processing Industries Somalia’s rising urbanization has led to increased demand for processed food. The country currently imports processed food valued at USD 1.5 billion annually, mainly from neighboring countries and the Middle East. Numerous investment opportunities exist in agro-processing and value addition as no major agro-processing company is in operation in Somalia. The sector reports between 55 and 60 percent post-harvest losses, which need attention. Investment opportunities exist; • Fruit processing: mango pulping, juice, jam, and sauce processing. On average, 50,000 tonnes of mangoes are available for processing annually. • Vegetable processing: Tomato production is estimated at 35,000 metric tonnes annually, halve available for processing. Other vegetables like lettuce and chilli are also available for processing. • Oil crops and seeds processing: Somalia is the 7th largest producer of sesame in the world, producing approximately 500,000 metric tonnes annually to meet a 150,000-metric tonne local demand. Opportunities exist to invest in sesame processing to utilize the surplus. • Grain and pulse processing: Somalia continues to face shortages of maize, rice, beans and other cereals, with imports estimated at USD 600 million annually • Others include sugar, wheat and cotton. Agri-inputs and Modern Irrigation Systems The lack of multinational seed and agrochemical companies in the country provides investors a unique opportunity to invest in Somalia’s agri-input sector. For instance: • Seed production and processing: demand for quality and certified seed exceeds 10,000 metric tonnes annually, with only two local companies supplying below 1,000 metric tones. The deficit is an oppo tunity to invest. • Pesticides: almost all the pesticides used locally are imported, providing an opportunity for pesticide formulation and marketing. • Fertilizers: The Somali market demands over 10,000 tonnes of fertilizer a year, but none is manufactured in the country despite the availability of raw materials. • Greenhouse technology: increased uptake of greenhouse farming by farmers in Somalia has shot-up demand for the required technology, but almost all greenhouse equipment is imported. • Commercial irrigation and water harvesting:

There are 8.9 million hectares in Somalia with potential for irrigated agriculture, but only 6000,000 ha is irrigated. Therein lies opportunities for large scale public-private partnerships. • Research and breeding: there are currently no research and breeding centers in Somalia, a lucrative sector with high demand, and potentially high returns.

Tomato cultivated in greenhouses using drip irrigation.

Farm workers inspecting harvested bananas in Afgooye, before they are processed, packed and prepared for export.

Agricultural Machinery and Equipment Almost all farm machinery, including tractors, are imported, with average imports of 1,000 tractors per year. There are opportunities to manufacture tractors locally, with more than 3,000 tractor units required by farmers as well donor supporting farmers over the next few years, and a minimum average of 1,000 tractors to be replaced annually by commercial farmers. Tools used small scale farmers are also high in demand, and present opportunities for local assembly investment.

Agricultural Finance The collapse of the National Agricultural bank in the 1990s drastically affected agricultural production in the country, leaving many farmers unable to access credit from banks. Despite the re-emergence of local banks, there are investment opportunities to partner with the government or banks to set up an agricultural focus portfolio. Key areas include: • In vestment in the establishment of the Somali

National Agricultural Bank in partnership with the government • Public-Private Par tnership to provide credit to micro-finance to support small scale farmers, credit on agri-inputs and Islamic compliant banking for large scale commercial farming, international trade, and asset financing Cold Chain and Warehousing Increased export of fresh produce from the country has resulted in a growing need for cold chain storage and warehousing. Areas of potential investment include sea ports in Berbera, Kismayu, Bosaso, Mogadishu, and Hobyo, and international airports in Mogadishu, Garowe, and Hargeysa, and the soon to be established export processing zones.

Quality Assurance and Testing As agricultural production increases, there is a growing demand for laboratory testing and quality certification and the opportunity to set up private laboratories for quality control of agricultural produce. Possible areas of investment include; • Laboratories: investment in an accredited laboratory in the country for soil, H20, fertilizers, and chemical residue testing. • Cer tification Bodies: the establishment of Global

GAP, ISO Certifications Food safety certification centers in Somalia. • Business development services: capacity building, auditing, and compliance. • Expor t Certification investment in Public-Private Partnership for export and import quality control.

A farm worker blowing washed bananas in Afgooye.

A lab technician testing samples at the Somalia Banana Tissue Culture Laboratory.

Livestock ready for export at the Port of Mogadishu.

Other Areas of Investment • Packing facilities and materials: There is a significant opportunity for investment in the production of paper and plastic bags, and aluminum, glass, plastic, paper, and rubber articles used for packing. For example, demand for banana packing materials will exceed 500,000 pieces per year in the next four years. The use of plastics is expected to triple in the next fi e years in Africa and demand for consumer plastic products continues to grow in Somalia. • Air and sea cargo logistics for fresh perishable products • Off-season storage

Benefits of Foreign Direct Investment in Agriculture Somali banana and livestock ready for export. INVESTMENT OPPORTUNITIES • Aligns with food security strategies • Technology transfer and upgrading • Job creation and poverty reduction • Increase in quality and quantity of food produced, thus food security • Large-scale agriculture and commercialization • Diversification and value-a ded production 8

Camels enjoying fresh fodder at a dairy farm in Somalia.

How to Establish an Agribusiness in Somalia

Creating a company in Somalia is easier with the launch of E-government services managed by the Federal Ministry of Commerce and Trade. Investors can register their businesses on the www.ebusiness.gov.so website and receive a certificate of incorporation in one working day. However, foreign investors must familiarize themselves with Somali Foreign Investment laws to avoid complications.

Visitors learn about Somali products at the Somalia Rising Booth at the Gulfood Fair in Dubai.

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A technician repairs a refrigeration unit during a cold storage training in Mogadishu.

Financing the Agriculture Sector The majority of the capital used to create businesses in Somalia is raised by the business owner, their family, and friends. These funds are often not enough, and other local sources of finance are requireD. Banks are increasingly willing to invest in agriculture and agri-food businesses, mainly using Sharia-compliant loans. Terms are typically under two years, but longer terms and initial grace periods are becoming more common. Profit rates are often perceived as high but are in line with international norms for frontier development markets. Businesses typically need to provide land or other existing assets as collateral, and a guarantor.

FCA Investments invests in agriculture and agri-food businesses and input suppliers and supports more extensive projects that require at least USD 111,029 over terms of 5 to 6 years and can be structured as equity, mezzanine, or loans using Islamic instruments. Shuraako makes Sharia-compliant loans of at least $100,000 over extended terms and at lower profit rates than the banks. International Development Finance Institutions (DFIs) are also beginning to enter the market and are mainly interested in larger transactions in specialist areas. Investor guarantees and specialist risk insurances are beginning to become available but are likely to require transactions of at least USD 10 million.

Labor Market Somalia boasts a robust and well-educated population, with 81.5 percent under 30 years of age. However, 67 percent of youth between 14 and 29 years of age are unemployed. Fortunately, Somalia’s friendly labor law is attracting talent and investors alike. A recent surge of highly skilled Somalis from the diaspora returning to work in Somalia has led to an increase in innovation, investment, and capital. Monthly salary ranges between USD 300 and 600 for skilled labor, and USD 100-300 for unskilled, more competitive than regional labor markets.

A lime farmer admiring her bountiful harvest.

Tomato cultivated in greenhouses using drip irrigation.

Ministry of Agriculture and Irrigation Address: Mogadishu, Somalia Website: www.moa.gov.so/ Email: minister@moa.gov.so Tel: +25261 2266277

Ministry of Commerce and Industry Address: P.O. Box 30, Mogadishu, Somalia Website: www. moci.gov.so Email: ministry@moci.gov.so/ info@moci.gov.so

Somalia Investment Promotion Office (SomI vest) Address: Afgoye Road, KM5, Mogadishu-Somalia Website: http://sominvest.mop.gov.so Email: sominvest@mop.gov.so Tel : +252619111530 Somali Agricultural Regulatory Agency (SARIS) Address: Mogadishu, Somalia Website: www.moa.gov.so/ Email: minister@moa.gov.so Tel: +25261 2266277

Somali Bureau of Standards Address: P.O. Box 30, Mogadishu, Somalia Website: www. moci.gov.so Email: ministry@moci.gov.so/info@moci.gov.so

A farmer in Afgooye tending to his growing banana plants.

This publication is made possible by the support of the American People through the United States Agency for International Development (USAID) through the USAID/Somalia Growth, Enterprise, Employment and Livelihoods (GEEL) project. The contents of this publication are the sole responsibility of International Resources Groups (a subsidiary of RTI) and do not necessarily reflect the views of USAID. or the United States Government.