Executive Summary:
The private sector in Somaliland stands as the bedrock of the nation’s economic foundation, playing a pivotal role in driving economic growth and contributing significantly to the overall development trajectory. Per government reports, the public sector accounts for roughly 7-10% of the country’s GDP, with the private sector comprising of the remaining 90%. Considering that Somaliland does not have the luxury to cover fiscal deficits through borrowing loans, it is paramount that we explore the opportunities presented in the private sector to cover that gap. This case study provides an overview of the challenges faced by businesses in the private sector and presents targeted recommendations and solutions, aligning with the expertise of Kaltan Strategies.
Private Sector Overview
Chart 1: The following chart provides a comprehensive breakdown for the sectors
Market Summary: Analyzing the Top 4 Sectors
- Livestock:
Contribution to GDP: Livestock dominates the market, constituting an impressive 29.5% of the GDP.
Key Insights: Livestock stands as a cornerstone in Somaliland’s economic landscape as the largest export commodity, particularly in meeting the consistent demand for meat in the Gulf countries. Upholding stringent quality assurance and health standards is not only a regulatory requirement, but a fundamental aspect of maintaining the competitiveness of Somaliland’s livestock in the international market. The adoption of optimal practices in animal health, vaccination, and disease control is of paramount importance for the sustained success and resilience of the industry.
2. Wholesale & Retail:
Contribution to GDP**:** The wholesale and retail trade sector follows closely, accounting for 19.5% of the GDP.
Key Insights: The Wholesale & Retail sector plays a vital role in Somaliland’s economic structure. With a diverse range of products and services, businesses in this sector are vital contributors to the local economy. Understanding consumer trends, supply chain dynamics, and market competition is essential for sustained success. Further, it is imperative that companies utilize market research and data analytics to tailor products and services to customer’s evolving preferences to ensure reaching their intended target audience.
3. Crops:
Contribution to GDP: Crops contribute 8.2% to the GDP, showcasing the significance of agricultural activities.
Key Insights: Recognizing the necessity for a comprehensive economic development, there is a critical need for concerted efforts from both the private and the public sectors to invest significantly in diversifying the economy. Thus, agriculture, particularly crop cultivation, has the potential for fostering a more resilient and fundamental aspect of Somaliland’s economic fabric. Examining the types of crops, standardizing enhanced agricultural practices, and obtaining advanced farming equipment should be emphasized in order to capitalize on the opportunities in this sector.
4. Real Estate Activities:
Contribution to GDP: The real estate industry being the fourth largest sector, contributes 6.4% to the GDP.
Key Insights: The real estate sector is a one of the fastest emerging markets in Somaliland’s economic development, reflecting both residential and commercial activities. Strategic investment in sectors beyond the predominant reliance on revenues from livestock exports will not only stimulate sustainable growth, but also alleviate the pressure on the economy. Analyzing trends in real estate, land use patterns, and development projects is crucial for businesses navigating this sector.
Import Focus:
- Sugar as a Key Commodity: Sugar emerges as an essential commodity, holding the highest value among the top 10 imported products in the first quarter of 2020 (Refer to Charts 1 & 2 below). With the second highest (After Kat) import value of SLSh 28,981,908,670 (7.9%) in terms of duty and the biggest overall value of SLSh 122,523,480,240 (14.7%), its significant contribution to the import market cannot be overlooked. Our analysis, guided by a data-driven approach, sheds light on the pivotal role of sugar among the top imported products and offers nuanced recommendations for businesses to navigate uncertainties.
Private Sector Implication:
- Dependency on Sugar Imports: The high value of sugar imports indicates a substantial reliance on international markets for this essential commodity. This can be observed in the wholesale and retail sectors, dealing directly with consumer goods where fluctuations in sugar costs would drastically influence the pricing of various products. For instance, consumers would experience the ripple effects of any changes in prices in their daily consumption of products such as beverages (tea & more), desserts, and all other foods requiring sugar as an ingredient.
Overall Recommendations:
- Strategic Planning & Diversification: Contingency plans and strategic pricing models to manage the impact of sugar price changes on consumer prices should be put in place. This would enable wholesale and retail businesses the chance to refine their supply chain management process to accommodate price variations and ensure a consistent supply of sugar-related products. Further, businesses should consider diversification strategies to mitigate risks associated with the heavy reliance on sugar imports. Exploring alternative sweeteners or local sourcing are effective potential avenues for addressing that risk.
- Collaboration with Stakeholders: It is critical to continuously monitor global sugar market trends to anticipate and respond to price fluctuations effectively. Thus, facilitating dialogue between government bodies, businesses, and industry associations to establish adaptive strategies addressing potential challenges should be a priority.
Export Focus:
Table 3 Analysis: Livestock Quantity and YoY Changes
The data in Table 3 (See below) reveals significant fluctuations in the quantity of livestock, particularly camels, cattle, and goat/sheep, over the past years. Notable YoY changes are observed, and several key insights can be drawn:
- Q1 and Q2 Trends:
The initial two quarters of each year consistently exhibit positive YoY changes, indicating robust growth in livestock quantity. The surge is particularly pronounced in Q2, suggesting increased market demand during this period.
- Q3 Challenges – COVID-19 Impact:
Q3 of 2020 reflects a remarkable negative YoY change, showcasing a 61% decline. The drastic decline in Q3 of 2020 is primarily attributed to the global impact of the COVID-19 pandemic. Supply chain disruptions, market closures, and logistical challenges significantly affected the livestock sector during this period, leading to a sharp negative YoY change.
- Q4 – Recovery:
Q4 of 2020 and subsequent years show recovery, with positive YoY changes. This recovery could be linked to adaptive strategies within the sector, market stabilization, or improved economic conditions.
- Total Quantity Insights:
The total quantity of livestock experienced a significant YoY decline in 2020, with a subsequent recovery in 2021. Understanding the reasons behind these fluctuations is crucial for formulating targeted strategies.
Table 4 Analysis: Livestock Export Values and Unit Prices
The examination of export values and unit prices in Table 4 (See below) provides a nuanced understanding of the economic dimensions within the Livestock Sector:
- Sheep/Goat Dominance:
Sheep/Goat contribute the most significant share in both quantity and total export value. The unit price for sheep/goat is relatively lower compared to cattle and camels, indicating a higher volume but lower individual value.
- Cattle and Camel Contributions:
Cattle and camels, while constituting smaller quantities, contribute substantially to the total export value due to higher unit prices. This highlights the diverse market dynamics within the livestock sector.
- Total Export Value:
The total export value demonstrates the economic significance of the livestock sector, contributing $182,817,662. Understanding the composition of this value provides insights into the market’s dependence on specific types of livestock.
Top Challenges Faced by Firms:
Somaliland’s central bank is not fully integrated into the international monetary system which limits the availability of funding in the country’s emerging markets. The data presented in figure 5 (see below) shows that based on joint studies conducted by Somaliland’s Ministry of Finance in collaboration with the World Bank, lack of access to finance remains to be the leading obstacle to the growth of firms in the private sector. With the absence of international commercial banks, local financial institutions offer limited financing opportunities for businesses, but continue to struggle with sustaining the capital needs of the private sector.
Firms are burdened by the existing financial constraints in the market. For example, CEOs are left with deciding between cutting down costs to maintain their bottom line or investing in their supply chain infrastructure. This unhealthy trade-off harms the potential growth of businesses. However, by identifying and investing in an agile supply chain infrastructure, businesses would increase their margins over the long run. Moving forward, firms must seek innovative solutions to tackle these persisting issues.
According to the report (see Figure 5), unlocking Somaliland’s private sector potential requires from local administrations, investors, and financial institutions to prioritize the following solutions:
Approaching Financial Constraints:
- Diversification of Funding Sources: Developing a customized financial model for each business, exploring alternative funding sources such as grants, private investors, and strategic partnerships.
- Financial Literacy Programs: Designing and implementing workshops on financial planning, budgeting, and investing to enhance financial literacy among business owners and key staff.
- Alternative Investment Platforms: Establishing partnerships with financial institutions to offer exclusive financing options to Wholesale & Retail businesses through Kaltan Strategies dedicated financial advisory board.
Addressing Lack of Access to Land:
- Land Accessibility Programs: Developing proposals for local government initiatives that ease the process of accessing land, including preferential rates for businesses.
- Brownfield Development: Conducting feasibility studies on repurposing brownfield sites for Wholesale & Retail purposes and engaging with environmental experts to ensure sustainable redevelopment.
- Standardized Processing: Creating a public database of available land and potential development sites for businesses. Collaborating with urban planners and local authorities to conduct a comprehensive land use analysis to streamline leasing and land acquisition processes.
Tackling Transportation Bottlenecks:
- Supply Chain Optimization: Conducting supply chain workshops for businesses, analyzing their current processes, and identifying optimization opportunities.
- Technology Integration: Developing a technology adoption roadmap, recommending specific solutions that are tailored for each business. Facilitating partnerships with technology providers for cost-effective implementations.
- Kaltan’s Commitment: Creating a transportation optimization platform for businesses to share network resources and collaborate on supply chain logistics. Developing of a shared logistics infrastructure within industrial zones by implementing route optimization software and Internet of Things (IoT) devices for real-time tracking.
Adopting Lean Infrastructure:
- Technology Adoption: Collaborating with IT consultants to conduct technology assessments for businesses and developing a phased plan for the adoption of digital technologies.
- Lean Principles Implementation: Providing lean training programs for businesses, emphasizing waste reduction and efficiency improvement. Establishing key performance indicators (KPIs) to measure the success of lean initiatives.
- Embracing Data Analytics: Implementing cloud-based inventory management systems for businesses and facilitating lean workshops with industry experts to share best practices and success stories.
Conclusion:
This comprehensive case study serves as an invaluable strategic roadmap, offering indispensable insights and actionable recommendations tailored for businesses within the Private Sector of Somaliland. From job creation to fostering innovation, the suggested solutions aim to enhance each sector’s impact on the broader economy. Moreover, as stakeholders navigate the intricacies of their respective industries, the study offers exposure to the upside potential of emerging market opportunities to enable them in diversifying their portfolios. This provides a clear pathway to not only mitigate challenges but also harness opportunities for growth. Thus, by addressing each problem systematically, companies in the Private Sector are equipped with strategic tools to navigate the complexities of the evolving economic landscape.
As we present this extensive report, we envision businesses leveraging the insights provided to make informed decisions, strategize for sustained growth, and actively contribute to the enduring economic prosperity of Somaliland. This study stands as a testament to Kaltan’s commitment to providing transformative solutions and actionable steps through detailed market analyses. For a personalized consultation and further exploration of tailored strategies for your business, we invite you to connect with our team. Together, we can chart a course for transformative success in the dynamic and evolving economic environment of Somaliland.