Somalia’s Dawn After Debt Relief – Building Resilience via Capital Market Development and Private Sector-Led Growth
By Mohamed Sh Omar Ibrahim
Somalia has reached a historic milestone. On December 13, 2023, the International Monetary
Fund (IMF) and the World Bank confirmed Somalia hit the Heavily Indebted Poor Countries
(HIPC) completion point, reducing external debt from 64 percent of GDP in 2018 to under
6 percent by end-2023—signifying $4.5 billion in debt relief. That achievement was bolstered in
early 2024 when the Paris Club erased 99 percent of a $2 billion bilateral, and in late 2024, the
US cancelled another $1.14 billion, accounting for roughly a quarter of outstanding debt.
But debt relief is not the destination—it’s a launchpad. The critical question now: what comes
next for Somalia? Success hinges on establishing a dynamic capital market and fueling private
sector-led growth—a pivotal shift amid a constricting Official Development Assistance (ODA)
landscape.
Picture a country long shackled by the weight of debt, where progress always seemed just out of
reach. For decades, Somalia struggled under a burden of loans that offered little real change on
the ground. Money would come in, but schools stayed under-resourced, roads crumbled, security
issues and communities remained underserved. For many in fragile and conflict-affected states,
this has been the painful cycle one where hope flickers with every loan but dims just as quickly.
Now, Somalia has reached a turning point. With the recent achievement of debt relief wiping
billions off the country is finally being handed the opportunity to turn a new page. This is more
than a fiscal reset; it’s a symbolic moment that could mark a shift away from the sole focus on aid dependency and the beginning of true economic liberation. But this moment comes with a
critical question – will this be a transformative moment or a missed opportunity?
To answer this pivotal question, we must look beyond the figures and into the stories unfolding
on the ground. The future of Somalia lies not in numbers alone, but in the aspirations of its
people—its entrepreneurs, youth, diaspora, and reform-minded leaders. If guided wisely, this
reset could usher in a new era, one where peace is built through economic growth and prosperity
and is powered by the private sector.
Why Capital Market Development Matters
Reducing debt frees up fiscal space but sustaining that requires private capital and market
development. Over time, Somalia must transition from grants to broader financial inclusion via
instruments like bonds, equity, and microfinance, channeling both domestic and international
savings into productive sectors.
Drawing lessons from Rwanda and Uganda, which emerged from conflict with ambitious
reforms and bold capital market initiatives:
• Rwanda launched a national exchange (RSE) in 2011, listing key entities and gradually
incorporating bonds. Through proactive deregulation under its Vision 2020/2050 strategy,
it simplified business registration, boosted investor confidence, and integrated financial
services—banking, pensions, microfinance—spurring GDP growth and foreign direct
investment (FDI) .
• Uganda reached its HIPC Completion in 2000. That unlocked a surge of FDI, especially
in telecoms and finance, and fostered capital markets that now support both public and
private financing
Countries like Rwanda and Uganda demonstrate that post-conflict capital reforms can trigger
sustained private investment, not only in public infrastructure but in transformative sectors.
Somalia, with its long coastline and “blue economy” potential—from fisheries to sea transport—
could emulate these models. Already, diaspora-led businesses and entities like Hormuud
Telecom are modernizing connectivity and mobile payments, laying groundwork for scalable
markets.
Essential reforms, however, are needed to attract investment and cultivate a capital market. The
IMF identifies “financial deepening” and strengthened central bank oversight as keys to
unlocking private investment and domestic saving. Recent approvals – new digital ID laws and
data protection, financial sector regulation, and investor protection frameworks – are
encouraging steps. Reforms around fiscal codes, external audits, customs harmonization, and
licensing—for example, the Somali Business Registration and Licensing System—have
bolstered governance, boosted revenues, and underpinned investor trust. Furthermore, beyond debt relief, sustainable domestic resource mobilization through indirect tax and non-tax measures
can fund infrastructure, education, and health. These foundations enable fair competition and
reduce dependency on foreign aid. A developed capital market enhances domestic resource
mobilization which in turn leads to increased supply of long-term capital.
Less Reliance on Aid and More Towards Self-Reliance and Determination
Somalia’s journey has long been propped up by external aid which has been vital, but ultimately
insufficient for long-term growth. Now, there’s a growing shift: from reliance to self
determination. This doesn’t mean shutting the door on international partners and vital aid but
rather stepping up as the driver of its own development agenda. This has become ever more
important given that global ODA is contracting. Major donors are pulling back, hampering
financing in low-income and fragile states. This decline underscores that concessional capital is
scarcer, scrutinized, and tied to outcomes. For Somalia, reliance solely on grants is no longer
viable.
Instead, Somalia must leverage private capital, tapping into diaspora savings, sovereign
financing, diaspora bonds, and eventually international institutional capital. That requires
credible markets, enforceable contracts, and scalable ventures. This is about more than growth,
it’s about self-reliance and determination. Somalia can’t rely on outsiders alone. Its roads,
schools, and jobs should be built with its own capital.
The Case for a Private Sector–Led Economic Growth
The private sector in Somalia already shows impressive momentum. If you ask any Somali
where the country’s strength lies, they will likely point to its people. From women selling goods
in the bustling Bakara market to entrepreneurs in agriculture and livestock, and the diaspora
sending billions in remittances, it is the people who have long powered Somalia’s resilience.
According to Oxfam, every year, members of the Somali diaspora send approximately $1.3
billion to their friends and relatives in Somalia, exceeding all humanitarian and development
assistance to the country and comprising between 25 and 40 percent of the country’s economy.
Despite the challenges in the Somali financial system, the private sector, primarily driven by
micro, small, and medium sized enterprises (MSMEs), has remained the cornerstone of the
ongoing economic recovery efforts. With the right support, these MSMEs can be transformative
and revitalize economic activity in Somalia. Investing in MSMEs can:
⚫ Reduce youth unemployment
⚫ Strengthen household incomes
⚫ Build inclusive, grassroots development
⚫ Reduce the risk of conflict fueled by economic exclusion
Unlocking Finance – Key Pillars for Private Sector-Led Growth
Good Governance and Fair Regulations
Investors both local and foreign need confidence. That confidence comes from predictability and
fairness in the legal and regulatory environment. To build this, Somalia must:
⚫ Enforce contracts fairly and consistently
⚫ Protect property rights
⚫ Eliminate unnecessary bureaucracy
Where trust in government is low, capital flees. Where trust is built, investment follows.
Access to Finance
Even the most promising business idea means little if it can’t access funding. In Somalia, many
MSMEs face barriers to accessing finance from banks demanding high collateral they don’t have
or charging rates they can’t afford. There are examples of institutions that have aimed to address
this issue and facilitate access to finance for MSMEs in underfunded and productive sectors.
Gargaara Finance Limited, a leading financial institution in Somalia, for example, is facilitating
access to finance for MSMEs has disbursed over $30 million in loans, nearly half of it going to
women-led businesses. These are seeds of change. With more initiatives like this, thousands of
entrepreneurs could be unlocked bringing innovation and livelihoods to their communities.
Diaspora Engagement: Turning Remittances into Investment
Every year, the Somali diaspora sends billions back home. These remittances are a lifeline,
keeping families afloat. But imagine what could happen if just a fraction of that money was
pooled and invested in national development? Tools like diaspora bonds, investment
cooperatives, and crowdfunding platforms could make this possible. Think of diaspora-funded
tech hubs in Garowe, cooperatives in Hargeisa, or factories in Kismayo. By partnering with local
banks and the government, the diaspora can be more than supporters whereby they can be co
builders of Somalia’s future.
A Pivotal Opportunity – Can Somalia Seize the Moment?
Debt relief offers Somalia more than breathing room and a blueprint for transformation. But to
seize this moment, the country must commit to the following long-term reforms:
- ⚫ Building strong, transparent institutions
⚫ Fostering a vibrant, resilient private sector
⚫ Leveraging diaspora remittances for development
⚫ Ensuring equitable access to essential services
Somalia now stands at a historic crossroads, with courage and collaboration, it can chart a new
course one where no one is left behind. Debt relief is only the spark. Somalia’s future will be
forged by the courage of its people, the energy of its entrepreneurs, and the resolve of its leaders.
Now is the time to think boldly, act wisely, and build a legacy that lasts. Somalia must seize this
moment following debt relief, using fiscal savings to institutionalize capital market development,
domestic revenue, and private-sector vibrancy—bolstered by robust legal frameworks and
diaspora engagement. These bold moves can position Somalia not just as a post-conflict success,
but as a dynamic East African growth frontier.
Mohamed Sh Omar Ibrahim is the CFO at Gargaara Finance Limited. He was a former
Economic and Financial Policy Advisor to the Office of the Prime Minister of Somalia. The
views expressed herein are his own.