HomeReportsBureau of Economic and Business Affairs2023 Investment Climate Statements…Somalia

# 					2023 Investment Climate Statements: Somalia			

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													EXECUTIVE SUMMARY											

                -  EXECUTIVE SUMMARY 
                -  1. Openness To, and Restrictions Upon, Foreign Investment                    -  Policies Towards Foreign Direct Investment 
                  -  Limits on Foreign Control and Right to Private Ownership and Establishment 
                  -  Other Investment Policy Reviews 
                  -  Business Facilitation 
                  -  Outward Investment 
                -  2. Bilateral Investment and Taxation Treaties 
                -  3. Legal Regime                    -  Transparency of the Regulatory System 
                  -  International Regulatory Considerations 
                  -  Legal System and Judicial Independence 
                  -  Laws and Regulations on Foreign Direct Investment 
                  -  Competition and Antitrust Laws 
                  -  Expropriation and Compensation 
                  -  Dispute Settlement 
                  -  Bankruptcy Regulations 
                -  4. Industrial Policies                    -  Investment Incentives 
                  -  Foreign Trade Zones/Free Ports/Trade Facilitation 
                  -  Performance and Data Localization Requirements 
                -  5. Protection of Property Rights                    -  Real Property 
                  -  Intellectual Property Rights 
                -  6. Financial Sector                    -  Capital Markets and Portfolio Investment 
                  -  Money and Banking System 
                  -  Foreign Exchange and Remittances 
                  -  Sovereign Wealth Funds 
                -  7. State-Owned Enterprises                    -  Privatization Program 
                -  8. Responsible Business Conduct 
                -  9. Corruption 
                -  10. Political and Security Environment 
                -  11. Labor Policies and Practices 
                -  12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs 
                -  13. Foreign Direct Investment Statistics 
                -  14. Contact for More Information 

## EXECUTIVE SUMMARY

The Federal Government of Somalia (FGS) welcomes foreign direct investment and offers a variety of opportunities for investment, especially in natural resources and productive sectors such as agriculture, fisheries, and livestock; however, the business operating environment continues to face several challenges.  Somalia’s government collapse in 1991 led to a period of conflict and clan warfare.  While there has been some progress since the establishment of the FGS in 2012, potential investors still face challenges such as the lack of a comprehensive legal and regulatory framework, a civil judicial system incapable of solving disputes and enforcing contracts, and endemic corruption.  Investors also face threats from the al-Shabaab terrorist group, which controls large portions of the country and routinely extorts payments from businesses.  Businesses also face challenges moving money into and out of Somalia, enforcing protection of intellectual property, and maintaining access to inexpensive and reliable electricity.

The current government was elected in May 2022 and has maintained macroeconomic stability and economic reforms focused on the completion point of the Heavily Indebted Poor Countries (HIPC) process expected to be achieved by end of 2023. The HIPC completion point will reduce the country’s total external debt from $5.2 billion to $557 million, or nine percent of GDP. The government is committed to strengthening domestic revenue mobilization, including customs modernization across all ports, increasing revenue collection from big corporations especially in the telecom sector, and advancing reforms on public financial management (PFM). Post-HIPC completion point, there may be opportunities to access new sources of financing which could support new investments in human and physical capital, as well as institutions to support state-building and growth. The International Monetary Fund (IMF) and World Bank are optimistic that the country will achieve all the set benchmark triggers for the HIPC completion by the end of 2023.

Somalia continues to rebuild its economy despite its difficult circumstances, including vulnerability to climate-related shocks and the higher global prices and delays in supply chain caused in part by the war in Ukraine and the COVID-19 pandemic. Somalia continues to face the effects of a severe drought, in some areas nearing famine conditions, which prevents the economy from sustaining a modest rebound in growth. Real GDP growth is projected to slow to 2.2% in 2022, from 2.9% in 2021 according to World Bank reports. However, the country has several opportunities that if taken advantage of can spur economic growth including rapid urbanization, a vibrant private sector, the growing use of digital technologies, planned investments in sectors such as livestock, fisheries, agriculture, energy, ports, education and health.

Low human development indicators, expensive and unreliable electricity, poor roads, a lack of reliable internet access (especially outside urban areas), and pervasive government corruption constrain investment and development. Moving money into and out of Somalia remains difficult, and the financial sector is constrained by the lack of private sector correspondent banking relationships.  The main obstacles are weak “know your customer” (KYC) capabilities and concerns that al-Shabaab is using Somalia’s financial institutions to collect, store, and move money.  To address these concerns, relevant institutions such as the National Anti-Money Laundering Committee (NAMLC) and Financial Reporting Center (FRC) have put in place mechanisms to strengthen the country’s financial sector.

							1. Openness To, and Restrictions Upon, Foreign Investment					

### Policies Towards Foreign Direct Investment

The FGS and the Federal Member States (FMS) have a positive attitude towards foreign direct investment (FDI) and describe Somalia as “open for business.”  The government is committed to the fight against al-Shabaab and reclaiming government territories from the terrorist group with the aim of improving security and creating a favorable environment for investments. While government institutions remain weak, there has been progress on driving key regulatory reforms in a bid to prepare the country for future investments post-HIPC completion point where Somalia will have access to international financing.

Parliament passed a foreign investment law in 2015 to promote and protect foreign investment.  The law also provides some incentives to foreign investors, such as tax advantages and guarantees against expropriation. The Somalia Investment Promotion Office (SOMINVEST) at the Federal Ministry of Planning, Investment and Economic Development was established under the Foreign Investment Law of 2015 to promote foreign investment, rebrand Somalia, facilitate investment entry and retain, and continuously advocate for improved investment policies. The office facilitates registration of FDI and supports investors to liaise with different government entities and FMS including providing assistance to procurement authorities and permits required for the establishment and operation of FDI enterprises.

In September 2020, Somalia’s investment promotion authority (SOMINVEST) released a five-year ****National Investment Promotion Strategy, which aims to improve Somalia’s image abroad.  The strategy highlights agriculture, fishing, energy, infrastructure, and banking as keys areas ripe for FDI.

The Somalia Chamber of Commerce and Industry (SCCI) prioritizes investment retention and maintains an ongoing dialogue with investors. SCCI safeguards business interests, liaises with government officials on behalf of investors, and engages with civil society, local media, international community, and the press. In 2022, the SCCI, SOMINVEST, and other relevant government institutions facilitated bilateral trade and investment agreements between Somalia and Uganda

### Limits on Foreign Control and Right to Private Ownership and Establishment

There are no laws that address private ownership rights or limit foreign control. There has not yet been a third-party investment review of Somalia. The FGS is an observer to the World Trade Organization (WTO). The FGS took the first step in initiating the process of joining WTO in November 2016 and is still in the accession process which could take long. The FGS is not a member of the Organization for Economic Cooperation and Development.

### Other Investment Policy Reviews

In November 2016, Somalia submitted a notification of intent to join the WTO. After working through the accession stages in May 2020, Somalia submitted a Memorandum on the Foreign Trade Regime, a document that outlines its trade and economic policies and its trade agreements with other countries.  In October 2020, the WTO confirmed Somalia’s Working Party chairperson, Swedish Ambassador to the WTO Mikael Anzen, and was planning the first Working Party meeting for mid-2021. The engagements were put on hold as a result of the COVID-19 pandemic and remain on hold due to political instability.

The FGS rejoined the Common Market for Eastern and Southern Africa in July 2018.  As a member, Somalia is required to undertake several institutional, policy, and regulatory reforms to meet the organization’s free trade protocols.

In July 2022 the FGS has also applied for East African Community (EAC) membership, which would allow Somalia to formalize trade with its neighbors and facilitate movement of Somali citizens to other EAC member states through acquisition of the common EAC passport.  In January, the 40-person EAC verification team spent 12 days in Mogadishu assessing the following work streams: politics and security, social services, the productive sector, and economy and finance. The verification team plans to release its report at the EAC ministerial meeting later this year.

Somalia has also indicated its intent to participate in negotiations on the African Continent Free Trade Agreement.

### Business Facilitation

In 2019, the FGS passed a company law formalizing the legal requirements to create and register a company.  On March 30, 2022, the Ministry of Commerce and Industry officially launched the Somali Business Registration System (SBRS), which will serve as a “one-stop shop” business registration website to streamline licensing approvals and reduce corruption.

The World Bank ranked Somalia 190 of 190 countries in its 2020 Ease of Doing Business Report. In 2021, the World Bank discontinued producing the Ease of Doing Business report, due to several limitations/shortcoming identified in the tool’s accuracy in assessing a country’s business/investment climates. USAID is now working with the World Bank to develop a new methodology.

### Outward Investment

In 2019, the FGS passed a company law formalizing the legal requirements to create and register a company.  On January 27, 2021, the FGS Ministry of Commerce issued a supplementary regulation (001/2021) to support enforcement of the company law. Regulation 001/2021 established the Office of the Registrar of Companies, defined its roles/functions, and set the requirements and processes for business registration, licensing fees, and penalties. Because of this regulation, the new Somali Business Registration System (SBRS) was established.

							2. Bilateral Investment and Taxation Treaties					

The FGS does not have a policy that promotes or incentivizes outward investment. Many Somali diaspora have investments and business corporations that operate across the world in particular Horn of Africa and Middle Eastern countries. With advancements in governance and peace, evidence suggest that Somali diaspora are returning to the country and investing in sectors such as real estate, hospitality, and energy.

Somalia does not have a bilateral taxation treaty with any country.

							3. Legal Regime					

### Transparency of the Regulatory System

While the 2012 provisional constitution has not been finalized, Somalia continues to advance in passing necessary regulatory framework as part of the HIPC completion point benchmarks. The current administration is in the process of passing the Investment Promotion Agency bill which is now at the second reading stage at the Lower House of Parliament as of March 1. The bill will establish SOMINVEST as an independent agency mandated to promote FDI and provide one-stop shop for foreign investors to facilitate their business processes. The government has enacted the Investors and Investment Protection Bill into law on March 20 which will enhance investors’ confidence through providing legal protection to their investments, fair treatment, and a robust dispute resolution mechanism.  The regulations will help Somalia to develop modern business and investment legislation to conform to the global business environment.  Somalia has a procurement act that is intended to provide for transparency in public contracts and concessions, but it is not always followed.  The new administration has passed several pieces of legislation aimed at improving governance, transparency, and regulatory systems to improve business environment. They include the Targeted Financial Sanctions Act, Fisheries Management Bill, Extractive Industries Income Tax (EIIT), National ID Bill, and Data Protection Act.

### International Regulatory Considerations

Somalia is a member of the Intergovernmental Authority on Development, as well as the Arab League and the Organization of Islamic Cooperation.  In 2018, Somalia obtained provisional membership in the Common Market for Eastern and Southern Africa, but it has several conditions to fulfill before achieving full membership. Somalia is an observer, but not yet a member, of the WTO. Somalia is also a member of the African Continental Free Trade Area (AfCFTA) but has not yet ratified its trade protocols.

### Legal System and Judicial Independence

Somalia’s legal system derives from Italian and British law, customary dispute resolution (*xeer*) principles, and Islamic law.  The provisional constitution establishes a judicial system that is theoretically independent of the executive and the legislature, but in practice the legal system depends on the executive.  There are no courts dedicated to commercial disputes.  A November 2020 USAID-funded report found that the courts lack political independence, are marked by “pervasive graft,” and face competition from a parallel al-Shabaab court system.  There are reports that some citizens choose to bring cases to al-Shabaab courts, finding them less corrupt than government courts.

### Laws and Regulations on Foreign Direct Investment

Somalia’s 2015 foreign investment law provides some guidance for foreign investors.  In 2019, the Ministry of Planning opened its investment promotion office, SOMINVEST, to provide potential investors with guidance on investing in Somalia. The current administration is in the process of passing the Investment Promotion Agency bill which is now at the second reading stage at the Lower House of Parliament as of March 1.

### Competition and Antitrust Laws

Competition and anti-trust laws do not exist in Somalia.  Local business disputes often are informally settled through the intervention of traditional elders.

### Expropriation and Compensation

Somalia is rebuilding from decades of civil war, and its legal and regulatory environment remains undeveloped.  There are no laws that define how the government can expropriate private property.  However, the provisional constitution provides a right to just compensation from the government if property has been compulsorily acquired in the public interest.  After the 1991 government collapse, many state-owned properties ended up in private hands, and the FGS has indicated interest in repossessing these properties.  There is a draft investor protection bill in parliament that will address expropriation, dispute resolution, and the transfer and repatriation of investments.

### Dispute Settlement

***ICSID Convention and New York Convention***

Somalia is not a party to the Convention on the International Centre for Settlement of Investment Disputes or the New York Convention of 1958.

***Investor-State Dispute Settlement***

The government has limited capacity to enforce laws or settle disputes domestically.  Many businesses in Somalia are owned by members of the diaspora, many of whom operate them as Somali businesses rather than foreign entities.  The FGS has passed the investor and investment bill, which will provide a legal framework for investor-state dispute settlement.  Somalia is not a signatory to any internationally binding treaty or investment agreement to arbitrate investment disputes.  The government has no bilateral investment treaty or free trade agreement with an investment chapter with the United States.  There have been no investment disputes involving U.S. persons or other foreign investors for the past 30 years.*****International Commercial Arbitration and Foreign Courts***

Somalia is not a signatory to any convention on commercial arbitration, and local courts have limited capacity to enforce their own decisions.  Domestically, parties often resort to a local council of elders, clan elders, religious leaders, or al-Shabaab to settle disputes.  Many foreign companies rely on arbitration courts in Djibouti or the United Arab Emirates (UAE).  The Intergovernmental Authority on Development is developing a regional initiative to establish a business dispute and arbitration center in Djibouti.

### Bankruptcy Regulations

Somalia does not have any bankruptcy laws.

							4. Industrial Policies					

### Investment Incentives

The 2015 foreign investment law provides some investment incentives, such as tax benefits, to foreign investors.  The government does not issue grants or jointly finance foreign direct investment projects, but the FGS informally uses ad hoc tax exemptions, some incentives, and revenue sharing agreements to attract investment. The director of revenue at the Ministry of Finance has authority to grant tax exemptions, but in practice line ministers and the prime minister have offered tax exemptions to foreign investors.  SOMINVEST is developing a national investment incentive framework.

### Foreign Trade Zones/Free Ports/Trade Facilitation

There are no laws or policies that designate any area as a free trade zone or as an area with special tax treatment.  Pursuant to an agreement signed in December 2019, a free trade zone dubbed the Berbera Economic Free Zone is under development in the Somaliland region, funded jointly by the Somaliland government, the UK, and UAE-based Dubai Ports World. Somali private investors have invested in the construction of a port in the Garacad coastal town. The port opened in October 2022 and has seen some commerce. The port is expected to open trade flows between central Somalia regions and eastern Ethiopia.

### Performance and Data Localization Requirements

The Foreign Employment Act of 2015 provides guidelines on employment of foreigners. Experts can obtain work permits from the Ministry of Labor and Social Affairs.  The law prohibits giving a work permit to a foreign national for a job that a citizen can perform. There are no laws inhibiting foreign investors or foreign employees.  Few foreign companies operate in Somalia, and most of them are based within the secure compound surrounding Mogadishu’s international airport.  Most of these companies are under contract to the FGS or an international organization to undertake infrastructure and security-related projects.  Several international Turkish companies operate outside the Mogadishu International Airport mainly in the real estate, hospitality, education, and health sectors. Foreign companies may contract with foreign employees with specific skillsets not locally available and can obtain work permits for these employees.

							5. Protection of Property Rights					

### Real Property

Somali laws relating to land are complex and include customary rules and traditions used by Somalia’s clan-based society, Western-style laws from the colonial period, remnants of the pre-1991 authoritarian rule, and Islamic law and tradition.  While there have been no federal efforts to catalogue property ownership and title land, some FMS have tried to document land ownership for the purposes of taxation.  In addition, land within the major cities, including Mogadishu, is generally documented for taxation purposes.  There are no specific regulations regarding land leases or acquisition by foreign investors.

When the government collapsed in 1991, there was widespread conflict over land, land-grabbing by warlords, and displacement of local populations, especially in southern Somalia.  As a result, fraudulent titles and land disputes are common.  A former government official moved all records of pre-1991 property registrations outside the country.  Requests to verify titles registered before 1991 therefore take a month to be processed and cost between $1,000 and $2,000.  For properties registered more recently, records may be available in the official bulletin.  Lawyers charge approximately $50 to verify a title’s authenticity.

Somaliland has a more advanced land title framework and dispute mechanism.  The Somaliland legal framework addresses urban land management, agricultural land ownership, urban land dispute resolution, and civil procedures for hearing property disputes.

### Intellectual Property Rights

There are no laws protecting or enforcing intellectual property (IP).  The cabinet approved a new IP law in 2019, but parliament has not yet approved it.  The FGS passed a law on standardization and quality control in March 2020 that provides for the creation of the Somalia Bureau of Standards as the enforcement authority for quality control.  Although there are no official reports on seizures of counterfeit goods, it is widely believed that many goods entering Somalia are counterfeit.  The government has no capacity to seize or track counterfeit goods entering the country.  For additional information about national laws and points of contact at local IP offices, please see the World Intellectual Property Organization’s (WIPO) ****country profiles. Somalia is a member of WIPO and the African Regional Intellectual Property Organization (ARIPO) but is yet to be a signatory to the ARIPO Protocols. IP protection on trademarks, patents, and industrial designs are available in Somalia.

							6. Financial Sector					

### Capital Markets and Portfolio Investment

Somalia has no structured financial system and does not have portfolio investment financial products in the market.  Somalia does not issue government bonds or corporate bonds.  There is one private ****stock exchange operating in Somalia, but the government has no authority to regulate trade in stocks and securities.

### Money and Banking System

Somalia’s banking system has yet to recover from years of conflict.  Moving money into and around the country through traditional banking mechanisms is difficult.  The Somali shilling lacks legitimacy, as it has not been printed since 1991, and more than 98 percent of the bills in circulation are counterfeit.  Consequently, much of the Somali economy relies on the U.S. dollar.

Since the FGS reestablished the Central Bank of Somalia (CBS) in 2009, it has been slowly developing the tools and capabilities to oversee licensing and supervision of commercial banks and money transfer businesses.  The CBS has issued licenses to 13 local banks, two international banks from Turkey and Egypt, 10 money transfer companies known as hawalas, and three mobile money service providers.  A 2016 anti-money laundering/countering the financing of terrorism law (AML/CFT) requires enhanced KYC controls and created the government’s financial investigation unit, the Financial Reporting Center (FRC). Nevertheless, the FRC continues to face challenges of weak compliance by financial institutions over AML/CFT requirements. In 2022, Somalia published its first National Risk Assessment (NRA) on money laundering and terrorist financing in preparation for the 2024 mutual evaluation of Middle East and North Africa Financial Action Task Force (MENA-FATF). The NRA identified several risks, gaps and weaknesses faced by the country’s legal and financial systems. The National Anti-Money Laundering Committee (NAMLC), a multi-institutional committee tasked by the 2016 AML/CFT Act to provide policy guidance and set the strategies of Somalia’s AML/CFT regime which the FRC is the secretariat has made tremendous efforts to address AML/CFT issues. In 2022, NAMLC suspended over 250 bank accounts and 160 mobile money accounts for suspicion over terrorist financing. Somali banks do not have correspondent relationships with international banks except partly for Turkey, Kenya, and the United Arab Emirates (UAE) where the country has maintained some form of banking relations. Somalia remains isolated from the international financial system which further undermines its efforts to foster economic recovery and stability in the country, affecting remittance flows, trade, humanitarian delivery and access to finance for people and businesses. To address these financial system challenges, the World Bank along with development partners from UK, US, and EU launched the Financial System Initiative (FSI) project which aims to integrate Somalia into the global financial system. In 2021, Somalia launched the National Payment System (NPS) which would connects all the banks in the country for the first time and enables them to transact with each other.

Only 15 percent of Somalis have formal bank accounts due to a lack of branches in many towns and the difficulty of obtaining acceptable forms of identification to open accounts.  Mobile finance therefore plays an important role in the economy.  Government has made progress in regulating the mobile money platforms. Most recently, the NAMLC issued guidelines to mobile money operators to limit daily transactions per account to $ 300 and conduct biometric registration of its customers as measures to counter financing of terrorism. As of 2022, the CBS issued three mobile money licenses.

There is no publicly available data regarding the assets of privately owned banks.  Two foreign banks from Turkey and Egypt received licenses to operate in Somalia.

### Foreign Exchange and Remittances

***Foreign Exchange***

While the official currency for Somalia is the Somali shilling, almost all the currency in circulation is counterfeit.  As a result, Somalia’s economy is largely dollarized, and a significant portion of daily transactions are conducted through phone-based mobile money managed by telecommunications companies.

Recent NAMLC directives require mobile money transfer companies to limit daily transactions per account per day to $300 and to conduct biometric registration of their customers. The shilling is volatile and fluctuates rapidly against the dollar.  The CBS has limited capacity to fully implement the required monetary policies.  With co-financing from the World Bank, the government has plans to print a new currency but does not have the budget to do so in the near term.

***Remittance Policies***

For two decades there was no functioning banking system in Somalia.  Instead, hawalas transferred money into, out of, and within Somalia.  Somalis in the diaspora remit more than $1.74 billion annually, accounting for 25 percent of Somalia’s GDP.

### Sovereign Wealth Funds

There are no sovereign wealth funds or any other state-owned investment fund.

							7. State-Owned Enterprises					

Somalia does not have any fully or partially state-owned enterprises.

### Privatization Program

Since the government does not own any business entities, there are no entities to privatize.  The World Bank has supported the development of a public-private partnership law, but parliament has not yet acted on it.

							8. Responsible Business Conduct					

There are no laws or regulations addressing corporate social responsibility (CSR) or responsible business conduct. However, top business corporations are involved in several voluntary CSR projects including education, healthcare, and infrastructure development.

***Additional Resources***

Department of State
                    - Country Reports on Human Rights Practices ( https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/ )
                    - Trafficking in Persons Report ( https://www.state.gov/trafficking-in-persons-report/ )
                    - Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities ( https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/ )
                    - U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises ( https://www.state.gov/u-s-national-contact-point-for-the-oecd-guidelines-for-multinational-enterprises/ )
                    - Xinjiang Supply Chain Business Advisory ( https://www.state.gov/xinjiang-supply-chain-business-advisory/ )

Department of the Treasury
                    - OFAC Recent Actions ( https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions )

Department of Labor
                    - Findings on the Worst Forms of Child Labor Report ( https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings  )
                    - List of Goods Produced by Child Labor or Forced Labor ( https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods )
                    - Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World ( https://www.dol.gov/general/apps/ilab )
                    - Comply Chain ( https://www.dol.gov/ilab/complychain/ )

*****Climate Issues***

In 2013, the FGS finalized a National Adaption Program of Action (NAPA) for addressing climate risks in Somalia, as well as delivering on commitments to the United Nations Framework Convention on Climate Change.

In 2021, the FGS signed and updated its National Determined Contribution, committing to act and reduce its estimated projected emissions of 107.40 MtCO2eq by 30 percent. To achieve this target, Somalia must reduce its greenhouse gas emissions by about 32.40MtCO2eq relative to the BAU scenario by 2030.

In December 2021, the FGS published the final report of Somalia’s National Environment Strategy and Action Plan (NESAP) (2022 – 2026). The NESAP aims to accomplish four strategic objectives: 1) Improving environmental governance and enhancing resource mobilization for the effective management of natural resources and environment, 2) undertaking a comprehensive assessment of the state of Somalia’s natural resources, environment, and potential climate risks, 3) undertaking conservation initiatives to address urgent challenges in land degradation, biodiversity, aquatic and marine environment, and climate change, 4) enhancing public awareness, participation, and behavior change on environmental protection, conservation, and climate change.

There are no strategy, regulatory incentives, or specific expectations on private sector contributions to achieving relevant targets/goals.

							9. Corruption					

The provisional constitution criminalizes several forms of corruption such as abuse of office, embezzlement of funds, and bribery. The FGS enacted an anti-corruption bill in September 2019 that provides for the formation of an independent anti-corruption commission at both federal and state levels called the Somalia Independent Anti-Corruption Commission. The commission was operational, with officers elected in May 2021 until in 2022 when the new administration disbanded the office stating that it was established without following the proper legal procedures. The administration plans to reconstitute the commission.  Somalia’s procurement laws have provisions to address potential conflicts of interest in awarding government contracts, but enforcement is lax. Corruption is rampant in all sectors of government, particularly government procurement. Transparency International ranked Somalia 180 of 180 countries in its 2022 Corruption Perceptions Index.  Without a robust asset declaration mechanism, an updated penal code, and a functioning criminal justice system, anti-corruption efforts remain ad hoc, and there is little deterrence.

Procurement laws require all government contracts to go through an open tender process unless they meet specified conditions for limited competition.  However, the FGS has not put the relevant procedures in place, and in practice the FGS still awards lucrative contracts without following the procurement guidelines.  Moreover, the FGS has not yet established a procurement board as required by law, which further stifles attempts to ensure transparency and accountability in government procurement activities.  An interim ****procurement board exists, but it meets irregularly.

***Resources to Report Corruption***

There is no central agency or office for whistleblowers to report corruption, and there is no legal framework to protect whistleblowers.  The FGS has not established an Office of the Ombudsman, as required by the provisional constitution.

							10. Political and Security Environment					

Somalia has a long history of political and clan-based violence, which destroyed the basic state institutions that support economic development.  Most of Somalia’s infrastructure was destroyed during 30 years of civil war and violence.  There are pockets of stability, but Somalia remains an insecure environment.  Attacks by al-Shabaab, clan-based militias, and others affect individuals and businesses throughout the country, often with loss of life.  The U.S. Department of State advises U.S. citizens against traveling to Somalia due to crime, terrorism, and civil unrest. The new administration has made tremendous efforts in liberating several territories that were previously under the control of al-Shabaab. Progress continues to be made in the fight against al-Shabaab through countering financing of terrorism and counter narrative measures.

							11. Labor Policies and Practices					

The law provides for the right of every worker to form and join a trade union, participate in the activities of a trade union, conduct legal strikes, and engage in collective bargaining. No specific legal restrictions exist that limit these rights. The law does not address anti-union discrimination, or the reinstatement of workers fired for union activity. Legal protections did not exclude any specific group of workers.

The government did not effectively enforce the law. Penalties were not commensurate with those for similar violations and were seldom applied. The Ministry of Labor and Social Affairs hired and trained labor inspectors during the year, but as of December, no inspections had been conducted.

Somalia is emerging from three decades of political instability and economic hardship that destroyed government institutions, leaving little data on the status of the current labor market.  According to World Bank statistics from 2022, over 60 percent of the population is under the age of 25, and 61 percent of youth are unemployed.  There is a mismatch between the skills youth possess and the requirements of the labor market.

Some international partners implement projects to improve vocational training, but these reach a small portion of the workforce and most of the skills offered by technical and vocational training institutions do not match the needs of the local labor markets.  Private sector entities, such as the major telecommunications companies, maintain their own training programs to meet the needs of their workforce. Somalia does not have a formal labor or employment policy that would restrict the hiring of foreigners. Somalia has drafted a modern labor code, but it has yet to be enacted.  In February 2020, the FGS released a social safety net policy.

Conflicts between the government and labor unions resulted in a formal complaint to the ILO in 2018.  Since the complaint’s filing, the government has stopped limiting labor unions’ activities and has worked cooperatively with the labor union umbrella organization to draft labor policies and codes.

The ILO established an office in Mogadishu in 2018 to address the significant gaps between Somalia’s labor practices and international standards. With ILO and labor union support, in April 2021 the government ratified international labor standards seeking to end violence and harassment in the world of work. Somalia has ratified a total of 26 ILO conventions. With the support from ILO, a conducive working relationship based on consensus, confidence and trust building between the government and trade unions has enhanced social peace in Somalia and opened the door for the establishment of the first formal tripartite structure, the Somali National Tripartite Consultative Committee to deal with labor issues as part of ILO’s Decent Work Agenda.

							12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs					

In 2020, a Development Credit Authority (DCA) worth $2.7 million was issued to Equator Energy, an international renewable energy developer based in Kenya who invested in two local utilities in Puntland (ENEE) and Somaliland (NEC) through a BOT (build-operate-transfer) model to expand their generation capacity with the installation of a combined 2.5MW solar system. Equator Energy is currently exploring to invest in another local utility in Puntland (NECSOM) to install a 1MW solar system.

Somalia is currently under review status at DFC. That means DFC would not only be looking at the credit and legal risks of the transaction, but also the foreign policy and other policy implications that weigh on whether to consider a project in jurisdictions presenting significant non-credit risks (e.g., rule of law; corruption; illegal drugs transit).

							13. Foreign Direct Investment Statistics