Empowering Somalia's economy beyond remittances for long-term stability

When Somalia reached the HIPC (Heavily Indebted Poor Countries) completion point recently, it marked a transformative milestone—a moment that inspired us to explore Somalia’s economic landscape further. For years, remittances have been a lifeline, supporting millions of households. However, reliance on these funds cannot secure long-term stability. Our analysis of Somalia’s economic situation to inform the constituency on how best to support and sustain its economic growth, has revealed the urgent need for diversification to build resilience, and in this blog, we share some thoughts on efforts to make that happen.

The critical role of remittances in Somalia
Somalia’s diaspora is a vital economic force, with remittances comprising 16.7% of GDP in 2022, according to World Bank data. These funds have been crucial for meeting basic needs like food, education, and healthcare. Yet, this dependence also reveals vulnerabilities. Climate shocks, natural disasters, and global economic fluctuations can destabilize livelihoods, underscoring the urgency for diversification. Somalia must expand its economic base to withstand external shocks and foster inclusive growth.

Why diversification matters
Diversifying Somalia’s economy is more than an aspiration; it’s a necessity. Agriculture, livestock, and fisheries dominate the GDP, but overreliance on these sectors makes the economy susceptible to disruption. To address this, the World Bank and other key stakeholders have been promoting initiatives that foster resilience and economic growth. Efforts to strengthen entrepreneurship are particularly crucial, as expanding access to finance, supporting small businesses, and fostering innovation can create new opportunities and drive long-term economic stability.

World Bank programs like the Somalia Crisis Recovery Project help communities rebuild livelihoods after natural disasters, while the Somalia Capacity Advancement, Livelihoods, and Entrepreneurship through Digital Uplift Project (SCALED-UP) promotes financial inclusion and entrepreneurship. For example, over 2,700 new limited liability companies were registered in 2022, reflecting the vibrant entrepreneurial spirit in Somalia. However, access to finance remains limited, with only 8% of adults connected to formal financial systems. Expanding financial access is critical to enabling businesses to thrive and drive sustainable development, a key aspect of diversification.

Governance - The key to unlocking investment
Governance is a recurring theme in Somalia’s development narrative. Weak institutions have historically deterred investment and slowed progress. Strengthening governance frameworks is therefore essential. Programs like the Somalia Urban Resilience Project (SURP II) enhance infrastructure and foster transparency and accountability within government systems. These efforts build trust between citizens, governments, and investors—creating a fertile ground for economic opportunities.

Through its advocacy and strategic partnerships, the World Bank’s Office of the Executive Director for Africa Group 1 Constituency which includes Somalia, plays a pivotal role in driving Somalia’s diversification agenda. By fostering dialogue between Somali leaders, the World Bank, and international partners, the Executive Director’s office is amplifying efforts to secure funding, technical assistance, and expertise. This engagement is crucial for expanding opportunities across sectors and supporting Somalia’s entrepreneurs.

A collaborative path forward
Somalia’s recent HIPC achievement signals its readiness for transformation. The road ahead requires collaboration among the government, diaspora, development partners like the World Bank, and private sector stakeholders. By diversifying the economy, fostering entrepreneurship, and strengthening governance, Somalia can reduce its reliance on remittances and chart a path toward sustainable, inclusive growth.

As practitioners, we’ve been inspired by the resilience and ingenuity of Somali government and its people. With sustained effort, Somalia can build a thriving economy that benefits all its citizens. Together, we can support this journey, turning milestones into meaningful progress and ensuring a stable and prosperous future.