Somalia’s Agribusiness and Food Story

4. Somalia's Agribusiness and Food Story

Somalia's agribusiness presents considerable opportunities for potential investors:

Opportunities for large-scale commercial farming are made possible by the availability of suitable arable land and water. The nation possesses a strategic location and global connections. There is fertile soil along the riverine basins. There is a tropical climate with two rainy seasons, with varying altitudes for diversified cropping patterns. There is potential for export growth focused on organic farming, as the most suitable land is free from agrochemical residues. Road transport and port infrastructure are being developed, involving significant ongoing investments in trade corridors, and the development of supply chains.

Despite having faced numerous challenges recently, Somalia remains one of the best-primed nations in Africa for agro-investment.

As the governance, regulatory environment, and economic outlook improve, agro-production, and processing expansion are underway. There are real prospects for investing in input markets and agricultural processing to meet the growing domestic demand for food, driven by rapid urbanisation, high population growth, and improving incomes.

Somalia already exports sesame seeds, for which there is high global demand. Besides sesame, other production and processing export subsectors are likely to earn high returns.

Equally, investments in underdeveloped agricultural input chains such as seeds, fertiliser and machinery are likely to be profitable.

Globally, agriculture and food systems are vast and link the daily decisions of 7.5 billion consumers with more than one billion farmers and ranchers.

The FAO estimates the gross value of global (primary) agricultural production at just over US$ 5 trillion, while the World Bank estimates primary agricultural value-added production at about US$ 3.2 trillion[9].

In Somalia, agriculture is the backbone of the economy, contributing to approximately 70 per cent of the country’s gross domestic product (GDP), 80 per cent of its employment, and about 50 per cent of its exports.

Agricultural production is concentrated mainly in the southern part of the country, where the most fertile land is located, and riverine water irrigation is abundantly available. Primary agricultural produce includes coarse grains, oil crops, and horticultural crops (i.e. fruits and vegetables).

Primary export produce includes sesame, lemons, spices, gum, and resins.

The country imports sugar, rice, wheat, oil and other processed agricultural products. In Somalia, agriculture remains the sector with the most significant potential for driving broadbased and inclusive economic growth. This is because most of its people live in rural areas, where the mainstay is agriculture production.

Considering the importance of agriculture to the economy, Somalia is implementing transformational reforms to modernize and shift the sector from largely low-productivity subsistence farming to more commercially oriented systems that are better integrated with the rest of the economy.

Its agriculture strategy includes policy reforms to: improve the business-enabling regulatory environment and investment climate, improve productivity to achieve greater food security, promote the cropping and processing of products that will substitute imports, improve farmers’ incomes, create jobs, and enhance agribusiness opportunities in the input and output markets.

AGRICULTURAL DEMOGRAPHICS

Jobs in agriculture Land holding

66%

employed in primary production

75%

Smallholder farmers - <10 ha

25%

Large-scale farmers - >10 ha

Somalia has a young workforce, 65-70 per cent of which is aged under 30.

A surge of highly skilled Somalis from the diaspora returning to Somalia’s agricultural sector has led to increased innovation and investment. Monthly salaries range from US$ 100-300 for unskilled labour and US$ 300-600 for skilled, making Somalia more competitive than regional labour markets.

Though Somalia exports items such as gums & resins, sesame, citrus fruits and livestock (primarily goats and sheep), Somalia is a significant net food importer, importing an estimated US$ 1.35 bn in 2020.

Import substitution through local production and processing presents sizable opportunities for investors[10].

SOMALI EXPORTS AND IMPORTS

Imports US$ 1. 35 billion

Tobacco

Processed agricultural products

Wheat Beverages

Rice Sugar

Imports from:

UAE Turkey Brazil India China Ethiopia

Exports US$ 545 million

Spices Gum & resins

Lemon

Forest products Sesame

Animal skin products Crops & vegetable oil Livestock

Exports to Saudi Arabia UAE Oman EU India China

Somalia imports mostly from the United Arab Emirates (US$ 1.28 bn), China (US$ 893 mn), India (US$ 544 mn), Ethiopia (US$ 294 mn), and Turkey (US$ 64 mn). In 2020, Turkey exported US$ 264 mn worth of goods to Somalia. The main products imported include:

Total value of imports (agricultural and non-agricultural) in 2020: US$ 3,76 billion, of which o Food: US$ 1.17 billion o Beverages & tobacco: US$ 179 million

Total value of exports: US$ 544 million (livestock, animal skin products, cereals, pulses and legume crops, vegetable oil, forest products, plus other categories).

Favourable climatic conditions with bimodal spring and autumn growing seasons, annual precipitation, and available river water for irrigation enable at least two annual harvests of a wide variety of crops. This has enabled Somalia to supply domestic markets and export a wide variety of agricultural produce. This variety is mostly driven by a strong demand in Somalia’s traditional export markets (especially in the Gulf and Middle Eastern countries) for its agricultural products. Somalia's proximity to those markets also confers a freight advantage in terms of cost and transportation time.

Figure 1: Somali exports Source: European Business in Somalia (2021) - How European investment & trade contribute to development

Somalia exports a wide variety of agricultural products

Major exports include sesame and dried lemons and substantial forestry products, such as gums and resins, to major global destinations.

Though the Middle East remains the chief market for Somalia's products, improved agricultural inspection and certification systems are opening up new markets.

High-quality and dehulled sesame seeds are now the latest products in demand, with expanding market access to the EU, Norway, and North America.

In 2020, Somalia exported goods worth US$ 544 million, including livestock, animal skin products, cereals/pulses & vegetable oil, frankincense, and gums.

Somalia is reviving its banana sector and is expected to make a big comeback in its traditional markets, expanding its current average weekly output of 100 containers.

Sunflower seeds and soya beans are the emerging crops whose growth is expected to gain momentum in the years ahead, driven by both domestic and global demand for seed oils.

Recent research on food demand in Somalia has revealed that the consumption of cooking oils is sensitive to income shocks in terms of the quantity consumed[11], suggesting that investment which generates greater productivity of both novel and existing seed oil varieties will offer excellent opportunities for import substitution as more people find prices becoming more affordable. Notably, domestic demand for fruits and vegetables is highly seasonal. As a result, national demand is not only sensitive to both income and price shocks but is currently met for a large part of the year by imported and comparatively higher-priced fresh produce.

Investments in the fruits and vegetable sub-sector offer significant opportunities for stabilizing production and increasing productivity. Investments in input supplies, logistics and marketing would support both productivity and quality improvements for a wide range of fruits and vegetables.

These investments could also be localized to increase efficiency through economies of scale. Over 95% of agricultural production and exports come from the southern states of Jubaland, Southwest State, and Hirshabelle, whose climate and fertile soils support the production of various crops.

Almost all domestic and export processing occurs in urban centres but is concentrated mainly in and around Mogadishu. However, small and medium-sized production-processing enterprises are typical in rural towns, closer to the production zones.

More efficient contractual arrangements involving vertical integration and outsourcing are already in place in the country.

For example, the success of Somalia's sesame exports relies on thousands of out-grower smallholder farmers and large growers who can consistently supply the markets, plus progressive improvements in the quality of processing to meet global standards.

Somalia benefits from several free trade and preferential market access arrangements involving multiple countries. Somalia is a member of the following trade bodies:

The Intergovernmental Authority on Development (IGAD), with a market of over US$ 300 million The Organization of African, Caribbean, and Pacific States (OACPS) The Arab League and Organization of Islamic countries Provisional membership granted by the Common Market for Eastern and Southern Africa (COMESA) in July 2018. Somalia is actively pursuing membership of the African Continental Free Trade Area (AfCFTA), where ratification is at an advanced stage following its application to join in 2017 Somalia has concluded bilateral investment treaties with Turkey, Germany and Egypt, and negotiations for similar treaties with other countries are at an advanced stage.

Turkey and Somalia have signed a pact to boost their strategic economic partnership, and as a result exports from Somalia have grown in the past ten years.

Somalia is now at the advanced stage of ratification of the African Continental Free Trade Area, a flagship project of Agenda 2063 of the African Union which expresses Africa’s own vision and development blueprint for the next five decades. The AfCFTA aims to accelerate intraAfrican trade and boost Africa’s trading position in the global market by amplifying its common voice and expanding its policy space in global trade negotiations. Additionally, Somalia is in the process of seeking accession to the World Trade Organization (WTO). Somalia also has several bilateral trade agreements with other African and Asian countries. It is anticipated that on ratification, the policy areas found in sub-regional preferential trade areas such as COMESA and the EAC will offer a common regulatory framework, thereby reducing the confusion generated by multiple sets of rules.

These preferential access and trade agreements will enhance the ability of Somalia’s produce (especially its agricultural produce) to reach international markets, offering the potential of increased innovation and hence competitiveness of the country’s products and services in the global market.

Figure 2: The COMESA market Source: TRALAC COMESA members

Burundi Comoros D.R. Congo Djibouti Egypt Eritrea Ethiopia Kenya Libya Madagascar Malawi Mauritius Rwanda Seychelles Sudan Swaziland Uganda Zambia Zimbabwe

The country has four deep-water ports. These are located in the economic centres of Mogadishu, Berbera, Kismayu and Bosaso.

Large multinational cargo and shipping companies operate in Mogadishu and Berbera, and are already well equipped to handle significant traffic volumes. For instance, Maersk Line restarted its operation in Somalia in 2018.

Similarly, DP World has recently invested US$ 442 million to expand the port of Berbera and extend the Berbera-Tog Wajaale road corridor to the border and thence to Ethiopia's road network [12]. Furthermore, the development of the Berbera Economic Zone (BEZ) in proximity to the Port of Berbera positions it as the new integrated maritime, logistics and industrial hub for the Horn of Africa. DP World and its partners anticipate investing up to US$ 1bn over the next ten years to develop the supply chain infrastructure along the corridor[13].

Figure 3: Somalia's ports

BERBERA PORT

This port attracted new $440M investment. Its new container terminal has capacity of 500,000 TEUs a year. Second phase expansion of the terminal will increase capacity up to 2 million TEUs a year. Berbera Economic Zone under development aims to attract investment and new businesses and create jobs. Major exports include live animals. Re-export of agricultural goods from Ethiopia is expected.

KISMAYO PORT

This is Somalia's third-largest port. A major export passing through the port is live animals. An SEZ is planned.

MERCA PORT

This is a small harbour built for the export of horticultural produce (mostly bananas).

Berbera Port Bosaso Port BOSASO PORT

Bosaso's port is the main seaport for Puntland and Somalia's central region. A major export passing through the port is live animals.

GARACAAD PORT

Recently constructed first phase of deep water port intended to serve local and eventually to Ethiopia.

HOBYO PORT

Small harbor at present with plan to expand for fisheries and export/import use.

Garacaad Port

Hobyo Port

Mogadishu Port

Merca Port

Kismayo Port MOGADISHU PORT

Classified as a major port, it has the largest harbour in the country. Major agricultural exports through the port include sesame, lemons and bananas. A special economic zone (SEZ) is planned.

Alongside the potential for expanded regional trade, Middle Eastern countries are some of the largest importers of agricultural produce. Somalia’s proximity, and reduced shipment times and costs, present an excellent shipping advantage and major potential for increased exports of fresh produce. For instance, banana exports from Somalia to Saudi Arabia take less than 14 days compared to other exports from Latin America, which can take up to 30 days.

[12] https://www.dpworld.com/news/releases/dp-world-and-somaliland-open-new-terminal-at-berbera-portannounce-second-phase-expansion-and-break-ground-for-economic-zone/ [13] https://www.dpworld.com/news/releases/ministry-of-transport-of-ethiopia-and-dp-world-sign-mou-for-thedevelopment-of-the-ethiopian-side-of-the-berbera-corridor/

Somalia's diverse agricultural production is reliant on its different agro-ecological zones. Its rich soils and favourable climate support the year-round production of cereals, pulses, vegetables and fruit, among other agricultural products. Even though bulk commercial production is concentrated along the riverine areas, dryland agriculture has significant potential in most regions, especially if investments in climate-smart agriculture technologies are made at a sufficient scale.

Figure 4: Somalia's agricultural production zones

Arable land includes land defined by the FAO as "land under temporary crops" (double-cropped areas are counted once), temporary meadows for mowing or for annually sown pasture, land under market gardens or kitchen gardens, and temporarily fallow land. Permanent cropland is defined as land cultivated for crops like citrus, coffee, and rubber which are not replanted after each harvest; this also includes land under flowering shrubs, fruit trees, nut trees, and vines. Permanent pasture and land abandoned due to shifting cultivation are both excluded from the definition of arable land. Arable land is defined as land cultivated for crops such as wheat, maize, and sorghum, all of which are replanted after each harvest. The total cultivated land area is the sum of the total arable land area plus the total area of permanent crops.

Figure 5: Land Use in Somalia

Permanent Crops 1.5%

Other 19.1% Arable Land 1.8%

Forest 10.6%

% of total land

2 0 1 8 E S T . 1.1 million hectares

ARABLE LAND

Permanent Pasture 67%

Somalia’s agro-climatic conditions vary by region, with the southern states presenting diverse investment opportunities in agribusiness. While commercial crop farming is dominant in the south, livestock production is a significant economic activity in the northern and central regions. Each of the six states provides investors with unique opportunities in a range of agricultural activities that tap into the local endowment of natural resources.

State by State

Jubaland

Jubaland is considered the breadbasket of Somalia. The state offers multiple agribusiness and food investment opportunities. It has the longest and most permanent river, reaching 1,123 km. The state encompasses some large formerly state-owned enterprises now planned for revival under public-private partnerships. It also has one large port plus some other smaller ports.

Immediate investment opportunities include the input sector, agro-processing, grain warehousing and storage, and horticultural exports. Sizeable areas of agricultural land are available and affordable. Integrated agro-industrial parks are planned.

Southwest State (SWS)

Southwest State offers investors several opportunities. Stretching from Bay and Bakol, and with over 300 km of coastline, SWS is one of Somalia's most fertile areas. The state is home to some of the country's largest banana farms, and includes about 300 km of the River Shebelle.

Its proximity to Mogadishu and easy access to its port makes SWS an attractive investment destination, offering multiple agribusiness and food investment opportunities. SWS has two ports.

To attract investment, the SWS government plans to establish special economic zones and industrial parks in Jazeera, Afgoye and Baidoa.

Primary produce includes horticulture, coarse grains, gums and resins, sunflower, and honey, among others. Agricultural land is relatively cheap.

Hirshabelle State

Hirshabelle State offers investors several opportunities in horticulture, oil crops and coarse grains. The state is the largest producer of sesame in the country, with estimated 150,000 ha under production. The major value chains besides sesame include maize, beans, rice, and horticulture.

The state includes about 600 km of the River Shebelle. It offers the potential for significant commercial production of coarse grains, cotton, sunflower and soya beans. Sizeable areas of agricultural land in the Middle Shebelle region are available and affordable. There is one port, El Macan.

Galmudug State

Located in the country's central region, Galmudug has abundant land for agropastoral activities. Livestock production includes camels, goats and sheep.

With climate change, the adoption of climatesmart agricultural practices has increased, with several greenhouses being set up across the state's major urban areas.

Galmudug is also one of the largest producers of cowpeas in the country. The cowpea belt stretches over 100 km and produces over 20,000 mt of cowpeas per year.

Investment opportunities exist in agri-input, fodder production, CSA technologies and advisory services. Galmudug state handles imports and exports via Hobyo port.

Puntland State

Located in the horn of Africa, Puntland is one of the fastest-growing regions in the country. It presents investment opportunities in the agribusiness sector thanks to the growing demand represented by the urban population.

Despite Puntland receiving the lowest rainfall in the country, its agricultural sector has seen rapid growth. Puntland is the country's largest producer of frankincense and date palm.

Bosaso Port is the largest port in Puntland. Garcaad port has also been recently inaugurated. Key investment opportunities include fodder production, date palm farming, climate-smart agriculture, and advisory services.

Somaliland State

Somaliland offers investors in the agribusiness sector several opportunities, including climate-smart agriculture, fodder production, horticulture and gums and resins. It remains the leading producer of guavas and oranges.

Berbera Port is the largest port in the country and has benefited from significant private-sector investment.

Somaliland leads in FDI inflow. thanks to the stable political and security situation that has created an improving business-enabling environment.

Staple Crop Processing Zones (SCPZ) – Planned for revival

In response to strong market demands and pressing developmental needs for the growth of the continent's economies, Africa's governments have increasingly coordinated their efforts to expand agro-industrial growth. These efforts often have a territory-based focus and are commonly referred to as agricultural growth poles or “agropoles”.

The African Development Bank describes growth poles thus: “Growth poles usually combine public and private investments and are specifically built around an already existing resource at a specific location in an economy. Central to the growth pole is a group of dynamic industries connected around a particular resource”[14]. Somalia has a long history of state-owned enterprises centred on large agro-industrial parks along the two major rivers. Several farm blocks were equipped with roads and irrigation canals, and often had their own onsite processing facilities. These integrated agro-industrial parks are now planned for revival, and to accomplish this, the government is focusing on public-private partnerships through "Special Purpose Vehicles". Besides these designated agro-parks, large agricultural land blocks of 500-2,000 Ha are also available via PPPs.

Figure 6: Somalia's chief crop-processing zones

BARDHERE SCPZ

A 200,000-ha irrigation project designated for multi-crop production. The project encompasses a large reservoir with hydroelectric production. The project is planned for revival by the FGS and Jubaland State. The primary value chain includes cereals, horticulture and livestock.

HAWDLE SCPZ

A 40,000-ha zone designated for the production of sugarcane and rice. The zone is located between Jowhar and Balcad areas. A 90-km twolane highway connects it to the port of Mogadishu.

MAREREY SCPZ

A 40,000-ha area of land designated for the production of sugar cane along the Juba river is managed by the former Juba valley development authority. The SCPZ is located in Jilib approximately 350 km from Mogadishu and about 150 km from the port city of Kismayo.

BALCAD SCPZ

A 20,000-ha zone designated for the production of cotton. It includes a cloth-processing factory. The zone is located between Jowhar and Balcad areas. A 90-km two-lane highway connects it to the port of Mogadishu.

FANOOLE SCPZ

A project area of 8,000 ha of land was designated for the production of rice along the Juba river. A 50-km canal was constructed in the project zones. The SCPZ is located in Jilib, approximately 350 km from Mogadishu, and about 150 km from the port city of Kismayo. At its peak, over 1,500 people were employed, and an additional 3,000 were casual labourers. To fulfil its objective of food security, import substitution and job creation, the government invested US$30 million through a joint venture with foreign investors. The average yield per 1,000 ha was estimated at 100,000 bags of rice. Part of the project was aimed at hydroelectric production. 32 km of feeder roads have been graded to all-weather quality. The revival of this project remains a priority for the Jubaland government and the FGS.

HOMBOY SCPZ

Homboy SCPZ is a 10,000-ha land development project that was designated for the production of tea along the Juba river and was managed by the former Juba valley development authority. The SCPZ is located in Jilib, approximately 350 km from Mogadishu, and 120 km from the port city of Kismayo. To fulfil the government's objectives of food security, import substitution and job creation, a new public investment of US$ 10 mn has been assigned. All feeder roads have been graded to all-weather quality. The FGS and Jubaland state have earmarked the Homboy zone for revival under a public-private partnership.

Somalia has long been on the forefront of agricultural research, contributing findings for the improvement of global dryland farming technologies. At least 11 public research centres across the country are now undergoing rehabilitation prior to conducting research and offering extension services.

Figure 7: Somalia's agricultural research centres

Central Agricultural Research Institute (CARI)

The CARI is the largest research station (>200ha). It conducted multi-disciplinary agricultural research on several crops. The centre remains inactive but is planned for revival. Located about 30 km from Mogadishu, the CARI was the only research institute with a focus on tropical fruits. It supported the introduction and expansion of several horticultural plants across the country.

Alexandre Research Station, Jilib

A sub-station of the CARI, the centre has continued to conduct multiple research projects.

Aburain Agricultural Research Center

This was a large research centre that conducted multiple agricultural scientific research on dryland farming, focusing on sorghum and other dryland produce.

Bonka Dryland Agricultural Research Station, Baidoa.

Developed in the mid-1950s, the centre grew to international prominence for its research on dryland crops, including sorghum, maize and other cereals. The centre has now been re-established and focuses on supporting dryland farming and promoting climate-smart agriculture.

Besides these public research centres, several private agricultural universities and research centres are under development across the country. For instance, the Somali Agricultural Technical Group has pioneered research on new seed varieties, products and value chain development, and is working on policy-related issues.

5. Opportunities in the sector and R&D

5.1 Agri Inputs

The agricultural input sector and the associated research and development (R&D) activities, including those involving seeds, agrochemicals, agricultural machinery and related agro-tech, all provide real investment opportunities, with these areas having remained largely unexplored until now.

The growing diaspora business community has significant know-how and managerial skills. This gives considerable scope for investments in largescale commercial production, making increased use of high-quality inputs to spur productivity. The industry offers early market entrants a good return across the input categories. Investments by local businesses have also been growing during the past six years. With an estimated US$ 30 million[15] already invested by a mix of small and mediumsized local firms, the input sector provides an immediate opportunity for early foreign entrants that involves these existing local companies, via joint ventures, franchises, dealerships and agencies. The industry offers investors heightened portfolio benefits if single investors purchase or establish businesses along different parts of the value chain of particular products.

Sector Attributes

Increasing demand for highquality certified agri-inputs Few companies specialize in input processing and packaging

Opportunities in agricultural insurance of companies, farmers etc. against climatic and other risks

Significant opportunities in dealerships/ distributorships for high-quality products

Increased demand for new climatesmart technologies provides opportunities for distributorships or agents.

Annual demand is expected to increase by 20%

Increasing demand for farm machinery and equipment to support mechanization 01

02

03

04

05

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Investment Opportunities in the Agri-Inputs Sector

Agri-input research, development, multiplication and processing

Agri-input quality inspection and certification alongside the potential development of private or public insurance systems

In-country agri-input distribution

Local assembly and distribution of low-cost farm machinery

Development of local supply chains

Private seed certification process