Introduction

The Federal Republic of Somalia covers an area of 637 657 square kilometres and is comprised of three regions: Puntland, Somaliland, and South-Central Somalia. The regions are autonomously governed with different governance structures. There are 20 urban centres including the capital Mogadishu. In the past three decades, Somalia suffered civil strife, recurrent drought and famine, and violent conflicts.[1] The formation of the Federal Government of Somalia in 2012 established the first permanent government since 1991. Parliamentary and presidential elections were held in December 2016 and February 2017 respectively. However, the political situation remains challenging.[2]

With an estimated GDP of US$17.47 million in the financial year 2017/18, Somalia is one of the poorest economies in the world.^[3] It is ranked 190 in the world in terms of doing business.^[4] The per capita income increased from US$435 in 2016 to US$442 in 2017. A fledgling agriculture sector, grants, donor support, remittances, and foreign direct investment, mostly by the Somali diaspora, remain the main sources of economic growth. The Somali diaspora provide over 80 percent of the start-up capital for small and medium enterprises. Somalia has substantial unexplored mineral deposits, agriculture and fishing. Livestock rearing is the backbone of the economy and accounts for 80 percent of foreign exchange receipts and 60 percent of the population derives a livelihood from livestock production. Almost half of the country’s population requires a humanitarian response because of the severe drought.^[5] Since 2013, the donor community has given more than US$4.5 billion in humanitarian and developmental grants. The perpetual instability compounds the challenges to restore peace, stability and economic prosperity.

The population of Somalia is 15.1 million.[6] At least 67 percent is rural, and the remaining 32 percent is urban. According to UN-Habitat, the urban population is expected to increase to 44.6 percent by 2025. The Somalia National Development Plan 2017-2019 shows that 69 percent of the population lives below the poverty line, 88 percent of the internally displaced population is poor, 75 percent and 67 percent of the rural and urban population respectively are also poor. A weak government, insecurity, and natural disasters such as floods and droughts all aggravate poverty.[7]  Almost 70 percent of the population is under the age of 30. The youth unemployment rates are estimated at 67 percent.[8] This predisposes the youth to violence and criminal activities. Currently only 41.8 percent of school-aged children are enrolled in primary schools and less than eight percent of secondary age children attend secondary schools.

[1]  Sungow, J.A. (2017).

[2] IHS Markit (2017). Country Reports: Somalia.

[3] Central Intelligence Agency (CIA) World Factbook.

[4] World Bank (2017). Doing Business- measuring business regulations.

[5] International Monetary Fund (IMF) (2017).

[6] Worldometer (2018) Somalia Population. http://www.worldometers.info/world-population/somalia-population/ (Accessed 6 July^, 2018).

[7] United States Agency for International Development (USAID) (2016).

[8]  UNDP (2012).

Access to Finance

Before 1991 Somalia had a basic financial system comprising the Central Bank of Somalia and three commercial banks. During 1991-2011, Somalia was suspended from accessing global financial markets and did not have functioning banks. In the last decade, the banking system has been revitalised. From 1991 to 2009 the informal financial sector – Hawalas – developed and filled the gap by providing basic financial services especially trust-based loans, international remittances as well as domestic financial transactions, and money transfer services.[1] The formal financial sector is small and concentrated in Mogadishu with each institution having only a few branches in other parts of the country. It comprises the Central Bank of Somalia (CBS), six banks with provisional licences, and 12 licensed Money Transfer Operators (MTOs). The CBS and Somali financial institutions are taking crucial steps to modernise national payments systems. The World Bank, the CBS and private financial institutions are streamlining their efforts to strengthen the

inter-bank payment, clearing and settlement systems in Somalia.[2] In 2017 the CBS considered 13 applications for commercial bank licences. There are six commercial banks: International Bank of Somalia; First Somali Bank; Salaam Somali Bank; Somalia Premier Bank; and Tawakal Money Express. The four Islamic financial institutions offering mortgage/home loans are Salaam Somali Bank, Dahabshiil Bank International, Premier Bank and International Bank of Somalia.

In 2017, the balance sheet of the CBS was stable with assets estimated at US$9.2million. Most operations in the country are on a cash basis and the US dollar is the popular unit currency of operation, despite the reintroduction of the Somali shilling (SOS). The US dollar is approximately SOS571.03. The CBS does not control the exchange rate or the supply of the Somali shilling. It has not issued any bank notes since 1991 and the bulk of payments are settled in US dollars, mobile phone platforms, and counterfeit SOS notes. Moreover, official international reserves are relatively low. The capitalisation of banks remains strong and their assets increased by 20.5 percent in 2016.[3] Industry capitalisation is about 40 percent. Only one bank does not meet the minimum capital requirement of US$5million.[4] The Federal Government of Somalia has embarked on a process of structural, legislative, and institutional reform. The CBS regulates and supervises the finance sector. The CBS has six strategic goals: formalising the private sector; establishing an effective monetary policy; building a strong banking operations foundation; increasing organisational effectiveness; strengthening reporting and transparency; and promoting good governance.[5]

MTOs dominate the formal and informal financial sector. The MTOs facilitate the transfer of remittances from the Somali diaspora, donor resources and foreign investments. However, the formal banking sector is improving. Seven banks have been registered since 2012. These include: Amal Bank; Premier Bank; International Bank of Somalia; Dahabshiil Bank International; Salam Somali Bank; Dayreel Bank; and Tawakal Global Bank). There are 11 money transfer operators. These are: Amal Money Transfer; Amana Online Money Transfer; Dahabshil Money Transfer; Hodan Global Money Transfer; Jubba Money Transfer; Kaah Express Money Transfer; Taaj Money Transfer; Tawakal Money Transfer; Iftin Money Transfer; Globalex Money Transfer; and Horyal Express Money Transfer. The transactions of the MTOs are estimated at US$1.5 billion in annual remittances to Somalia compared to Somalia’s GDP in 2016 of US$6.2 billion.

Only three percent of the population is banked. There are no fixed income markets in Somalia and no formal credit facilities. Seventy percent of the population has access to mobile services and access to financial services is mainly based on innovative mobile telephony schemes.[6] Only 15 percent of the population has accounts with formal banks, and 73 percent of the population use mobile money. The use of mobile money to transfer incoming international remittances domestically reflects the strong links that exist between mobile network operators and money transfer businesses.

 

There are few mortgages in Somalia, although and access to finance by households is improving through the growing microfinance sector. Silatech, Kaah Express, Barwaqu Microfinance Bank and Kaaba Microfinance Institution are the main actors in the sector. Loans are offered for a period of up to six months. Microfinance facilities and informal facilitators charge between five percent and 10 percent commission. Alternatively, loans are also secured through family members.

Affordability

In 2015, the average house price per square meter was US$250 and the average plot size is 400m2. According to a recent news article, the price of the cheapest newly built house built by a developer in Somalia is US$70 000 with double storey houses costing approximately US$130 000. Assuming a mean housing price of US$100 000, this would be affordable to almost zero percent of the Somali population. This house would cost US$769 a month, and US$276809 over the term, at an interest rate of 8.5 percent, zero percent deposit and repaid over a 30-year period.[7]15 Given that the average monthly salary after tax is US$225 illustrates how unaffordable formal home ownership is for the average Somali.

Numbeo shows apartment rentals ranging from US$50 to US$350 a month and between US$50 and US$150 a month, inside the city and outside the city centre respectively. Accounts of Somali investors point to a booming rental market. Development experts note that rent has increased in some places from US$300five years ago to between US$2 000 and US$3 000 in 2016 in urban areas such as Mogadishu and Hargeisa. An average three bed-roomed apartment in the city centre costs between US$120 and US$400 to rent while outside the city centre the same apartment would approximately cost between US$100 and US$ This is inaccessible to most of the households of approximately 5.9 persons each,[8]17 given that most of the population live below the poverty line of US$1. a day. The high rate of urbanisation has led to many urban dwellers, especially women-headed households, the poor and internally displaced persons (IDPs), living in insecure and unhygienic conditions. They lack access to basic services and are prone to forced evictions.[9] Somalia’s public and private housing stock was virtually destroyed after more than 20 years of conflict. In 2005, about 85 percent of the total population was living in slums or partially destroyed housing.[10] Yet the population is growing by almost three percent each year, with a high fertility rate of 6.26 children per woman, which is the fourth highest in the world.[11] Housing strategies need to address the population growth, deficit of adequate housing for the current population, the urban poor, IDPs, and refugee returnees.

With 73 percent of the population earning less than US$60 a month, the affordability for formal housing is extremely limited.  Cement costs about US$14 a 50kg bag. Using the GNI per capita of US$122.90, approximately nine bags of cement – far below the estimated 35-40 bags of cement that would be required to build a basic 40 square metre house – be purchased. With an income of US$60, 69.2 percent of the population could afford a house priced at US$1 951, assuming an interest rate of 8.5 percent and a 30-year repayment period.

[1] Making Finance Work for Africa (2016).

[2] World Bank (2018). “Press Release: Central bank of Somalia and Somali financial institutions taking steps to modernize banking sector.” 18 Jan 2018. http://www.worldbank.org/en/news/press-release/2018/01/18/central-bank-of-somalia-and-somali-financial-institutions-take-crucial-steps-to-modernize-banking-sector

[3] International Monetary Fund (IMF) (2017).

[4]  African Development Bank (2017).

[5] Centre for Affordable Housing Finance in Africa. (2017). Housing Finance in Africa Year Book, 2017.

[6]  Shuraako (2013).

[7]  Centre for Affordable Housing Finance Africa. (2016). Housing Finance in Africa Year book, 2016. Centre for Affordable Housing Finance.

[8] United Nations Fund for Population (UNFPA) (2016).

[9]  Federal Government of Somalia (2017). Somalia National Development Plan 2017-2019.

[10] http://www.encyclopedia.com/topic/Somalia.aspx.

[11] World Population Review. Somalia Population. http://worldpopulationreview.com/countries/somalia-population/

Affordability

In 2015, the average house price per square meter was US$250 and the average plot size is 400m2. According to a recent news article, the price of the cheapest newly built house built by a developer in Somalia is US$70 000 with double storey houses costing approximately US$130 000. Assuming a mean housing price of US$100 000, this would be affordable to almost zero percent of the Somali population. This house would cost US$769 a month, and US$276809 over the term, at an interest rate of 8.5 percent, zero percent deposit and repaid over a 30-year period.[1]15 Given that the average monthly salary after tax is US$225 illustrates how unaffordable formal home ownership is for the average Somali.

Numbeo shows apartment rentals ranging from US$50 to US$350 a month and between US$50 and US$150 a month, inside the city and outside the city centre respectively. Accounts of Somali investors point to a booming rental market. Development experts note that rent has increased in some places from US$300five years ago to between US$2 000 and US$3 000 in 2016 in urban areas such as Mogadishu and Hargeisa. An average three bed-roomed apartment in the city centre costs between US$120 and US$400 to rent while outside the city centre the same apartment would approximately cost between US$100 and US$ This is inaccessible to most of the households of approximately 5.9 persons each,[2]17 given that most of the population live below the poverty line of US$1. a day. The high rate of urbanisation has led to many urban dwellers, especially women-headed households, the poor and internally displaced persons (IDPs), living in insecure and unhygienic conditions. They lack access to basic services and are prone to forced evictions.[3] Somalia’s public and private housing stock was virtually destroyed after more than 20 years of conflict. In 2005, about 85 percent of the total population was living in slums or partially destroyed housing.[4] Yet the population is growing by almost three percent each year, with a high fertility rate of 6.26 children per woman, which is the fourth highest in the world.[5] Housing strategies need to address the population growth, deficit of adequate housing for the current population, the urban poor, IDPs, and refugee returnees.

With 73 percent of the population earning less than US$60 a month, the affordability for formal housing is extremely limited.  Cement costs about US$14 a 50kg bag. Using the GNI per capita of US$122.90, approximately nine bags of cement – far below the estimated 35-40 bags of cement that would be required to build a basic 40 square metre house – be purchased. With an income of US$60, 69.2 percent of the population could afford a house priced at US$1 951, assuming an interest rate of 8.5 percent and a 30-year repayment period.21

[1]  Centre for Affordable Housing Finance Africa. (2016). Housing Finance in Africa Year book, 2016. Centre for Affordable Housing Finance.

[2] United Nations Fund for Population (UNFPA) (2016).

[3]  Federal Government of Somalia (2017). Somalia National Development Plan 2017-2019.

[4] http://www.encyclopedia.com/topic/Somalia.aspx.

[5] World Population Review. Somalia Population. http://worldpopulationreview.com/countries/somalia-population/

Housing Supply

In 2014, the Federal Government of Somalia and the United Nations Population Fund reported that there were approximately 2 076677 households in Somalia with an average household size of 5.9 people.^[1]   Just under a quarter (24 percent) of the population has access to formal housing (60 percent in urban areas and six percent in rural areas).^[2]23 Adequate housing according to the United Nations Factsheet No. 21/Rev 1 includes the following entitlements: security of tenure; housing, land and property restitution; equal and non-discriminatory access to adequate housing; participation in housing-related decision-making at the national level. Housing is characterised by temporary structures with earthen floors, palm leaf roofs or iron sheet walls and roofs. About 24 percent of houses in Somalia are constructed with durable materials and can be classified as permanent structures. Approximately 56 percent have walls or roofs constructed of semi- durable materials; the remaining 20 percent are temporary. In rural areas, 90 percent of households are owner-occupied as opposed to 60 percent in urban areas. One in every four houses is rented in urban areas as opposed to one in every 25 in rural areas. In addition, one third of those households in urban areas had two or more families living in the same house, with more than half of them sharing a single roomed house.^[3]

Non-governmental organisations (NGOs) and donor aid governments provide a significant portion of the housing especially to those affected by the wars and the internally displaced. These include organisations such as UN-Habitat and the Norwegian Refugee Council among others. The UN-Habitat has been active in Somalia for more than 30 years, and project activities range from targeting immediate local needs, to more strategic attempts to address sustainable urban development through integrated human settlement programmes. UN-Habitat has invested in 19 projects totalling US$49 million.^[4]25 These projects include: Shelter Provision, Reintegration, and Improved Livelihoods for Returnees and Internally Displaced Persons in three towns. The latter was worth US$3.2 million and includes the construction of 475 houses. The Integration of Long-term IDPs into the Host Community in Bossaso project is worth US$2 million to build 524 houses. The Shelter Provision, Reintegration, and Improved Livelihoods for Returnees and IDPs project is worth US$2.3 million to build 335 houses. These three projects are funded by the Government of Japan and are intended to provide security of land tenure and permanent housing, social infrastructure, and skills training for 1334 vulnerable IDP families in Bossaso and Berbera towns.^[5]

The diaspora is also investing in housing. Other developers include the Salaam Bank and individual investors. This is contributing to decongesting Mogadishu as well as offering better quality lives to those who can afford it. Salaam Properties, a development company established in 2014, is an important actor. It is currently developing Darul Salaam City, the first large-scale housing project in Somalia, which will ultimately comprise 6000 housing units, and will be constructed over a three-year period with a total project cost of US$20 million.^[6] Jazeera Estate in Mogadishu is a gated development proposed to have over 1 200 apartments, villas and townhouses as well as commercial and public facilities. According to the Somalia Real Estate Association (SREA), the Jazeera and Darul-Salaam developments will add 10 200 housing units to Somalia’s housing stock.^[7] 28 In 2015, the South African-based NGO Gift of the Givers renovated 47 rooms (three permanent residents a room) in a facility for people living with disabilities in the Hamarweyn district in Banadir region. A two-storied house within the project costs about US$130 000 while a simple bungalow will cost US$75 000.^[8]

The construction sector is one of the three main drivers of economic growth. There are approximately 14 companies that supply roofing and construction materials. In 2015, a quarry that had been shut down for more than 30 years, due to security concerns, was reopened. The quarry, in Wadajiir district, provides jobs for truck drivers, manual labourers and machine operators.^[9] An estimated 100  000 tons of cement was imported in 2012. In June 2017, the government transferred ownership of the Berbera Cement Plant to Red Sea Cement. This company is expected to renovate the abandoned 2 000 000 tons integrated cement plant.^[10] 31

[1]   United Nations Population Fund (2014). Population Estimation Survey 2014 for the 18 Pre-War Regions of Somalia.

[2] Norwegian Refugee Council, UN-Habitat and UNHCR (2013). Land, Property & Housing in Somalia.

[3] UN-Habitat (2008). World Cities Report.

[4] Ibid.

[5] UN-Habitat (2016). World Cities Report.

[6] Sowetan Live (2016). “Housing boom as Mogadishu emerges from ashes of war.”

[7] The Somali Investor (2016).  “Rediscovering real estate in Somalia: A paradigm shift.” 9 April 2016  www.somaliainvestor.so/rediscovering-real-estate-in-somalia-a-paradigm-shift/ (Accessed 20 Aug 2018).

[8] Africa property news (2016). “Somalia’s housing sector gains momentum.” 12 Jan 2016. http://www.africapropertynews.com/east-africa/3192-somalia-housing-sector-gains-momentum.html. (Accessed 20 Aug 2018).

[9] African Union Mission in Somalia (AMISOM) (2016). “Construction Sector Driving Somalia’s Economic Recovery.” 21 April 2016. www.amisom-au.org/2016/04/construction-sector-driving-somalias-economic-recovery/ (Accessed 20 Aug 2018).

[10] Global Cement (2017). “Somaliland government gives ownership of Berbera Cement Plant to Red Sea Cement.” 14 June 2017.  www.globalcement.com/news/item/6214-somaliland-government-gives-ownership-of-berbera-cement-plant-to-red-sea-cement (Accessed 20 Aug 2018).

Property Markets

The property markets comprise land, housing and other property. Before 1991, Somalia had a mixed land tenure system in which some land was owned communally and administered through clan structures, and some was owned privately and administered through the formal legal system, particularly in urban areas.[1] The constitution of Somalia under Chapter 3 Article 43 clearly describes land as a primary resource and the basis of the people’s livelihood: Land shall be held, used and managed in an equitable, efficient, productive and sustainable manner.[2]33 In the 1970s, land was nationalised and considered a public asset held by the government in trust for the Somali people. The nationalisation weakened the land management systems. During 1991-2012 there was widespread conflict over land, land grabbing by warlords, and huge displacement of local populations, especially in South-Central Somalia. The increase of IDPs and the return of refugees from outside the country also contributed to significant land disputes.[3] Land scarcity, land speculation and illegal enclosures of pastureland are key drivers of land disputes.[4]

The process of legalising interests in land is complicated, bureaucratic and expensive. Most Somalis buy and sell land without going through a formal system.[5] Registering a property entails fives procedures, takes 188 days and costs 1.5 percent of the property value.[6] Officially, land registration in Somaliland takes approximately 30 days and costs about US$30, half the average monthly income.[7] In many cases the land is unregistered, or ownership cannot be proven in Somalia.[8]

[1] Norwegian Refugee Council and Legal Action Worldwide (2014).

[2] Federal Republic of Somalia (2012). Constitution of the Federal Republic of Somalia.

[3] Norwegian Refugee Council and Legal Action Worldwide (2014)..

[4] African Development Bank (2013). Somalia Annual report.

[5] Ibid.

[6] Centre for Affordable Housing Finance Africa (2017). Housing Finance in Africa Year Book, 2017..

[7] UN-Habitat (2011). World Cities Report.

[8] The Guardian. (2013). Responses to information requests – Immigration and refugee Board of Canada. https://www.justice.gov/sites/default/files/eoir/legacy/2013/12/13/SOM104486.FE.pdf (Accessed 20 Aug 2018).

Policy and Regulations

Somaliland’s legal system is a combination of formal law, customary law (Xeer) and Sharia law.40 Somaliland, Puntland and South-Central Somalia have each formulated specific laws, policies and regulations. Somaliland seems to have made the greatest strides towards formal policies and regulations. The Constitution of Somalia was promulgated in 2012. Land, the environment and natural resources are covered in chapter three. In Somaliland some of the formal land laws in relation to land include: Agricultural Land Ownership Law (1999); Somaliland Constitution (2001); Urban Land Management Law (2001); and the Land Tenure Act (2009). The legal framework in place in South Central Somalia is similar to Somaliland, though it has not passed any laws relating to land since 1991. These are also less enforced due to the low capacity of the courts and the absence of Land Dispute Tribunals.[1]

Customary law or Xeer is an unwritten system of laws administered through consultations among elders and focuses on the rights and obligations of one clan to another. Xeer also addresses numerous aspects of land management with a focus on pastoral land use. Although Xeer law can vary based on agreements between clans, Xeer law tends to view rangelands as a collective clan asset. However, clans are expected to allow other clans to graze on the land, particularly in times of need. Xeer also contains prohibitions on building enclosures or permanent settlements on pastureland.42 Current applications of Sharia law overlap with land tenure in the realm of inheritance, but the impact seems to be relatively limited.

SREA was established in 2014 to provide professional assistance to the real estate sector and to assist the government in establishing a proper regulatory framework. The organisation aims to streamline the real estate sector and draw together all those involved in the Somali real estate business, from landowners to developers.

[1] Farah,H.M. (2009). Baseline assessment of the Somaliland judiciary.

Opportunities

Somalia Vision 2030 aims to achieve economic prosperity and social well-being for the people of Somaliland, building on the country’s success in establishing peace, stability, and democratic institutions[1] An investment in economic infrastructure such as roads, railways, ports and communication will also realise more opportunities in the social infrastructure of the country including the housing sector. The return of peace and the formation of a federal government is bringing stability to the economy, meaning that the area is safe for long-term investment. The growth of towns presents several opportunities for housing.

To support Somalia’s flourishing entrepreneurs, the African Development Bank (AfDB), IMF, World Bank, United Nations (UN) and bilateral partners are supporting reforms.[2] These reforms include access to finance, sector regulation and better financial intermediation. The commitment to establishing formal finance institutions and to operationalise the Central Bank of Somalia is improving the investment environment.

[1] Republic of Somaliland (2011). Somaliland Vision 2030.

[2] The Economist Intelligence Unit (2017). Country Report: Somalia.

Websites

www.kiva.org
www.somalieconomicforum.org
www.somaliinvestments.com
http://somaliainvestor.so/
www.somalilandpress.com
http://tradeinvestsomalia.com/
www.tradingeconomics.com/somalia/export
https://tradingeconomics.com/somalia/indicators
www.unhabitat.org/somalia/