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World Bank Group Supports Public Private Dialogue to Spur Economic Recovery in Somalia

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LONDON, May 11, 2017- On the sidelines of the UK-hosted Conference on Somalia, the Somali government and high level business actors endorsed a Public-Private Cooperation Agreement to Accelerate Somalia’s Economic Recovery. The event was supported by the World Bank Group and the British Department for International Development (DFID) and was opened by His Excellency Mohamed Abdullahi “Farmaajo”, President of the Federal Republic of Somalia and Rt. Hon Priti Patel, UK Secretary of State for International Development.

The Agreement is a combination of priority actions, principles and processes for delivery of economic priorities, and a commitment from development partners to align their focus to Somalia’s new National Development Plan 2017-2020.

Opening the event, H.E. Mohamed Abdullahi Mohamed “Farmaajo” recognized the importance of creating the right conditions for investment: “Our Government needs to provide the right governance environment for the private sector to grow, and provide jobs to our people. My Government and I are committed to strong collaboration between the public and private sector, as well as our development partners, to create a new, irreversible chapter in the economy of our country”.

In her opening remarks, Bella Bird, World Bank Country Director for Tanzania, Malawi, Burundi and Somalia, said ““The current drought has amplified Somalia’s vulnerability and the urgent need for investments to enable full economic recovery and lay the foundations for future prosperity. This event has identified clear areas of priority investment where the public and private sectors can work together to accelerate economic progress among them: energy; water and financial services. We congratulate both the government and private sector.”

Somalia faces a disastrous drought and is constrained by limited state and institutional capacity. Nevertheless, the Somali private sector has remained vibrant and contributes over 90% of GDP, including through remittance flows of around USD 1.5 billion per annum. The ICT sector makes up a significant portion of private sector activity, providing the continent’s cheapest phone rates, full domestic mobile network coverage, an expanding 4G network, and more mobile money transfers than cash transactions. President Mohamed’s newly-elected administration has expressed a commitment to engaging with Somalia’s vibrant private sector, both locally and in the diaspora, to support the country’s next stage of development.

Cheick Oumar Seydi, Director for Africa, International Finance Corporation, said “Officially recognizing private sector’s resilience and key role in Somalia is a major milestone. IFC will apply its knowledge and extensive global networks to support Somalia’s government and private sector in their efforts towards economic recovery. The World Bank Group is already working to improve government to business services, which will help the private sector formalize and access global markets”.

Participants in the dialogue discussed priorities for Somalia’s recovery, which are identified in the country’s National Development Plan, as well as continuing the public private dialogue (PPD) process with support from the World Bank Group and other partners. During the dialogue, private sector representatives highlighted the business opportunities in Somalia as well as the challenges such as insecurity, weak government capacities, an informal financial sector; need for currency reform, effective fiscal policies and public sector accountability.

“The Government affirms its responsibility to develop and strengthen regulatory frameworks and policies, in consultation with the private sector, to enable private sector led economic recovery that benefits all Somalis. The Private Sector will actively engage with the government to progressively establish a modern business environment based on rule of law and a fair, predictable and competitive taxation system”, said Mohamed Abdullahi Abdi “Martello”, Spokesperson for the Somali Chamber of Commerce and Industry.

Background on the World Bank Group:

The World Bank Group, through the Multi Partner Fund, supports a range of state-building initiatives in Somalia, including IFC’s work with the private sector. The Somali Core Economic Institutions and Opportunities Program is developing regulatory and policy framework for Somali financial institution, to catalyze private investment and job creation across Somalia. Efforts are also underway to set up a One-Stop-Shop for business registration and support value chains in fisheries, gums and resins.

The Multi Partner Fund is supported by the United Kingdom’s Department for International Development (DfID) as well as, Danish International Development Agency (DANIDA), the European Union (EU), the Ministry of Foreign Affairs of Finland, Italy’s Ministry of Foreign Affairs and International Cooperation, the Swedish International Development Cooperation (SIDA), the Swiss Agency for Development Co-operation (SDC), the Royal Norwegian Embassy, United States Agency for International Development (USAID), and the World Bank’s State- and Peacebuilding Fund (SPF).

IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets. Working with 2,000 businesses worldwide, we use our six decades of experience to create opportunity where it’s needed most. In FY16, our long-term investments in developing countries rose to nearly $19 billion, leveraging our capital, expertise and influence to help the private sector end extreme poverty and boost shared prosperity. For more information, visit www.ifc.org

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Briefing Room

Somali government introduces 5% sales tax to boost revenues

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The Somali government has launched an aggressive tax collection campaign. The administration has imposed a five percent sales tax as part of efforts to win billions of dollars in international debt relief. However there are concerns on whether the country’s powerful businessmen pay up.

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Hunted and hated, Somali tax collectors gird for battle

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MOGADISHU, Feb 16 (Reuters) – Ahmed Nur moves through the Somali capital of Mogadishu with a bodyguard of six men, a pistol in the waistband of his baggy trousers. He speaks of his work in whispers; seven of his colleagues have been killed in the last three years. But Nur is no intelligence operative. He’s a tax collector.

Now the central government’s imposition of a five percent sales tax last month, part of its efforts to win billions of dollars in international debt relief, have put him at the heart of a showdown with the country’s most powerful businessmen.

So far, the government’s efforts have been slowly working; domestic revenue was up to $141 million in 2017 from $110 million in 2016, said Finance Minister Abdirahman Duale Beileh.

But much more is needed before the government is self-sufficient, a key step toward accessing about $4.6 billion in international debt relief. The final amount is still being assessed.

Somalia has been wracked by civil war since 1991, and the cash-starved, U.N.-backed government in Mogadishu is desperate to claw in the revenue it needs to pay staff and provide services like security.

The military, which is supposed to fight al-Qaeda linked insurgents, is in tatters and a combination of corruption and cash shortages mean soldiers rarely receive their $100 per month paycheques.

“People ask for security services prior to paying tax. But the government cannot deliver the required services to the public unless tax is collected,” Nur confided to Reuters in a restaurant, glancing over his shoulder. “It is like the egg and chicken puzzle.”

Some progress was made last year: tax agreements have been reached with airlines and telecoms companies, and an income tax exemption for parliamentarians has been reversed.

“These are important measures and show the strong commitment of the authorities to reform,” said Mohamad Elhage, who leads the International Momentary Fund’s Somalia work.

Debt forgiveness would give the government access to credit that could be used to fund services, binding Somalia’s often quarrelling federal states closer together.

It could also wean the government off cash from donors such as Qatar and Saudi Arabia, which often have diverging agendas that can destabilise Somalia’s fragile politics.

“Increasing our revenue is a very important benchmark for the road map to clear the (debt) arrears,” said Beileh. “Our objective to cover our expenses is very important.”

Achieving that will depend, in part, on men like Nur.
TAX COLLECTION ON THE FRONTLINE

Somalia’s al Shabaab rebels are known for their ruthless efficiency at collecting tax and spy networks that track profits. Businessmen misstating their profits are likely to get a terse reminder to pay the difference or face a bullet; tax collectors who cheat the movement could be executed, a former al Shabaab enforcer told Reuters.

Al Shabaab were not available for comment.

As an agent of the U.N.-backed government, Nur cannot dole out amputations or executions. If a businessman refuses to pay up he can theoretically be arrested, if he has no powerful friends to protect him. But often, they will simply prevaricate, said Nur.

That’s what many businessmen are doing in the face of Somalia’s new tax. Mogadishu port has not unloaded a commercial vessel for nine days, port authorities told Reuters on Wednesday, as businessmen refuse to pay the new levy.

Trader Aden Abdullahi complained that he was already paying for port services and customs, and paying the Islamic tax of zakat to the poor. He can’t afford another five percent, he said.

“We see this idea as intentionally or unintentionally direct economic war on Mogadishu traders,” he said, shaking his head in disapproval in his wholesale grocery shop.

“The other problem is that the rebels tax us and I am sure they will also raise tax if the government raises tax.”

Some Somalis also say they are reluctant to pay up to an administration that many consider corrupt and inefficient. Almost all of Somalia’s budget goes on paying its politicians and civil servants; ordinary citizens see little being spent on improving public health, education or infrastructure in their bullet-scarred city.

“We pay various taxes by force. There is no beneficial return from the government. We do not even have roads and I have been paying these taxes at gunpoint for the last ten years,” 40-year-old minibus driver Hashi Abdulle said, referring to money extorted at government-controlled roadblocks.

But Minister Beileh says that criticism is outdated and citizens are confusing private extortion with public taxes. The government is putting reforms in place, he said, like trying to work out how to issue individual tax numbers and empowering the ministry of finance to take the lead on tax collection.

“People are used to dealing with … individuals, individual offices, individual soldiers, illegal tax collectors who did not belong to government,” he said.

“Changing that culture is also becoming a challenge … We are trying to close all the loopholes.”

(Additional reporting by Katharine Houreld; writing by Katharine Houreld; editing by Giles Elgood)

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Briefing Room

Somalia Foreign Minister Wants IGAD Open Borders After The Government Rejected

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Looks like Somali Foreign Minister didn’t get the memo when he was talking to Africa 24 TV.

Minister Ahmed Awad agrees with IGAD Free Movement Proposal “We’re comfortable (with the open border) in fact we encourage it, we welcome the region’s borders to be open, the economy of the countries in the region to be integrated. Somalis & Somalia will benefit very much from such open border” Foreign Minister Awad said, while last Monday Somalia said it would not sign a deal with IGAD member countries that will allow free movement of citizens.

 

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