Small Somalia stock exchange has big dreams

Hassan Dudde, CEO of the Somali Economic Forum

Hassan Dudde, CEO of the Somali Economic Forum

The Somali Stock Exchange started trading last September, marking a milestone for the Horn of Africa country as it seeks to rebuild its economy after over two decades of conflict and lawlessness. The stock exchange was founded by the Somali Economic Forum, an independent organisation that seeks to promote foreign direct investment into the country.

Hassan Dudde, CEO of the Somali Economic Forum, says the stock exchange is one of many examples of the country’s changing fortunes. It offers opportunities for homegrown companies to raise capital for expansion and growth. Companies that have either listed or are in the process of listing come from diverse sectors, including telecoms, finance, logistics and commodities. One early adopter is Somali Postal Express, a logistics company that was formed in January 2015.

“We have up to 20 companies that have registered or are still in the process of listing. Some have met the requirements while others are yet to,” says Dudde.

Thriving in chaos

Although Somalia suffered years of conflict with millions of its nationals fleeing to other countries, some sectors and businesses continued to thrive in the midst of chaos. These include companies involved in cash transfer, telecommunications and finance.

In 2012 an internationally-backed government was installed although some parts of the country are still occupied by the Al-Shabaab terrorist group.

“What a lot of people don’t know is the amount of cash money circulating within the economy of Somalia. We don’t have enough projects to put money into. If you go to banks you will be surprised how much deposits they hold,” says Dudde.

But does the stock exchange really matter for ordinary Somalis?

“It matters a lot,” says Dudde. “Imagine having US$10,000 and you are an individual working for some company. If you take that money to the bank you won’t make any profit because banks here work under Sharia laws – they don’t give you interest.”

Islamic Sharia law prohibits the collection of interest. Certain investments are also forbidden, such as in companies involved with alcohol, tobacco, gambling and pornography.

“Many of the banks in Somalia don’t invest in major projects at the moment so your money will sit somewhere and you won’t be making any profit. In fact, you will be losing money. Having factored in inflation, your purchasing power will decrease. But if you had the opportunity to buy shares of a company that publicly trades, and that you have enough information about, you will make money from that.”

The stock exchange could also be an avenue for Somali expatriates to invest in homegrown companies. Somalia attracts an estimated $1.3bn in remittances each year.

“Ordinary people too will be able to participate just as they have been doing informally for many years. I know female households that whenever they have some funds they go to a company through somebody they know who is part of the management – and they ask them to buy shares on their behalf. So it has been happening, just informally. I know it has been happening for the past 15 years.”

Although it is “still in its early stages”, Dudde says the stock exchange holds promising potential.

“We are doing a lot of training and educating people how important it is for them to list. If you look at the large Somali-owned companies, they are all publicly-owned but they don’t behave like that,” says Dudde. “What tends to happen is some companies issue classified stocks – class A and class B.”

“We have a lot of work to do and I think it will probably take some five years for us to really take off. But it is positive, and there is huge potential.”