Stock Exchange: Words You Don’t Normally Associate With Somalia, But You Should

Stock Exchange: Words You Don’t Normally Associate With Somalia, But You Should

The Somalia Stock Exchange made history when it started trading on Sept. 1, 2015, becoming the first ever to operate inside Somalia, the SomalilandPress reported. The problem is, that’s not exactly correct.

It’s true that Somalia’s first formal stock exchange has been in business almost five months — a milestone for the Horn of Africa country as it seeks to rebuild its economy after decades of lawlessness and conflict.

But Somalians have a historic commercial reputation as traders. Informally, Somalians have been trading shares for years.

Another stock exchange — one for pirates — was established in 2009 in Harardheere, 250 miles northeast of Mogadishu, WallStreetJournal reported on June 16, 2011.

The Harardheere stock exchange allowed investors to profit from ransoms collected at sea, which sometimes approached $10 million for successful attacks against Western commercial vessels.

Piracy turned Harardheere from a small fishing village to a town jammed with luxury cars, WSJ reported. More than 70 entities were listed on the Harardheere exchange. When a pirate operation was successful, it paid investors a share of the profits. A former pirate told Reuters, “The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials. . . . We’ve made piracy a community activity.”

The local government received a piece of every dollar collected by pirates and used it “— naturally—for schools, hospitals and other public infrastructure,” Wall Street Journal reported.

Fast forward to 2015. Years in the making, the Somalia Stock Exchange was founded by the Somali Economic Forum, an independent organisation that wants to promote foreign direct investment into the country, according to a report in HowWeMadeItInAfrica.

It has 20 companies listed or in the process of doing so, according to Hassan Dudde, CEO of the Somali Economic Forum. This is a way for homegrown companies to raise capital for expansion and growth, Dudde told HowWeMadeItInAfrica. Companies that have listed or are in the process include telecoms, finance, logistics and commodities, he said.

The stock exchange is in its nascent stage, and probably still has five years to go before it will really take off, Dudde said. But its existence is important for ordinary Somalians.

Banks in Somalia operate under Islamic Sharia law, which prohibits collecting interest. Certain investments are also forbidden such as companies involved with gambling, alcohol, tobacco, and pornography.

Somalia suffered years of conflict and millions of citizens fled, but some businesses and sectors continued to thrive despite the chaos. These include companies involved in telecommunications, finance and cash transfers.

Somalia attracts an estimated $1.3 billion in remittances each year. The stock exchange is a way Somali expatriates can invest in homegrown companies, according to HowWeMadeItInAfrica.

Historically, Somalians have sold shares and made investments informally through family ties and known networks in a system of trust known as Hawala, according to the Somalilandpress. Hawala forms the foundation of Somalia’s international remittance sector.

“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,” Dudde told HowWeMadeItInAfrica. “So it has been happening, just informally.”

A Somalian government backed by the international community was established in 2012 but parts of the country are still occupied by al-Shabaab.

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

But many of the banks in Somalia don’t invest in major projects, “so your money will sit somewhere and you won’t be making any profit,” Dudde said. “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.”

Somalia is no longer a failed state but a recovering fragile country, according to Nicolas Kay, outgoing representative for the U.N. Secretary in Somalia.

The country had stabilized in the last three years, and al-Shabaab will not succeed in undermining its progress, Kay said, according to an NTVUganda blog by Charles Onyango Obbo.

An estimated 80 percent of the Somalian currency in circulation — the Somali shilling — is counterfeit, Obbo said.

“In almost every country in the world, that would have stopped the economy in its tracks. The Somalians went about this in remarkable fashion – by taking the fake currency as ‘legal’ tender in their transactions.

“And in the conditions of war, last year the country opened a Stock Exchange, and Somali companies listed,” Obbo said.

“Anyone who has been to Mogadishu in recent years will be struck by how rapidly Somalians exploit ‘peace windows.’ Within days of AMISOM (African Union Mission to Somalia) kicking out Shabaab from a place, they move in quickly and start building things,” Obbo said.

One company that listed early in the Somalia Stock Exchange is Somali Postal Express, a logistics company created in January 2015, HowWeMadeItInAfrica reported.