And you thought it was hard starting a business in your country…

One of the miracles of Somalia is the extent to which a state without a central government has managed to be a business-friendly environment. (Indeed, there are libertarians who’ve made the argument that the absence of a central government makes starting a business easier. I’m guessing most of them have never had to hire gunmen with AK-47s to protect their business infrastructure…) Somali Telecom has had great success building a mobile phone company in Somaliland – started in the US, the company is now based in Dubai and manages a family of companies in Somaliland and Puntland.

Another business that’s helping spawn more businesses is Daallo Airlines, which provides weekly service from Nairobi to Mogadishu and Hargeisa. I haven’t been able to get their online booking application to work, so I can’t tell you the price. But a recent article from Karen Allen with the BBC suggests that there’s a lot of demand for their services. Allen reports that in a neighborhood of Nairobi popular with Somalis, the hotels are jammed full as expat Somali businessmen hoping to get to Mogadishu to get a piece of the action.

Many expatriate Somalis have been fiscally succesful, and some estimates suggest that Somalis send as much as a billion US dollars home every year in remittances. Two major obstacles had been preventing business investment in Somalia – the closing of the international airport in Mogadishu, and the security situation in the capital. But the airport reopened in July, and many report that the streets of Somalia are much safer under the UIC than they were before the Islamists took control. And Allen reports that people are literally lining up to fly back to Mogadishu and find new business opportunities.

It’s not always returning citizens and their countrymen who open the first wave of businesses in troubled and recovering nations (I’m not brave enough to speculate whether Somalia is recovering or just troubled.) Nigel Twose, in the World Bank Private Sector Development blog has an interesting story about Lebanese entrepreneurs in Liberia:

Last Wednesday, I was sitting in the lobby of my hotel in Monrovia, waiting for my flight to Dakar and back to Jo’burg. Across from me were three men of Lebanese origin: the manager of the hotel, a 20-something, and an older man who had just left Lebanon to escape the war. The three of them were huddled over a laptop. One suddenly asked me: “Do you think Kentucky Fried Chicken would work in Monrovia?”

The entrepreneurial logic may well be sound: chicken is the most popular meat in Liberia, existing Lebanese falafel restaurants are full to bursting, the UN soliders and people working with reconstruction efforts in Liberia often have salaries that allow them to afford KFC prices. You may not be tempted to open a fast food franchise in a city that’s just recently regained electricity, but it just might be a great business opportunity for someone sufficiently brave and resourceful.

Twose notes that he’d just sat through a series of meetings where government ministers worried about Lebanese dominance of the Liberian economy and needs to ensure that the economy is “Liberianized”. On the one hand, local economic development may – inadvertently – favor ethnic minorities in businesses in Africa. The Lebanese – who dominate business in many African nations – often have outside capital with which to build businesses. Because they usually don’t have local political ambitions, successful Lebanese businessmen aren’t viewed as political threats, which might give them fewer political hassles than native-born counterparts. On the other hand, Twose cautions Liberia against shutting out the Lebanese, as they may be the people most capable of rapid economic development of Liberia.

(Twose doesn’t mention – but his post made me think of – Amy Chua’s book “World on Fire”, which argues that the business success of ethnic minorities can lead to global instability…)

What makes a country attractive to foreign investors? What makes a country welcoming to expatriates who want to come home? Are the Somalis in Kenya and the Lebanese in Liberia visionary, or foolish?

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2 Responses to And you thought it was hard starting a business in your country…

  1. Somali Telecom has had great success building a mobile phone company in Somaliland […] Another business that’s helping spawn more businesses is Daallo Airlines

    Aren’t both of these special cases, though? Somali Telecom is based in, and mainly provides services to, one of the few parts of Somalia that does have a functioning government. And Daallo has the advantage of being able to base much of its operations abroad. I’m not sure these are representative of the business climate in southern and central Somalia.

    Somewhat tangentially, has anyone ever done a scholarly and non-racist study of why certain cultural groups (Igbo, Luba, Somalis, Lebanese) are geared to succeed in business while others aren’t?

    Twose notes that he’d just sat through a series of meetings where government ministers worried about Lebanese dominance of the Liberian economy and needs to ensure that the economy is “Liberianized”

    Shades of Idi Amin and the Asians, although Sirleaf is no Amin and I doubt things will get that far. I think a much better way to mediate the political issues arising from non-indigenous merchant minorities is to persuade the minorities to open up employment opportunities and skill transfers.

  2. Great post, I was actually meaning to alert you to Karen Allen’s report (I’m addicted to “from our correspondent” program) but you already read it.

    The success of the Somalis in business particularly in Africa hasn’t received enough attention though it’s a phenomena well-worth looking at.

    Peter Leeson argues in his paper Better Off Stateless that Somalis are better off without a government at least economically, and I would agree. Business in Somalia is booming particularly is cities like Mogadishu, Bossaso and Bur’o. Most of the trade in Somalia is with Kenya and Gulf states. Trade between Kenya and Somalia is estimated at about $1 million a day (about $300,000 is Qat trade).

    It’s remarkable how Somali refugees in Kenya have transformed themselves from refuges to a prominent business community in Kenya and throughout Africa. The Somalis established small businesses in Kenya in the early 1990s, and within a short time expanded all the way to South Africa where there is a thriving Somali business community.

    Dubai however is the main hub for Somali business. Somalis at some stage were (may still be) the second largest customer of Dubai just behind the Iranians. They manufacture and import from South East Asia (Malaysia, Indonesia and China) to Dubai then to either to Africa(through Kenya) or Somalia.

    Most Somali businessmen/women prefer to keep their investments abroad because of the security situation. It’s inevitable that improved security in Somalia will convince many to invest in Somalia.

    Better Off Stateless: Somalia Before and After Government Collapse
    Somalis Cash in Dubai Boom
    Anarchy and invention : How does Somalia’s private sector cope without Government?
    Discussion: How to Capitalize on Entrepreneurship in Failed States?

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