Tuesday September 24, 2024
By Mohamed Mukhtar Ibrahim
Despite being underpinned by strong diaspora ties, the trade relationship between the United Kingdom and Somalia remains surprisingly weak and volatile. The Somali federal parliament includes about 15 members of parliament (MPs) of dual British nationality, reflecting the significant relationship between the UK and Somalia. Moreover, the United Kingdom is home to one of the largest Somali diasporas in the world. According to the most recent census, 109,000 individuals in the UK identified themselves as Somali, although unofficial estimates suggest that the Somali community in the UK may number around 500,000.
This article follows up on my previous piece, "Unlocking the Untapped Potential: Strengthening Somali-UK Trade Ties," in which I discussed the need to bolster economic relations between Somalia and the UK. In 2023, UK exports to Somalia amounted to £46 million, while imports from Somalia were just £3 million, ranking Somalia as the UK's joint 171st largest trading partner.
The trade in goods between the UK and Somalia highlights some exciting patterns. The top goods exported from the UK to Somalia in the same period included miscellaneous foods (£1.6 million), telecoms and sound equipment (£1.1 million), medicinal and pharmaceutical products (£960 thousand), cars (£830 thousand), and miscellaneous electrical goods (£770 thousand). What stands out to me is the variety of goods, from essential food items to high-tech telecom equipment. However, there's been a noticeable decline in several categories. For example, exports of telecoms and sound equipment decreased by 34.5%, while medicinal and pharmaceutical products fell by 19.3%. This decline signals a broader issue: the difficulty of sustaining a steady trade flow between the two nations.
On the import side, the numbers are even more telling. The top goods imported into the UK from Somalia included crude animal and vegetable materials (£220 thousand). What's striking here is that many of these imports had no trade in the previous period, showing that trade between the two countries is small and inconsistent. Additionally, crude animal and vegetable product imports dropped by 62.1%, which signals trade volatility between the two nations.
This volatility is further reflected in the UK's market share in Somalia. In 2022, the UK's total market share for goods and services in Somalia was 2.3%, up from 1.1% in 2021. While this might seem like a positive trend, a closer look reveals a more nuanced picture. The market share for goods only decreased from 1.7% in 2021 to 1.5% in 2022. However, services notably increased, with the UK's share rising from 0.8% to 2.8%. This growth in services is a bright spot, but the decline in goods highlights the fragility of the trade relationship.
Interestingly, foreign direct investment (FDI) is also quite limited between the UK and Somalia. In 2021, the stock of UK FDI in Somalia was less than £1 million, accounting for less than 0.1% of the UK's total outward FDI stock. Compare that to the total UK FDI of £1.8 trillion abroad, with the United States taking the lion's share at 26.1%. Somalia is not a significant destination for UK investment. Similarly, data on Somali FDI in the UK is unavailable due to disclosure issues, but it's safe to assume it's not substantial.
The question is, why? Why is trade between the UK and Somalia so limited despite the large Somali community in the UK? Part of the answer lies in the structural challenges both countries face. Somalia's economy, though growing, is still fragile, with insecurity and political instability creating barriers to trade and investment. For UK businesses, Somalia may seem like a risk that is too high. On the other hand, the UK's focus is on larger, more developed markets, making it difficult for smaller nations like Somalia to break through.
But this shouldn't be the end of the story. There's immense growth potential, especially in sectors like services, where the UK has already seen an increase in market share. Additionally, the Somali diaspora in the UK represents a valuable bridge between the two economies. Many in the diaspora are entrepreneurs, and their dual identity gives them a unique perspective on navigating both markets.
For trade to grow, there needs to be a concerted effort from both sides. The UK government, trade bodies, and private sector players should look at ways to encourage trade with Somalia, perhaps through targeted initiatives or incentives for businesses willing to take the risk. Similarly, Somalia must continue improving its business environment, making it more attractive to foreign investors.
Mohamed Mukhtar Ibrahim is the former minister of petroleum and minerals in Somalia. He can be reached by email at: [email protected]