IMF Partnership Creates New Investment Opportunities for Diaspora

Somalia’s Economic Developments Signal Important Changes for Business and Legal Practice

The recent economic developments in Somalia present significant implications for businesses and legal practitioners operating in our country. As someone who has practiced law in Mogadishu since 1984, I have witnessed many economic cycles, but the current situation requires careful attention from all stakeholders.

The International Monetary Fund’s staff-level agreement reached on May 17, 2025, will unlock $10 million in funding under the Extended Credit Facility arrangement. This agreement comes with important projections: GDP growth will slow from 4% in 2024 to 3% in 2025, while inflation is expected to decrease from 5.6% to 4.9%. These numbers tell us that economic growth is moderating, which will affect business planning and investment decisions.

The IMF has issued a clear warning about foreign aid reductions. Such cuts would damage food security, increase poverty, and harm our institutional capacity building efforts. For legal practitioners, this means we must prepare for potential changes in regulatory frameworks and enforcement mechanisms as government resources face pressure.

Minister Mahmoud Abdirahman’s launch of Somalia’s second national economic forecast report on May 28, 2025, represents an important step toward transparency. This document, developed by multiple government institutions, provides an honest assessment of our economic strengths and weaknesses. Legal practitioners should study this report carefully, as it will guide government policy decisions and shape the regulatory environment.

The oil agreement with Türkiye signed in May 2025 raises concerns that require close monitoring. Analysis from the London School of Economics suggests this agreement may undermine Somalia’s economic recovery efforts. The implications for resource governance and revenue sharing arrangements could be substantial. Businesses in the energy sector and those involved in natural resource development should seek legal counsel to understand how this agreement affects their operations.

Practical Implications for Business and Legal Practice

Several key areas require immediate attention from businesses and legal practitioners:

• Contract Planning: The projected economic slowdown means businesses must build flexibility into their agreements. Payment terms, performance schedules, and force majeure clauses need careful consideration.
• Regulatory Compliance: The African Development Bank’s program for strengthening institutions will likely result in new regulatory frameworks. Companies must prepare for updated compliance requirements.
• Investment Decisions: The uncertain economic outlook, combined with irregular rainfall patterns and potential foreign aid cuts, creates a challenging environment for new investments.
• Resource Sector Activities: The Turkish oil agreement creates uncertainty about future resource development policies and agreements.

Based on my experience, Somalia’s economy has shown resilience through previous challenges, including the Global Financial Crisis, COVID-19 pandemic, and effects from the Russian-Ukrainian War. However, the current situation requires careful navigation. The agricultural recovery that drove 2024 growth provides a foundation, but businesses cannot rely solely on this sector.

Legal practitioners must prepare for increased demand for services related to contract restructuring, compliance advisory work, and dispute resolution. The changing economic conditions will create new legal challenges, particularly in areas of commercial law, regulatory compliance, and resource development agreements.

The transition from debt relief under the Heavily Indebted Poor Countries Initiative represents both opportunity and risk. While this process can improve Somalia’s international financial standing, it also requires meeting specific reform commitments that will affect business operations.

My recommendation is that businesses conduct thorough legal reviews of their current agreements and operations. The economic projections and policy changes outlined in these recent developments will create new legal requirements and business challenges. Early preparation and proper legal guidance will be essential for success in this changing environment.

Companies should also consider the long-term implications of reduced foreign aid and the potential effects on infrastructure development, regulatory capacity, and economic stability. These factors will influence business decisions for years to come.

Sources

• https://mop.gov.so/somalia-economic-outlook-2nd/
• https://blogs.lse.ac.uk/internationaldevelopment/2025/05/22/using-the-domestic-revenue-mobilisation-lens-to-assess-somalias-oil-agreement-with-turkiye/
• https://english.news.cn/africa/20250518/8fa30915a4424f9ca608a86abc5b1f37/c.html
• https://www.afdb.org/en/documents/somalia-strengthening-institutions-economic-policy-management-and-infrastructure-development-ipr-november-2024
• https://www.radiodalsan.com/minister-beene-beene-launches-second-edition-of-somalias-economic-forecast-report/