Swedfund has decided to invest USD 5 million in NHAO (Nordic Horn of Africa Opportunities Fund). The amount is split into 2 tranches where the second tranche requires certain conditions to be met.
Despite decades of conflict, Somalia has maintained a growing private sector, which generates more than 90 percent of the country´s GDP. In many cases, the private sector has filled roles typically held by public institutions such as the provision of financial services, security and education. SMEs in Somalia have high demand for capital but lack accessible and economically attractive financing. There is limited electricity supply, and lack of physical infrastructure and human capital. Local financial institutions require high collateral because of the risks associated with the informal market and weak financial system. There is no national ID register and land ownership is poorly regulated.
From this perspective, efforts to strengthen small businesses, especially those led by women, are critical. This Somali fund aims to provide financing to small and medium-sized companies. The companies receiving loans have around or less than 1 million dollars in revenue.
- Since the fund aims to support women-led companies and companies employing many young people, this is a very good opportunity to reach companies and businesses directly contributing to jobs and strengthening the Somali economy, says Maria Håkansson, CEO of Swedfund.
The fund has USD 25 million in capital under management by Shuraako, who is an experienced fund manager with several funds and credit-related projects in Somalia since 2013.
NHAO has three offices: In Mogadishu, Garowe and Hargeisa. NHAO's investment structures are Sharia compliant, with USD-denominated secured debt instruments (Murabaha).
Along with the many challenges, the Somali market also holds substantial opportunities. Rapid urbanization, growing use of digital technologies and planned investments in sectors such as energy, ports, education, and health can support economic growth and job creation.
Challenges for investors remain multifaceted and relate to weak legal and regulatory framework, high political uncertainty, poor infrastructure and limited formal banking and foreign exchange mechanisms. Financial sector development is still nascent and there is no scope for monetary policy because of dollarization and currency counterfeiting. As a result, we consider our investment and the cooperation around capacity development with the manager to be highly additional.
The signing was done the 19th of December 2022.