East African firms set sights on Somalia as recovery takes root

NAIROBI Wed May 29, 2013 6:49pm BST

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NAIROBI (Reuters) - East African firms said on Wednesday Somalia was an increasingly enticing market as it strives to cement security gains against al Qaeda-linked insurgents and spur an economic recovery.

The Horn of Africa country needs rebuilding from scratch. just 10 percent of its roads are paved while 95 percent of the country's 10 million people have no electricity.

In the capital, Mogadishu, mushrooming construction sites, solar-powered street lamps and beach front cafes point to a delicate rebound, albeit one largely confined to the city.

"Somalia is a fantastic prospect," Prasad Karey, head of sales and marketing at Kenya-based Athi River Steel Plant, said.

Such a view would have been unthinkable barely two years ago when al Shabaab rebels still held bases across the capital and other major urban areas in southern and central Somalia.

They have since been pushed back into rural areas and militarily weakened by a military offensive led by African peacekeepers and government forces.

Athi River Steel Plant plans within half a year to export 300 tonnes a month - about 10 percent of its total monthly exports - to Somalia to capitalise on the building boom.

The snag: there are no paved roads linking Kenya to its neighbour, meaning the steel manufacturer will have to ship by land and sea, lifting its prices above foreign competitors.

The steel manufacturer's answer is to undercut rivals and sell at a loss in order to penetrate the market, banking on improved access to the Somali market in the longer term.

"That could give us a big edge," Karey said at a regional investor conference for Somalia in the Kenyan capital, Nairobi.

HIGH RISK, HIGH REWARD

In a sign of how key the private sector is seen to driving Somalia's recovery, ministers from both the central government and the breakaway region of Somaliland attended the conference. That was in sharp contrast to a high profile meet on Somalia's political future in London boycotted by Somaliland.

It is not just small firms with an appetite for risk eyeing Somalia. Kenya's largest bank by assets, Kenya Commercial Bank, said in April it was keen on expanding into Somalia.

Kenya-based freight carrier Astral Aviation started flying into Mogadishu two years ago when African troops routed the al Shabaab rebel group from its capital redoubts. In that time, it has mostly carried relief food and medicines for aid agencies, but the market is shifting as diplomatic missions open up and Somalis abroad return to invest.

Astral Aviation's Mustwafa Murad said flights there required extra paperwork and extra security checks, incurring added costs. Other operators complain of widespread corruption.

"In terms of growth potential, I think Somalia is number one in the market right now," said Murad, forecasting business in coming from years from oil and gas firms eyeing Somalia.

Civil war has starved Somalia's government of cash. It wants to attract investors willing to stump up hundreds of millions of dollars to fund large-scale energy and transport projects.

With al Shabaab deprived of territory and funding, Nadifa Mohamed Osman, Somalia's deputy minister for public works and reconstruction, said now was the time to invest in Somalia.

But the risks remain high. Al Shabaab suicide bombers have been able to attack sites in Mogadishu with alarming ease. Peacekeepers still patrol the streets in armoured vehicles.

"Yes you have to be security savvy," said Mohamed Abdi of the Somali Chamber of Commerce and Industry. "Investment will mean employment and jobs mean fewer potential recruits for the insurgents. It's high risk, high reward."

(Editing by George Obulutsa; editing by Ron Askew)

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