Somalia’s economy is deeply rooted in the activities of micro, small, and medium enterprises (MSMEs). These businesses form the backbone of trade, agriculture, and services, yet many remain trapped in a survival mode. Operating on thin margins, they focus on short-term goals rather than long-term growth. This article delves into how Somali MSMEs can transition from survival-based operations to sustainable growth and eventually scale their businesses.
Understanding Survival-Based Businesses
Survival-based businesses operate with the primary goal of covering daily expenses. They lack a long-term vision and focus on immediate survival. For example, a small kiosk in Mogadishu might operate without tracking its sales or profit margins, making it vulnerable to competition or market shocks. These businesses often struggle with poor cash flow, lack of reinvestment, and reliance on informal systems. While they provide livelihoods, their inability to scale limits their potential to contribute significantly to the economy. Transitioning these businesses to sustainable growth involves addressing structural challenges and fostering a mindset of resilience and expansion.
Barriers to Sustainable Growth
- Limited Access to Finance
Access to capital is one of the most significant challenges faced by Somali MSMEs. Many businesses lack formal credit histories or collateral, making it difficult for banks to lend to them. For example, a tailoring business in Kismayo may want to purchase new sewing machines to expand but cannot secure the funds due to the informal nature of its operations. Solutions like microfinance institutions, diaspora funding, and community-based savings groups can bridge this gap. NGOs and development agencies can also create credit guarantees to reduce the risk for lenders.
- Lack of Skilled Labor
Many Somali business owners struggle to find employees with the necessary skills.
In a research conducted by Mankaal Consulting, 67% of small businesses said the biggest challenge they face is lack of skilled labour. This is a huge problems and it limits innovation and productivity of the country. Investing in workforce training, either internally or through partnerships with educational institutions, is essential. Business owners should also consider offering incentives, such as competitive pay or career development opportunities, to retain skilled staff.
- Poor Market Access
MSMEs often face difficulties reaching broader markets. Poor infrastructure, high transportation costs, and a lack of marketing strategies prevent them from expanding. For example, a honey producer in Baidoa may find it challenging to transport products to major cities or export them internationally. Building partnerships with logistics companies, investing in branding, and leveraging e-commerce platforms can significantly improve market access. Social media, in particular, offers an affordable way to reach new customers.
- Technology Gaps
Limited adoption of technology hinders efficiency and competitiveness. A retail shop in Mogadishu relying solely on manual inventory management may experience frequent stockouts or overstocking, reducing profitability. Introducing affordable, user-friendly software solutions for inventory, accounting, and marketing can transform how these businesses operate. For instance, using simple point-of-sale (POS) systems can provide real-time data on sales and inventory.
From Survival to Sustainability: Key Strategies
- Adopt Financial Discipline
Financial discipline is the cornerstone of sustainable business growth. MSMEs need to implement basic bookkeeping to track income, expenses, and cash flow. For example, with the right skillset vendors can use a simple spreadsheet to record daily transactions, which will help identify profitable products and peak sales periods.
Preparing monthly budgets and forecasting can further ensure that businesses allocate resources efficiently. Financial literacy training, offered by organizations like Mankaal Consulting, can equip business owners with the skills to plan effectively.
- Invest in Employee Development
Skilled employees are vital for business growth. Offering training programs not only improves productivity but also enhances employee loyalty. For example, a bakery in Hargeisa could train its staff in advanced baking techniques, enabling it to diversify its product range and attract more customers.
Additionally, creating a positive work environment and offering performance-based incentives can reduce turnover and help businesses retain talent. This investment in people pays off through better service delivery and innovation.
- Expand Market Access
Reaching new customers is critical for growth. MSMEs should prioritize branding and marketing to differentiate themselves. For example, a clothing retailer could leverage social media to showcase its unique designs and attract buyers from across the country.
Collaborating with larger businesses or participating in trade fairs can also open doors to new markets. Moreover, adopting customer-centric approaches, such as gathering feedback and tailoring products to meet specific needs, can build loyalty and expand reach.
- Embrace Technology
Technology adoption can streamline operations and improve customer engagement. For instance, a fishery cooperative in Mogadishu could use WhatsApp groups to take orders and coordinate deliveries, saving time and reducing communication gaps.
E-commerce platforms allow businesses to reach customers beyond their immediate vicinity. A furniture maker in Galkayo could sell products online, opening up markets in neighboring regions or even internationally.
- Access to Finance
Securing funds is essential for scaling operations. Microfinance institutions and crowdfunding platforms offer alternatives to traditional bank loans. For example, a women-led soap-making business in Beledweyne could launch a crowdfunding campaign targeting the Somali diaspora, raising funds for equipment upgrades.
Additionally, establishing credit guarantees and co-investment programs can encourage private sector funding. Businesses should also improve their record-keeping to build trust with potential lenders and investors.
- Build Resilience through Diversification
Diversification reduces reliance on a single revenue stream, making businesses more resilient. For example, a livestock trader in Garowe could introduce meat processing and packaging services, tapping into urban markets and increasing profit margins.
Businesses should also explore seasonal products or services to maintain consistent revenue throughout the year.
Scaling Up Operations
Once MSMEs achieve sustainability, they can focus on scaling their operations. Formalizing their business structure by registering with the government and adopting professional management practices enhances credibility.
Seeking investment through grants, loans, or partnerships can provide the capital needed for expansion. Participating in trade associations and networking events can also connect businesses with opportunities for growth. Finally, tracking key performance indicators (KPIs) helps identify areas for improvement and ensures continuous progress.
Conclusion
The journey from survival to sustainable growth is challenging but achievable for Somali MSMEs. By adopting financial discipline, investing in workforce development, embracing technology, and building resilience, these businesses can transition to long-term stability and success.
Mankaal Consulting is committed to supporting Somali entrepreneurs on this journey, offering tailored solutions, training, and strategic advice. Together, we can unlock the potential of Somalia’s MSMEs and drive economic prosperity for all
Awil Abdullahi is a Financial Analyst and Founder of Mankaal Consulting with a BComm in Economics and an MBA in Financial Management. He specializes in financial operations and empowering MSMEs through strategic development and growth initiatives.