TOPICS

Farmers Organizations, Rural Finance

SOLUTION TYPE

Financing Scheme

REGION

Near East, North Africa, Europe and Central Asia

"New jobs have been created and food production volumes have increased in the beneficiary communities."

BACKGROUND

This project forged a link between small businesses in areas of Somalia affected by conflict and investors from the global diaspora community. Enterprises were supported in their growth by diaspora ‘angels’ while communities benefited from a financial cushion provided by short-term aid and donations. 

WHAT’S INVOLVED

Micro-finance

Through the project’s infrastructure, diaspora lenders were able to confidently invest in small businesses in Somalia. The project brought together international investors, local banks and other organizations to provide funding.

 

Poverty alleviation

As a result of the project, new jobs have been created and food production volumes have increased in the beneficiary communities. The majority of the enterprises supported have seen growth as a result of the investments.

EXPLORE THIS SOLUTION

The diaspora investment project can offer

  • A replicable model for engaging diaspora donors and organizing the financial instruments necessary for investing funds.
  • Insights on potential pitfalls and conditions for success when implementing diaspora investment in post-conflict areas.

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Countries involved

Somalia

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Summary

Whether through remittances, investments, tourism, trade, knowledge transfers, or cross-border relationships, diaspora migrants can play a vital role in promoting economic development in their country of origin. But how can they be engaged to do so?

This project identified and promoted agro-business investment opportunities for Somali migrants, with a focus on areas of Somalia affected by conflict, poverty and natural disaster. It set up the necessary financial instruments to make those investments happen, and helped members of the international diaspora build their capacity to identify, participate in and promote investment opportunities, driving their transformation into agents of development.

 

Challenge

The project addressed two major challenges:

  1. How to expand activities of local agro-business companies in post-conflict conditions in Somalia in a way that would address both food shortages and the needs of smallholder farmers. (The local government has been unable to harness collective action towards development and poverty reduction in these areas.)

  2. How to mobilize funding and knowhow from local institutions and diaspora investors to support these efforts.

 

Solution

The project outlined an innovative approach to investment in rural livelihoods in regions facing long-term armed conflict, natural disasters and economic hardship. It also broke new ground by pioneering a Diaspora Investment in Agriculture (DIA) model for investment in Somalia by supporting joint initiatives of local communities, public authorities and the diaspora driven by locally identified needs and opportunities.

The project organized migrants to send remittances back home and, together with charities and philanthropic NGOs, support local enterprises. This assistance provided a lifeline for households and communities that had lost their livelihoods as a result of conflict, by ensuring a minimum level of sustenance for their communities. 

As well as providing immediate aid, the project supported longer-term growth, providing seed capital to businesses through a co-finance mechanism with diaspora investors, local banks and other external investors.

The project also encouraged multi-pronged strategies to bring together the global diaspora, private enterprises and civil society in their home communities, local and national governments, and the international community.

Local participation, through community-driven needs assessments, was combined with diligent assessment of joint investment opportunities, and backstopping of these partnerships by the DIA and a selected NGO partner.

 

Results

The project succeeded in harnessing capital from the diaspora towards sustainable development activities for poor rural households. It promoted pro-poor investments in local agribusiness initiatives in Somalia through the Somali Agrifood Fund, and provided seed capital to businesses through co-financing with diaspora investors.

A total of 14 business plans were approved and received funding from the project. This was made up of contributions by entrepreneurs, diaspora investors, local banks, and other external funding channels.

These investments have led to a growth in most of the participating companies’ portfolios, resulting in:

  1. the creation of an additional 231 direct jobs (150 permanent and 81 seasonal), and

  2. the production of an additional 112 tonnes of food produced each month.

Related activities by the companies have also generated spillover benefits along the value chain, buying from and providing services and inputs to 2,316 local smallholder farmers, herders and fishermen.

 

Lessons learned and potential for replication

Several important lessons have emerged from this project:

  • Even under extreme post-conflict conditions, private investors (local enterprises, business angels, diaspora) are willing to invest provided they have access to capital and knowhow.

  • While remittance inflows secure short-term needs, finding ways to direct these funds to longer-term and sustainable development remains a challenge.

  • Some of the enterprises had limited technical knowledge and were unfamiliar with agro-techniques, irrigation and seed. As a consequence, without the provision of proper extension services, seeds were sometimes purchased without knowing the source and quality, water was pumped but wasted, and crops planted were subsistence crops instead of those more suitable for the market.

  • The role of the private sector in this project has been crucial to ensure knowledge sharing, identification and exchange of best practices, and the creation of synergies between diaspora and local entrepreneurs.

  • Even though most of the diaspora investors were relatives, friends or close family members, experience has shown that these investors still need guarantees, risk reduction tools, and trust in the business to feel comfortable investing back home.

Experience from Somalia indicates that with the appropriate framework, mobilizing resources from the diaspora can work in a wide range of circumstances, not only in post-conflict conditions. Wider application of the approach could stimulate the economy in many developing countries.

 

Next steps  

The project succeeded in demonstrating that using appropriate tools and framework, diaspora investment in the Somali SME sector can be stimulated through targeted investments and engagement.

In terms of sustainability, a follow up grant (BRIDGES) is being designed to mainstream the achievements of this project. In addition to business viability and sustainability, the BRIDGES grant also incorporates capacity-building measures for agricultural systems (i.e. providing extension services to address issues arising from farm/fisheries investments), and sustainability of benefits to rural poor communities through specific targeting approaches.


 

Last update: 09/08/2018