1. Relevance of the Action

 Provide a general presentation and analysis of the problems and their interrelation at all levels.

It is widely recognised entrepreneurs play a vital role in promoting the private sector and economic growth in Somalia. Micro, small and medium enterprises (MSMEs) are considered to be one of the principle driving forces in economic development as they are the embodiment of private ownership and entrepreneurial skills, generating employment and helping diversify economic activity.

Assistance to MSMEs has been considered and, to a certain extent, provided by government and donors as a means to fight unemployment and poverty through self-employment. Promoting entrepreneurship and innovation within Somalia has a vital role to play in reaching developmental objectives as outlined in the Interim Decent Work Programme for Somalia[1]. The need to firstly structure support to entrepreneurial nature and also allow self employment to flourish whereby enterprises emerge able to offer greater employment opportunities to others entering the labour market is now the major challenge.

In the case of Somalia, MSMEs account for the majority of the total workforce, with sole proprietorships being the prominent business organisational format (See Figure 1)

 

Figure 1

 

MSMEs are active in several sectors. Figure 2 below shows the distribution of business activities within the MSME sector. While the percentage of retail and trade, which is the highest, is an expected result due to the nature of enterprise creation within this type of setting, the result of small manufacturing and agriculture deserve attention. They are not high, but for a largely pastoral and developing society in post conflict/early development situation, these are encouraging signs of development to be nurtured.

 

Figure 2

 

These entrepreneurs. however, are unable to play a more effective role in overall economic development; their contribution to GDP is hence very modest and does not live up to their potential. MSMEs lack proper organisational and administrative structure and prove unable to build their own capacities in areas of human resources, financial management and technical skills. Box 1 below lists some of the key internal and external constraints faced by MSMEs.

These combined factors are currently depriving Somali entrepreneurs of being able to take advantage of opportunities to be competitive, responsive, productive and innovative; all prerequisites for being successfully entrepreneurs moving from sole traders to being small businesses providing employment and offering opportunity to build greater economic development.

Somali Universities and to a certain extent, vocational training institutions are not sufficiently geared to addressing the employability of their graduates. The absence of career counselling and mentoring services guided by market assessment, labour surveys and business research is sadly lacking despite recent initiatives to address elements of this gap. As a result graduates often cannot find sustainable employment, while many MSMEs, which are the engines of growth in the Somali economy, lack staff with the education and skills needed to drive innovation and diversification in the local economy. Figure 3 shows the extent to which MSMEs struggle to find qualified staff.

Figure 3

 

Skills training has a lacked a clear focus on ‘growth’ sectors, thereby creating an imbalance between the supply and demand for labour. Business management training, for its part, has been clearly supply driven and ignored the adoption of an entrepreneurial culture among students to encourage self-employment as the key avenue toward gainful and decent work. Engagement with the business community has been limited to apprenticeships and work placements, and not developing linkages between young entrepreneurs and investors. In essence, the lack of a holistic and integrated approach towards entrepreneurship has hindered prospects for both university and vocational schools graduates; especially during the early business start-up phase where the precedence can be set for further growth of an enterprise.

In order to develop a more supportive environment for young entrepreneurs where there is opportunity to manage support in a coherent fashion, Business Incubation in its various forms (business incubator, enterprise development centres) providing entrepreneurs with training, business counselling and mentoring and networking opportunities, have proven a valuable tool to in supporting business innovation, development and sustainability – both for newly created and existing enterprises.

 Identify clearly specific problems to be addressed by the action.

The problems regarding (youth employment) can be summarized as follows:

• Education system, both formal and to a lesser extent informal, not focused on employability of young people nor innovation in learning;
• Youth unable to address the multiple constraints in starting up their businesses;
• For those able to start businesses, survival rates are very low because of a lack of coherent support structure. Growth potential is rarely fully realised;
• Lack of institutions geared towards the delivery of integrated support services to promote employment and entrepreneurship; and
• Absence of enabling environment for entrepreneurship.

The question one needs to answer is what needs to be in place to stimulate and support the creation and growth of new businesses while providing support that decreases the chances of business failure? Even more specific, is how to promote innovation and produce graduates with entrepreneurial and business skills, technical skills and research-based knowledge relevant to the development of key sectors of the Somali economy?

There is a spectrum of possible services to support innovation and entrepreneurship which must be both market-driven and focused on entrepreneurs needs if they are to achieve meaningful outcomes. One approach being put forward is business incubation - an interactive development process aiming at encouraging (notably young) entrepreneurs to start their own businesses and supporting them in the development of innovative products. Partnerships linking education, research and business in key productive value-chains (primary production, industry and services) will support the establishment of business incubators that will function as research and advisory centres for MSMEs, start-ups and enterprises undertaking change and innovation. Business incubators will, in turn, provide a range of support services to enhance business sustainability. These services include: skills training (driven by economic employment needs), business advise, research and technology development, business mentoring (Peer to peer as well as supply chain linkages) and access to finance.

 Include a brief description of the target groups and final beneficiaries.

The primary target group will be young entrepreneurs, universities and vocational training Institutions, private sector and government, the administration and parastatal organisations.

Demonstrate the relevance of the proposal to the needs and constraints in general of the target country(ies) or region(s) and to the target groups/final beneficiary groups in particular.

Harnessing the entrepreneurial energy of the private sector to diversify and generate an accelerated but managed economic growth and development is key to significant employment creation. Across the MSME sector impediments to diversification are common – poor quality and quantity of products, absence of appropriate technology and inputs, inadequate business and technical skills, inefficient business environment, poor infrastructure, limited knowledge of markets, difficulty in accessing financing and the depletion of the natural environmental base have all been flagged as issues. Whereas access to effective and efficient technologies, which is a recognised as a key factor to stimulating the growth of MSMEs, has sadly been neglected thereby compromising innovation and productivity.

Without improvements to their business environments and the competitiveness of domestic MSMEs, Somalia, or in localised form, particular local economies across Somaliland, Puntland and southern Somalia risk being trapped by producing low-skill, low-value products and services, struggling to obtain a significant value-added share in domestic and regional trade.

2.  Description of the action and its effectiveness

 Provide a description of the proposed action including, where relevant, background information that led to the presentation of this proposal. This should include:

 a description of the overall objective of the action, outputs and expected results;

Strategy

The project will bring about the necessary support for the creation, implementation and sustainability of Virtual Business Incubators (initial on pilot-basis) in Hargeisa and Garowe. The primary objective of the incubators is to:-

Improve the business and technical capacities of new and existing MSMEs and generate sustainable employment opportunities.

The Business Incubators will act as a facilitating hub for young entrepreneurs to meet their business development and technical needs. By providing multiple services and resources, the business incubator will aim to build the capacities of MSMEs as an entity and the people within the MSME as a person (given the nature of business churn and the need to seek the spirit of continuing innovation through testing entrepreneurial ideas).

The incubators will support entrepreneurs working in defined sectors, to be determined in full coordination with the relevant Ministry of Commerce, Ministry of Labour and Chamber of Commerce (and other private sector representative groups). It will provide eligible entrepreneurs, as needed, with training, business counselling and mentoring, business networks, and access to grant finance (aimed at leveraging additional investments based on the strength of their business plans).

Development Objective:

The overall objective of the project is:

Support and nurture young start-up businesses enabling their into sustainable enterprises

Immediate Objectives:

To link education, research and business to facilitate the creation of zones of mutual support for competitive enterprises and employment creators

Outputs:

The planned outputs are:

• Virtual business incubators established in Somaliland (through the University of Hargeisa) and in Puntland (through the Puntland Library-Garowe)
• University and private sector links developed
• Networks of MSME practitioners developed
• Focused entrepreneurial, technical and other assistance given to nurture early stage (young) enterprises
• New enterprises in sector-specific value chains established through start-up grants and new jobs created

Involvement of implementing partners, their role and relationship to the applicant, if applicable, and the applicant's relationship with them;

 other possible stakeholders (national, local government, private sector, etc.), their anticipated role and/or potential attitudes towards the project.

Already discussed with Hargeisa University and the Puntland Library (run by Somali Family Services and originally funded by DfID through UNDP including initial year of support) – the initial work will also draw in the Somali youth organisations influential in building networks. Work already underway with the Somali Youth for Employment, www.SY4E.com, linkage will be further developed. Virtual networking will be further encouraged (‘Enterprise Rocks’ – SFEDI UKEntrepreneurship is a link already explored and ripe for further development)

The role of established businesses, notably through Somaliland’s business associations (itself linked with the Chamber of Commerce but offering an independent voice from the Administration will also be influential. This association, commenced with Hargeisa University will draw in mentors from the wider Somali business community to offer advice and counsel building on their work with the University’s business classes.

Specific technical skill inputs require links back into existing and emergent training providers. Links with work currently ongoing on competence based approaches will be enhanced.