Suomen Somalia-verkosto ry
Finnish Somalia Network
Marja Tiilikainen
Maippi Tapanainen
Hassan Abdi Ali
Mohamed Ahmed Elfadl
Peik Johansson
Liisa Laakso
Minna Mayer
Abdirizak Hassan Mohamed
Matti Ripatti
Teppo Tiilikainen

ISSN-L 1799-6163
ISSN 1799-6163

on Somalian, Djiboutin, Eritrean, Etiopian, Sudanin ja Etelä-Sudanin kehityskysymyksiin keskittyvä verkkolehti. Lehteä julkaisee Suomen Somalia-verkosto ry. Afrikan Sarvessa julkaistaan sekä tutkimukseen että käytännön työhön perustuvia artikkeleita ja puheenvuoroja. Afrikan Sarvi on kolmikielinen (suomi, ruotsi, englanti) ja se ilmestyy kaksi kertaa vuodessa.
är en nättidskrift som fokuserar på utvecklingsfrågor i Somalia, Djibouti, Eritrea, Etiopien, Sudan och Södra Sudan. Tidningen utges av Suomen Somalia-verkosto (Finlands Somalia-nätverk). Artiklarna och det övriga innehållet i Afrikas Horn baserar sig på både forskning och praktiskt arbete. Afrikas Horn är trespråkig (finska, svenska, engelska) och utkommer två gånger per år.
is an electronic journal which focuses on developmental questions in Somalia, Djibouti, Eritrea, Ethiopia, Sudan and South Sudan. It is published by the Finnish Somalia Network. The articles and other materials are based both on research and practical work. Horn of Africa Journal is trilingual (Finnish, Swedish, English) and it is issued twice a year.

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Nasra Jama Abdullahi Bulhan & Nimo-Ilhan Ali

Nasra Jama Abdullahi Bulhan  Nimo-Ilhan Ali

Between a rock and a hard place

Doing business in Hargeisa

Amaah, a Somali word that roughly means ‘loan’, is perhaps one of the most important words to describe the relationship between customers and small business owners in Hargeisa. To ensure customers’ loyalty, small businesses selling basic food and non-food essentials have to offer a line of credit, amaah, to the majority of their customers for an extended period of time. Failure to offer amaah results in losing customers who would simply take their business to the next shop willing to extend them a line of credit.

Both of the above options have a detrimental impact to business owners: Offer amaah and face the threat of going bankrupt when customers fail to clear their accounts either on time or at all, refuse, and you would lose customers and face bankruptcy anyway.

Standing surrounded by a wide range of fresh vegetables and other basic food and non-food items, a shop owner in Hargeisa whom we call Abdi, deliberates this issue. He shakes his head and says:

“It will be better and healthier for my business if I lowered the price of all my goods instead of giving them out as amaah. But, I have no choice. None! You have to give amaah if you want to keep customers.”

The dilemma faced by Abdi and many other many small business owners in Hargeisa and other parts of Somaliland is rarely covered in policy documents and studies about the ease of doing business in these settings. In fact, challenges that small entrepreneurs face operating in many poor sub-Saharan African countries where their core customers are households that struggle to make ends meet, are seldom considered.

The focus on policy and studies on the topic is often on the regulatory environment – the relationship between entrepreneurs and the state with the underlying assumption that as long as the state provides an enabling environment, business should thrive.

This was particularly the focus of Doing Business in Hargeisa, a report published in 2012 by the World Bank. The study focused entirely on the regulatory environment that small to medium size firms face when they attempt to establish themselves in Hargeisa. The report uses a number of indicators – such as dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency – to compare the ease of doing business in Hargeisa with 183 other economies across the world.

While Doing Business in Hargeisa study provides important comparative statistics for Hargeisa as well as useful insights into a host of regulatory constraints entrepreneurs face, it only applies to a handful of firms that operate in a relatively formal environment. The study completely ignores the majority of businesses in Hargeisa; the large number of very small business entities that mostly operate in informal settings. Owners of these businesses face a whole different set of problems not only in starting their businesses but also in maintaining them. Amaah is one such problem.

This brief article utilises two sets of data. The first dataset was collected in Hargeisa by Nimo-Ilhan Ali as part of her doctoral field research from January to October of 2013. The data consisted of interviews with 141 small business owners and detailed information collected about their businesses, such as the age and type of business, the amount and source of initial investment, as well as the challenges owners faced when they started their businesses and as they maintained them.

The second dataset, collected in December 2016 by Nasra Jama Abdullahi Bulhan, was designed to update the earlier research by informally interviewing a selected number of business owners in Hargeisa.

It used to be livestock

Although livestock continues to be the bedrock of the Somaliland economy in regards to its contribution to the country’s GDP, the number of people benefitting directly from this sector has significantly declined. In the 2012 Labour Force Survey, The International Labour Organization (ILO) found that in contrast to prevailing expectation, the biggest employer in the country was not the livestock sector, but the sales and services sector. This sector is also the biggest employer of women.

While the sales and services sector contains a handful of medium sized firms such as the money transfer companies, telecommunication, construction and wholesale suppliers, the bulk of businesses in this category are extremely small employing no more than one or two family members. These businesses are mostly small shops selling basic food and non-food items.

An example of a small shop selling basic food and non-food essentials in New Hargeisa. 

An analysis of the initial investments used to start these businesses highlights just how small the endeavours are. Of the 141 business owners interviewed in 2013, over 85 per cent noted they established their business for USD 5,000 or less. Within this group the majority were started with USD 2,000 or less.

In fact, over a third of the 141 businesses were started with USD 1,000 or less. The smallest initial investment was USD 30 used to start a shoe repair business. The graph below depicts the distribution of the initial investments.

Distribution of initial investments. Source: Field data collected in 2013.

In Doing Business in Hargeisa, access to credit is noted to be one of the major constraints to starting a business in Hargeisa. Given the small size of initial investments, our sample of business owners reported that they did not consider the availability of formal credit facilities when starting their business.

On the one hand, this might be due to the lack of formal credit institutions in the country. (There are, however, a number of micro-finance facilities in Somaliland such as KAAH and Micro Dahab that do offer credit to entrepreneurs.) On the other hand, it might merely reflect the fact that establishing a business for the largest part of the Somali population has always been a family affair and formal credit, even before the war, was not accessible to many potential small business owners.

In our sample, business owners reported that they utilised multiple sources to secure initial funding, but, however, family and relatives was their main source. Of the 141 business owners, over half reported that their families and relatives gave them their initial investment. Often funds came from multiple family members and relatives residing across different countries. Although most of this support was given as a gift and thus did not need to be paid back, a small proportion were loans from relatives that needed to be paid back at a later date.

Given the small size of investments, about 28 per cent of the owners noted that they used their own savings to start their business. Former wages and salaries were noted to have been a key source of these savings. Of the remaining, about 10 per cent of the business owners noted that they had sold their assets, mainly land and livestock, to finance their business endeavors.

The trick to maintaining a business

While establishing even a very small business is not without its challenges – such as lack of local market know-how as well as difficulties finding a suitable location for the business – our sample of business owners reported that establishing their businesses was much easier than maintaining them. Overwhelmingly, almost all of the business owners in our sample reported that maintaining their businesses was heavily compromised by the prevailing amaah practice.

To keep customers returning to their shops, shop owners have to advance credit for customers to take items without having to pay upfront for an extended period of time, often a month but sometimes more. Although some customers clear full or part of these loans after a month and begin a new circle, others fail to clear their debt leaving owners struggling to restock their shelves and keep their business afloat.

Shop owner in the main market in the downtown area of Hargeisa.

This practice is heavily utilised by a large number of households in Hargeisa especially for accessing basic food and non-food essentials. Interviews with shop owners revealed that this system is in fact an important household strategy to manage their scarce resources. For many households in Hargeisa, monthly incomes are almost entirely derived from their remittance incomes, which mainly arrive once a month from a single sender. Remittance incomes tend to be fixed with little variance in the amounts received each month.

An analysis of the monthly expenditure patterns of urban households suggests that they spend a large proportion of their monthly remittance incomes on food, followed by basic non-food items. Key non-food expenditures include education, gifts to relatives, healthcare and electricity.

While remittance incomes are more or less fixed, the amount of incomes household spend on food can change depending on the prevailing food prices: food prices tend to go up during drought and currency fluctuations. In addition, healthcare costs can increase in a particular month leaving households short of funds.

Since it is a lot more difficult for households to access credit to pay for key non-food expenditure such as education (children are sent home when they fail to pay their school fees), when funds are short households are forced to reduce the cash amount allocated to basic food and non-food items. However, since households cannot, in reality, survive without these key essentials, approaching their neighborhood shop owners for a line of credit for their basic foods and non-food items is their only option.

Shop owners have little option but to extend this credit. Given the abundant number of shops selling similar items located next to each other, customers would simply try next door. To keep customers shop owners have to agree to this arrangement. Each day, shopkeepers diligently record items customers take with the hope that at the end of the month, when customers receive their remittances, some accounts will be cleared.

While this system works as an efficient overdraft facility and provides a crucial livelihood lifeline for these households, it presents business owners with enormous challenges. Even though a large number of households do clear their accounts in part or full at the end of each month, some do not clear on time (for instance when their remittance is late) or fail to clear completely for one reason or another. Taking into account how small these businesses are, the loss of this income can have huge ramifications to the owners’ ability to restock shelves and the outcome for most is bankruptcy.

Some business owners are, however, coming up with strategies to survive the inevitable amaah practice. Some have formed similar arrangements with their supplier and can continue stocking their shelves without having to pay for the stock for an agreed period of time. Others have diversified their businesses and have started to offer other services in their shops such as tailoring, which are largely excluded from the amaah practice.

Shop owner in New Hargeisa now offering tailoring services. 

Nonetheless, for many small entrepeneurs operating in Hargeisa, endeavours that are crucial for employment and livelihood opportunities for a large number of people, keeping their businesses afloat whilst maintaining their customer base, remains an immeasurable challenge. If they refuse to extend credit, they lose customers and if they agree, they could potentially lose their businesses.

For these entrepreneurs, it is not dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency that constrains them. It is the type of business relationship that they are embedded in with their customers – a relationship that is akin to being trapped between a rock and a hard place – that crucially restrains their ability to thrive.

Nasra Jama Abdullahi Bulhan and Nimo-Ilhan Ali

Nasra Jama Abdullahi Bulhan is based in Hargeisa and is a senior researcher at Altai Consulting. Nasra graduated from the University of Hargeisa with a Bachelors degree in Statistics and Mathematics. She is an experienced researcher and has worked for the Rift Valley Institute, Social Impact, Forcier Consulting, SORADI and DIIS. She has also worked with researchers from the Peace Research Institute Oslo (PRIO) and the School of Oriental and African Studies (SOAS) – University of London.

Nimo-Ilhan Ali is a post-doctoral research associate at the Department of Development Studies at SOAS – University of London. Nimo has been researching the expansion of the higher education sector in Somaliland and the employment outcomes of graduates. She has also been studying wider social and economic issues facing youth in the region including the prevailing youth emigration phenomenon “tahriib”. She’s the author of “Going on tahriib: The causes and consequences of Somali youth migration to Europe” (Rift Valley Institute 2016).

Photos: Nasra Jama Abdullahi Bulhan


Hammond, Laura (2013). Family Ties: Remittances and Livelihoods Support in Puntland and Somaliland. Food Security and Nutrition Analysis Unit ‒ Somalia. Nairobi, Kenya: United Nations Somalia.

International Labour Organization (2013). Labour Force Survey Somaliland 2012: Report on Borama, Hargeisa and Burao. Nairobi, Kenya: Precise Trends Research & Consulting (PTR & C) & ILO).

World Bank (2012). Doing Business in Hargeisa. Doing Business Subnational, Washington DC: The International Bank for Reconstruction and Development / The World Bank.

World Bank (2014). The Somaliland Economic Conference on Growth and Unemployment. Hargeisa, January 29, 2014.

Suomen Somalia-verkosto ry
Finnish Somalia Network