TRANSITION INFORMAL SECTORS INTO FORMAL SECTORS IN SOMALIA: ISSUES, CHALLENGES AND OPPORTUNITIES

Abstract

The informal sector is a significant driver of Somalia’s economy, providing employment and income opportunities to a large portion of the population. However, its unregulated nature presents challenges such as low productivity, lack of financial access, weak social protections, and minimal tax contributions. This policy paper examines the current state of Somalia’s informal economy, the challenges faced by informal businesses and workers, and the potential benefits of transitioning to the formal sector. It outlines a strategic framework for formalization, focusing on legal reforms, financial inclusion, labor protections, and institutional coordination to ensure a smooth and sustainable transition. The report highlights a phased approach to formalization, starting with awareness campaigns and stakeholder engagement, followed by simplified business registration processes, financial support mechanisms, and enhanced social protections. The Ministry of Commerce and Industry, in collaboration with financial institutions, private sector actors, and development partners, will play a key role in policy implementation and business support programs. Public-private partnerships (PPPs) will facilitate market integration and provide businesses with the necessary resources to operate within a regulated environment. To ensure the success of the formalization process, a monitoring and evaluation framework has been established, with clear performance indicators, baseline data, and target outcomes. Additionally, risk assessment and mitigation strategies have been developed to address compliance challenges, financial constraints, and enforcement gaps. With a well-coordinated approach, adequate resource mobilization, and stakeholder commitment, Somalia can build a resilient, inclusive, and well-regulated economy, fostering long-term growth, improved worker protections, and enhanced government revenue collection.