With an internationally recognised government installed and al-Shabaab in retreat, hardy investors are taking a chance in Africa’s most troubled state

In early May, London held its second annual conference on Somalia at the UK Foreign & Commonwealth Office. With the first parliament in twenty years in place in Mogadishu and insurgent groups in retreat, thoughts turned to reconstruction - with a frantic week of events, deals and discussions.

Coca-Cola, Turkish Airlines, Africa Oil and Range Resources have all recently set up offices in Somalia. Now, other international companies are seeing opportunities to develop the country’s oil and gas, telecoms, infrastructure, agriculture and fisheries sectors.

During the London conference, DVK, an international private equity and commodity trading company, launched an Africa Development Fund. Founded by Deepak Kuntawala, the $1bn fund is backed by a collection of wealthy investors drawn mainly from Saudi Arabia, the UAE, Canada and Qatar, and is intended to target “key African nations like Somalia” as well as Kenya, Nigeria, Malawi and South Africa. The Saudi royal family is a major investor. In a letter dated May 2013, seen by This is Africa, a member of the Saudi royal family - who is also a chairman at DVK - expressed his support for Somali President Hassan Sheikh Mohamud.

DVK has established a separate fund designed for diaspora interested in investing in eastern Africa. Mr Kuntawala says the fund will use capital “from private individuals from, mainly, China, Singapore, Hong Kong and the Gulf Cooperation Council regions on a draw down private equity basis”. In order to mitigate risk in politically unstable environments, resources from the fund will be distributed across varied industry sectors and geographic regions. Both funds are Sharia-compliant.

At the launch of the fund, Mr Kuntawala told This is Africa it would be focused on investing in commodities for infrastructure projects, aviation, public-private partnership infrastructure projects and real estate. Agriculture is another area of interest - and DVK hopes to buy large tracts of land across Somalia. Mr Kuntawala believes Somalia could be a breadbasket for the region, and that world food shortage trends will make investing in agricultural land in Somalia lucrative in the long-term. “Most of the investors involved partners with a view to rebuilding the country but also they want to get a return,” he says.

Not everyone is convinced by this new-found optimism, however. Keith Bennett, a British venture capitalist working for the Hong Kong-based Global Group, is intrigued by the growing interest in Somalia - but is not going to recommend that his firm join the race. “We’re in South Sudan already; if I go back and tell my board we should go into Somalia as well, they’ll tell me I’m trying to take on too much risk,” he says.

Indeed, while conditions in Somalia have improved markedly over the past year, offshore piracy remains a problem, militants are still at large, and, while the government appears to have a hold on Mogadishu, authority over the rest of the country is fractured. Somaliland, in the north of the country, has declared itself completely independent, while semi-autonomous regions like Puntland and self-declared independent states like Galmudug and Jubaland vie for power with the central government.

That is not stopping the Somali government casting far and wide for foreign investment, and the global Somali business community is making the most of the opportunity. One example is Dauus, an American-based company of Somali expats selling nappies and other sanitary products in their homeland. Mohamed Guled, the American-Somali CEO of Dauus, the company which runs the NuNa brand, told This is Africa: "We are looking for $10m to build a factory to make our products in the Horn of Africa.

There is currently no production facility making nappies in the whole of the Horn."

NuNa started three years ago in the US and the brand was built up there before a distribution centre was established in Hargeisa, Somaliland. It now supplies nappies and other sanitary products to 300 stores across Somaliland's capital. An office and distribution centre is planned for Mogadishu. Mr Guled sees Somalia as an entry point for Nuna to establish itself in Addis Ababa and Nairobi, the region's biggest cities.

But while building business and developing infrastructure will be key to consolidating Somalia’s recovery, trying to do too much before the political situation has settled could have prove destabilising - especially in the natural resource sector. Rival authorities have already begun jostling for rights to award the 308 oil block contracts announced by the government last year, exacerbating divisions and pulling power away from Mogadishu. In addition, the continent-wide trend towards large-scale land deals is problematic in Somalia where land ownership and titling are not well regulated.

Investor are not blind to the challenges - Mr Kuntawala admits that continued militant activity remains a “huge concern” - but claims he subscribes to a high-risk, high-reward philosophy. Somalia’s government is trying to support this ‘frontier’ mentality too. In his address to the London conference, Hassan Sheikh Mohamud, the country’s president, said he was working hard to deliver “economic reform and new financial management systems” and an “environment conducive to commercial growth”.

Mr Mohamud had been in meetings with DVK and had been “very positive” about private investment, Mr Kuntawala said.

British prime minister David Cameron has also encouraged business in Somalia, as well as recognising “the important role the Diaspora could play”. The UK has the largest Somali diaspora population in Europe. More than one million Somalis live outside of the country according to the UNDP, and remittance flows - which accounted for a quarter of household incomes as of 2009 - have been an economic lifeline through the many years of conflict. Now many Somalis living abroad, like the founders of Dauus and the investors DVK hopes to appeal to, see new opportunities in the country they once had to leave.

Additional reporting by Adrienne Klasa