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ISTANBUL (Reuters) - Somalia's business community pledged to join forces in search of lasting peace for the Horn of Africa nation, investing $1 billion in electricity and gas industries in five years, a company official said on Sunday.

The fragile Western-backed transitional government of President Sheikh Sharif Ahmed only controls a small area of Mogadishu, with the help of African Union troops, and faces near daily attacks from Islamist rebels.

An international U.N.-backed conference declaration said on Saturday it was critical to put a renewed emphasis on economic recovery, appealing for the timely disbursement of funds pledged to Somali security institutions.

The government is beset by near-daily attacks from the Islamist al Shabaab group, which Washington terms as al Qaeda's proxy in the region, and Hizbul Islam, another hardline group.

Abdullahi Hussein, the director of the newly formed Trans-National Industrial and Gas Company said the investment plan is due to go live in 12 months, creating 100,000 jobs which will help dissuade unemployed youths from taking part the violence.

"The project will be established in three designated exclusive economic zones in partnership with local authorities," Hussein said at a press conference on the sidelines of the Istanbul conference.

"It will reduce poverty by helping (youth) find alternatives to looting, piracy and unnecessary violence," Hussein said.

"Peace can be achieved as by product of the investment. We do not have security concerns on implementing this, we invested in the telecom sector, and it is good example that we can do the same in other areas," Hussein said.

A statement released by the director said that the new company was jointly formed by a consortium of five Somali companies with a significant interest in telecoms, trade, finance and security.

Somalia has been mired in violence and lacked a functioning government since the overthrow of a dictator in 1991. Islamist fighters have waged a three-year insurgency that has killed more than 21,000 people.

Sharif Ahmed, the chairman of Somali Business Council, told Reuters his organisation wants positive engagement and partnership with international companies.

"We are not waiting someone to come and lift us up. We want partnership," Ahmed said.

Companies were blamed taking advantage of the chaos in the war-ravaged country and being part of the war, a claim Ahmed rejected as baseless.

"We do not get involved in politics, we are purely business people who can make money in peaceful Somalia. I do not think it is the interest of any Somali for this war to continue" he said.

More than 40 percent of the population -- 3.4 million people -- require humanitarian assistance, including 1.4 million uprooted by the insurgency.

The international community, including the United Nations, has been trying to resolve and contain the crisis for the past 20 years, with more than $8 billion spent in various forms of assistance including humanitarian aid.