Somaliland: The SDF, What it is and How it Works

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SomtracThe relationship between Somaliland Development Fund (SDF) and the GoSL and how the SDF is linked to GoSL budget cycle

By Dr Hassan Jama Mohamed

Somalilandsun – The objective of the SDF is to provide an external development budget, for the Government of Somaliland (GoSL), aligned to and financing the programmes and projects of the 5 year National Development Plan, channelled through more predictable Core Budget funding modality in which the Somaliland Government participates, namely, through the Somaliland Development Fund (SDF). The SDF will be managed by a fund manager who is, on the one hand, entrusted with the mandate of fiduciary agent responsible for financial management and procurement, and on the other, provides operational technical assistance to the GoSL on a development strategy anchored, results-based, multi- year budget process.

This will be a key instrument of economic policy and resource allocation for the Government of Somaliland, underpinned by the establishment of modern financial management information systems. Given the currently available and operating capacities in the Ministry of Finance, Ministry of Planning and Development, and the Bank of Somaliland, there can be no alternative to the establishment of capacity to provide and handle economic policy formulation and management in the short to medium term while allowing institutional capacity to be developed.

The SDF will squarely fit to fulfilling this role. Other expectation from the SDF include the integration of domestic and external development budgets into a complete and realistic annual budget, covering both current and capital expenditures, and capturing the impact of external development budgets, operated by the SDF, on domestic budgets.

Government budgets are prepared according to an annual cycle, but to be formulated well and to contribute to high-quality and sustainable services, they must take into account events outside the annual cycle particularly the macro-economic realities, the expected revenues, and the longer-term needs of programs i.e. down-stream operational and maintenance expenditure of government’s spending policies. This is why annual budgeting cannot be performed properly in isolation but has to be linked to planning, in the context of a multiyear framework.

A well functioning national economic management should: (i) link the Government’s priorities with a budget within a sustainable spending envelope; (ii) highlight the tradeoffs between the competing objectives of the Government; (iii) link budgets with the policy choices made; and (iv) improve outcomes by increasing transparency, accountability, and predictability of funding.

What role could the SDF play in transforming into a Government owned and led fund?

The Government of Somaliland which was hitherto operating out-side the aid sector will be made inclusive, by providing external development budget for the execution of the 5 year NDP, through the establishment of the SDF. Thus, Development Partners will provide assistance within the framework of the Somaliland National Development Strategy. Programmes and projects will be coordinated with Government in order to focus on national priorities, eliminate duplication and rationalise donor activities to maximise cost-effectiveness. Even better, the International Development Partners will increasingly provide more predictable and multi-year funding commitments or indications of multi-year support to Somaliland to enable the Government to plan better the implementation of the Interim 5 year National Development Plan.

However, the Government of Somaliland should provide assurance on its commitment to reform and strengthen its PFM systems and procedures, while the donors are required to use more and more Somaliland’s own institutions and systems, thus mutually ensuring that aid will be used for agreed purposes, improves aid effectiveness by strengthening Somaliland’s sustainable capacity to develop, implement and account for its policies to its citizens. While the Government would implement a PFM reform program and improve accountability and transparency and thus the performance of the system. The relevant procedures and systems typically include, but are not restricted to, national arrangements and procedures for public financial management, accounting, auditing, procurement, results frameworks and monitoring. The SDF could be instrumental as well as facilitate this process.

The Role of the State and other economic actors

First, our strategy of development and employment generation provides a clear role for the state. The state must provide security, invest in human capital, and articulate and implement a social policy focused on assistance to the vulnerable and the excluded and the elimination of poverty. It must create an enabling environment for the activities of the private sector, make effective use of aid to attract trade and investment, and put the economy on a sustainable path to growth.

Thus, the Somaliland Government is in the process of establishing an effective central government that re-establishes the national unity of the country on the basis of strong institutions and the rule of law. Simultaneously, we are committed to building on community level participation and effective management at the local level. We do not see government as the producer and manager of the economy, but as regulator and promoter of the entrepreneurial energies of the people. The state will enter into a direct managerial role only when social justice demands its presence. The government will act in partnership with communities, NGOs, donors, UN organizations and the national and international private sector to implement its programs, and realize its vision. As the legitimate representative of the people, it is the key task and challenge of the government to create the institutions and organizations that would embody principles and practices of good governance.

Principles for Implementing SDF Projects and Progammes

In accordance with the policy and approach to be laid out by the Government of Somaliland, the implementation of infrastructure projects will be entrusted to the private sector. There is consensus in the Government on the need for investment in infrastructure as a means of creating employment and promoting growth and equity and to keep the government out of the business and services that private sector can deliver more efficiently. At the same time, the government will promote the participation of communities in establishing their priorities and in the operation and management of infrastructure facilities at the community level.

The government will also promote monitoring of implementation by the communities so that the private sector is accountable to those who are intended beneficiaries from the investments.

The selection and implementation of all key projects should be based on the criteria of economic return with a clear articulation of the social and environmental implications, in particular the risks posed to the poor and other vulnerable populations. Recurrent costs pertaining to operation and maintenance should be clearly analyzed, and mechanisms for ensuring allocation of resources in the domestic core Government budget for these items should be established, so as to ensure sustainability of finished projects implemented through the SDF. Policies and implementation arrangements to assess and mitigate the environmental and social impact of infrastructure investments should be adopted and appropriate organizational arrangements for their effective implementation created.

To be able to fulfill its role for the promotion of the private sector for service delivery and infrastructure development, the government will need to acquire the capacity for setting priorities, evaluating alternative policy options, and regulating and monitoring the activities of its implementing partners. In considering the options, the government will promote use of labor-intensive methods to create employment.

The government is committed to creating the enabling environment for the operation of national and international firms that would implement its major development projects through performance-based contracting. The government plans to utilize technical assistance in a systematic way to enhance the capacity of its staff and partners. International best practice will be drawn upon to promote the emergence of Somaliland contracting industry. Innovative approaches to building their capacity, setting standards for their performance and periodic evaluation of their performance and dissemination of this information to the ministries and the public should be undertaken.

Somali Landers in the neighboring countries and in the Diaspora have acquired significant experience with contracting. These firms and individuals will be attracted to come back and assisted to form companies or enter into joint ventures with international firms. Timely preparation of infrastructure projects depends on an effective consulting industry. The government and donors should cooperate to attract international firms to the country and promote joint ventures between capable Somalis and these international firms. Contracts with private firms should be performance-based.

At the same time, the government will enhance its capacity to prepare feasibility studies, to regulate the contracting industry, to manage financial flows and to monitor and supervise project implementation. It will also enhance its capacity to assess the environmental and social impact of programs.

International experience has shown that effective operation and maintenance cannot take place without the involvement of communities. As Somaliland communities have acquired significant experience in self-management during the years of absent government, it is imperative that community involvement and empowerment be a significant part of the implementation strategy.

The NGOs have performed a valuable role in assisting communities and households to gain access to basic infrastructure. They have a significant implementation capacity to assist in implementing new programs. Some of them have pioneered methods to enhance the capabilities of communities to implement programs directly. Such efforts should be seriously encouraged. Performance-based contracting with governments and donors could be a useful tool of partnership and accountability. Some NGOs are in contractual relations that resemble the relations between the private sector and the government in other countries. As there will be significant opportunities for a contracting industry, these organizations should be encouraged to become companies.

The successful implementation of the SDF will depend on the existence of capacity both within the government and with other non-state actors. The Somaliland Government recognizes the strengths and constraints of the various actors and organizations that will be key to our success in rebuilding and developing Somaliland.

Note

This article is submitted by Somalland Training and Research Centre (Somtrac), a public policy research centre. The author of the article, Dr. Hassan Jama Mohamed, a Public Finance Management (PFM) expert and a senior economist, is the Programme Director of Somtrac. This article is the first of a series of articles on public policy analysis within the context of Somaliland.

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