Somalilandsun- The recent deal that brought Dubai Port to the horn of Africa for the second time particularly this time around in Somaliland is something that all Somalilanders should welcome with open arms as it marks the beginningof good times ahead. The significance of the deal cannot be down played and has the potential to transform Somaliland politically, economically and institutionally.
Let us analysethe significance of the deal in the lens of economic development. We all know that Somaliland is strategically located in one of the busiest shipping lanes in the world. The fact that Gulf countries lies adjacent to Berbera port, while India and China being on the vicinity means that the coast of Somaliland is economically a viable trade route that can’t be ignored by global powers. Furthermore, given that Ethiopia Gross Domestic Product (GDP) is and will continue to grow at 10% annually it is imperative therefore a viable port iserected in Berbera to meet this growth projection. To this date, the Ethiopianeconomy faces a bottleneck and therefore operate with excess capacity due to over reliance of Djibouti port as the only gateway to the outside world. This gave Djibouti a complete monopoly for 25 years since the collapse of central government in Somalia. This means Djibouti could charge extortion prices as competition is none existence in the region.
However, all this is about to change with the introduction of DP World at the port of Berbera. In fact, Somaliland has longer coastline in comparison to Djibouti and the presence of DP World may provide Somaliland with extra funding to extend the construction of more advanced container hub and modernenergy refinery facility if the traffic demands such expansion to meet thegrowing demand coming from Ethiopia,South Sudan and potentially Uganda.
This means that the port of Berbera will overshadow the success of Djibouti ports in the coming years in a number of different ways. First of all, DP World will want to prove to the authorities in Djibouti that it made a mistake in terminating their contract by showcasing Berbera port as the new kid in the block with much appetite in wining contracts by engaging in price wars. The fact that Togwajale the border town between Ethiopia and Somaliland is located 250 Kilometres from the Port of Berbera means that Somaliland is strategically positioned to supply the entire Southern Ethiopia at a reduced cost in comparison to the fee charged by other port rivals in the region. In the long run Ethiopia will be forced to engage with Somaliland as Berbera corridoroffers lower shipping cost even without the railway construction though the availability of such infrastructurewill significantly reduce the transportationcost and give Somaliland access to the entire Ethiopia hinterland.This is one area where the respective governments of Somaliland, UAE and Ethiopia should all work towards the realisation of such project for enhancing regional integration.
The second economic benefit of having DP world running the port of Berbera lies on the company globe influence in the shipping world and its powerful brand name behind such success. The influence of DP World in the sphere of global maritime business may lead to diversion in the flow of sea traffic in favour of Berbera port due to shorter route to Ethiopia but also due to DP World flexing its oligopolyposition in the sea route and hence undercutting Djibouti in terms of competitiveness.
The third economic benefit in the country will be in a form of direct and indirect observable benefit. The deal will lead to additional jobs being created in the port and truck owners will be able to ferry goods from the port of Berbera to all parts of Ethiopia. Insurance companies will be required therefore money transfer are best position to offer this services. Other facilities likehotels will be in demand in towns such as Hargeisa and Berbera as the number of visitors will be in an upward rise. There will also be spillover effects in all towns surrounding Berbera city particularly the border town of Togwajale will be transformed intoa transit hub. The supply chain management across border will create an economic boom in Somaliland.
Lastly, the people of Somaliland are known for their entrepreneurship skills and given that the port deal will bring the three markets much closer than before namely UAE, Ethiopia and Somaliland this will open up a great opportunity for the people of Somaliland to extend their business influence across the three big markets therefore the Somaliland government must ensure visaarrangements are in place that will allow businessmen and women who carry Somaliland passports to move around without restriction.
In regard to the political victory, the DP World investment will strengthen thecase for Somaliland recognition and forced other similar businesses to consider investing in Somaliland. The success of DP World in the port operation will send a signal to the outside world that Somaliland is on the road to become acommercial hub one that can easily rival Singapore and Dubai in the horn ofAfrica. Somaliland practices free market economy which means less government restriction and more wealth creation. Given that Ethiopia is a country with almost one hundred million people (100 million) it is important that Somaliland economy serves the Ethiopia market efficiently so that it can share some of the economic growth with Ethiopia.
Finally, the investment of this magnitude will lead to institutional development over time. The fact that trade volume will increase as a result of the port expansion will automaticallyput pressure to the government of Somaliland to take a legal review to ensure all commercial contracts are valued appropriately and that the tax collection mechanism is transparent and robust. The parliament must demand and expect increase in tax revenue collection as a result ofexpansion and privatisation of the port services.
However, what needs to happen between now and the signing of the deal is as follows. The government of Somaliland is democratically elected by people and therefore it must disclose the details of the agreement of the deal to the public. This will help inform the public and educate them on the significance of the deal. The second thing that must happen quickly is to bring the deal to the parliament so that members of parliament can debate on various clauses of the deal. This is important given that DP World was forced to terminate contract with Djibouti due corruption allegation however a court in London later cleared the company from any wrong doing. Therefore, it is important for the management of DP World to remind the government of Somaliland to take the deal to the parliament for final approval to avoid any bad publicity in the futureor else a newly elected opposition party may make the contract void. Finally, the parliament of Somaliland must select a team of parliamentarian across the three political party who are independent and not involved in the negotiation ofport deal to make a follow up of the $15 million granted to the government of Somaliland by DP World. It is important that the money is traced and used efficiently. The same individuals canform the parliamentary watch dog in charge for assessing the performance of a newly formed partnership soon to be in charge of the port of Berbera. As part of transparency and good governance the parliament of Somaliland must ensure an annual audit is carried out on a newly formed partnership between DP World and the port authority to obtainassurance that the government of Somaliland will get its fair share of port revenue as stipulated in the contract. It is absolutely important for the parliament to set a watch dog to ensure corrupt government official do not use port revenue for person gains. The watch dog should work closely with DP World to ensure corporate governance standards are raised and applied to anewly formed joint venture made up of Somaliland officials in order to preventcorrupt practices from taking place. Finally, the parliament must grant the watch dog more executive powers to take legal action against corrupt officials who will divert port revenue for personal gains.
Therefore, I’m optimistic that if the port of Berbera gets the required face lift and adopts aggressive management strategy it can serve the entire Ethiopia market competitively and even outperform some of the neighbouring ports in the region. Make no mistake that the operational success of Berbera port will unleash the Ethiopian economy and remove the existing bottleneck by giving Ethiopia access to the outside world.
Written by: Omar Guled, London based analyst.
The writer takes keen interest on matters of economic developmentand foreign policy of the Republic of Somaliland. Other areas of interest include entrepreneurship, state building and the role of Institutions including matters surrounding the recognition of Somaliland. The writer can be reached on the following email address: firstname.lastname@example.org