Somaliland: The Somaliland Economy and its prospects:

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Somaliland economyBy Jawse MN

LONDON (Somalilandsun) – I have noticed that amongst Somalilanders it is clear to see that we often spend much time writing or reading editorials and opinion pieces on the state of politics in Somaliland or the wider Horn of Africa region.

However, what surprises me most is that we often spend less time debating issues to do with national development and economic growth in our burgeoning state.Therefore, this opinion piece of mine will share with you all my hopes for Somaliland’s economy and developmental prospects.

As Calvin Coolidge stated in a famous quote of his; “Economy is the method by which we prepare today to afford the improvements of tomorrow.” When looking at Somaliland it is a country which can be ranked in the top 10 of African states in terms of its political reform and democratic credentials. However, when it comes to its economy it will be most definitely ranked lowly. Some may argue that this is not the fault of Somaliland as it is a relatively young country (just turned 21) and to be fair unlike other African states it does not have international recognition as a fully-fledged country meaning in economic terms that it does not have no access to bilateral aid or large sums of development funds to help aid infrastructure and development. This lack of recognition has the negative economic consequence that it has hampered the private sector through the limitation of foreign investment and foreign private entrepreneurship as foreign investors are weary that their investments will not be respected in a country which does not have internationally recognised institutions. Indeed the good part is that this has made successive Somaliland administrations virtually debt free. However, granted that this lack of recognition may act as an impediment to economic growth, yet it is not the sole reason for a lack of development in Somaliland. Somaliland administrations regardless of which party or ideology should always strive to put the economy at the heart of its policies and plans and not wait for an oil boon or international recognition to address the needs of its populace.

Instead this lack of genuine development in terms of infrastructure and roads is due mainly to a lack of a genuine economic development strategy on the part of successive Somaliland administrations for that reason it has been refreshing to read this current administrations National Development Plan (NDP) for up until 2030 and specifically for the 5 year plan from now until 2016. To be honest the NDP is brave and there are some significant holes that exist within it that only the government can answer. In particular the main opposition I have to it is that it is projected that around 80% or more for the NDP is expected to be donated by external donors or international aid donors. (See http://www.guardian.co.uk/global-development/poverty-matters/2012/mar/01/somaliland-open-for-business). However, what concerns me the most about this revelation of the NDP is that this in effect holds us hostage to the whims of international aid donors and institutions, only the government can answer whether these aid donors have pledged this amount or whether it is a projected amount. To be reasonable, a billion dollar development plan for a nation is extremely meagre; however it is a step in the right direction for the current Somaliland administration. The current administration have been efficient in terms of its Savings which has led to a budget which has been substantially increased and the mechanisms for tax collection and revenue generation have somewhat been improved. However, the Somaliland government must always remember that its main role is that of a regulator of the economy to ensure its smooth transition and smooth economic growth. It can never try and adopt the role of a Developmental State since the government is too weak at the moment. To be fair Somaliland has done the right thing in consolidating its political culture before embarking on economic growth as most countries in Africa and Asia always do the opposite. However, recent policies and events such as the Banking Law and the establishment of a jointly owned Coca Cola factory have been encouraging as it has allowed the Somaliland government to project a sense of calm and stability which is crucial to attract foreign investors. My only wish is to see a continued improvement in competition for projects which are crucial to the development of Somaliland such as roads, its airports and especially the jewel of the Somaliland economy; the Berbera Port. This increased involvement of the private sector in public projects can be realised through the use of PPP (Public Private Partnerships) which has many advantages, principally being the increase in efficiency and quality. (This report touches admirably on the role of PPPs in Somaliland’s economy: http://jplg.org/documents/Documents%5CJPLG%20Documents%5CPPP%20Guide%20for%20Somaliland-Jan2011-Short_Version.pdf). Furthermore, the private sector has to be incorporated in the genuine extension and consolidation of the Somaliland dilapidated road networks. If one was to go Hargeisa they would notice that it has buildings, houses, hotels and offices that can be found in all major East African cities that convey economic development. However, Hargeisa and Somaliland’s principal hindrance is that its road networks and portfolio of paved roads are severely lacking which leads to decreased economic growth. Indeed it is no surprise to see that extensive and developed road networks always go hand in hand with substantial economic growth in most countries. If there ever was a failure in the Somaliland economy; its main failure is its lack of utilisation and improvement of roads, especially to other cities and within cities. Roads play a vital part in an economy as they help to facilitate trade, development and other infrastructural gains. Indeed the roads connecting the capital city to the Eastern regions of Somaliland are almost non-existent, however, many diaspora driven projects to crate universities and road networks within Somaliland have been somewhat fruitful, however, it is paramount that the government takes the lead and not rely on external aid donors or the diaspora to do this. The existence of the Road networks department/agency is a welcome sign, however it needs to be an agency with considerable clout, because as one will notice there are often many agencies within the Somaliland government that although existent do virtually anything. Also, Somaliland’s cities, especially Hargeisa need to utilize the expertise of town planners as this will put a halt to the unorganized and ad hoc nature of the city’s plan as often there seems to be no structure in some parts of Hargeisa. Indeed this use of strategic city planning will make it easier for Somaliland to utilize street and strict names along with Post codes as it has endeavoured to try and create a postal service in its NDP. Furthermore, it is important that the government continues to strive and perfect its tax collection initiatives which makes Somaliland unique in the region in that its government taxes its businesses, the government needs to ensure that there is progressive taxing which is fair and stimulating to the economy, perhaps the creation of road taxes can be used to develop the roads. Furthermore, the notion of a “Patriotic Tax” from the diaspora is indeed an innovative and feasible idea. In short this argues that Somalilanders in the diaspora when sending remittences should have a tax of roughly 2-3 dollars extracted for the development of Somaliland, this would then enable the government to use these funds for projects which are good for the public wellbeing and the establishment of a committee will ensure that these funds are allocated fairly and efficiently. However, the problem is that this idea is easier said than done and it is crucial that the government’s diaspora ministry takes this innovative idea on board.

Furthermore, Somaliland needs to increase the provision of SMEs (Small-Medium Enterprises); this is especially crucial as it allows the citizens of Somaliland to engage in innovation and business whilst showcasing their entrepreneurial spirit. SMEs are especially relevant because they increase they level of employment and the income level as an SME can have a multiplier effect of creating jobs whilst simultaneously raising income levels and consumption levels and strengthening the economy. However, for SMEs to be successful the government has to improve the spread of credit and specifically bank loans. It is for this reason that the Ministry of Finance has to implement the Banking Law sooner rather than later as this will enable the establishment of commercial banks which will help to increase the prevalence of loans in the young Republic. Indeed SMEs may even prove to be an elixir to the mass youth unemployment and idleness that exists within Somaliland. To be blunt it will have to be the private sector that will help to eliminate the vast youth unemployment as this is what is currently driving the Somaliland economy. If one was to go Hargeisa, Boorama or Burao one would notice that it is the private sector that is supreme as shown by the exponential rise in real estate boom from those in the diaspora. In addition, many countries (such as Turkey, Kenya etc.) are considering the abolishing of paper money and surprisingly according to reports Somaliland is an innovator when it comes to the prevalence of mobile banking (which incidentally has just been utilized in the UK by Barclays), Somaliland needs to abolish its paper money because the currency is much too cumbersome as one has to carry stacks of Somaliland shillings just to buy a simple product. However, with mobile banking it would enable Somalilanders to conduct business with relative ease and simplicity, also the rise in the Somaliland services sector is even more crucial as this allows the mobile banking sector to proceed and develop. Indeed Somaliland is a country of economic contradictions as it has a booming services sector (IT and communications) and yet it is at a very rudimentary level of industrialization. For this reason the Somaliland government needs to encourage the use of industrialization to help create a self-sufficient country which can aid in the level of food distribution, textiles and infrastructure. Crucially, Somaliland needs to diversify its economy and most importantly distribute economic power away from Hargeisa and to other cities and regions within Somaliland. Indeed if one was to go Hargeisa and other cities within Somaliland, one would see a distinct level of development, this centralization of economic power in Hargeisa can certainly have its drawbacks as it means people will migrate to the capital in order to achieve their economic goals which lead to inequality of incomes within different regions. It is also imperative that the Somaliland administration focuses development towards the neglected Western and Eastern regions of Somaliland, indeed this is a problem that has plagued Somaliland’s economy as it has meant that a significant proportion of the Somaliland people and land have not been economically integrated in the Republic, this can have immediate negative social effects. Indeed some of these Eastern and Western regions are somewhat remote due to the lack of paved roads which exacerbates the situation. Therefore, in the years to come Somaliland may be best served focusing its development and funds to these regions, especially the Eastern regions. Indeed the government could try and utilize a percentage of Tax collected that supports these regions in the same manner as the Germans upon unification established the “Solidarity Tax” whereby the Western Germans paid a tax to help the economically lagging East Germany, which continues to this day. Also, the government would be best advised to increase the competition amongst cities in Somaliland in order to increase economic growth and innovation. Principally they should consider empowering Berbera as it does have the potential to be a major commercial city not just within Somaliland but within the wider East African region as it is uniquely placed at the mouth of the red sea. Indeed the incoming creation of the Berbera Corridor will help to lay the foundations of Berbera’s economic growth. However, it is important for the government to create incentives for businesses to put up shop in Berbera, these incentives can be in the form of subsidies or in the form of tax waivers, regardless it is important that Berbera is empowered as it already boasts an efficient airport and a deep sea port which is a rarity in the horn of Africa. For this reason it is imperative that the current administration resolve the issue of the port management and port construction contracts. Indeed Berbera can prove to be the economic lifeline of Somaliland if it is handled well and it will give the Capital stiff competition economically which will only be a good outcome economically for Somaliland. The government could try and use the China model and make Berbera a Special Economiz Zone which is more business and investor friendly with less red tape and more incentives for foreign and domestic companies and businesses to invest. In effect Berbera can be to Somaliland what Shenzhen is to China, an economic, regional powerhouse with close access to the sea and transportation links serving the national economy.

Another problem is that the current Somaliland administration although efficient in some aspects has a somewhat bloated bureaucracy and a large number of civil servants. This then leads to a larger share of the National budget being spent on these public officials; however the problem is that in Somaliland often public officials have a poor work ethic whereby they work 4-5 hour shifts which is surely not appropriate for people being paid upwards of $50,000 per annum. It really is imperative that Somaliland administrations integrate the young and hungry graduates from their own institutions and universities instead of relying on diaspora 50 something’s to oil the machinery of government within Somaliland. Surely if Somaliland wants an innovative and dynamic economy it has to strive hard to integrate these hungry graduates into the political and economic sphere especially as so many university graduates are becoming disenfranchised economically and socially. It is also imperative that the Somaliland administration and Laws of Somaliland make it so that women can freely enter the workforce, own property and become economically involved in the development of the country. Although Somaliland has taken some encouraging steps in this regard; there needs to be more done to address this. If Somaliland ever wants to be an economically viable state it has to integrate women into the economical pursuits of the state. Indeed Somaliland should aim to follow the model of Botswana, as most development economists unanimously agree is a success story among African states with its democracy, innovative economy and well educated and equitable populace.

Finally, the recent creation of the Somaliland Development Corporation (SDC) has acted as a welcome and innovative concept which can hopefully overcome the issue of lack of international recognition within Somaliland which deters international investors, it is now imperative that the Somaliland administration make the SDC into an organization with teeth. To Conclude, Somaliland in terms of its burgeoning economy has experienced some encouraging steps in recent months such as; the nature of the NDP, the Banking Law, the attraction of MNC and investors such as Coca Cola and the creation and inauguaration of the SDC in London. Therefore, it would not be over-optimistic to state that Somaliland is on the path to economic development if the current administration follows its NDP to the letter whilst at the same time attracting Foreign Direct Investment (via the SDC) and also if the priavte sector is strengthened through the provision of better infrastructure and roads from the Somaliland government. The next 5-10 years will prove to be crucial for the development of Somaliland and it is crucial that the current administration address the economy first and foremost, it is important that Somalilanders treat the economy with as much importance and emphasis as its search for international recognition.

By Jawse MN

BSc Economics Student

London

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