This appears to be changing
as the construction of a new port in Berbera and the prospect of a new Emirati
military base in the country point to an exciting new start for the country as
it starts to attract foreign investment and recognition
Somaliland is a break away nation on the Horn of Africa,
officially part of Somalia and never recognized by any other state it has been
effectively independent since the civil war that engulfed Somalia over 20 years
ago with its own government and administration based in the capital Hargeisa.
While the rest of Somalia was engulfed in violence and chaos Somaliland
remained relatively unscathed, but its lack of official status and close
association with a failed state has made it very difficult to attract overseas
This appears to be changing as the construction of a new port in
Berbera and the prospect of a new Emirati military base in the country point to
an exciting new start for the country as it starts to attract foreign
investment and recognition. But the uncertain legal environment for investors,
lack of a functioning banking system, widespread poverty and a largely
agriculturally based economy are all major problems which cannot be easily
overlooked. Below I take a look at the prospects and pitfalls around investing
I was lucky enough to speak with the intrepid Alex Goldfarb who
works for the Firestarter
aims to reverse the top down model of philanthropy through its projects and
coined the phrase social alpha to describe the impact of the group’s work in
amplifying the social return on investment of a charitable contribution.
He lives and works in Somaliland on a project which aims to supply fish to the
capital Hargeisa which is just 3 hours from the coast.
However the problem is not the supply of fish which Somaliland
has an abundance of including healthy catches of yellow fin tuna, mackerel and
the highly popular king fish, despite the efforts of other fishing fleets to
plunder its largely guarded coast line. The challenge is keeping the fish cool
in the country’s searing heat when the cost of electricity is relatively high.
Despite these hurdles Alex’s venture has successfully supplied fresh fish to
shops, hotels and individuals at a competitive price.
The use of electricity bills as proof of credit has allowed
Alex’s venture to provide credit to small businesses, an innovative solution as
cash flows can be difficult to prove in a society without a formal banking
system. The promise of cheap solar power and batteries should eventually bring
the price of electricity down to a reasonable level, which in turn will cut the
price of fish even further.
Like most African countries Somaliland also has ties with China,
I discussed the presence of Chinese businesses with the enterprising Brandon
Emmerich who works for Granite Peak
a firm that interprets the often murky world of Chinese
economic and financial data – a fluent Mandarin speaker he met Chinese oil
workers as well as a few entrepreneurs on his travels in the country, he also
intriguingly came across some Chinese people who had moved to the country
precisely because of its obscurity perhaps fleeing trouble at home? The
presence of China National Petroleum Corporation
who are prospecting for oil in Somaliland is no surprise Chinese
natural resource firms are renowned for their fearlessness and ability to
operate pretty much anywhere.
For most prospective international investors Somaliland remains
out of touch, the only way to invest there is go to the country and place funds
into property or a business, which right now is largely the preserve of the
diaspora community who have returned full or part time in growing numbers. Some
believe the returning diaspora have driven up property prices too high in the
capital, but they are also investing in the country with money made overseas.
There are growing signs that outsiders from across Africa and beyond are
interested in the country with events like this investment forum
to attract funds into the critical job creating SME sector.
But as yet there are no ETFs that cover the country, there is a
Stock exchange but foreigners cannot yet invest in it and for most Somaliland
is off the radar. However years of relative obscurity have not dampened the
countries entrepreneurial zeal with many ideas bubbling under the surface and
anyone who travels there is likely to finds business opportunities. Areas like
media, healthcare, fast moving consumer goods, light manufacturing and
logistics are all thought to be the most promising sectors.
Somaliland is synonymous with entrepreneurship “Free enterprise
is Somalia,” according to the Minister of Planning Dr. Sa’ad Ali Shire,
“because the prior circumstances of the country required the private sector to
do a lot of work.” The private sector effort in creating modern day Somaliland
can never be fully appreciated”.
The Port of Berbera is currently undergoing a Dubai backed
refurbishment which will transform into one able to handle serious container
traffic. This development could well be the shot in the arm Somaliland needs
with the port close one of the world’s major shipping channels in the Red Sea,
it could become a major conduit for goods from Ethiopia to the rest of the
world offering competition to neighbouring and increasingly congested Djibouti.
Despite these investments Somaliland remains very a poor
sub-Saharan African economy with all the problems this entails, widespread
poverty, a lack of decent infrastructure and even the spectre of drought in
parts of the country are just some of its problems. But in other respects
society is more advanced than the west, for example payments for nearly all
transactions are done by phone, using a system similar to the famous M-Pesa
system in Kenya. Phone payments have largely replaced the cumbersome wads of cash
that were formerly used and bypassing the need or debit cards in what is a
largely unbanked economy.
Many visitors to the country are concerned about security – this
is a well founded fear in the case of Somalia where despite massive
improvements in terms of stability the country still suffers regular terrorist
attacks, but Somaliland is different and has long been more stable and safe
than its southern neighbour.
If Somaliland can build on its success and become more open to
foreign investment and provide a stable environment for enterprise there is no
reason the country cannot become an increasingly attractive destination in
years to come.
Merlin Linehan has worked
in development finance within Eastern Europe and Asia, and spends much of his
time investigating the risks and opportunities that are created from the
ongoing expansion of Chinese businesses that invest overseas in emerging
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