ASSESSING SOMALILAND’S VULNERABILITY:
QUALITY OF DEMOCRACY
One of the biggest impediments to implementing oil to cash is the opposition of political elites who do not want to lose control over resource rents. To implement oil to cash program in Somaliland one would thus need to make the case both that Somaliland is in danger of falling victim to the resource curse and that oil to cash is a viable solution to avoid that misfortune. This article assesses Somaliland’s vulnerability to the resource curse by examining three different areas: the quality of its democracy, its hybrid mix of traditional and modern state institutions, and its revenue management capacity.
Somaliland optimists would argue that any future oil revenues would arrive in an already consolidated democracy. The roots of Somaliland’s democratization date back to the guerrilla days of the Somali National Movement (SNM) when the SNM changed leadership five times (Duale 2010, Int.). The significant impact of public opinion in Somaliland was demonstrated at the 1991 Burao Conference where the SNM leadership was not interested in discussing independence yet a groundswell of popular support for independence forced them to change course (Duale 2010, Int.; Bradbury 2008: 82–3; de Waal 2015: 131). The case for Somaliland as a consolidated democracy would also highlight the surprise death of President Egal in 2002, his replacement by a vice-president from a minority clan in accordance with the constitution, an extremely close presidential election in 2003 where the loser gracefully accepted defeat, and a presidential election in 2010 where the incumbent lost, accepted defeat and peacefully transferred power to the opposition.
The case that Somaliland is a consolidated democracy would also draw from Posner & Young (2007). They identify five main ways leaders can leave office, which they group into two broad categories: ‘regular means (which include natural death, voluntary resignation, or losing an election) and … irregular means (coup or violent overthrow or assassination)’ (Posner & Young 2007: 128). Somaliland’s first four presidents all left office through regular means – Abdirahman Ahmed Ali ‘Tuur’ (1991–1993, losing an election among clan elders), Mohamed Ibrahim Egal (1993–2002, natural death), Dahir Rayale Kahin (2002–2010, losing a popular election) and Ahmed Mohamed Mohamoud ‘Sillanyo’ (2010–2017, not seeking re-election). Posner & Young (2007: 130) conclude that the regular turnover of leaders ‘marks the most important step toward restraining executive power and institutionalizing political authority more broadly’.
Yet, the quality of Somaliland’s democracy also raises serious doubts about the country’s ability to manage oil revenues wisely. Presidential elections have been repeatedly postponed with one originally scheduled for 2008 not held until 2010 and another originally scheduled for 2015 not held until 2017. The lower house of parliament members who ostensibly serve five-year terms have not been elected since 2005. Upper house or Guurti members supposedly serve six-year terms but have not been elected or selected since 1997. The Guurti’s repeated self-extensions of its own term have significantly undermined popular confidence in the institution (Hoehne 2013; Richards 2014). Ó Beacháin et al.’s (2016: 445) characterization that Eurasian de facto states like Abkhazia, Nagorno-Karabakh, and Transnistria feature ‘presidential systems in which the executive eclipses both legislative and judicial arms of government’ applies well to Somaliland. In 2005, there was great excitement when two opposition parties won control of Somaliland’s parliament. Yet, in the words of Mohammed Hassan Ibrahim (2010, Int.), ‘When the opposition won parliament, they realized they had nothing’. Indeed, if you ask Somalilanders if they think President Rayale would still be president today if he had control over hundreds of millions of dollars of oil revenues in 2008, few venture any confidence that he would have put his legitimacy to the test of free elections. Its repeated electoral delays, its presidentially dominated system, and its utter lack of legislative branch legitimacy do not augur well for Somaliland’s ability to manage oil revenues successfully.
ASSESSING SOMALILAND’S VULNERABILITY:
HYBRID STATE INSTITUTIONS
Several scholars argue that Somaliland’s lack of recognition has provided it with valuable space in which to tailor its state-building project to the specific needs of its society. Looking at the upper house of parliament or Guurti, Richards (2014: 150) argues that, for Somaliland, ‘institutionalized traditional authority is not a sacrifice of acceptable statehood, but rather a necessity for acceptable statehood to be achieved in the emerging state’. She goes on to note that the ‘scarcity of international involvement in Somaliland’s state formation has allowed for the process to reflect Somaliland society’ in a way that simply would not have been possible otherwise (Richards 2014: 176). Phillips (2016: 639–40) similarly emphasizes that the political settlement in Somaliland ‘evolved without explicit externally driven expectations, schedules, or technical indicators of success’ which gave Somalilanders the freedom ‘to experiment with what was likely to work in the local context’. Extrapolating from this view, Somaliland’s ‘hybrid mix’ of traditional and modern state elements has its quirks and contradictions but is a close reflection of Somali society. An influx of oil revenues 20 years ago might have prevented such a state from emerging, but now that it is institutionalized, it will find a socially acceptable way to manage any windfall revenues it receives.
Yet, Somaliland’s hybrid system of traditional and modern governance increasingly comes in for sharp criticism. While there is widespread agreement that reliance on clan elders helped maintain peace and facilitate Somaliland’s initial development, there are growing fears that ‘the very tools that helped it adapt in the first two decades of postwar recovery are now increasingly an impediment to democracy and economic investment’ (Menkhaus 2014: 170). In Hoehne’s (2013) view, the Guurti no longer provides a check on the executive and has instead been subsumed into it. Its members have grown increasingly comfortable living in Hargeisa and, correspondingly, are now detached from the rural constituents they are supposed to represent. The result ‘is not only an imbalanced but a “crippled” hybrid order that advances neither effective democracy nor strong traditional governance but undermines both the Western-oriented state and the home-grown traditional system’ (Hoehne 2013: 213).
The ability of Somaliland’s executive institutions to manage a sudden influx of oil revenues must also be questioned. First, Somaliland’s government is extremely small. Its government spending is less than 10% of gross domestic product (GDP) and its revenue base is significantly smaller than in other sub-Saharan African countries (World Bank 2016). Second, Somaliland’s government typically devotes 50% or more of its limited resources to security. This is broadly accepted by the population which does not expect much else from the government. As Mohammed Fadal (2010, Int.) explains, ‘The government handles security, otherwise, it faces few demands or expectations from the people’. Essentially, Somaliland’s government has largely outsourced all its non-security development needs to other actors such as aid agencies and its diaspora. Its limited capacity outside the security realm does not bode well for its ability to convert oil revenues into roads, schools or health clinics. ‘Clusters of competence’ exist in various parts of the Somaliland executive but ‘the capacity of the civil service to implement and enforce policies is low’ (World Bank 2016: 79). Menkhaus (2014: 171) goes so far as to characterize Somaliland as a ‘functional failed state’ where ‘state institutions remain weak, corrupt, and even paralyzed, but where society enjoys basic peace, security, and some form of law’. The combination of small and weak state institutions plus an increasingly dysfunctional mix of hybrid and modern elements does not suggest Somaliland is well placed to manage a significant influx of oil revenues.
ASSESSING SOMALILAND’S VULNERABILITY:
REVENUE MANAGEMENT
The case not to fear a sudden influx of oil revenues in Somaliland would draw from Morrison’s (2009: 109) empirical finding that oil, foreign aid, and other sources of non-tax revenue do not have either pro- or antidemocratic effects but rather have ‘stabilizing properties … These revenues enable a regime to stay in power by whatever means are best for that regime, and this is as true in democracies as it is in dictatorships’. If non-tax revenues ‘stabilize the regime in which they appear’ (Morrison 2009: 131) then oil revenues in Somaliland would stabilize its existing democracy.
Optimists would also note that Somaliland already has some valuable experience in managing revenue fluctuations. Saudi Arabia imposed livestock export bans on Somaliland in 1998, in 2000, and again in 2016. Livestock production currently accounts for almost 30% of Somaliland’s GDP and is the single largest export earner (World Bank 2016: 11). According to its former finance minister, Somaliland currently receives about $40 million in annual revenue from livestock exports, but about $30 million of that comes during the Hajj, the annual Islamic pilgrimage to Mecca when more than 1,000,000 foreign pilgrims travel to Saudi Arabia and its demand for lamb peaks. The government both plans for less revenue than it thinks will come in and adjusts its spending so there is less before the Hajj money arrives and then more after it arrives (Samale 2016, Int.). Its ability to manage these spikes or drops in revenue bodes well for its ability to manage a volatile influx of oil revenues.
Yet, Eubank’s (2012) argument on revenue bargaining clearly suggests that Somaliland is in great danger of falling victim to the political resource curse. Eubank essentially investigates Somaliland as a test case of the taxation leads to representation argument. As explained by Piccolino (2015: 558), ‘a central tenet of fiscal sociology has been that there is a causal connection between the dependence of governments on broadly levied taxes and the existence of binding constraints on governments and institutionalized political representation’. In examining Somaliland, Eubank finds that, at critical junctures, the government’s need for revenue forced it to bargain with private businessmen and clans who controlled a particularly valuable resource (first, Berbera’s port; later, Hargeisa’s airport). In return for their consent to provide additional revenue, such groups were able to secure concessions from the government that promoted democratic accountability. In his view, ‘revenue bargaining forced Somaliland’s central government to accept institutional arrangements that provided safeguards against the possible rise of a predatory state’ (Eubank 2012: 477). In this account, the minimal foreign aid that Somaliland received due to its lack of sovereign recognition had the beneficial effect of forcing the government to negotiate access to local revenues which facilitated the emergence of more democratic and accountable institutions. Eubank (2012: 475–6) estimates that were it widely recognized, Somaliland easily could have received $70 million of foreign aid in 2001 which would have been approximately double its entire government budget at that time. In his view, such a large volume of aid would have obviated the government’s need to bargain for local revenue and greatly improved its capacity to crush domestic rivals.
We can extrapolate this argument to oil. Somaliland’s entire government budget in 2016 was ∼$295 million. In 2014, Ghana earned $978.9 million of oil revenues on production that averaged just over 102,000 b/d (Ghana Extractive Industries Transparency Initiative (GHEITI) 2015). With 550,000 b/d of oil production, the KRG earned $750 million every month from oil revenues in 2016 (Genel Energy 2017: 7). Eubank feared foreign aid at twice the level of the government’s budget would undermine revenue bargaining and the accountability it generates in Somaliland. Oil revenues potentially generate a much larger impact.
Another reason to fear Somaliland’s susceptibility to the resource curse is its poverty. The anti-democratic effects of oil are much stronger in poor countries than in rich countries (Ross 2001: 343–4). The corrupting effect of natural resources is also stronger in poor countries (Leite & Weidmann 1999: 31). The World Bank (2014) estimates Somaliland’s 2012 GDP per capita at $347 making it ‘the fourth lowest in the world’. Somaliland’s political economy is also fragile. In a drought-prone region, roughly half the population depend entirely on livestock production for their livelihoods. Somaliland also has one of the highest levels of import-dependency and is one of the most remittance-dependent economies in the world (World Bank 2016). One reason proffered in a recent optimistic assessment of Ghana’s prospects for avoiding an oil curse was that ‘Economic diversification, combined with strong macro-economic performance … suggests that Ghana is less likely to succumb to the resource curse’ (Kopinksi et al. 2013: 588). Such conditions are simply not present in Somaliland.
Finally, there is little evidence of serious preparation for the arrival of oil revenues along the lines of what has been seen in other sub-Saharan countries like Chad, Ghana and São Tomé and Príncipe. In the absence of sovereign recognition, there has been nothing in Somaliland along the lines of the two prominent World Bank-led capacity building projects in Chad in anticipation of the start of its oil production (Pegg 2006). In the run-up to oil production in Ghana, there was widespread recognition of the potential dangers of an oil curse. A National Conference on Oil in 2007 established the principle of government-civil society cooperation and the Civil Society Platform on Oil and Gas was formed in 2010 (Kopinksi et al. 2013). In São Tomé and Príncipe, Weszkalnys (2014: 217–18) found ‘a temporal politics of anticipation that is animated by a variety of programs, plans and measures’ which included attempts to resolve maritime boundary disputes, the passage of oil-related legislation and the creation of so many new dedicated entities that the ‘oil sector has become, without a doubt, one of the most developed parts of STP’s public administration today’. The point is not that all these preparatory measures were successful. They largely failed in Chad and were never put to the test in São Tomé and Príncipe. Rather, the point is that Somaliland has not yet begun to engage in any such attempts to bolster its institutional and legislative framework in preparation for the arrival of oil. With oil production now anticipated to start in 2019 or 2020 (Oil industry executive 1 2017, Int.; Oil industry executive 2 2017, Int.), time is not on Somaliland’s side.
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