OIL TO CASH IN SOMALILAND
There are several reasons why Somaliland might make a suitable candidate for oil to cash. As oil revenues have not yet arrived, ‘the barriers from entrenched interests are presumably lower’ (Moss et al. 2015: 110). Somaliland is also a democracy where, at least at the presidential level, ‘competitive elections with uncertain outcomes determine who rules’ (Diamond & Mosbacher 2013: 97). It is hard to think of a more electorally compelling strategy for either an incumbent who wished to remain in office or an opposition leader who wanted to become the new president than promising to distribute oil revenues directly to the population. Although not specifically focused on oil to cash distribution schemes, Asunka (2017) finds some support for this proposition in his investigation of why some Members of Parliament in Ghana choose to limit their discretion in distributing Constituency Development Funds while others do not. Asunka (2017: 33) finds that ‘Non-discretionary distributive rules enable politicians to extend benefits to voters outside their circle of loyal voters, particularly unattached or weakly attached voters, and potentially broaden their electoral support without alienating their loyal voters who may otherwise feel betrayed if they fail to receive favors’. He also emphasizes that ‘non-discretionary distributive rules have a signaling effect: they allow incumbent politicians to credibly signal to voters that they are committed to unbiased and efficient use of public resources’ (Asunka 2017: 33). Beyond this, politicians are ‘more likely to adopt non-discretionary or self-binding resource allocation rules in contexts where voters evince weak attachment to political parties’ (Asunka 2017: 29). The sundry weaknesses of political parties in Somaliland are widely noted (Bradbury 2008: 217; Verjee et al. 2015: 36), thus making Somaliland a potentially receptive environment for the kind of non-discretionary resource allocation discussed here as oil to cash.
Somaliland appears well qualified on the four basic requirements for oil to cash program to work. First, as a country that has already conducted multiple electoral campaigns and has newspapers, TV, radio, social media, and a vibrant oral tradition of debate, Somaliland would not find it difficult to mount the public information campaign needed to raise awareness. On one recent count (Walls et al. 2018: 23), Somaliland’s media landscape comprises ‘eleven newspapers, fourteen television stations, around important websites and one (state-run) radio station … with BBC Somali and Voice of America both particularly influential’. Common criticisms of Somaliland’s media environment include repeated arrests and harassment of independent journalists and media outlets (Walls et al. 2018: 25), a failure to allow private radio stations (Stremlau 2013), and uniformly pro-independence views which stifle debate on alternative options (Höhne 2008; Stremlau 2013). Yet, it is also commonly noted that Somaliland’s newspapers have influence that extends far beyond their limited circulation figures and a notable ability to facilitate debate on controversial topics (Höhne 2008; Stremlau 2013). Pegg and Walls (2018: 332) note that during the presidential election #SomalilandDebates and #SomalilandVotes both served as valuable conduits of information, as did the Twitter accounts of individual Somalilanders, some of which have more than 10,000 followers. It is not unreasonable to expect that oil to cash would be a topic of great interest and that Somaliland’s media landscape would facilitate debate on it.
Second, for its 2017 presidential elections, Somaliland successfully implemented an iris-based biometric voter registration system (Schueller & Walls 2017). If oil to cash was based on voter registration, Somaliland already has a functioning biometric system in place to do this. If oil to cash was based on a civil or national registry, Somaliland’s broadly positive experience with the iris-based biometric voter registration system would certainly facilitate its implementation of a broader civil registration scheme.
Third, Somaliland already has a world-leading system of electronic or mobile payments in place that could be used to implement oil to cash transfers. Estimates on the volume of remittances to Somaliland range from US$500–900 million per year, equivalent to 35–70% of GDP with over 40% of Somaliland households receiving remittances (World Bank 2016: 45). Transfers from the diaspora average about $100 and the costs for making remittances to Somaliland are below both African and global averages (World Bank 2016: 47). Telesom’s Zaad service and Dahabshiil’s e-Dahab service have led to the almost ubiquitous personal and business adoption of mobile money in Somaliland. Mobile money is widely accepted by even the smallest of merchants and some firms pay their staff salaries in mobile money (Stremlau & Osman 2015; World Bank 2016: 50–1). One survey of heavy users of mobile money found that ‘few of them reported problems in using the service. In cases where there were problems, the majority of them were resolved quickly’ (Stremlau & Osman 2015: 2–3). Finally, the same mobile money channels used to distribute oil revenues could also be used to tax a portion of them back. This could be done either as withholding from the initial payment or taken back shortly after the initial payment is made so people had a better sense of how much they were contributing to the government in taxes.
There are at least five reasons why Somaliland’s government might be interested in implementing oil to cash scheme. First, such a scheme could have profound humanitarian benefits. Even if distributions were only in the $50–100 range, this would represent a significant increase in income for most Somaliland residents.
Second, oil to cash distributions would spread development across the country. Economic investment is highly concentrated along the Berbera–Hargeisa–Wajaale corridor. Huge swathes of Somaliland have not participated in the economic growth so visible in Hargeisa (World Bank 2016: 80). The direct distribution of oil revenues would spread resources across Somaliland and lead to economic growth in more peripheral regions.
Third, oil to cash would have a positive political impact on Somaliland’s outlying regions. Somaliland has struggled to secure popular legitimacy in the eastern regions of Sool and Sanaag. The equal distribution of revenues among all Somaliland citizens would certainly go some way toward winning hearts and minds in these regions and giving them a central stake in the continued viability of Somaliland. An equal distribution of oil revenues to these regions removes inequitable distribution as a potential source of grievance, raises incomes and thus the opportunity cost of rebelling against the government and gives people in the eastern regions where some of the oil is located a direct stake in maintaining and not disrupting oil production (Moss et al. 2015: 84). None of this is to suggest that oil to cash will solve all grievances in the eastern regions or immediately make everyone love Somaliland. Yet, the direct distribution of oil revenues ‘can help generate or repair a sense of national belonging … Cash transfers represent tangible benefits for remaining part of the state and accepting the new political order’ (Moss et al. 2015: 128).
Fourth, some Somaliland officials see the oil as a route to securing sovereign recognition. Contemporary de facto states like Somaliland often pursue a strategy of ‘earned sovereignty’ whereby their case for recognition is increasingly based upon demonstrating empirical legitimacy in terms of such things as democracy, the provision of security, economic viability, and compliance with international norms (Caspersen 2012; Voller 2013; Richards 2014). In the case of Somaliland, as Richards (2014: 117–18) emphasizes, ‘the campaign for statehood has grown to encompass this acceptableness, and as such the style and appearance of the state … has become a vehicle through which recognition is sought’. What better way for Somaliland to demonstrate its democratic legitimacy and its commitment to the welfare of its citizens than distributing oil revenues directly to its population?
Finally, Somaliland might find an oil to cash scheme marginally beneficial in attracting foreign direct investment in its oil sector. Whatever the size of its potential oil reserves, Somaliland’s lack of internationally recognized sovereignty hurts its ability to attract oil investment which fundamentally depends on the stability of contracts honored over decades. Oil to cash cannot solve this problem entirely, but it does at least partially address political risk by dramatically increasing the host country’s popular support for oil production.
Somaliland may not be a geological frontier region, but its lack of sovereignty makes it a frontier political risk region. The KRG suggests that oil production is possible under disputed sovereignty, but it does not suggest that companies can ignore major political risks in making their investment decisions – a problem brought into sharp relief by the hostile international reaction to the KRG’s independence referendum in September 2017. In the case of Somaliland, Somalia disputes its right to exist, the Nugaal oil basin spreads across Somaliland, and Puntland and western oil majors can potentially reassert their pre-1991 exploration rights if sizable reserves are found (Walls and Kibble 2012; Reitano and Shaw 2013; Balthasar 2014).
In Somaliland, oil to cash potentially offers the most benefits in mitigating political risk in the eastern regions where the government’s support has been weakest. Oil to cash can also play the role of ‘moral guarantor’ that the World Bank’s involvement granted the Chad– Cameroon pipeline project. Oil companies were explicit that they would not accept the political risks in Chad without direct World Bank involvement providing them some form of political risk mitigation (Pegg 2006: 8). Oil companies that might otherwise skip Somaliland because of its inherent political risks might find it more attractive if they could market their investments as directly benefiting some of the poorest people in the world through an oil to cash program. One oil company executive interviewed clearly indicated that there was nothing about oil to cash that his company would oppose and several aspects of it they would benefit from (Oil industry executive 2 2017, Int.). Oil companies remain geologically bound actors. If Somaliland’s reserves are large enough, they will come. Conversely, disappointing early results would keep them away even if Somaliland’s sovereignty was widely recognized. In between these two extremes, oil to cash can mitigate some of the political risk inherent in contested sovereignty and marginally improve Somaliland’s attractiveness as a site for foreign direct investment.
There are any number of specific permutations that oil to cash program could take in Somaliland. Some big questions include whether or not the program should target specific beneficiaries, whether or not it should be conditional (i.e. the recipients must send their children to school) and whether the government should transfer all or only some of the revenues (Moss et al. 2015: 63–7). Such matters need to be decided by Somaliland’s parliament. To stimulate thought, though, we put forward one specific option to illustrate how this idea might work in practice.
Recognizing that there are many developmental needs in Somaliland which require government investments, our proposal suggests a 50:50 split in total cumulative oil revenues from all sources (taxes, royalties, signature bonuses, etc.) between Somaliland’s government and its population. In other words, if $100 million of oil revenue was earned, $50 million would go directly to the government and $50 million would be earmarked for oil to cash distributions with the government then taxing, say, 10% of that back (by comparison, Somaliland currently has a 5% sales tax and a 6% income tax). Importantly, distribution payments must be linked robustly to oil revenues. The idea here is that ‘Citizens must receive a share of the revenues, not an arbitrarily set (and fiscally unsustainable) handout’ (Moss et al. 2015: 61). Thus, production or price declines would result in distribution declines.
Given its extreme poverty and the administrative costs and capacity required to target specific beneficiaries or enforce conditionality requirements, our proposed model would target oil to cash distributions to all Somaliland residents age 16 and older (Somaliland’s voting age) regardless of their wealth or income. It would also target them wherever they lived. Oil to cash cannot address the specific environmental costs suffered by those who live in oil-producing regions. Additional programs funded from the government’s share of the revenues would be needed to benefit those most adversely affected by oil production. That is not the job of oil to cash. A crowd-pleasing distribution format in Somaliland would be to make the oil to cash payments a week before Eid which is an important religious holiday marking the end of Ramadan (the Islamic holy month of fasting) and a time when families in Somaliland often exchange gifts and host banquets and hence are in greatest need of additional spending money (Jirde 2017, Int.).
Table I uses actual production and revenue figures from Chad, Ghana and the KRG to illustrate the kinds of distributions that could be generated by oil to cash in Somaliland. These figures give some sense of the significant impact on poverty reduction that an oil to cash program could have in Somaliland. Two different population bases are used. The figure of one million is slightly higher than the 873,331 people who registered to vote in Somaliland’s 2017 presidential election. The figure of 3.5 million is based on the United Nations Population Fund’s (2014: 31) estimate that 3,508,180 people live in Somaliland.
These figures, which come from two relatively new African oil producers and one region with similarly disputed sovereignty illustrate a vast range of possibilities for Somaliland. At the lowest end, the 2016 figures from Chad illustrate how little might be available if Somaliland’s production volumes disappoint and oil prices are low. They might also suggest some sort of lower threshold of revenues that would need to be reached before oil to cash would be implemented. At the highest end, the 2016 KRG figures are still less than what might be generated if the great hopes of Somalia oil optimists are met. The 2011 and 2014 Ghana figures suggest that per person distributions around the level of Somaliland’s GDP per person are certainly not implausible, particularly if they are limited to voting age adults. The Ghana figures also suggest that even the government’s 50% share of the oil revenues could still potentially meet or exceed Somaliland’s entire government budget today. One can modify the share allocated to the government or how much it taxes back from the distributions, but the clear implication is that an oil to cash program in Somaliland could both generate significant direct benefits for an extremely poor population (and spread them far beyond Hargeisa) and provide the government with substantial additional revenue to devote to improving the welfare of its citizens further. Beyond these direct benefits, such a program would also combat the political resource curse, reduce the prospects for conflict and improve democratic accountability via broad-based taxation which ‘would be particularly appropriate for spurring a dual process of state-building and reinforcement of state accountability’ (Piccolino 2015: 559).
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