Unrecognized internationally, Somaliland operates as a hybrid political order where a range of state and non-state entities provide security, representation, and social services. Local business elites have impacted state formation after the war by lobbying against a range of regulations, providing the government with loans and contributions rather than paying sufficient taxes, and by hindering the development of sound financial institutions.
Ahmed Mohamed Musa, Senior Researcher, and Cindy Horst, Research Professor
State formation and economic development in post-war Somaliland: the impact of the private sector in an unrecognized state
By Ahmed M. Musa & Cindy Horst
Conflict, Security & Development Journal
Volume 19, 2019 – Issue 1
Pages 35-53 | Published online: 14 Feb 2019
Unrecognized internationally, Somaliland operates as a hybrid political order where a range of state and non-state entities provide security, representation, and social services. Local business elites have impacted state formation after the war by lobbying against a range of regulations, providing the government with loans and contributions rather than paying sufficient taxes, and by hindering the development of sound financial institutions. The success of such activities has led to de facto protectionism, where foreign ventures have had limited access to the Somaliland market. While such protectionism may have negatively impacted economic development and growth opportunities, recent engagements by multinational corporations in the Berbera port suggest that foreign private investments risk sparking violent conflict. In contrast, domestic businessmen have played a role in preventing or resolving violent conflict at crucial stages in Somaliland’s recent history. Based on fieldwork in Somaliland, we argue that the impact of international corporate actors in post-war contexts needs to be understood in light of local culture and power dynamics, in which the political and economic roles of local business elites are central.
Somaliland has been peaceful for the last two decades, though this peace remains fragile. Some analysts have accredited Somaliland’s relative stability to its bottom-up peace-building approach.11. Boege et al., ‘On Hybrid Political Orders’; and Bradbury et al., ‘Somaliland: Choosing Politics over Violence’.View all notes Others have challenged this image by arguing that top-down statesmanship and political manipulation have played a central role as well.22. Balthasar, ‘Somaliland’s Best Kept Secret’.View all notes These disagreements aside, it is generally agreed that governance in Somaliland involves a range of state and non-state actors with a long history of contributions to peace-building and state formation.33. Renders and Terlinden, ‘Negotiating Statehood’; and Hagmann and Péclard, ‘Negotiating Statehood’.View all notes Politicians, elders, businessmen44. We use ‘businessmen’ as the majority of the owners of the large businesses we focus on in this article, are men.View all notes and religious leaders – in the country as well as abroad – complement and contest each other in providing security, representation, and social services. None of these power holders in Somaliland’s hybrid governance system has a monopoly on power. While preventing civil war and state collapse are high on the agenda of these power holders, few have a marked interest in building strong national institutions and there is little to no consensus of what type of state to build.
In this article, we examine the role of businessmen and investors as one important group of power holders in post-war Somaliland. What is the impact of corporate sector actors on peace-building and state formation in an unrecognized state? What roles do domestic and foreign businessmen and investors play in such a context? We illustrate how local business elites have influenced Somaliland’s hybrid governance system, in both stabilizing and destabilizing ways. We exemplify how the business elite in Somaliland has provided the fragile state with loans and financial support, for example by financing clan conferences, and have engaged in peace-building and mediation efforts at crucial times. At the same time, corporate actors have successfully lobbied against a range of regulations on taxation and licensing of potentially competitive business ventures. By influencing the state’s economic decisions, they arguably have negatively impacted economic progress in the country.
The success of these lobbying activities, precipitated by the state’s financial dependence on local business elites, has led to a laissez-faire economy and de facto protectionism. Thus, the private sector in Somaliland is currently dominated by a handful of powerful firms, most of which are family businesses. Foreign ventures have limited access to the Somaliland market and foreign investments have been marginal. While the absence of foreign investments may have reduced economic development and growth opportunities by creating economic stagnation, it may also have prevented situations that would have threatened Somaliland’s fragile peace. As we will illustrate, the few examples where foreign multinational corporations (MNCs) engaged in the country have heightened the risk of violence and imported proxy conflicts.
As has been argued throughout this special issue, interest in the impact of the private sector on post-conflict contexts has increased exponentially. The rapidly expanding Business for Peace (B4P) paradigm – supported by the United Nations, a range of governments, and international non-governmental organizations (INGOs) – has put business interests for peace-building squarely on the international agenda.55. Barbara, ‘Nation Building and the Private Sector’; Fort and Shipani, ‘An Action Plan for Business’; Gerson, ‘Peace Building’; and Miklian, ‘Mapping Business-Peace Interactions’.View all notes The issue of fragile or failed states is considered to be at the core of today’s global security problems and has led to a discourse that focuses on integrating development, security, and conflict prevention policies.66. Boege et al., ‘On Hybrid Political Orders’.View all notes The international business community is understood to be a new and vital partner in this.
One fundamental criticism to this perspective relates to the fact that perceptions of fragile or failed states are inappropriately modeled on liberal democracies with an industrialized formal market economy. In many contexts, the state does not have a privileged position as a political structure that provides security, representation, and social welfare, but rather does so parallel to, together with, or in competition to a range of kin-based, religious, economic, and cultural institutions.77. Hagmann and Péclard, ‘Negotiating Statehood’; and Boege et al., ‘On Hybrid Political Orders’.View all notes This is the case in Somaliland, where the formation of the independent state in its current form is a recent phenomenon, whereas the provision of security, representation, and social welfare for centuries has been a matter of kin-based structures. Further, the legitimacy of the state is contested in several parts of Somaliland.
The B4P literature has also been criticized for being theoretical and normative in nature, lacking in-depth contextual knowledge.88. Calvano, ‘Multinational Corporations and Local Communities’.View all notes It, for example, pays little attention to the interests and role of local business elites in peace-building, as if international corporate actors engage in business in a political and economic vacuum. Barbara illustrates how businesses are seen to contribute to post-conflict stability through economic growth that create peace dividends, while their negative impacts are ignored because private sector actors are not recognized as inherently political actors.99. Barbara, ‘Nation Building and the Private Sector’.View all notes In this article, we analyze the impact of both local and foreign private sector involvement in Somaliland. We explore interconnections between the two through the case of one of Somaliland’s largest sources of revenue: Berbera port. The port of Berbera is a major seaport in the commercial capital of Somaliland, which is located on the southern shore of the Gulf of Aden. Through this case, we highlight the complexities of private sector involvement in post-conflict contexts, providing needed nuance for the ‘Business for Peace’ paradigm.
This article is organized into three sections. After briefly discussing our methods, we provide an overview of the Somaliland context and its political economy, discussing its hybrid governance system and the role of a range of state and non-state actors. We then analyze in greater detail the impact of local corporate actors in various stages of peace-building and state formation in Somaliland. A third section examines the impact of foreign engagement in Somaliland through the exploration of the case of the Berbera port operations. We highlight two main findings: first, understanding the role of corporate actors in post-war peace-building and state formation requires a nuanced analysis that moves beyond simplistic observations on business engagements as either contributing to ‘peace’ or ‘war’. Second, any argument on the potential of international corporate actors to contribute to peace-building in post-war contexts needs to contextualize their contributions in light of the culture and power dynamics in the political economy of a country. In this analysis, the political and economic roles of local business elites are central.
The article is based on fieldwork and data collection in Hargeisa, Berbera, Lasanod, and Erigavo from October 2015 to August 2016. We conducted 50 semi-structured interviews with Somali and non-Somali stakeholders in the private sector, government, and civil society. These included small, medium, and large business owners, individuals working in the finance sector (bank managers, hawala owners), investors in infrastructure (including port, roads, airport), local and national government representatives, traditional elders, members of civil society and academics. We also held five focus group discussions focusing specifically on the cases of infrastructure projects and on the Berbera port. These focus groups included development practitioners, elders, port laborers, and categories of citizens in Berbera (youth, women).
Through these interviews and focus group discussions, we gained an understanding of the main sources of political and economic tension in Somaliland, their main causes, and the actors involved. We learned about the regional and historical dimensions of such conflicts and explored how local and foreign actors impacted them differently. During the research, it was important for us to understand the different perspectives of the different stakeholders and to zoom into a number of particularly relevant cases of corporate investment and conflict, including Berbera port, Hargeisa airport, and a range of financial institutions and import businesses. The analysis we present in this article is based on a close examination of themes in the data that we established using NVivo qualitative software. We studied the data through a number of core themes, such as aspects related to the Somaliland context (e.g. state-building, causes and consequences of conflict, legal frameworks, and the impact that Somaliland’s unrecognized independence has on its political-economy) and to the varied impacts of business in fragile states (including employment, taxation, Corporate Social Responsibility (CSR) and corruption). We also coded data by stakeholder category (Somali business, foreign business, local government, national government, clan, diaspora, foreign donors). Finally, we refined our coding on two sectors: infrastructure (including roads, ports, and airports) and finances (including banking, remittances, and mobile banking).
Our analysis in this article is based on our extensive data collection and subsequent analysis. Our description of the particular case we examine – namely the Berbera port – draws on four focus group interviews and four singular interviews in Berbera, as well as 12 interviews in Hargeisa that included a discussion of the situation of the Berbera port with central stakeholders. Where we quote specific individuals, we do so because they represent insights that reflect larger patterns across our interviews particularly well.
The making of Somaliland: hybrid governance and economic progress
The clan system has been central to Somaliland’s process of state formation. Somaliland is inhabited by three main clan families – the Isaq, Dir (mainly Gudabursi and Ise) and Harti Darod (Dhulbahante and Warsangeli), of which the Isaq are the majority, accounting for 70 percent of Somaliland’s population.1010. Huliaras, ‘Viability of Somaliland’; and Phillips, ‘Political Settlements and State Formation’.View all notes These clan families agreed on cessation of hostilities and peaceful co-existence during a series of clan conferences, including Burao (1991), Sheikh (1992), Boroma (1993) and Hargeisa (1996–1997). The conferences led to the formation of central-state institutions.1111. Bradbury et al., ‘Somaliland: Choosing Politics over Violence’; Eubank, ‘Taxation, Political Accountability, and Foreign Aid’; and Madar, Duco Qabe.View all notes On 18 May 1991, during the Burao conference, elders representing the major clans in Somaliland unilaterally declared independence from the rest of Somalia, revoking the Act of Union with Somalia from 1960. This unilateral declaration of independence has never been recognized by any state, though Somaliland has achieved a ‘quasi-judicial sovereignty where it has low-key bilateral relations with a range of states, and informal links with regional political organisations.1212. Jhazbhay, ‘Somaliland: Africa’s Best Kept Secret’.View all notes
From 1991 to 1994, Somaliland experienced several episodes of civil war, mainly triggered by contestation over economic facilities such as ports and airports.1313. Balthasar, ‘Somaliland’s Best Kept Secret’; and Hoehne, Between Somaliland and Puntland.View all notes Attempts at state formation were an important cause of some of these conflicts, as the successive governments attempted to obtain much-needed resources to perform state functions and build state institutions. As Boege et al. remind us, state-building is always an extremely political process that is likely to lead to conflict as existing distributions of power are contested.1414. Boege et al., ‘On Hybrid Political Orders’.View all notes Similar struggles were fought in the process of state-formation in Somaliland in the 1990s. In 1992, for example, the government attempted to take control of Berbera port as a means to secure funding for a national army, but failed as the port was under control of Isa Musse, an Isaq clan that was not well-represented in the government at the time.1515. Balthasar, ‘Somaliland’s Best Kept Secret’; and Eubank, ‘Taxation, Political Accountability, and Foreign Aid’.View all notes The 1994 war similarly was triggered by president Egal attempting to take control of Hargeisa airport from the Edagalle clan.1616. Ganderup, ‘Enter and Exit’.View all notes These and similar events, mostly involving Berbera port and Hargeisa airport, centered around different sub-clans within the Isaq clan fighting for control over resources and claiming they were not well-represented politically.1717. Balthasar, ‘Somaliland’s Best Kept Secret’; and Bradbury et al., ‘Somaliland: Choosing Politics over Violence’.View all notes
Several analysts have argued that these series of conflicts were averted in a ‘bottom-up’ manner through the clan conferences, which were brokered by the clan elders and backed by businessmen, religious leaders, civil society and scholars – in Somaliland and abroad.1818. Bradbury et al., ‘Somaliland: Choosing Politics over Violence’; Hansen and Bradbury, ‘Somaliland: A New Democracy’; and Renders and Terlinden, ‘Negotiating Statehood’.View all notes Through the compromises that were struck during these conferences, the government authorities were usually provided with access to increased resources – through permission to tax imports or by direct support from the business elite. At the same time, new state institutions were put in place that aimed at distributing power between a greater number of actors and clans. As Bradbury et al. argue, these institutional outcomes were important for how issues of representation and power-sharing were dealt with in Somaliland.1919. Bradbury et al., ‘Somaliland: Choosing Politics over Violence’.View all notes For example, during the 1993 Borama conference, the role of the clan elders was formalized through the formation of the House of Guurti. The Guurti’s main responsibility was to promote peace by resolving clan conflicts and keeping clan militia in check.
Since the last national reconciliation conference in Hargeisa from September 1996 to February 1997, Somaliland has experienced major political and economic changes, including considerable economic growth and a transition from clan-based representation to a multiparty democracy.2020. Hansen and Bradbury, ‘Somaliland: A New Democracy’.View all notes Due to the clan conferences, the plural and hybrid nature of Somaliland’s governance system is amongst the most formalized in the world as through the Guurti, clan is recognized as a key organizing principle in society. Kraushaar and Lambach coin the concept of Hybrid Political Order to refer to a state model where ‘formal and informal elements co-exist, overlap and intertwine’.2121. Kraushaar and Lambach, ‘Hybrid Political Orders’, 1.View all notes So hybridity is not just a matter of states operating ‘alongside “informal” and other “non-state” forms of organization in the exercise of public authority and service provision’2222. Meagher, ‘Strength of Weak States’, 1075 [emphasis added].View all notes but one where formal and informal institutions and implementers are intertwined. Boege et al. highlight Somaliland as a primary example of hybrid governance.2323. Boege et al., ‘On Hybrid Political Orders’.View all notes Renders and Terlinden nuance this picture by showing how, whereas hybrid elements originally enabled the state to adapt to local needs and engage in productive forms of negotiation, this positive aspect was not maintained overtime.2424. Renders and Terlinden, ‘Negotiating Statehood’.View all notes
Somaliland’s post-conflict economic recovery was led by the private sector, as the Somaliland government did not have the necessary internal resources to carry out basic governance functions. The government contribution of the gross domestic product in Somaliland amounts to under 10 percent.2525. World Bank Group, Somaliland’s Private Sector.View all notes And because its independence has not been recognized internationally, it has never received direct international financial assistance.2626. Eubank, ‘Taxation, Political Accountability, and Foreign Aid’.View all notes Livestock, telecommunications, and remittances are three key pillars of the economy2727. Azam, ‘Transport Infrastructure and the Road’; Hagmann and Stepputat, ‘Corridors of Trade and Power’; and Huliaras, ‘Viability of Somaliland’.View all notes and they are all in the hands of the private sector. The first sector depends on trade with the Gulf states, whereas the last two sectors heavily depend on the large community of Somalis abroad and the extensive transnational exchanges that this diaspora engages in.2828. Hammond et al., ‘Cash and Compassion’; Horst, ‘Transnational Political Engagements’; Horst, ‘Making a Difference in Mogadishu’; and Lindley, The Early Morning Phonecall.View all notes
Large businesses in Somaliland can broadly be categorized into two:2929. Here, we exclude the informal economic sector around livestock.View all notes first, a handful of wealthy families who were in business before 1991 and own the largest companies in Somaliland at present. Most of these business tycoons were businessmen in Djibouti before the civil war broke out in 1988 in the Northern Somali regions, now Somaliland, while others retreated to Djibouti during the civil war. Both groups relocated to Somaliland in the early 1990s after Egal became president. They dominate the import, financial, and telecommunication sectors and mainly hail from two Isaq clans: Sa’ad Muse and Habar Jelo. Second, a class of medium-size and large enterprise businessmen emerged after 1991, many of whom hold conservative religious views (Ikhwan and Salafia). These enterprises are mainly shareholder businesses in the import, telecommunication, energy, and financial sectors of the economy. The Salafi political influence is largely mediated through their economic success.3030. Marchal and Sheikh, ‘Salafism in Somalia’.View all notes The Ikhwan and Salafi-owned businesses thrived without the support of government institutions and see the development of strong state institutions and commercial banks as a threat to their economic hegemony.3131. Author interviews with civil society member, Hargeisa, June 2016; and Author interview with lawyer, Hargeisa, May 2016.View all notes They are shareholder companies that are owned by businessmen from Somaliland, Puntland, and Southern Somalia, united by their religious conservative views. However, such shareholder companies are still labeled and identified with the clan of their top leadership. As a consequence, local elders, policy-makers, and politicians protect these companies, even against state regulations.
A number of these businesses have offices outside Somaliland, in order to avoid the challenges they would encounter inside the country due to the lack of recognition and the limited functionality of the Somaliland state. Most commonly, foreign offices are located in the United Arab Emirates (UAE) and Djibouti and the top leadership of such companies carry foreign passports but are from Somaliland. A number of businesses, including Dahabshil, OMINCO, and Hass Petroleum, are multinational corporations with Somali ownership. While we will discuss the role and impact of domestic and foreign corporate actors in the next two sections, we note that not all multinational corporations in Somaliland are foreign-owned, and not all local businesses operate from within Somaliland.
The impact of local private sector actors on peace-building and state formation
The B4P literature identifies a range of ways in which businesses can improve peace-building and state-formation functions related to the provision of security, representation, and social services. Job creation is seen as an important factor, as people who may have otherwise fought in conflict become employed and thus invested in peaceful conditions, whereas employment can also prevent the dehumanization of ‘the enemy’.3232. Fort and Shipani, ‘An Action Plan for Business’; and Gerson, ‘Peace Building’.View all notes Furthermore, there is a sense that it is in the self-interest of businesses to operate in peaceful conditions as trade across borders lessens the likelihood of interstate war.3333. Fort and Shipani, ‘An Action Plan for Business’.View all notes This might lead to active engagement of the business community in negotiations to prevent violent conflict. Finally, businesses need certain institutions to be able to operate, including for example capital-market institutions, which can further stimulate economic growth and an interest in peace.3434. Gerson, ‘Peace Building’.View all notes
While these mechanisms may indeed illustrate a potential impact of business on state-formation and peace-building, the introduction of new resources in resource-poor societies has the potential of triggering further conflict. As such, the actual impact of private sector actors needs to be studied in context, rather than assumed. Thus, we ask: what precise role have domestic business elites played in Somaliland in the provision of security, social services, and representation?
Since 1991, the business community has provided the national government with a proportion of its funding and played a central role in state formation. For example, in 1999, of a US$ 20 million budget, 95 percent was locally mobilized, much of it from customs through Berbera port and Hargeisa airport.3535. Eubank, ‘Taxation, Political Accountability, and Foreign Aid’.View all notes On the national level, the bulk of the budget was spent on security.3636. Huliaras, ‘Viability of Somaliland’.View all notes In 2010, when a new government came into office and found the treasury empty, it received ‘a loan of US$ 3 million from key local businessmen and corporates including Telesom, Dahabshil, Ali Warabe, Jama Omar Saeed, Mohamed Aw Saeed and Mohamed “ina” Dable’.3737. Phillips, ‘Political Settlements and State Formation’, 64.View all notes During the same period, Telesom renovated the presidential palace.3838. Author interview with development practitioner, Hargeisa, August 2016.View all notes
Part of this heavy reliance on local business can be explained by the consequences of Somaliland’s lack of recognition combined with a lack of natural resource exploitation. At the same time, the entrepreneurial spirit of the business elite, in conjunction with a laissez-faire economy after the civil war, has allowed local business to thrive. It is through private initiative that electricity companies were established, one of the cheapest telephone systems in Africa was made available, advanced mobile money transfer systems were created and several private airlines serving East Africa and the Gulf were established. These private actors have access to resources that were vital in the fragile process of building a state, in a situation where access to public funds or international financial support was very scarce. Using these resources to invest in the post-war Somaliland economy, the private sector gained further economic strength. Our informants suggest that another reason for the current situation lies in the absent sense of national interest on the part of civil servants, leading them to favor the private sector because of family connections or personal gains:
If a civil servant in public office has a private interest and because of this interest will provide the private sector with favors such as tax exception, the government should be blamed. The solution to these asymmetrical power relations is to separate private and public issues and to educate civil servants to put national interests first: to educate them that their career prosperity depends on the development of the public sector and not the development of the private sector.3939. Author interview with senior manager of private bank, Hargeisa, July 2016.View all notes
The state reciprocates private sector contributions and loans by limiting regulations perceived to be in the detriment of local business owners, and such policies have closed the Somaliland market for all but a handful of powerful private companies. Throughout the 1990s, the Somaliland government-protected import businesses from foreign competitors by barring foreigners from the profitable import of consumer goods.4040. Author interview with Somaliland government officer, Nairobi, November 2016.View all notes This marked the beginning of de facto protectionism in Somaliland and since this time local businessmen have successfully lobbied against regulations that would restrict their own operations. In cases where their lobbying with policy-makers is not successful, private corporations use other non-state power-holders such as clan elders and religious leaders to protect their businesses from competition. For example, in 2010, the government wanted to regulate interconnection between the two largest telecommunication providers, Telesom and Somtel, but Telesom lobbied against the regulation. While they originally were unsuccessful to influence the state, they used traditional elders who successfully lobbied against the regulation. The elders and other local power-holders believed that by enabling interconnection between telecommunications companies, the government was favoring Somtel, which was owned by a businessman from the president’s clan. To this date, customers of the two major telecommunication providers in Somaliland cannot make phone calls to each other.
From the early 1990s, the Somaliland state-provided businessmen with trade permits and tax exemptions, enabling them to make huge fortunes.4141. Balthasar, ‘Somaliland’s Best Kept Secret’; Madar, Duco Qabe; and Renders and Terlinden, ‘Negotiating Statehood’.View all notes Major corporates in Somaliland today are tax-exempted or insufficiently taxed. For example, financial and telecommunication companies are not paying sufficient taxes because, inter alia, there are no official figures as to the amount of revenues these companies generate.4242. Author interview with lawyer, Hargeisa, May 2016; also see Phillips, ‘Political Settlements and State Formation’.View all notes
One key informant argued that ‘if five major local corporates paid their tax obligations fully, the Somaliland budget would have reached its billion-dollar mark, whereas now it is below 500 million’.4343. Author interview with international development practitioner, Hargeisa, April 2016.View all notes While these companies have made substantial contributions to peace-building, direct conflict prevention, and philanthropic contributions, key government authorities disagree on whether or not to tax these companies properly. Some argue that these companies have made substantial informal contributions to development already, whereas others argue for the importance for Somaliland to increase its revenues through proper taxation. At present, it is, in particular, those with the ‘resources, networks and lobbying capabilities necessary to exempt full taxes’ who evade paying taxes the most.4444. Tellander and Hassan, ‘Accountability in the Taxation System’, 2.View all notes In 2011, the Somaliland budget was estimated to be around US$ 81 million, while the combined revenue of Telesom and Dahabshil was estimated to be US$ 66 million. As an illustration, Telesom paid US$ 500,000 in taxes, a figure that is believed to be well below what it should have paid.4545. Phillips, ‘Political Settlements and State Formation’.View all notes
Local corporate contributions to peace-building and conflict prevention
In the early 1990s, key businessmen from the Habar Awal sub-clan of Isaq returned to Somaliland from Djibouti, most of them having well-established businesses in Djibouti, while some had moved to Djibouti with their business during the 1988 war in Somalia. These business tycoons influenced peace-building and state formation in Somaliland in several ways. The election of President Egal in 1993 partly had to do with the fact that he was from the Habar Awal, from which the main business community hailed.4646. Balthasar, ‘Somaliland’s Best Kept Secret’.View all notes Egal’s peace-making and state-formation campaign was financed by money from the Berbera port and Habar Awal businessmen.
After the election of Egal in Borama as President of Somaliland by clan delegates, he prioritized the collection of revenues to finance his military operations against opposing clan militias.4747. Madar, Duco Qabe; and Renders and Terlinden, ‘Negotiating Statehood’.View all notes Government resources increased, assisted by the president’s good relations with the business community. Egal called on prominent businessmen to provide his government with loans, which were to be paid back through tax exemptions. For example, the business community provided the government with a loan of US$ 7 million, which compared to tax revenues at the time of US$ 20–30 million. The first cargo ship to Somaliland after the 1991 civil war arrived after a business tycoon made a huge cash deposit as insurance, and in 1994, business tycoons gave a loan of five million dollars to enable the state to print new Somaliland currency.4848. Madar, Duco Qabe.View all notes The financial loans and tax revenues President Egal received at the time were used to pay salaries to government troops and other militias and to ‘buy peace’ from elders and politicians by giving them financial handouts and other incentives. As argued by Renders and Terlinden, the practice of ‘buying peace’ ‘reinforced the establishment of the patronage system in which handouts subsequently served as a primary source of legitimacy for statehood’.4949. Renders and Terlinden, ‘Negotiating Statehood’, 732.View all notes These businessmen gained from the provisions of such loans through tax exemptions and by getting a monopoly on trade between Berbera, Hargeisa, Ethiopia, and Djibouti5050. Bradbury, Becoming Somaliland.View all notes creating tools for long-term market control. Zierau argues that the involvement of business elites from Habar Awal eventually created a state whose power they can easily control.5151. Zierau, ‘State Building without Sovereignty’.View all notes
Through the Habar Awal clan, President Egal also got access to key economic resources in Somaliland. He established the Berbera Port Authority in 1993, at a time when Kismayo and Mogadishu ports were closed due to the civil war. President Egal used the resources gained from the ports for Disarmament, Demobilisation and Reintegration (DDR) – inter alia through civil service recruitment into the security forces.5252. Ciabarri, ‘Trade, Lineages, Inequalities’.View all notes He focused on removing militias and roadblocks, especially from main economic points.5353. Balthasar, ‘Somaliland’s Best Kept Secret’.View all notes According to analysts, the business community also played an active direct role in demobilisation5454. Bulhan, Somaliland in Ruin and Renewal.View all notes and directly supported a new government army and police force financially.5555. Bradbury, Becoming Somaliland.View all notes
Furthermore, the clan conferences that were central to peace-building efforts throughout the 1990s were largely supported by the business community. The outcome of such locally financed conferences thus unsurprisingly included provisions that took care of local commercial interests. Eubank explains how a number of the agreements between local clans clearly address civil issues like freedom of movement, water and grazing rights, and private property definitions;5656. Eubank, ‘Taxation, Political Accountability, and Foreign Aid’.View all notes elements that are central in the pastoral economy and important for Somaliland businessmen.
Apart from the obvious political and business interests that domestic corporate actors have in providing financial support and thus gaining political influence, there is another central reason for why local businessmen have been so involved in political processes. In Somaliland, accountability is collective rather than individual, meaning that all adult male members are punishable for crimes committed by their kinsmen.5757. Horst et al., Dimensions of Accountability in Somaliland.View all notes Businessmen pay a particularly heavy brunt of compensation arrangements for death caused by clan members (diya payments), and thus have a keen interest in mediation and state-formation processes. Furthermore, during violent conflict, clan militias take revenge for the key clansmen that were murdered by targeting key people from the rivalry clan or they target businesses owned by that clan. Businessmen are thus key targets during violent conflict, and amongst those who risk losing most.
Our research shows that also in more recent years, private companies are playing an increasingly central role in resolving high-profile political and investment disputes. For example, in a 2009 term extension stalemate between UDUP and Kulmiye parties, this conflict was inter alia mediated by businessmen. In 2015 during a political dispute within the Kulmiye ruling party, prominent businessmen from Sa’ad Muse (a sub-clan of Habar Awal) got involved in the mediation. And in 2016 when a clan war erupted in Sool region, Dahabshil and Telesom companies financially contributed to peace efforts, even though the families behind these companies are not related with the conflicting clans by blood and thus have no direct obligation to do so.5858. Author interview with development practitioner, Hargeisa, August 2016.View all notes
While local business has significantly profited from its close support of various governments, there have also been cases when businessmen chose to forgo potential business opportunities when it became clear that such opportunities threatened peace. For example, in 2012, the Somaliland government privatized the Berbera cement factory and gave Dahabshil 51 percent of its shares, a decision that local elders and businessmen vehemently opposed. After a standoff and the real possibility of violent conflict, Dahabshil froze its plans for the cement factory.5959. Author interview with development practitioner, Hargeisa, August 2016; Author interview with religious leader, Berbera, July 2016.View all notes
The impact of foreign multinationals on peace and state formation
The political power of local private corporations created a closed market where only a handful of powerful local businesses exist and where foreign ventures have limited access to the market. For example, the 2016 Commercial Banks Bill, which would have enabled foreign commercial banks to operate in Somaliland, failed after religious leaders in the mosques cursed MPs who would vote in favor of the bill. This was seen by ordinary people as a move by religious leaders to protect Islamic banks. It effectively reduces government control over the financial sector. An employee of the Central Bank of Somaliland argued that financial institutions operate without government oversight as the Central Bank is unable to monitor their operations and revenues:
Private banks do not like to share their information with the Central Bank. If we ask private banks their balance sheets they will never give them to us, fearing that we may misuse the information or pass it on to unauthorized hands. This affects the operations of the Central Bank.6060. Author interview with Central Bank manager, Hargeisa, May 2016.View all notes
The political power of the business elite and their successful lobbying for an unregulated market in which few companies dominate thus was a significant precipitating factor towards economic stagnation in Somaliland. There are currently very few foreign MNCs operating in Somaliland, the most notable of which are Coca-Cola, Western Union, and DHL. These have managed to establish themselves in Somaliland through special arrangements with Somaliland entrepreneurs.6161. Musa and Horst, ‘Role of Business in Maintaining Peace’.View all notes
Our data show that this is a highly contested issue. For example, many interviewees believed that the Somaliland economy needs to open up to foreign companies that can compete with the local giants. According to them, foreign investment is necessary in Somaliland to improve the quality and choice of products and services and boost the local economy by bringing in capital, job opportunities, and other resources. However, other research participants argued that the Somaliland context is still a delicate one and that, to keep the peace, foreign investors should be kept out. According to these individuals, local power-holders give precedence to pragmatic approaches and informal governance over the internationally supported formal governance and decision-making structures foreign corporates adhere to, which may disrupt Somaliland’s fragile peace. The example of DP World illustrates these contradictions.6262. Jacobs and Hall, ‘What Conditions Supply Chain Strategies?’. Note that Jacobs and Hall illustrate the blurred lines between private and public in Dubai.View all notes
Foreign investment in Berbera port: DP World
Berbera is the main official seaport of Somaliland, which made it a strategic town historically attractive to world powers dating from the Ottoman Empire. Berbera hosts several key infrastructures including the Berbera cement factory, Berbera oil reservoirs, and one of the longest airport runways in Africa. It is an area with concentrated resources, which are thus easy to cultivate but also contested. Competition to control Berbera triggered the 1991–1993 civil war in Somaliland after Somaliland’s first government aimed to take control of the port.6363. Madar, Duco Qabe.View all notes Egal, Somaliland’s second president, hailed from Berbera and used the port as leverage for peace and state formation. He demobilized clan militias and their leaders by giving them jobs in the port facility.6464. Author interview with religious leader, Berbera, July 2016.View all notes He furthermore gave business tycoons access to use the port in exchange of loans. Since then, Berbera port remained the principal source of revenue for the state, accounting for over 70 percent of state revenues.6565. Author interview with senior Hargeisa Airport official, Hargeisa, January 2016.View all notes
Berbera has been the center of a series of recent business-related conflicts in Somaliland. In 2012, the Somaliland government privatized the Berbera cement factory. Local clan elders, religious leaders, politicians, and businessmen resisted after it emerged that the government had given more than a 51 percent share to Dahabshil company, owned by a businessman from the clan of the president. Local power-holders demanded an equal share.6666. Author interview with religious leader, Berbera, July 2016.View all notes In 2015, the Somaliland government privatized Berbera electricity, a move that enraged the local residents because of the lack of transparency in the process and suspicions that the company that took over was owned by people close to the president. In 2015, the privatization of the Berbera oil reservoirs caused an armed conflict as well as a fistfight in parliament between the chairman and his deputy.6767. https://www.xaysimo.com/daawo-gacan-ka-hadal-saaka-dhexmaray-gudoomiye-cirro-iyo-baashe-maxamed-cade/View all notes Clan dynamics are central to the politics surrounding Berbera and the port. There are three Isaq sub-clans who compete to insert their dominance in the town, while non-Isaq clans in Somaliland are disgruntled over the fact that other ports in Somaliland are not used. They argue that this is a deliberate strategy by which Isaq clans use Berbera port to dominate and control other clans.6868. Author interview with religious leader, Berbera, July 2016.View all notes Clan dynamics affect every single political and business decision, and foreign MNCs investments are clearly also affected by such clan dynamics.
DP World, UAE’s leading global port operator, secured a 30-year concession for the port of Berbera in 2016. In the agreement, DP World pledges investments of US$ 442 million which include the construction of a 400-meter quay extension and 250,000 square meter yard extension, gantry cranes, and reach stackers to handle containers and cargo. In a public document on Berbera port, DP World states that the Berbera port construction is a breakthrough for Ethiopia, as it gives the region’s largest landlocked economy access to the sea.6969. DP World, ‘DP World Wins 30-Year Concession’.View all notes
Being the first international company that committed long-term investment to Somaliland since 1991, DP World’s investment in Somaliland provides an interesting opportunity to study how the involvement of MNCs in post-war Somaliland may affect peace in the country. Key positive contributions that emerged from our data were that investment challenged the existing balance in Somaliland’s hybrid political order, improved state legitimacy and has the potential of enabling Somaliland to break its post-war economic stagnation. On the other hand, as we will shortly show, DP World’s involvement also carried several problematic outcomes, including changing relations among peace-contributing local power-holders, an outward shift of accountability, and importation of geopolitical dynamics to the local context.
Hybrid governance in Somaliland manifests itself in everyday life on the local level. In the case of Berbera port, since 1994 the port management has remained with one local clan while the majority of port laborers and leadership were from the same clan.7070. Author interviews, Berbera, July 2016.View all notes This arrangement was based on government authorities buying trust and peace from local clan elders, religious leaders, politicians, and businessmen after the war. The leadership of key economic infrastructures such as ports and airports stayed with dominant clans in the area. Furthermore, local power-holders like businessmen and elders have always been consulted on state decisions in their respective localities. If the state failed to consult with non-state actors, they proved to be capable of inserting their influence. The seismic operations related to oil explorations in Togdher region as well as the privatization of the Berbera cement factory were both halted after local elders and businessmen resisted state decisions.7171. Author interview with development practitioner, Hargeisa, August 2016. See also Musa and Horst, ‘The Role of Business in Maintaining Peace’.View all notes In both cases, operations later resumed after the state involved local power-holders and enabled them to profit from local resources such as infrastructure and natural resources. In Somaliland, state institutions remain weak, which affects their legitimacy. However, the state seeks legitimacy through its consultation with and involvement of non-state local power-holders such as religious leaders, elders, and key businessmen.
Somaliland bypassed non-state local actors in its agreement with DP World, which challenged the fragile existing balance of the country’s post-war hybrid governance system. To show that they are key stakeholders, local power-holders opposed DP World’s agreement and expressed their position through daily news conferences. In Somaliland, in the absence of formal complaint procedures, news conferences are a key way to address grievances. Yet since they had to address their grievances to an external actor, the elders proceeded with press releases to DP World in Arabic and letters to DP World offices in Dubai demanding transparency on the concession agreement with the government.7272. Focus group discussions with Berbera youth and elders, July 2016.View all notes In contrast to Western MNCs, which are often considered to be more sensitive to pressure from the community,7373. Hansen, ‘Civil War Economies’.View all notes DP World did not bow to the pressure from local power-holders. While local firms care about their business sustainability in the local context, the question arises whether MNCs like DP World are concerned with the impact of their operations on peace in the local context and if they do not, whether local power-holders can do anything to prevent their operations.
This challenge to the hybrid governance model is seen as a positive development by those who do not benefit from it, such as youth. In a focus group discussion in Berbera, young residents explained their perspectives on the arrival of DP World in the country. One young man articulated a commonly felt claim in the group:
we know that Somaliland is a young country that is not capable of creating jobs for the youth. [ … ] If more international investors arrived in Somaliland, they would recruit on a skill and merit basis. Then, the current culture where educated youth need elders who can fix them a job, or where those who don’t have elders will stay unemployed, would stop.7474. Focus group discussion with youth in Berbera, July 2016.View all notes
Similarly, a laborer in Berbera believed that if more foreign firms come, ‘the port staff will be recruited on skill and merit, rather than the current employment system which is by clan’.7575. Author interview with labourer, Berbera, July 2016.View all notes
Another proposed advantage of investment is that the agreement between DP World and Somaliland improves accountability. Since the 1990s, a portion of Berbera revenues went directly to the President’s office without going through responsible authorities. One development practitioner we interviewed argued that DP World’s presence would improve this situation:
There are two important revenues from the port: custom revenues and service fees. The custom revenues were accounted for and went to the Ministry of Finance. The service revenues from cranes, forklifts, reach stackers, tractor heads, trailers, parking fees, and such directly went to the Office of the President without going through the accounting procedure. These are the revenues that DP World will manage and account for.7676. Follow-up interview with development practitioner, Hargeisa, November 2016.View all notes
If the DP World agreement were to be fully implemented, the improvements to the port have the potential of connecting Somaliland’s fragile post-war economy to both Ethiopia and the UAE, seen in Somaliland as rising economic giants and key political players. In support, UAE agreed to loosen its visa restrictions on Somaliland travelers,7777. Cannon and Rossiter, ‘Ethiopia, Berbera Port and the Shifting Balance of Power’.View all notes an indication that DP World’s engagement may have direct and positive influences upon Somaliland’s economic and political isolation.
Challenges involved in foreign investment in the port
Despite these real and potential positive contributions, there are also undesirable impacts on Somaliland’s stability. Many research participants questioned the lack of transparency in the DP World agreement, suspecting that members of the political and economic elite in Somaliland have vested interests in the deal. They feared this may compromise the government’s level of accountability. For example, major resistance came from the local dominant clan, as expressed by a religious leader in Berbera:
There are rumors that people from other clans who relate to the family of the president have vested interests in the DP World agreement and this is what makes the local people irritated. You hear that 65 percent of the port revenues will go to DP World and 35 percent to Somaliland, but then there are rumors that not all the 65 percent will go to DP World but that there are undercover people who will get a portion of this percentage.7878. Author interview with religious leader, Berbera, July 2016.View all notes
This concern was justified nine months after the parliament voted in favor of the agreement when it was revealed that Ethiopia holds a 19 percent stake and that the agreement was not bipartite between Somaliland and UAE, but tripartite between Somaliland, UAE, and Ethiopia.7979. Horn Affairs, ‘Ethiopia Buys 19% Stake in Berbera Port’.View all notes Identification of MNCs with local power-holders has the risk of jeopardizing peace in Somaliland’s post-war context as MNCs can alter fragile balances in post-war power dynamics among local power-holders. As a clan elder from the local dominant clan in Berbera argues,
Local people resisted the 1991 government attempt to take control of the port because we suspected that the government wore the clan shirt to take over the port. Now we suspect that the government is using DP World as a cover-up to give our resources to rival clans in the region.8080. Author interview with elder, Berbera, July 2016.View all notes
The hybrid system in Somaliland has been based on the accountability of the state to non-state stakeholders that the state relied on for revenues and maintaining peace. DP World has emerged as a new stakeholder in Somaliland that is more connected to the national government and has great resources to draw on. This has affected arrangements between local stakeholders in Somaliland and creates a shift from internal to external accountability: from being accountable to internal stakeholders including clan leaders and businessmen, the state has now moved to being accountable to foreign investors. In 2015, when local businessmen complained about the increase in port handling fees, after five days of stand-off the state reversed its decision since it has been dependent on businessmen for revenues. This did not happen in 2017 when businessmen complained about the slowdown of Berbera port operations after DP World took over. Some of the businessmen shifted to neighboring ports after the state failed to address their grievances.8181. Waaheen Media Group, ‘Ganacsatada Somaliland’.View all notes
The arrival of DP World in Somaliland marked a change in regional geopolitics. For example, Djibouti has been uneasy about DP World investment in Berbera and UAE’s increasing presence in the region. Djibouti had accused DP World of making illegal payments to the former head of Djibouti’s ports free zone authority to win a concession to operate a container terminal. Djibouti was also concerned about the UAE naval base that was set up in Berbera only a few months after Somaliland and DP World signed the agreement.8282. The Economist, ‘Ambitious United Arab Emirates’.View all notes UAE saw Berbera as a strategic location to enhance its war against Houthis in Yemen. Furthermore, DP World investment in Berbera was brokered by Ethiopia with the agenda to expand and reinforce its regional hegemony.8383. Cannon and Rossiter, ‘Ethiopia, Berbera Port and the Shifting Balance of Power’.View all notes The limited external intervention in Somaliland in the past has buttressed the effort of local actors. DP World’s investment in Berbera and the UAE military base that followed may have disturbed this balance.
In this article, we have shown that understanding the role of corporate actors in post-war peace-building and state formation requires a nuanced analysis of the complex ways in which these actors can have both positive and negative effects. We have argued that any argument on the potential contributions of international corporate actors in post-war contexts needs to be contextualized within an analysis of the political and economic roles of local business elites during and after violent conflict. This is particularly the case in hybrid political orders like the one in Somaliland.
Somaliland in practice operates as a hybrid political order where a range of state and non-state entities are connected and intertwined in complex ways. Local business elites have impacted state formation after war by lobbying against a range of regulations, providing the government with loans and contributions rather than paying sufficient taxes, and by hindering the development of sound financial institutions. They have also played a role in preventing or resolving violent conflict at crucial stages in Somaliland’s recent history. Yet, the success of lobbying activities has led to de facto protectionism, limiting access by foreign ventures to the Somaliland market. While such protectionism may have negatively impacted economic development and growth opportunities, the example of recent engagement by DP World in the Berbera port suggests a more complex picture.
On the one hand, DP World’s port investment has challenged the delicate balance between a range of formal and informal stakeholders in Somaliland’s post-war hybrid governance and may potentially improve the country’s economic stagnation, which has been rejoiced by many Somalilanders. On the other hand, DP World’s presence and activities risk importing foreign power dynamics into the local context. Further, DP World’s activities risk escalating local tensions by creating power imbalances between clans. As we have argued, the Somaliland state has become less concerned with internal accountability to domestic non-state actors and rather focuses on external accountability towards foreign businesses and governments. This threatens the fragile balance currently existing where different power-holders in Somaliland hold each other in check and power balances between clans are delicately managed through Somaliland’s hybrid political order.
Somaliland’s lack of formal international recognition discourages foreign investment and constricts trading, has led to minimal external support for peace-building and political reconstruction and until recently meant no bilateral donor assistance.8484. Bradbury et al., ‘Somaliland: Choosing Politics over Violence’.View all notes However, as a consequence the government has been more accountable to a range of local power-holders as resources cannot simply be taken by force without risking renewed violent conflict. The impact of foreign investors operating in Somaliland cannot be fully predicted just yet, but our analysis of DP World’s operations at Berbera port tells a cautionary tale of the complex dynamics that come into play when foreign business actors engage in post-war contexts. Local stakeholders – including business elite, politicians, clan elders, and religious leaders – had to renegotiate the delicate balance of a hybrid political order in light of DP World’s substantial business investments and interests, which introduced new institutions and actors and risks of renewed conflict. The Somaliland case teaches us that foreign business investment in fragile contexts is certainly not the magic bullet that the B4P paradigm presents it to be.
The authors acknowledge research funding from the project Conflict of Interest? Business for Peace in Volatile Environments funded by the Research Council of Norway. Ahmed M. Musa also acknowledges funding from the Danida/FFU-funded research project GOVSEA. The authors would like to thank the editors of the special issue, Jason Miklian and Peer Schouten.
No potential conflict of interest was reported by the authors.
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