Last week, we looked at investing in Somaliland, whose economy is characterized by its informality, and entrepreneurship. This week, we delve into different sectors, starting with the telecommunications market, which is booming, but still facing many challenges.
Sitting at a meeting with business leaders, it is common to see each person with two phones (one for Telesom and one for SomTel). The telecommunications market is completely unregulated. Accordingly, Telesom users cannot contact SomTel users unless they keep a second SIM card for the SomTel or keep a second phone with a SomTel SIM card. Yes, this situation seems a relic of the early mobile phone days and a sad manifestation of bad government oversight. Such lack of cohesion in the telecommunications market and a heavily underdeveloped broadband system frustrate the unaware traveler and investor.
At the same time, the change in Somaliland telecommunications cannot be understated. The airport in Berbera has wireless internet, often a rare commodity in African airports. In the eyes of local NGO workers, the Somaliland internet is one of the fastest in the Horn of Africa. Such a compliment only indicates a small advantage for Somaliland heading towards the finish line but does not say much for the current quality. However, given Somcable’s recent deal to offer FTTA (fiber-through-the-air connectivity) access to subscribers, internet speeds should pick up. Local Somalians talk of great expectations with this cable, specifically the potential mobile phone interconnectivity and the elimination of the two SIM card lifestyle.
Mobile Banking Before Bricks and Mortar
To further understand the growing strength of the Somaliland telecommunications industry, consider the banking industry in Somaliland. Somaliland is the epitome of the African informal market. You can ultimately pay with Ethiopian Birr, Euros, U.S. Dollars and any other exchangeable currency while in Somaliland. Local money changers will sit on the side of street with stacks of local currency ready to exchange with passersby. As one visiting British tourist stated it, this type of easy on-the-street bartering could not exist in most Western countries where crime would likely wipe out such culture. Yet, this is life in Somaliland.
More surprising to the average observer in Somaliland is that most transactions require no cash. Somaliland has completely lept over the brick and mortar stage of banking. Most transactions can be accomplished through Zaad – a money transfer system provided through Telesom. Almost everyone in the country has a Zaad account particularly because it makes transactions a simple two second interaction. Once you add credit to your account, you can use your phone for anything, from paying for your gas at a station, to buying a Coke at a small roadside stall. This type of quick exchange is something the West will not see for years.
While mobile banking may be the de facto banking system of Somaliland, the recent Central Banking Act passed by the Somaliland Parliament opens the door to commercial banking in the near future. “Commercial banks should arrive in 3 months,” says Somalialand Central Bank Governor Abdi Dirir. “Come invest, the commercial banks will make investing easier.” He speaks to the obvious complication of investing in a country where currently you would have to carry the investment money in a suitcase or transfer via a mobile phone. Commercial banks and a lax tax system will surely help investment. For those who can swallow risk, there is huge opportunity to be had. As Minister of Planning, Ali Shire characterizes the situation, “investors need to just come see what is happening and they will be sold.”
The Port of Berbera