Monopolistic behaviour of electricity suppliers is undermining investor confidence in Somaliland, writes Liban Ahmad
Writing in the Financial Times before he was elected the fifth president of Somaliland Muuse Bihi Abdi paid a tribute to the private sector in Somaliland for “90%contribution to the GDP”. Without a private sector Somaliland government will not be able to deliver public goods.
Confidence in Somaliland government to facilitate a business-friendly environment is at all-time low. Nationalisation of services previously run by the private sector, introduction of a new number plate for all vehicles, then nationalising the very organisation the government wanted to implement the new policy indicates a knee-jerk reaction to puzzling regulatory challenges with which the new government is grappling.
By paying attention to Somaliland business news one is bound to be confounded by failure on the part of Somaliland journalists to make distinction between merger and acquisition. If a major utility company acquires a small competitor, Somaliland journalists use the verb midow as in “ Shirkado midoobay” ( Companies merge ). Some companies put pressure on journalists not to use the word “iibso” (to buy/acquire) when an acquisition transaction has been finalised. If a major electricity supplier despairs of gaining a market share through a fair competition or fails to form price-fixing cartel, acquisition becomes the choice growth strategy.
One business story symbolises the current state of Somaliland competition law. Ahmed Saeed Abdi, the Director of Gaafane Power Company, has held a press conference in Hargeisa to protest what he views as a government-enforced monopolistic behaviour of Sompower, a major company involved in UK-funded Energy Security and Resource Efficiency in Somaliland. Saeed has accused Sompower of preventing Gaafane Power company from doing business in parts of Hargeisa. He said the government had instructed his company to merge with Sompower.
Why is Somaliland government reluctant to crack down on companies using unfair advantage to gain market share? Companies will not be squeamish about forming price-fixing cartels, bribing legislators or regulators to gain a market share. In such a business environment consumer rights will be the first casualty; Somaliland will become byword for government-enforced monopolies.
Last year four electricity suppliers accused Somaliland Ministry of Energy of giving Sompower an unfair market advantage over them. The Somaliland Electricity Association has not intervened in the electricity supply dispute between Gaafane Power Company and Sompower. The Somaliland Electricity Association purports to “to unify and represent the interests of Electricity Service Providers (ESPs). It is an organisation that has been set up to promote electricity supplier monopoly.
Gaafane Power Co.: The underdog?
Several options are on the table for policy makers and legislators to introduce consumer rights agenda in Somaliland. Nationalisation of utility companies until Somaliland beefs up or enacts competition law is one option. Nationalisation can affect only utility companies with predisposition to become monopolies or influence the government of the day and legislators. Nationalisation on such a scale will prove too unpopular. The government will not be able to raise the capital to nationalise a utility company – a growth industry in Somaliland. Owners will factor future earning of the utility company into the selling price.
The second option, public-private partnership, is more cumbersome than the first option particularly if the government has a record of being tolerant of monopolies or lacks guidelines to decide which utility companies are at risk of being unfairly acquired or forced into price-fixing cartels.
Sompower: Accused of monopolistic behaviour
In 2011 the previous Somaliland government of the same ruling party took steps to rein in importers that had squeezed profit margins of retailers by setting shops in the same market to compete with retails. The government introduced a legislation that barred importers from competing with retailers. Somaliland political and business classes can no longer bury their head in the sand: unethical businesses are taking advantage of vague competition laws in Somaliland to exploit the absence of consumer rights organisations.