By: Mustafa M. Awjama, 

This work tries to pave the way for the achievement of a sustainable economic growth by taking into account the current position of the Somaliland economy and then compiles a set of recommendations for those agents including policy makers who are interested in improving the economy.

Currently, Somaliland is in the stage of what Rostow called “the preconditions for take-off”. According to Rostow, the “preconditions for take-off”, the second stage of a five stage process, is characterised by the presence of entrepreneurs in the society and investors who are ready to invest ideas.

In his paper Is there a proper sequence in Democratic transitions? Francis Fukuyama highlights that “Development is a complex process that takes place across multiple dimensions of Human life”, and that economic growth, the State, Rule of law and mechanisms of democratic accountability are just few of those several dimensions. In this paper I will focus on the economic side of that development process.

Economic development is often understood as the transformation and improvement of a society’s standard of living and wellbeing. There is no universal strategy which succeeds the economic advancement for all nations and it is often up to that particular country to decide which way it takes to achieve its desired destination[1]. However, there is generally a correlation between state building and economic growth, between rule of law and growth, and between stable democracy and economic growth.

Economists often emphasize technological progress and capital accumulation as the two main sources of economic growth. The logic behind this is very simple. An individual with an advanced technology is likely to produce more than an individual with a primitive technology. Similarly, an individual with more capital can produce more than an individual with less capital; the higher the capital per worker the higher the productivity.  The good news is that it’s not hard these days to improve the state of technology for any given country due to technology diffusion which allows countries to adopt and replicate new technologies and know-how from other countries.

We need to acknowledge that the underlying purpose for economic development is to increase the wellbeing of the individual and that per capita income is just one of several indicators. In addition to promoting the wellbeing of the individual policies should also be structured to narrow the inequality gap as a wider inequality gap might have political repercussions. By aiming to achieve steadily growing productivity, Governments closely watch some key factors which stimulate the economy including; Investment, consumer expenditure, what the Government spends, and the country’s Net exports to the rest of the world.

Hence, in order for Somaliland to build its economy, a number of institutions and policies are needed to be in place. In here, I will present those policies and institutions which will assist Somaliland economy to develop and which will also take it to the next stage.

      I.            Property Rights and Contract Enforcement

The two aspects of the Rule of law, which restricts arbitrary decisions made by governments, that economists relate to economic growth are the Property rights and contract enforcement[2]. Reason being that no agent will make a long term investment unless their property rights are secured. It is conceivable that individuals are bound to face extra costs to defend their property where a property right does not exist. It is also arguable that economic efficiency requires the allocation of resources for those individuals who can utilize it.[3] With this respect investors in Somaliland might face several problems including tribalism which can hinder economic efficiency and can cause investors to seek protection from other agents. Though a resource has been allocated, it is highly unlikely that an individual from the east dares to make an investment in the west due to the disturbances caused by tribalism and vice versa.  This is one example of why sustained contract enforcement comes in to the calculus of economic productivity.

On one hand, the ability of the Somaliland state to enforce contracts needs to be established while on the other hand the ability of the state to make arbitrary decisions needs to be limited. When discussing property rights and contract enforcement the case of Zimbabwe can be a good example to refer where Ceil Rhodes’ company offered the land in order to attract settlers and where later Robert Mugabe redistributed the land just to hold on to power[4]. Whatever the reason has been for Zimbabwe, lack of property rights and contract enforcement can have disastrous effect on the economy. Somaliland will need to draft regulations of property rights in clear-cut terminologies and will also need to have a strong third party for arbitrations.

   II.            Financial Institutions

The fact that there are both entrepreneurs and people who want to invest in the country necessitates the establishments of financial institutions.  “A healthy and vibrant economy requires a financial system that moves funds from people who save to people who have productive investment opportunities” (Mishkin, 2007).

Before any step, Somaliland will need to establish a well functioning central bank. Apart from implementing the monetary and the exchange rate policies, the central bank is also required to supervise the banking sector and to act as the lender of last resort. In short, the central bank is the bank of the central government and the bank of all banks.[5]

All financial institutions including banks, insurance companies, saving institutions and investment companies needs to be regulated by the government. One might take the so called “gain profit while sitting” project in 2009 as a good example which can clearly show the negative effects of lack of financial regulations in Somaliland. During the years this project had been operating in Somaliland, thousands of people saved their money without official agreements. All those who deposited their money were at the end screaming in the streets of Hargiesa claiming that the saving institution had disappeared and that their money had been lost.

Therefore, since the failure of one bank can jeopardize the whole economy, financial institutions especially banks should be heavily regulated. According to Pilbeam (2005), the main objective of regulating financial markets is to promote stability, to keep the investors safe and to encourage fair competition in the market. All in all, as Brunnermeier (2009) said “one of the key purposes of bank regulation is to internalize the social costs of potential bank failures”.

  1. III.            The Role of Diplomatic Missions in Promoting trade

Diplomatic recognition cannot be said to be a precondition for economic development and lack of recognition does not exclude countries to pursue their economic growth goals. According to Shaw (2008), Recognition is merely “a method of accepting certain factual situations and endowing them with legal significance”. However, Somaliland arguably exists as a legal personality in international law. It has been emphasized that:

…Recognition may be viewed as constitutive or declaratory…, the former theory maintains that it is only through recognition that a state comes into being under international law, whereas the latter approach maintains that once the factual criteria of statehood have been satisfied, a new state exists as an international person, recognition becoming merely a political and not a legal act”.[6]

Somaliland will need to see the diplomatic recognition as a quid pro quo game; scratch my back and I will scratch yours. It is highly unlikely that a country will recognise Somaliland unless that country is sure what it is getting in return is at least proportionately equal to the benefits of the recognition it is giving. Therefore, parallel to its mission in getting recognition, Somaliland should come up with strategies to promote its international trade and seek investment through its diplomatic representatives. This is also one of the core functions of diplomatic missions as defined by article 3 of the Vienna convention on diplomatic relations in 1961.[7]

By concentrating economic diplomacy, Somaliland will not only promote trade and investment but will also increase its networking, promote country profile and at last will have a say in those global political organisations including the United Nations.





[1] Case et al (2009)

[2] The origins of political order, Francis Fukuyama

[3] Rodrik & Rosenzweig (2010), Economic Development

[4] The Council of Foreign Relations

[5]  Pilbeam, K. (2005), Global financial markets

[6] Shaw (2008), International Law

[7]  United Nations (2005), Treaty series, Vol. 500, p, 95


  1. Simply said, why Somaliland was necknamed..the Africa's best kept secret? With all that said well
    taken into consideration and conception, perhaps the Author or other Authors should pause to focus
    why Somaliland was given this title and who and how did it come about? What are the special secrecy
    inside Somaliland? In simple terms, there must be something very unique and special about this
    Country with 3-4million population and part of the redsea rich gulf peninsula? located at the heart of
    the Horn of Africa and sharing high potential wealth with the redsea gulf countries?. In my mind, there is no doubt that the current Somaliland is very much mindful towards democratization and development of all national and international investments. So far much have been achieved and still
    much would be implemented. In the processes the question of recognition and real tough talks
    with Somalia would work hand in hand.That remains my understanding of the policies and politics
    of the Somaliland Govt led by DR AMM Silaanyo.

  2. This is truly a praiseworthy article, objective and rational. This the kind of discourse we need if we have to move forward rather than the meaningless tirade that fills many of the Somali Websites. Somaliland policy makers should take notice of the recommended strategy as outlined in the article. Congratulations to the author

  3. Nicely put indeed. I like the phrase as the writer implied a recognition is basically a political game not a legal status. Somaliland has fulfilled all requirements as a nation, all we have to do now to engage and initiate partnership on multiple fonts with the key economic power house countries of the world; Israel, Germany, India and Chine are carefully monitoring Somaliland's progress on daily basis.

    As the author has hinted, Somaliland must show what will be in it for the first country that breaks the ice to recognize Somaliland internationally

  4. In fact, you can invest Somaliand from east to the west… Dahabshiil is a good example . off course, he from east and he invested west. But all Somalilander investors are still using same formula
    Input ADHI and GEEL
    output SONKOR and BARIIS
    else everthing not SONKOR and BARIIS= (BAGASH )
    Therefore we need to change this cheap formula in order to build a strong small businesses. No middle class sir no money and no funny. Second, don't keep the money please manage and create franchises.

  5. These are the type of articles I want to see from SomalilandPress. Something that is actionable and thought provoking! Something that looks at our issues and comes up with solutions! Recognition for us is like saying the sky is blue, its a foregone conclusion!

    These are wonderful suggestions and I hope those of us in the diaspora and back home are listening. I think I will also write an email to Paul Krugman one of the economists I admire and ask him what exactly a country like Somaliland needs to do with where we are right now.

    I think first we should decide exactly what we want, not generalities but certain criteria. I will start by saying how can we connec the country with safe roads? How can we supply the major cities like Borama, Hargeisa, Berbera, Burco, and Erigavo with water and do it effectively and efficiently?

    I am getting older nearing 30 and my tolerance for bs comments and articles is withering by the day.

    Most Somalilanders come on here to talk with other Landers about how to build the country and get news, also to interact with each other. We dont come here to be hassled and for our country to be disrespected and if Somalilandpress doesnt watch it we will find another medium that respects our intellect and country.

    • Brother this was never a Somaliland website nor is it s site that promotes healthy communications between somali people. Most here are attracted to the negativity and the opportunity to swing slurs at Somaliland, it's people and achievements.

      Personally i only get offended at people that i value as a result they do not effect my feelings.

  6. Good point to show Zimbabwe as an example of what not to do. However you need to add neo-racism (or "Mugabism") as a motive to that state's lust for power and willingness to destroy the economy in order to hold on to it.

  7. Somalis are delusional creatures. Who is gonna invest millions of dollars in a country that doesn't exis? Even Somalia, though recognized, will have hard time attracting investmentors. A country must have strong institutions, like judicial, banking and financial, security apparatus, insurance, and good infrastructure. These factors must be met before you dream of foreign investment.
    Somalis always make political suicide and never learn from history. There is no recognition for Somaliland, neither from outside or Somalia. The solution is to fix their internal political friction and be One (all reer Waqooyi) federal State. Why not talk to Khaatumo which does not oppose a Waqooyi State but opposes seccession. Somaliland is very rich, though some uninformed Koonfurians think it a desert with no substantial resources. Somaliland has agricultural resources, minerals and precious metals and probably the highest hydrocarbon energy in Somalia.
    To some up, reer Waqooyi have historical cultural, language and bllod relationship. They will always share the same geographical landmass and there will never be borders between them. They are simply one family that cannot be disintegrated. Let us not squander this chance.

    • bla bla bla blind jealousy wont stop the natural developments and investments taking effect in
      Somaliland. Bidhaan wake up mate and get real????

  8. Buuxiye and Osman Qaal we have to try though. An investment is never going to get cheaper especially if its something worth having! I am sure an economist like him would jump at the chance to use his mind and challenge it. I dont know any professional that truly loves their craft that doesnt spasm at the chance to effectively use their theories.

    You can read more about him, he is very liberal and thought provoking.

    Listen if I can pay stu pid at&t a monthly fee for a cell phone, I dont mind paying a certain amount into a fund that will make sure we hire the best minds to suggest meaningful ideas that will move our country ahead. And I am sure there are alot of Landers who feel the same.

    I dont know about you but I want Somaliland to be different, I am sic k and tired of the usual in Africa, I want to go back home and the only difference I see between here and there is a only black people and a few mosques and maybe a camel here and there