SOMALILAND: INDUSTRIALIZATION CHALLENGES AND POSSIBLE SOLUTIONS
Somaliland declared independence from the rest of Somalia in May 1991, thereby restoring the colonial borders of the former British Somaliland. Somaliland organized independence and endorsed its own constitution. Somaliland transformed itself into a democratic state and organized several presidential, parliamentary and municipal elections. Somaliland has demonstrated that a small African country can succeed in the management of its own affairs without sustained and strong support from external sources. Private entrepreneurs have established a strong business sector. Tax collection for financing the public sector is also shouldered by this vibrant business sector. However, the businesspersons are criticized for not engaging in domestic production by engaging largely in the import trade. The lack of local production systems is a black spot on the viability of the Somaliland economy. Hence, the Somaliland economy is inherently unstable since it cannot withstand any external shock on the international economy. The country exports livestock and gains some remittance that is earned by Somalilanders in the Diaspora. Without significant industrialization, the country cannot achieve and tangible economic growth. This article sheds some light on the industrializations attempts in Somaliland and the challenges faced so far. In the end, some recommendations are forwarded as possible solutions to the observed constraints.
It seems that many entrepreneurs in Somaliland have tried to address the industrialization requirements of the country. What is clear is that one does not need much thinking to identify the number of industries that can be profitably established in Somaliland. Almost every commodity is imported into the country. It might seem rather absurd to the outsider, but it is a fact that Somaliland with a very long coast and with abundant fish resources, imports canned fish from Asian countries. Even though Somaliland is a pastoralist economy, businesspersons import milk from Arabian countries. While Somaliland is endowed with one of the largest cement mines per capita, cement is imported from Oman and from other countries. With more than 23 years of political stability, entrepreneurs could easily establish an industry base that produces most of the basic consumption goods that are used in the country. Somaliland businesspersons feel the need for locally producing the basic commodities that they continue to import into the country and, obviously, many of them have tried to address this issue. Some of them established flour factories and failed to sustain them; others established plastic factories and ended up closing down their factories. Unfortunately, there are several constraints that need a concerted effort if the face of the economy has to change for the benefit of all.
If the country’s entrepreneurs could succeed in their efforts to establish and operate the basic industries that are badly needed in the country, employment would be generated for the educated youth who are escaping from the country through illegal migration, thereby gambling with their dear lives. The entrepreneurs themselves would generate more profits for themselves, thereby enabling them to engage in the establishment of even more industries. In the medium and short terms, the government would collect more tax revenues in order to finance its public institutions and at the same time would address the public infrastructure, particularly roads, which are currently in very bad shape.
For the purposes of this article, two significant challenges to industrialization can be mentioned: lack of access to credit and lack of electricity or energy. We can say that the problem of credit access is being gradually resolved. Two banks are currently operating in the country, SALAAM and DAHABSHIL. These two banks might not be enough in facilitating all the capital investment needs of the country, but industrialists who can fulfill the project requirements of these two banks can at least get some of their projects funded. It can be said that these two banks are acting as safety valves for the financial constraints of the county’s industrialization needs.
The other constraint is the electricity problem. In most developing countries, electricity production is a governmental affair. In Somaliland, businesspersons have exerted great efforts towards electricity production thereby taking over the role of the government which is a good deal. Several companies are doing a great job in this area. Unfortunately, their efforts have not gone to the extent that they can satisfy the household and business needs. Unit costs are very expensive for all users. On the other hand, their services are comparatively satisfactory since they succeeded by providing round the clock electricity for their customers. They should be commended for this. The problem is the high per unit cost. This is the real constraint to the country’s industrialization efforts. I am not implying that the government has to step in to address the electrification constraint. This is not the course that I would recommend given the circumstances. There is no foreseeable alternative to the private companies based electricity production. Then what is the solution? The solution, in my opinion, lies in the recapitalization of the electricity companies. More and more investors have to engage in the electricity production business either by strengthening the existing companies or by establishing more electricity production companies. The role of the government shall be how to combine the different electricity outputs of the different private producers. The government shall also come up with a legislation that governs the production and distribution of the electric power. There shall be national grid that is administered by an organization whose members come from the producers. The government shall also commission a professional study that shall come up with the best ways to produce electricity. These days the good news in Somaliland is that there are huge coal deposits that can be harnessed for electricity production. When that happens, the electricity related constraint to industrialization in Somaliland would be resolved for good.
