It is nearly more than two decades since Somaliland got its independence from the rest of Somalia in 1991. Somaliland followed path to political, social and economic recovery and further enhanced institutional re-arrangement which marks the start of its democratization process until today.
With abundance of minerals and other forms of natural resources, Somaliland has been poorly performing institution building for natural resource management despite absence of strategic priorities to harness their natural wealth for the achievement of national development goals and sustained prosperity. However, in regard to Somaliland national vision 2030, natural resources of oil, gas and coal have not been critically highlighted as means Somalilanders can achieve this vision and other national development plans. Indeed, answering the above question needs deep and real concern through the lens of natural resource governance. According to NRGI (Natural Resource Governance Institute, 2015), the following set of challenges may hinder Somaliland to potentially benefit from its process of natural resource discovery carried out by some foreign companies.
1. Geological Information
Lack of public geological information in Somaliland in times of natural resource discovery and extraction of mineral rocks results the government and Ministry of Energy and Minerals to have shallow knowledge on areas disseminating geological information to the public. This happens because the country does not have all required research tools and technicalities to deliver such grand information. Lack of such information gives chance to other foreign companies to hide the results of the discovery and spread of false information which can mislead the both people and the government.
2. The resource curse
The resource curse (also known as the paradox of plenty) which is always regarded as failure to use the resources extracted for development aspects may also take place because Somaliland has no comprehensive plan on how to use all the revenues from the extracted resources and minerals to drive development goals of the country. Present political coalitions between the different clans can also fuel existence of resource curse since economic stability and overall governance processes are at profound threat to few elite groups.
3. Social and environmental challenges
Balancing the country needs for development and environment surrounding the discovery and mining area becomes absolutely impossible in Somaliland due to limited collaboration of extractive companies with Ministry of Environment and Rural Development for biodiversity, water and land protection. It is known that extractive industries including Genel Energy, Rakgas and others companies are threatening the environment in many different ways such as degradation, seismic disturbances, water contamination, air pollution and biodiversity loss. On the other hand, discovery process may cause destruction of cultural heritage sites which are fundamental for the local communities and can lead to conflict between the local people, and extractive companies. These social and environmental impacts are not addressed by the government.
4. Weak Institutional Capacity
Ministry of Energy and Minerals, Ministry of Environment and Rural Development and the Ministry of Finance have no capacity to operationalize rules designed for the natural resource management. These institutions are weaker for the fact that they are unfamiliar with resource governance, environmental protection, and revenue management and it is easy for the ministers to take large sums of cash from the extractive industries. This explains that resource revenues can be managed outside the normal revenue collection process that Ministry of Finance employs at the same time Somaliland Central Bank has no remit to deliver its desired goals as the country is in serious economic crisis of inflation and unemployment. In some cases, government officials and politicians from these institutions purposefully create regulations that can facilitate their clans and/or families exploit resource wealth as this became popular during Silanyo Regime.
5. Dutch Disease
Large natural resource revenues may sometimes weaken other sectors of economy, especially export-based livestock and hides among the export commodities resulting inflation and exchange rate appreciation of dollar over Somaliland shilling. Indeed, the country is threatened by serious inflation which the current administration lacks the capacity to stabilize this economic illness. Natural resources are the opportunity to reach country’s development goals together with other exporting commodities that can be used to build the future of present and future generations in a sustainable way. Somaliland cannot guarantee well-management of resource revenues as both current and previous governments have weak financial institutions that can control financial crisis. These economic pathologies can be minimized by firstly strengthening public financial institutions and establishing public investment institution (not like Somaliland Investment Company in Dubai) which is transparent and publicly owned.
Somaliland has background of clan resistance and inter-clan conflict which mainly based on resource distribution and geographical dominance including the most recent clan clash of Ceel-Afwayn fight which claimed the lives of more than 10 people. While the country has this clan conflict, extractives have their own instability if the country has no absolute unity which is absent from Somaliland as the country is seeking international recognition. Since 1990, oil-producing countries have been twice as likely to have civil wars compared with non-oil-producing countries. The country lacks political stability in terms of geopolitical, social and economic situations which can lead to devastating conflict that is fuelled by unfair extractive revenue allocation.
Somaliland is among African countries with fragile democratic institutions and it is even worse than these countries due to its political coalitions of clans which encourages corruption, fraud, resource exploitation, and favoritism. These impacts are even harmful to Somaliland’s democracy profile that started in 1991. As a result, politicians and government officials are not responsive to citizens’ demands but become more interested in clan investment, illegal investment companies and other laws which are not in line with the constitution. In specific, when the revenues from natural resources are not engaged with citizens through transparent media platform, it is easier for the government officials including the line ministries to misinform the citizens with contradicting and unclear information which is danger to transparency, accountability, inclusiveness and rule of law.
In short, Somaliland will not fully utilize extractive industries as resource-rich countries like Chile, Botswana and Malaysia do, partially because the country has no experience in natural resource management for sustainable development despite presence of poor political and contextual vulnerabilities.