Key Projects Starving for Optimized FDI Policy in Somaliland

There are quite a few key projects, institutions, and associations that are critical for meaningful economic growth in Somaliland that demand optimization of Somaliland national policy for Foreign Direct Investments (FDI) in the light of recent partnership and alliance with Taiwan. FDI plays a vital role in sustaining a viable domestic economy. In Asia, the Philippines, Malaysia, and Vietnam are the emerging economic powers that continued to attract significant amounts of foreign investment due to refining their foreign investment policy, and Somaliland should model after them.

In developing as well as in third world countries, Foreign Direct Investment (FDI) is an indispensable long term funding source for many basic pillars of the economy to achieve tangible and sustainable development.

The core incentives, that are critical in any given country, for attracting FDI are the country’s economic policy and the performance of institutions that serve that policy, setting aside the de jure recognition of the country as many countries, enjoying with international recognition, are ruled by dictators and juntas who only engage in stealing national resources for their own interests – a practice that shuts the doors on any foreign investment.  Arguably, this is a testament to the fact that Somaliland’s de facto status cannot be considered a barrier to any FDI procurement if the contributing conditions and the environment for this end are adopted within Somaliland.

With the exception of small aids from UN agencies such as UN Development Programs and the developmental aid from several European partner countries channeled through Somaliland Development Fund, the first major Foreign Direct Investment came in 2016 when DP World won a 30-year concession for the port of Berbera. This cooperation between Somaliland and Taiwan is the second breakthrough for a potential FDI in this young nascent nation with an almost population of 5 million.

Somaliland is naturally situated in a prime geopolitical location and is the gateway to Africa, but she is in dire need of international relations with other countries, whereas, Taiwan is economically developed with international trade relations but has little support in Africa.

That being so, for this cooperation between Somaliland and Taiwan to mature and grow, the Somaliland government needs to establish new institutions: Somaliland Development Bank and Somaliland Investment Commission, similar to Ethiopia’s autonomous government institution known as EIC, that would foster development and investment, and revamp existing institutions such as the Somaliland Chamber of Commerce Industry and Agriculture that has no presence at all in the world wide web yet. In the private sector also, effective Businesses Associations in commerce, trade, and service sectors of the economy must be in place so that they can have an influence on and be another layer of creative minds in the foreign direct investment discourse. The Somaliland Development Bank will be the authority to manage investment finances and oversee projects in the country, whereas Somaliland Investment Commission will be the machinery distributing the shares into the projects to be implemented as well as to the interested local investors in the country, and also selecting the individuals that would be managing these projects collectively as a Board of directors.

The Berbera Cement Factory has become a never-ending project for the country that could have been dealt with in the past to make it productive by now. But unfortunately, that is not the case, and for this project to take off the ground it must become one of the ventures on the table for this new cooperation with Taiwan with two possible options:

1. The first option is for Taiwan or Taiwanese companies to invest in the project and run it for a fixed period of term for recouping the initial investment with a nominal profit, and then transfer its ownership  to a joint venture managed by the Somaliland government and Taiwan interest holders upon completion of that tenure, after settling the ratio of profit sharing for the life of the venture
2. The second option is for Taiwan and Somaliland to co-own just like the Berbera port – DP World deal, each of which contributes 50% of the project cost and shares profits in the same ratio for a limited period of time allowing both parties to recover the initial investment. At the end of this period, the project becomes a joint venture. The Somaliland government can transfer its share to Somaliland investors if it is unable to provide the money.

Taiwan produces 30% of its electricity from coal and is the 14^th largest consumer of coal in the world. Because of this, Taiwan averages 7 cents/Kwh (about US$153 a month, per customer, using 1,000 kWh.). The electricity generated from nuclear power costs 1.9 cents/kWh, coal 7 cents/kWh, and Natural Gas US 11.25 cents/kWh. Power consumption in Taiwan is broken down into 18.2% for households, 54% for factors, & 18.5% for routine business.

In Somaliland, the light industries necessary for taking the country to the next phase of development necessitates first the production and availability of cheap electricity in the country. For example, the Berbera Cement Factory needs a lot of inexpensive electricity to make a profit and at the same time supply cheap cement, otherwise imported cement would be cheaper than domestically produced one.

Somaliland is said to be rich in coal reserves and extraction of this natural resource is another potential project for FDI that Taiwan can invest in. If the exploration of coal reserves in the country uncovers huge deposits of coal, then that needs to be tapped into, A huge revenue would be earned out of it and the surplus production, if any, could be exported to either elsewhere or to Taiwan, offsetting the repayment of any investment loans owed.

According to some informed sources, a Chinese company that came to Somaliland to extract coal reserves and then planning to use it to generate electricity sufficient for the whole nation was sued by the Somali Federal Government, prompting it eventually to leave Somaliland because of that threat.

When implementing this power plant, the two funding and financing options mentioned above should be followed. In addition, the existing power companies in the country should be given a stake in the new power plant, with their assets first valued and exchanged for an equivalent share.

CPC Corporation is a Taiwanese government-owned company that was founded on June 1^st, 1946 solely for the energy needs of that country. This company explores, drills, refines and sells petroleum and natural gas. Although Taiwan consumes 1.1 million barrels of fossil fuel, it produces only 28,000 barrels of petroleum per day.

Somaliland is said to contain reservoirs of crude oil and natural gas, and in August 2012, Genel was awarded an exploration license for onshore blocks SL-10-B and SL-13, potentially targeting 2 billion barrels of oil. As widely believed in Somaliland, the exploration phase, as well as data collection, are complete and the drilling phase may undergo soon.

It is important that these companies contracted to extract oil and gas from the country, not to waste too much time, but to come up with a comprehensive plan that shows expected production and completion time.  If that does not happen, this would be another opportunity for Taiwan to become involved in oil and gas production and later become a market.

On the other hand, global oil prices have fallen and will remain so for a year or two, according to forecasts.  In the United States alone, many oil companies have closed down and oil rigs are mostly idle. Now is the best time to expedite those undertakings, as it requires a small investment.

There should be permanent whether direct or indirect incoming and outgoing flights that provide the connection between Somaliland and the rest of the world.  This service is very important for the Somaliland state at the moment, and it should not be outsourced to individual citizens but rather should be under the control of Somaliland Civil Aviation and Airports Authority. 

Before the movement disruption due to COVID-19 pandemic, three foreign airlines: Flydubai, Air Arabia, and Ethiopian Airlines were operating in Somaliland, two of which were based in the UAE.  Somaliland nationals have entered into representation agreements with foreign airlines, and then the government blessed their contracts by granting permission to operate.

It is in the interest of Somaliland to have a national airline bearing Somaliland logo that operates flights both inside and outside the country, when you look at the debate between Somalia and Somaliland on the airspace management and how the foreign-owned airlines can easily fall into the traps of Somalia. An instance of this is when the Flydubai flight to Hargeisa responded to a request from Somali’s AirTraffic Control sending the flight back to Dubai. Subsequently, the Somaliland government revoked the licenses of both Flydubai and Air Arabiya.

In the spring every year, the powerful rushing water in Somaliland’s major waterways and streams carry away heavy vehicles, and many lives are lost due drowning, before eventually flowing into the sea. Medium size dams are what Somaliland needs in order to capture the rainy season water in all regions throughout the country. The Ambouli Friendship Dam constructed by the Turkish state-run agency State Hydraulic Works (DSİ) in Djibouti cost 20 million US Dollars, according to published reports. Somaliland needs, at least, three dams like the one in Djibouti that can be financed with foreign direct investments.

In order for these dams to be productive and beneficial, large scale farms of 10,000 – 20,000 hectares and livestock ranches must be built adjacent to them, growing locally both the food country needs and the feed consumed by the livestock destined for export. Large-scale agricultural farms, like the cement factory and coal-powered plant, would be an opportunity for Somaliland investors if the concept of pooling share is embraced. Livestock export from Somaliland to the Arabian Peninsula countries is an important economic activity and the main source of Somaliland’s foreign exchange earnings. The epicenter of livestock exports in the Horn of Africa region is Somaliland. Togwajale, Hargeisa, and Burao host terminal markets in Somaliland attracting livestock herds for export from within Somaliland, eastern Ethiopia, and south-central Somalia. The best and prime places to build dams are in these three cities.

As always believed, the function determines the form, and designating land exclusively for different purposes is important. An industrial park is an area dedicated or zoned solely for industrial uses rather than residential or commercial ones. It is just like business or office parks. It is an area concentrated with warehouses, distribution centers, and small factories with dedicated power and water supply and waste management facilities.

Taiwan is one of the highly industrialized countries in the world, and China’s economic growth, in the last four decades, has been made possible with the investments derived from Taiwan and Hong Kong.

Many Taiwanese companies are based in China and employ millions of Chinese workers.  At present, the deteriorating relationship between China and Taiwan forces many Taiwanese companies to move out of China to other Asian countries.

At the onset of the relationship, Taiwan hinted to help the IT and many other sectors in Somaliland. So we should ask Taiwan to assist us in the field of industry, especially electronics and textile manufacturers, as Taiwanese companies would establish industrial parks in Somaliland.

Industrial park jobs usually involve assembling lines like electronics and fabric manufacturing for apparel making. The project could create jobs for unemployed Somaliland youth.  In addition, industrial parks in Somaliland can easily feed demands coming from Africa, the Middle East and Europe.

Industrial Parks Development Corporation of Ethiopia (IPDC) is the entity behind the development of ten industrial parks in Ethiopia, including Hawassa Industrial Park.  Hawassa Industrial Parks is home to 50 international apparel companies, employs approximately 60,000 people and generates US $ 1 billion annually.  Since Ethiopia does not have easy access to ports, raw materials must be transported in trucks, and exported garments must be transported back to the ports in trucks.  But unlike in Ethiopia, Berbera port facilitates cuts short the long bidirectional hauls. This is an advantage that industrial parks in Somaliland have over those in Ethiopia.

Finally, although Taiwan is a rich and independent country, China, which is richer and more powerful, claims her to be part of it. Somaliland has preferred Taiwan over having a relationship with China. So, it is incumbent upon Taiwan to reward Somaliland for this courageous step with foreign direct investments that Somaliland so desperately needs.

If these projects are implemented with Taiwanese investments, in a year or two, they would pay off the investment capital , and the public would benefit in terms of job creations. It is certain that many African countries and third countries with ties to China would switch sides, if this relationship between Somaliland and Taiwan becomes a success story.

The success of this partnership does not mainly depend on what Taiwan offers to Somaliland, but it would tremendously fall on what Somaliland is willing to enact as well as to reform. . Therefore, Somaliland must first draft a number of laws such as the Investment Law, the Banking Law, and Shareholders Law. At the same time, in the upcoming elections for the House of Representatives and the Local Government Councilmen, candidates in line with Somaliland development goals must be elected.

If Somaliland wants to compete in the world arena and gain trust that attracts foreign direct investment, the leadership of the various branches of the Somaliland government must be competent and capable of efficiently discharging their obligations. If clueless and corruption-minded folks, who do not know what is going on in the world, come back again for the next fives, the main culprits of this crime would be the party leaders and the electorate who settled with mediocre public officials.

About the Authors:

Omer A Yussuf is an Electrical Engineer with California Transportation Department’s Traffic Division, Oakland, California and can be reached at Omaryousuf455@gmail.com

Ahmed J Yassin is a Clinical Laboratory Professional with UF Healthcare, Jacksonville Florida and can be reached at ajyassin4@gmail.com

Disclaimer: The viewpoints expressed by the authors do not necessarily reflect the opinions, viewpoints of Somaliland Chronicle, and its staff. 

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