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FDI in Somaliland: A Vehicle for Prosperity or a Source of Social Inequality?

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The Republic of Somaliland, has not yet acquired a de jure recognition from the outside world since May 18, 1991 when Somaliland decided to withdraw from the 1960 union with Somalia. Since then, Somaliland has been stable compared to the other parts of the region and its contribution to the security and stability in the region is also amicable.

However, the world has been reluctant to provide Somaliland with the assistance it deserves and this tells us much about the faults of the international politics and hypocrite nature of the international system.

Lack of recognition and qualification for foreign direct investment made the post-conflict state institutions fragile and prevented the economy from flourishing. Although Somaliland has managed to build its institutions without international engagement and involvement, on the other hand, the ineffectiveness of the political and social institutions is an outcome of the absence of effective policies and a strong economy necessary to help state institutions thrive.

Apparently, the foreign direct investments coming to the less developed countries have multiple purposes. However, it has a positive impact on the economic and social infrastructures necessary for the development of any country. Somaliland is in a dire strait to get foreign investments to overcome the challenges it facing since 1991.

These investments can take the opportunity by bringing economic opportunities to Somaliland so as to create jobs for the unemployed youth in the country. Indeed, reducing the high rate of unemployment in Somaliland and creating job opportunities for unemployed youth is necessary. Also, social infrastructures such as health and education facilities which inadequately resourced should be improved.

Despite lacking international recognition, Somaliland has dealt with international companies and foreign governments for economic and political purposes. But, getting recognition will not solve and answer the social and economic problems faced by Somaliland.

However, this needs rethinking and reformulating the state policies and strategies, for example, create legal and political framework necessary to qualify for foreign direct investments and design forms of cooperation with the international actors. Not only the international actors, but also creating positive public posture within the state citizens and distribution of the state resources among the citizens can strengthen the social contract and cohesion.

Also, inclusive political institutions are necessary for states to develop. Such institutions provide confidence for people (both within the state and without) to invest in themselves and in businesses. Such investments hire people and create the tax revenues necessary to build state infrastructure.

Therefore, making Somaliland effective, inclusive and transparent state, and developing clear and coherent investment policies and strategies might place Somaliland more prominently in the frontline to qualify for investment, and may attract more attention from foreign investors who interested to come and invest this country.

Therefore, there are a number of issues that need particular attention from the Government and expected to have been worked on to make this journey fruitful:

  • The Government of Somaliland should work on making state institutions more effective, efficient, transparent and reliable.
  • The Government of Somaliland should open the market space to all citizens, and also advocate the issue of fair and free market economy, where the rights of poor weak and minorities are respected.
  • Creating legal frameworks and effective institutions to govern businesses both local and international and accept a high number of FDI without threatening the fragile peace and the existing balance of the country is necessary.
  • Developing or implementing inclusive policies that could seem important and necessary for the development of the state are also important. Those policies will make the state inclusive transparent, stable, and representative of the citizens’ interests.

Economic growth is important for every country, but it is especially crucial for post-conflict countries needing peacebuilding, recovery, and reconstruction. Since the declaration of resuming own independence in 1991 from Somalia, the Republic of Somaliland has been peaceful and has undergone a significant political and economic transformation.

In 2002, Somaliland transitioned from a clan-based system to multi-party democracy after a referendum. Still, the country kept some of its traditions by formalizing the Guurti as an Upper House of Elders, which ensures the support of traditional clan-based power structures. Thus, the country secured a stable peace and democratic system of politics by merging modern and traditional elements.

According to Freedom House’s political rights and civil liberty rankings, Somaliland has a score of 44/100 and is the only one ranked as “partly free” in the Horn of Africa.

Despite not having international recognition, Somaliland is making notable progress in promoting peace and democracy compared to its neighboring countries. However, the country is still facing challenges, and peace remains fragile. One challenge is that the country has no major economic development with serious unemployment rates and education issues.

Foreign Direct Investment (FDI) is defined as international investment by an entity residing a foreign economy. Foreign Direct Investment (FDI) is an international movement of capital carried out by foreign investors in a country to create or develop a subsidiary in another country. FDI also allows foreign investors to acquire a local company

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