In a context of economic and political fragility and the absence of regulation or competitive markets, where businesses have captured significant public and private authority, some negative impacts have occurred. Transnational business practices have influenced governance in Somalia and Somaliland, as market concerns are often interlinked with clan power dynamics and concerns about (clientelistic) distribution and justice. This has meant, in particular, that certain features of transnational business practices (conglomerate operations, capital inflows, diaspora investment strategies and diaspora-led SMEs) have been reinforcing of an oligopolistic system and a closed, anti-competitive market system. Thus, control over finance – the ability to diversify one’s sources of revenues – and even broader state and public authority has often resided with the business community, and a relatively small interest group of economic and political elites. This group has managed to tailor statebuilding practices, even regulation, and aid markets to their advantage. The impact of such oligopolistic practices has varied between Somalia and Somaliland due to the different economic models and market structures in each territory, as well as differences in the business practices which the main companies undertake.
Administrations in Somaliland and Somalia have never had the political will to regulate the private sector, and recent attempts in Somalia by state actors to become the ‘regulator’ appear to be politically motivated against opponents, characterised by elements of state capture, predation and other forms of aggressive redistribution. In both cases, the business community continues to prove stronger than the state. Transnational businesses (in the form of conglomerates) have asserted influence over regulatory and reform agendas while operating in ways that reinforce anti-competitive dynamics. Thus, in both Somaliland and Somalia, governments enter into large debt relationships with the business community, which the business community uses as leverage to ensure preferential treatment and monopolistic practices, and to facilitate mutually beneficial relationships of collusion with bureaucrats and elites. The resulting oligopolistic governance practices reinforce clan power hegemonies, status quo politics based around established patronage networks and the unequal distributions of resources (even when CSR efforts may be supportive of the advancement of non-elite groups). Oligopolistic governance practices have included:
As a result, in the absence of more open, competitive markets, both SMEs and forms of diaspora investment have largely failed to significantly stimulate economic development and have contributed to market inefficiencies. In the absence of any centralised or coordinated strategy, diaspora investment has been harnessed discretely by politicians or channelled into less-productive sectors. Politicians seek to mobilise the proceeds for personal gain and as an alternative source of political finance in order to avoid indebtedness to the local business community. This has meant that diaspora investments, when not diverted as political finance, are channelled into two key routes:
For SMEs, oligopolistic dynamics in the economy and politics have constrained their ability to operate, and new forms of capital inflows (aid and foreign investment) have not reached these actors in any significant way. However, even in the face of an uneven playing field, SMEs have managed to find some space to escape the authority of the conglomerates, although this has occurred more so in Somaliland (where SMEs have greater economic maturity and non-rent-seeking business acumen when compared to Somalia). SMEs are an important source of bottom-up resilience against oligopolistic practices, and a key indicator for economic growth models in fragile contexts. The adverse effects of certain practices by international finance institutions (IFIs) targeting SMEs and their broader interaction with the global political economy require further study. The key struggles for SMEs in the Somaliland and Somalia context are as follows:
In both the Somali and Somaliland contexts, big businesses have adapted their business model to each location’s distinct political settlement, as well as cultural legacies of colonialism and conflict dynamics. The structure of state-business engagement thus differs by location, requiring the business community to take different approaches to influence the political agenda. Whereas in Somaliland, the relationship has been one of reinforcing hegemony around a specific clan alliance, in Somalia the relationship between economic and political elites has been more rivalrous. In both cases, the private sector has certainly developed faster and stronger than government entities, but how political elites perceive the threat posed by business actors and how each community manages their influence differs. On the whole, in both cases, the business community is more pragmatic, knows no borders in working across regions and clans in order to make their business viable, but they also seek to protect critical aspects of status quo politics to protect their interests. While in Somaliland this has meant maintaining certain clan hegemony, in Somalia it has meant ensuring security and reducing costs. The following section outlines these nuances and impacts on systems of governance in greater detail.
In both Somalia and Somaliland the state is weak compared to the powerful business interests, allowing businesses to be largely extractive of the state. Market and state capture is thus driven by businesses, especially as the predatory or rent-seeking capacity of the government has been greatly restricted by a population deeply suspicious of hegemonic forms of power due to Siad Barre’s divisive legacy. Memories of Siad Barre’s ‘militarised rentierism’ and its practices of state predation on Isaaq businesses in the north had affected Somaliland and Somalia differently. Whereas such policies exacerbated forms of competition among business and economic elites in Somalia, it emboldened the largely Isaaq economic elites in Somaliland (having been marginalised by Barre) to rise in protection of their interests.
The competition is complicated in Somalia by the extent of clan rivalries and the activity of foreign actors (which includes heightened access to aid-flows, diaspora in politics, and strong Gulf connections). As a result, the business community in Somalia has played a more complex role as spoilers and competitors to state authority. The ensuing competition has positioned transnational capital and transnational businesses as a stable and powerful community with shared interests, but also as a resource to be competed over. In Somalia, Al Shabaab competes with government as a provider of rule of law/justice and security, and as a taxing authority, while catering to transnational businesses’ security needs. Transnational businesses thus pay taxes and even prefer to resolve land or business disputes in Al Shabaab courts, as they offer quick and enforced dispute resolution. In addition, especially in Somalia and to a lesser extent in Somaliland, rents created by the state (which benefit from the absence of regulation) flow to businesses, and the business community can leverage the state to make demands by capturing specific state institutions and more generally using state power to push private interests.
The number of actors involved in economic and political activity is fewer in Somaliland and constitute only three primary groups of actors (government, clan and business). These key stakeholders are closely interlinked where access to economic wealth by key clans has been a deciding factor for political power, and vice versa. The business community played a decisive role both in driving the peace and state-building agenda of the Somali National Movement (SNM) and in formulating the post-war settlement. The predominant role of Somaliland’s business community has been less contentious, although the influential role of Djibouti and aggressive tactics by conglomerates towards SMEs has encouraged pushback (including against the role that conglomerates have played in political stagnation and corruption).
In both Somalia and Somaliland, social mobility is limited and practices of wealth accumulation reinforce certain dynamics of clan dominance. It was mainly elites from certain clans, and mostly business individuals, who had capitalised during the civil war, and who continue to dominate the business sector (particularly in banking and telecommunications). Some opportunities have been created by generational shifts, and the rise of a younger generation and the diaspora, as well as out of political divides, but these have not resulted in the interim in efficient market outcomes. The large monopolies use certain regulatory practices and clan dynamics to retain their political independence, allowing them the space to expand and diversify, while small SMEs with less resources have little protection from being economically marginalised or bought out by their bigger competitors.
In Somalia, SMEs exist mainly by capitalising on aid funding by aligning closely with international organisations or foreign governments which, in turn, alienates them from the broader business community and their access to important economic markets such as Bakara in Mogadishu. They may be seen as sell-outs or traitors, which hampers their capacity to operate. As a result, while there are more SMEs emerging in Mogadishu, their ability to compete alongside the big conglomerates is more constrained in Mogadishu than in Hargeisa, for clearer political, generational and internal-external reasons. In Somaliland, in contrast to Somalia, the absence of aid revenues reduces the pressure on SMEs to build unproductive rent-seeking arrangements. Likewise, in Somaliland, greater competition occurs among the monopolies in certain markets (as they coexist within a more general shared protectionist agenda) and visibly constitutes a clearly defined elite class of business individuals. What this has engendered is more bottom-up pressure from the SMEs in favour of reforms.
In both contexts, many young entrepreneurs are beginning to challenge the reliance on both patronage and clan as the primary avenues through which access to economic opportunities is ensured. They have challenged entrenched forms of political and economic governance and ideas about appropriate (transnational) business practices and idealised conceptions of how to get ahead. Clan still remains an important source of protection and security in the absence of alternatives (i.e. in seeking loans or shares) but clan links also come with heavy financial burdens. While these links could provide you some form of employment (i.e. in the government, not in the major corporations) there is a limit to how far clan could get you. The currency of clan as an organising logic within the economy (compared to in the state) has thus been further diminishing.
Somalia has always engendered more of a rivalrous competition model between businesses and the state than exists in Somaliland. Contestation exists between economic and political elites ‘where big business, politics, religion and clan are inter-linked’. In Somalia, ‘the business community [is] not interested in peace and stability, especially some rogue elements, whereas the state also has become increasingly hostile against their interest (as they don’t want regulation and tax)’. Since 2016, this contestation has become more acute as the state assumes a greater role as ‘regulator’ (at least in discourse and in line with World Bank and IMF conditionalities, although it still struggles to implement its policy). Key moves in this regard have included President Farmajo’s push, in coordination with Finance Minister Beyle, to annul contracts with 17 private companies that handled public services (i.e. immigration services for visas, logistics). The aim was to reassert direct government control over several revenue-generating services (including taxation). In addition, the administration introduced a 5% value added tax on imports through the Port of Mogadishu and formalised the tax regime on telecommunications companies (see box 7). The administration also attempted to tax the companies in the heavily fortified Halane camp (the base of the African Union Mission and the United Nations). The heavy push for taxation has been accompanied by measures attempting to curb corruption in government; Farmajo has halted all selling of public land.
The telecommunication sectors in Somalia and Somaliland are dominated by the same business actors: Hormuud, with its Somaliland counterpart Telesom, and Golis Telecom in Puntland (together approximately 81% of SIM cards); Dahabshiil, through its Somtel brand (approximately 16% of SIM cards). Although there are telecommunication laws in both places, it is evident that in practice regulation, taxation and implementation look quite different from each other.
The most obvious difference in the telecommunication law in each respective location is the process of drafting and passing the law. On 2 October 2018 after 14 years of drafting and public consultations, Somalia’s president signed the National Communications Act into law, providing the basis for issuing licences to mobile operators, determining tax levies, and providing some degree of protection of consumer rights. The long formulation process was largely a factor of the many rounds of drafting and advising by different branches of the FGS as well as the involvement of the World Bank’s ICT Sector Support project. In Somaliland, the telecommunications sector, regulated by the Ministry of Posts & Telecommunications in Hargeisa, has had a telecommunications law in place since 5 July 2011 after seven years of internal discussion within the government. Negotiations surrounding the National Communications Act occurred largely within the ministry, rather than in parliament, and the federal cabinet unanimously approved the resulting law. Nonetheless, the competition between the major telecommunications businesses was reflected in the bill, which contained no clauses on interconnectivity between networks, a measure which could have hurt one of the conglomerate’s market share.
Although a law is in place in both territories, implementation remains fraught with difficulties. In Somaliland, companies may see the benefit in the government appearing as a regulator, but a functioning regulatory authority has not been set up. The government has thus failed to collect significant taxes from the sector, as businesses have contested the methods by which their tax burden is established, most notably the estimation of their sales volume. The Somaliland government is therefore in the process of setting up systems that allow it to monitor the minutes sold by each company. While this may improve the information position of the ministry, the fundamental power inequality between corporate actors and the state in their negotiations remains to be addressed.
In Somalia, an independent regulatory body for the communications sector, National Communications Authority (NCA), was established. Additionally, measurable indicators of success, such as ‘an increase of 31 percent revenue collection has been registered [since 2017]’, have been praised by international bodies like the IMF and secured further support from grants provided by the World Bank. While such advances may be encouraging, it should be kept in mind that Hormuud (92% of SIM cards in Mogadishu) has been paying taxes to the Mogadishu government since 2014, before any regulatory Act was created. Additionally, the FSG has been attempting to court the World Bank and other international partners to grant it debt forgiveness, which would allow the FSG to access new sources of international funding. To achieve this, the FSG needs to show regular increases in government tax revenues. The ability of the FSG to achieve these regular increases has been surrounded by rumours of suspicious payments being made and recorded as tax income, and subsequently returned to the actor that made the payment. In this regard, it is possible that while tax systems are indeed meeting international standards more than ever before, they may be achieving a cultural shift in tax-evasion practices with only limited increases in tax revenues.
Through these policies, Farmajo distinguishes himself from former presidents Sheikh Sharif and Hassan Sheikh who were both seen to be beholden to key business interests and individuals within Mogadishu. For example, Hassan Sheikh had allied himself with strong business elites in the banking and financial sector, and had also allocated state patronage (specifically within the financial and construction industries through public contracting and setting up discretionary banking funds). Such practices garnered popular backlash, and were seen as the abuse of state resources to the benefit of clan and family. The emergence of new businesses with direct relations to the president, frequently winning public tenders, raised widespread concerns about state capture of the economy.
The expansion of the banking sector post-2012 raised concerns about capital flight, trust relations, and losses. President Hassan Sheikh gave operating licences to Somali Central Bank, International Bank of Somalia (IBS) and Premier Bank. As of 2017, Premier Bank is also operating in Somaliland. For the first time in decades, Premier Bank has partnered with MasterCard and Swift, thereby introducing the country's first automated teller machines (ATMs) in 2015. Yet, it also became evident that new and emerging business elites were mainly using Premier’s international Swift code to move money out rather than investing locally. In addition, despite the emergence of IBS in 2012, IBS was mired in close political relations with Hassan Sheikh and Damul Jadid, amid allegations about the use of discretionary funds, and struggled to overcome the dominance of Hormuud and to build trusting relations. The risk is that economic expansion can be used by elites to capture the economy.
Partially in response to the fallout of corruption claims surrounding Hassan Sheikh, President Farmajo shied away from courting the business community to the same extent. This was part political tact and part political need. Farmajo was not of the Hawiye clan (who make up the greatest part of the business community in Mogadishu), which meant that cracking down on the influence of business elites through more stringent regulation and taxation was also critical to political survival and the consolidation of power. Farmajo also saw himself as a ‘technocrat’, and thus relied instead on the spoils coming from a strong modern election campaign, alternative sources of political finance (mainly from the Gulf), and close diaspora patrons. Deliberate political tactics to separate private and public spheres and neutralise the political influence of the business community also risked positioning his administration in opposition to market and security interests. His rhetoric that sought to renegotiate certain critical components of the political settlement – as a ‘reformer’ – raised concerns from the business community.
As one Hormuud representative argued, ‘Farmajo has not been good for the business community in general, creating local resentment and disrupting networks’. As another businessmen indicated, ‘Farmajo has been bad for business – road blocks, restriction of movement, heightened security, the closures of Bakara market and general inconsistency has made business difficult and more expensive’. Attempts to open up the political space by handing out new contracts was also not effective without broader economic restructuring. The high cost of security and informal norms around economic activity meant new entrants could not compete, leaving them heavily dependent on existing businesses and conglomerates. This was certainly the case for new diaspora-led SMEs that were being favoured in construction, management and other public service contracts under more externally oriented administration. Liquidity disparities between local businesses and diaspora-led SMEs is well-known to favour the former. As one political activist indicated, ‘what you saw were new diaspora companies going back to the old companies saying, “I’ll give you 20% of proceeds if you help me”, and the old businesses are also receiving letters from government giving them the green light to bypass taxation. [These] can come from anyone within the ministries, since it is disjointed.’
The competition for influence between political and economic insiders has meant diaspora businesses have faced popular resistance on multiple fronts due to the threat they may pose for existing norms of economic activity and their role as gatekeepers for donors. As one respondent explained, being an economic insider is still important for reducing security costs and streamlining business: ‘After the civil war, everyone ran away – overseas, the people in the villages and small towns migrated to Mogadishu and they started making businesses. That community who has been working together shares ideology in terms of religion, deals with each other in the Bakara, and is well-connected with Hormuud. Hormuud represents a generation of old businessmen and it is respected for that’. As this business man explains, ‘diaspora cannot visit this market and thus their business activities will not be successful’. Where it may just be a matter of clan for business in Somaliland, it is a matter of networks, security and money in Mogadishu, which makes it more difficult for new entrants despite the greater circulation of liquidity in the market. In addition, Hormuud is embedded at all levels of the government (through civil servants, shareholders and even the provision of security) to ensure its dominance within South Central Somalia.
Thus, while there may be more actors in the market in Mogadishu, the rent-seeking nature puts, on average, a three-month expiry on new entrants – even certain new banks have defaulted. The growth of SMEs has often depended on how far they could collaborate or collude with big business: ‘In Mogadishu there is a monopoly of two or three companies (telecoms and finance) that dominate all sectors – and the growth of SMEs is dependent on how far these companies want to let them in.’ There is ‘little room for SMEs also due to issues of intellectual property – as real estate associations and banks such as IBS and Premier are investing and developing properties themselves, they are serving as competition for developers [who are taking loans from them]’. While aid offered a solution to the liquidity issue for smaller businesses, and even some independence from political access, this has not been a key to growth. Tenders may go to the lowest bidder but this often does not benefit SMEs, as transnational companies can offer lower costs.  In this way, the private sector became divided between new companies that only did business with NGOs/INGOs and the beneficiaries of public contracting and state patronage (the old economic players and other companies associated with previous regimes).
In Somalia, greater competition over state power and resources (furthered by the system of aid rents) has not translated into genuine competition in the market. Instead, SMEs and small competitors became beholden to political elites, tied to more factionalised spoil politics and segmented into discrete networks. Their ties to systems of political patronage have at times risked destabilising critical security arrangements and political pacts, as allocating patronage to new economic actors has threatened to destabilise distribution across the wider political settlement (e.g. a risk that loomed through Hassan Sheikh’s preferential treatment of certain economic actors). In Somaliland, the formation of a discrete economic elite class has seen the reproduction of elite and clan power that has allowed for more organised competition from the bottom up.
In both Somaliland and Somalia, property and land, and property development, have become primary investment avenues for transnational capital. Yet, transnational capital also creates the conditions to re-ignite slumbering ownership conflicts, and the displacement of urbanised IDPs or other socially disadvantaged groups. For example, in Mogadishu, when the civil war started, the land register was destroyed, and consequently there are problems confirming who owns title deeds – for example, the question of inheritance and the diaspora community seeking restitution has led to highly speculative practices and land-related disputes. They may themselves also exploit the weak legal framework surrounding land and property in the city to their own advantage. Complaints have certainly been registered in the Benadir Regional Court against members of the diaspora selling copies from abroad of title deeds to a single property to multiple buyers in Mogadishu. Reports have been also made of diaspora appealing to donors for arbitration in disputes, and of diaspora seeking resolution in Al Shabaab courts.
In ways that are even more pronounced than in the Somali context, businesses in Somaliland have exerted power over the state as its primary benefactors. In contrast to Somalia, the state is not a critical ‘aid dispenser’ or ‘gatekeeper’ to the international system, which has minimised rent-seeking practices among SMEs. Diminished aid rents have also given more leverage to conglomerates in dictating the terms of political and economic reform as the primary benefactors of the state. As fewer rents are available through the state, evidence suggests that diminished private sector rent-seeking practices of the private sector may engender more efficient markets relying on some form of value addition rather than capture. On the one hand, reduced rents within the market has engendered greater economic competition among the major conglomerates (reinforcing monopolistic practices, but also generating a push for state-enforced protectionism). On the other hand, the limited economic space and absence of rent seeking has created more organised pressure from SMEs for reforms and in challenges to the power of conglomerates. As one local businessman reported, ‘there is an economic slowdown in Somaliland, compared to a few years ago. People are a bit restless.’ The momentum underpinning the pressure of these smaller companies is also motivated by negative public sentiments against the strong political and economic influence from Djibouti.
Following Silanyo’s election in 2010, there was increasing visiblity of new transnational business linked to Djibouti with practices that manifested in overt collusion and oligopolistic practices of clan hegemony. Djiboutian politicians and top businessmen held close ties to the ruling Kulmiye coalition party. These relationships remained in place under his successor, Musa Bixi. The role of external actors in an already limited economic space has engendered forms of resistance within the political and economic space over unequal access to political and economic opportunities that has to date been under-researched.
The Djiboutian influence expands across sectors. For instance, several major conglomerates are dependent on Telecom de Djibouti for their connections to the global telecommunications network, while other large corporate actors leverage their connections to Djibouti political elites in order to secure preferential access to contracts from the Somaliland government. The local perception that was repeated by many respondents was that ‘Djibouti owns Somaliland and could turn us off at any time.’ This quote relates directly to the telecommunication links but refers more broadly to a sense of being owned by Djibouti. Such regional and transborder cooperation and dominance among top monopolies differs from the context of Somalia. In Somaliland, the visibility and predatory nature of such practices has encouraged forms of resistance within a more limited economic space. How these business actors operate within the political economy of Somaliland is a subject of much discussion. As one respondent explained in reference to two top conglomerates: ‘The business community has shown real collaboration – Mohamed aw Said of Somcable (from Djibouti) and Abdirashid Duale of Dahabshiil share land around the National Bank, whereas Guelleh (from Djibouti) is more pragmatic. He is not engaged in politics, he deals with [whomever has power].’ Although there is some variation in how Djiboutian businessmen influence politics in Somaliland and competition among major private actors, it is generally perceived as a pattern of cross-border predation and extraction.
This narrative feeds into a national call among the business community that seeks to oppose forms of external intervention and an elite class of business actors that have disproportionately benefitted from contracts and state resources. In this context, it has been noted that large Money Transfer Operators (MTOs) have driven opposition to the banking laws and that for instance Dahabshiil, with its links to the Somali National Movement (SNM) and its offices in Djibouti, has benefitted from politically favourable practices and the selling of public land. Since 2010, Dahabshiil has also benefited from Silanyo’s economic strategies towards privatising critical public assets (electricity and port terminals) along with Somcable (fibre-optics). Within Silanyo’s government, key representatives of Dahabshiil have dominated in an unprecedented illustration of the dominance of a transnational economic and political elite class. In an attempt to redirect this trend, Musa Bixi Abdi, upon his election in 2016, pushed for a stronger (but not necessarily regulatory) state. Yet, Musa Bixi was susceptible to the same pressures as his predecessors, and although he re-nationalised some ventures, he honoured existing contracts and in a few cases (highly publicised in Somali media) awarded several new contracts to these conglomerates (including one with Somcable to manage security scanning machines at Berbera Port). As a consequence, ‘people don’t trust the state. This is because among others, the weakness of the state is to be seen in its inability to even reconcile Dahabshiil and Telesom communications systems. It is not able to even negotiate between Dahabshiil and Telesom. Can’t talk between a Dahabshiil or a Telesom SIM card.’
Thus, the Somaliland state is seen to have failed in its principal role as ‘mediator’ or ‘arbitrator’. Regarding SMEs, the distinction between local and transnational (or diaspora-led) SMEs was still prominent, although less so than in Somalia, given the divides created through government contracts. Transnational-led SMEs are considered to be more elitist, as they are generally tied into the higher echelons of government through public contracting, and therefore have an implicit interest in maintaining the political status quo. By contrast, local SMEs have shown more interested in a level playing field and reforms that could improve their competitive position. These reforms would include the introduction of commercial banking to improve access to finance by introducing cheaper loans, competitive regulation, and improved public infrastructure (through Foreign Direct Investment (FDI)) that could lessen their dependence on the major conglomerates. Here they support strengthening of public services and the role of government as a market regulator, recognising that a degree of rule of law would be an important component of an FDI-friendly investment climate. In this regard, the DP World investment in Berbera Port is seen as a potential catalyst, as the company might have the interest and clout to create an opening for the introduction of commercial banking in order to finance its own operations.