The impact of transnational businesses active in Somalia has been considerable. The economic resurgence in the country owes much to the sizeable and pioneering role played by a range of transnational entrepreneurs, and a more limited number of large business conglomerates especially. Their willingness to invest at even the most difficult of times has helped bridge the Somali population through a range of difficult times that saw other actors withdraw, and has even helped push a relatively rapid degree of economic recovery and a widening of available services. The social services these companies have provided have been among some of best available in the region. Over the past decades it was the private sector that ensured the availability of a wide variety of essential goods, that shipped and distributed humanitarian aid for the international community, that pushed for the re-start of container shipping, ensured connectivity to the Somali community abroad, and maintained functioning financial services next to a number of other essential services. In this way, and especially through the transfer of remittances, a few companies have served as a veritable lifeline for the nation.
Regardless of the important social function fulfilled, however, it should be kept in mind that part of the reason that only these companies fulfilled this role was that it allowed them to keep competitors out of the sector. Besides their humanitarian function, the unique position these companies occupied also allowed them to entrench a privileged position within their sector, as well as a number of other unrelated sectors, and allowed them to establish highly favourable relations with political actors. While these companies’ strong competitive position has allowed them to rapidly develop a range of new markets, it has also hindered competition and entrenched a status quo from which not everyone benefits. As a specific set of private actors and their clients in the public sector increasingly benefit from the economic resurgence, significant groups within society end up lagging further and further behind. Although a number of initiatives have been launched in the past to stimulate the establishment of SMEs (often from the diaspora), it has become increasingly clear that their ability to compete is severely constrained, either by liquidity constraints or through a requirement to share the benefits of their operations with the same individuals currently benefitting from the predominance of the major business conglomerates. These dynamics thus further feed inequality, especially for those already in precarious positions – and increasing inflation risks putting their livelihoods under further pressure.
The role of the emerging transnational business models has not been fully understood and has rarely been effectively addressed by international policy makers. Over the past decades a peacebuilding paradigm has emerged that puts effective state institutions at the centre of international efforts to rebuild and stabilise post-conflict states. Somalia is a prominent case in point, with most of the international community’s effort being focused on strengthening the Transitional Federal Government and the key economic institutions of the central state. At the foundation of this approach is a belief that ‘only strong national institutions can ensure that the state is associated with provision of positive services to the population and can be held to account by its citizens’. Yet in many ways, as this study shows, the Somali territories bring this approach into question, with the emerging conglomerates acting as a stabilising force and managing to provide a degree of governance and public services that responds to the capacity and even to some extent the legitimacy deficit of key governance actors. These actors, as shown, have also become a part of the very governance process by replacing some of the government’s functions. Corporate actors are functioning as an effective bulwark against the state predation practices that were in place under Siad Barre. Yet, they have also developed a strong capacity to interfere with some of the priority functions of the existing political institutions: they have the capacity to affect the outcomes of the representative process which is supposed to deliver credible leadership at national and local level and can impact the ability of the existing executive branches to take and implement collective decisions. In short, they have built themselves into the governance system in a way that ensures a high degree of influence without much visibility, and with it also a degree of protection from governance initiatives impinging on their economic interests. Regardless of any normative views that the donor community may hold of such practices, they are important elements of the existing power arrangements in the country and need to be taken into account as such. These actors will be actively involved in institutional reforms, regulatory pushes and taxation drives donors may seek to implement through formal governmental agencies. As such, programmes neglecting to actively manage the business interests affected by them may end up in deadlocked negotiations and procedures, with highly specific or incomplete content reducing its impact, or they may be poorly enforced, if implemented at all.
When it comes to attempts to leverage the diaspora to drive development in Somalia, it should be kept in mind that Somali transnational engagement falls outside of the mainstream analytical and policy framework on engaging diaspora in the development of their countries of origin. The harnessing of remittances by the transitional Somali business elite and leveraging money transfers into the creation of powerful conglomerates sets Somalia apart. This process in fact bears more conceptual similarities to the engagement of large multinationals in fragile states. Regarding smaller initiatives, it should be considered to what extend this engagement with the diaspora presumes a certain level of institutional development in the countries of origin – tax system, access to finance, segments of markets where their skills may be put to use, etc. The best practices focus on skills transfer, labour matching, and removing institutional barriers to diaspora economic engagement in both countries of residency and countries of origin. The challenge in Somalia, however, is in this underdevelopment of even the most basic regulatory infrastructure – especially in the lack of financing beyond what the diaspora can bring in terms of their own savings or shared family capital – and the interest structure that ensures this situation endures. The challenge in Somali regions is therefore how to engage parts of its transnational community in the creation and stabilisation of an entrepreneurial middle class. While support to viable SMEs may be a key part of that, the major enabler required to make this an effective strategy is a viable financial and institutional framework in which they could develop. In order to better manage the business interests entrenched in the political and statebuilding processes that donors seek to aid, and thus to improve programme effectiveness and reduce the associated risks, the following recommendations should be kept in mind:
Effective programming in Somalia or Somaliland must take into account and address the interests of the major transnational conglomerates
Donor programming that does not take into account the interests of the major business conglomerates it affects, especially if it affects one of their core markets but also if it affects one of its related entities, risks deadlock, capture or other unintended consequences. Given their economic, social and political influence, the corporations can act as major supporters or spoilers. They are a force that by default neither supports nor challenges the state. Instead, they are powerful and resilient stakeholders largely independent of the state, with positions and interests in a variety of areas – including programming on peacebuilding and institution building. Stakeholder analyses should therefore include them in their mapping, and engagement strategies should actively consider engaging them where prudent and limiting their influence where necessary. This requires an understanding of these companies’ intended growth model, as well as their current key markets, other interests, and channels of influence. In most cases, it may be prudent to ensure communication with a number of corporate stakeholders, although any engagement strategy should consider what forms of engagements are appropriate to address such a disproportionally influential stakeholder next to a range of other relevant stakeholders. Additionally, given the long-term aims of many governance and statebuilding projects, specific efforts may need to be made to relate these to more immediate commercial objectives. It should also be kept in mind that the conglomerates’ legitimacy partially relies on avoiding visible association with the political sphere, instead engaging the political sphere in more covert channels and the public on its own terms through its CSR programme. Bridging this gap may be an essential but difficult step to take.
The development of a formal banking system increasing access to capital is a key step to ensuring more equitable economic development
Profitable business opportunities are readily available in developing markets such as Somalia. Yet in a market mostly supplied through imports, the lack of access to substantial capital (in hard currency) is preventing small-scale start-ups from growing. Given a scarcity of affordable loans, existing SMEs are required to rely solely on organic growth. As the conglomerates captured the main liquidity generating markets and raised entry barriers, liquidity constraints form an artificial limit to the development of the SMEs. This, in turn, particularly limits the emergence of medium-sized enterprises able to compete with the conglomerates, thereby also limiting the demand for a more transparent and level playing field that medium-sized enterprises require to compete with larger competitors. Clientelist ties between private and political actors are thus allowed to persist. In order to overcome this constraint, new sources of funding will need to become available to smaller entrepreneurs. These new sources should be able to cover larger loans, be paid in hard currency (rather than goods), and be provided at competitive rates. Given the lack of strong ties between existing actors providing finance and other large business interests, changes will likely have to come from new entrants into the market that may be able to force an opening for new or foreign commercial banking entities. Opportunities like the entry of DP World in Berbera port might be leveraged to create the space for the introduction of such new entrants, as a sizeable multinational entering the market will most likely need to open up previously closed business networks to ensure access to the services and supplies it needs itself (for example, DP World may need access to international banking to transfer funds between assets and to pay local salaries).
Scaling up selected SMEs may function as a catalyst to create space for further economic development
Ample opportunities are available in the Somali market, and they are frequently seized by local and diaspora SMEs. As noted before, these small enterprises face significant constraints in their operations. Numerous markets do not allow for equal competition, loans allowing a company to scale up are scarcely available, and there are entrenched clientelistic networks seeking to capture the profits of newly established businesses. Additionally, the skills required to scale a business, such as the ability to define a growth strategy, manage larger projects, financial management and marketing skills, are relatively rare. Technical skills are also poorly available due to the relatively weak system of formal education, making it difficult to recruit additional staff (especially given the high salaries paid in the telecommunications sector). While many start-ups might be able to overcome some of these obstacles, few have been able to navigate all of them successfully (save those supported by existing economic elites). Nonetheless, the presence of new and growing enterprises may be a key catalyst to create more space for new entrants in a variety of markets, speed up economic development, which tends to stagnate in monopolistic situations, and provide new avenues for social advancement through new job opportunities. Incubating and/or supporting enterprises that may serve this role may thus be a more effective approach to stimulate economic development than promoting the creation of additional start-ups. Granting scalable businesses the support they require to carve out their own niche, be it through business skills training, running on-the-job vocational training, financing, protection from predatory practices, or support acquiring relevant licences or certification, would help the establishment of such enterprises and grant them the space to develop new markets. While this would not and should not seriously threaten the business models of the major conglomerates, it could establish some boundaries on their influence – creating some space in which other players could compete.