Introduction
Somaliland, a partially recognised democratic state in the Horn of Africa, was under British Protectorate from 1884 to 1960, during which it gained its first independence from Britain on 26 June 1960, before voluntarily joining Somalia on 1 July 1960. However, this merging did not go well, and the Somaliland people were subject to brutal genocide committed by the then-ruthless dictator of Somalia, Mohamed Siad Barre.
Following years of armed struggle, in which hundreds of thousands were killed, millions sought refuge in neighbouring countries, and the main cities, including the capital Hargeisa, were reduced to rubble, the people of Somaliland reasserted their lost independence from the failed union of Somalia on 18th May 1991. As a result, the Somaliland people rebuilt their country from scratch without external help. And from then, the Republic of Somaliland has been a beacon of peace, democratic governance, and a shining oasis in a volatile region.
Yet, despite these achievements, Somaliland remains economically stunted due to its unrecognised status. As per the Ministry of Planning and National Development (MOPND, 2025), Somaliland’s Gross Domestic Product (GDP) (constant 2017 prices) is 2.607 billion USD with a per capita income of 556 USD, and it is largely consumptive in nature, demonstrating one of the poorest in the world. This piece argues that international recognition is not merely symbolic; it is essential for Somaliland’s economic survival and growth. Recognition would unlock access to global financial systems, foreign investment, development aid, and formal trade agreements, allowing Somaliland to fully harness its economic potential.
The Economic Cost of Non-Recognition
1. Trade Barriers and Missed Opportunities
Somaliland heavily relies on international trade, and its trade is characterised as a very open economy, but it does not have formal bilateral or multilateral trade agreements with its trade partners. Somaliland traders operate an informal trade arrangement, which sometimes risks their assets. Somaliland is not a member of or does not have access to the World Trade Organisation (WTO), and other regional trade blocs like the East African Community (EAC), and this isolates Somaliland's business trades from having business with their fellow regional and international counterparts.
The lack of trade facilitation instruments, such as letters of Credit (LCs),further hinders international commerce, delaying transactions and compromising the safety of imported goods. In addition, Somaliland traders cannot export their goods to other countries because there is no bilateral trade arrangement, and they import goods in an informal way from abroad, which compromises the safety and the timely delivery of the commodities.
Moreover, the full potential utilisation of Berbera Port- a key strategic gateway for the region- remains underutilised due to Somaliland’s diplomatic isolation.
2. Foreign Direct Investment Constraints
Developing countries often rely on FDI to bridge the gap between domestic savings and capital needs. In 2024, Somaliland’s domestic investment was only 369 million USD—just 9% of GDP—highlighting the need for external capital flows (MOPND, 2025)
This meagre local investment reflects a lack of external finance since the domestic savings is not sufficient to fill the capital gap. For this reason, the lower capital gap exists in the low-income countries, like as Somaliland is filled by external finance in the form of foreign direct investment. One of the most important capital flows, foreign direct investment (FDI) has historically served as a source of funding for developing economies. Many academics and policymakers now view FDI as a key growth driver because of the positive spillover effects it has on other economies, including increased capital formation, the transfer of cutting-edge knowledge, and new ways of doing things. Foreign direct investment plays a significant role in expanding the economic growth of sub-Saharan African countries (Ahmed & Rahman, 2020; Joshua et al., 2021; Sukar et al., 2011).
Due to a lack of recognition, Somaliland has faced numerous challenges in attracting foreign investment. Thanks to the UAE government's decisive, bold step, the single largest FDI ever in Somaliland was the investment of the Berbera Port by the UAE’s Giant port operator DP World, and the Berbera-Wajale Corridor. While impactful, this investment is just a glimpse of what could be possible with full international recognition
Imagine if Somaliland could have attracted dozens of FDI’s like the one made by DP World, what impact could it have on the economy? Certainly, huge positive impact.
Therefore, with recognition, Somaliland could attract billions in FDI, boosting infrastructure, creating jobs, and enhancing technical capabilities.
3. Foreign Aid Diversion
Foreign aid, also known as official development assistance (ODA), plays a crucial role in enhancing the economic growth of low-income countries, such as Somaliland. Previous research indicates that ODA acts as a source of funding for development projects and economic infrastructure in low-income contexts. ODA can help finance essential services, such as education and healthcare, which are critical for long-term economic development (Azam & Feng, 2021). There is a positive correlation between ODA and per capita GDP growth (Choi & Kim, 2024; Jeong & Yoo, 2008).
Due to a lack of recognition, the ODA allocated for Somaliland by the international community has to go through Somalia, which always politicises and weaponises the aid or diverts it to other areas. In responding to this, in 2013, the Government of Somaliland developed the Somaliland Special Arrangement (SSA) in cooperation with the international community, under the New Deal Pact, which was designed to be distinct from Somalia’s ODA, but unfortunately, the Farmajo-led government has terminated it. And this is a clear, crystalline indication of using international aid as a weapon by Somalia. For this, Somaliland has been in trouble receiving the allocated funds from the international community because of the roadblock of Mogadishu.
Hence, the recognition would allow Somaliland to receive aid directly, enabling more effective implementation of development projects in sectors like health, education, and infrastructure.
4. Banking and Currency Challenges
Functional and sound financial institutions integrated into the global financial system are a critical pillar for a country's economy. Somaliland is excluded from international financial institutions thanks to the diplomatic isolation it has been facing over the past three decades. No International banks are operating in Somaliland; the Central Bank of Somaliland is not connected to the global banking system- the Society for Worldwide Interbank Financial Telecommunication (SWIFT system)- a critical infrastructure used by global banks and other financial institutions to send and receive secure and standardised information for payment instructions across borders. Also, our bank is not a member of other regional or international banks, including the African Development Bank, the World Bank, or the Bank of International Settlements (BIS). This status of global financial exclusion hampered the Somaliland business community in export and import transactions, the foreign investment conduciveness, and the cross-border payment at large.
In addition, money serves as a medium of exchange, a store of value and a unit of account. It is a critical tool for the economy at large and trade in particular. The Somaliland Currency- the Somaliland Shilling (SLsh), lacks some of the above mentioned functions, it could not be used as medium of exchange beyond Somaliland whether export or import transactions, and the people do not save it in accounts because of the fear of not only depreciation but lack of unacceptance beyond Somaliland, and finally even in local transactions, it is always dollar based-implying the currency even not trusted as a unit of account or the local business transaction. As a result, the Somaliland domestic business became a dollarized one, let alone beyond the border.
The Economic Promise of Recognition
International Recognition offers the following concrete gains:
Integration into Global Financial System: Access to institutions like the World Bank, IMF, the BIS, and the African Development Bank.
Connection to SWIFT: Enabling secure, fast, and standardised international banking transactions.
Foreign Direct Investment and Foreign Aid Attraction: attracts billions of dollars to finance its development projects, such as agriculture, livestock, industries, energy infrastructure, roads, ports and airports
Formal Trade Agreements: Facilitating exports and imports through official bilateral and multilateral accords.
Enhanced Port Utilisation: Berbera Port would serve as a regional hub through formal trade and transit agreements with Ethiopia and other East African Landlocked countries.
Tourism Growth: Increased visitors to sites like Laas-Geel would boost foreign exchange and cultural recognition, and the overall economy.
Conclusion
Lastly, following the increasing weaponisation of international aid, airspace, trade and every aspect of life-touching matters, the international recognition means an economic survival for the people of Somaliland and their government. The lack of recognition made Somaliland lag behind its regional counterparts, preventing it from utilising its economic potential, and excluded it from the international financial system. And hence, the recognition does not represent a just symbolic issue but a life-changing matter to the people of Somaliland.
Through recognition, the Republic of Somaliland will unlock many tangible economic benefits- its economy will move from an informal, non-integrated to a fully vibrant economy connected to the world with the necessary trade facilitating tools and financial inclusion. Through recognition, the Somaliland economy will thrive through attracting foreign direct investment and foreign aid, connecting to the global financial system, unlocking its untapped natural resources, and becoming a member of regional and international trade organisations. Democratic and stable governance, and its geostrategic location, will further position Somaliland as a key economic player in the Horn of Africa upon formal international acknowledgement.
In short, For Somaliland, recognition is not a symbolic diplomatic luxury- it is an economic necessity
References
Ahmed, A. T., & Rahman, I. U. (2020). The Impact of FDI and Foreign Aid on the Economic Growth: Empirical Evidence from Sub-Saharan African Countries. International Journal of Science and Business, 4750, 53–70. https://doi.org/10.5281/ZENODO.3870562
Azam, M., & Feng, Y. (2021). Long run effects of foreign aid on economic growth. Journal of Economic Development, 46(2), 1–20. https://doi.org/10.1007/s40847-021-00112-3
Choi, J., & Kim, S. (2024). Assessing foreign aid's long-run contribution to growth in development. Development Policy Review, 42(1), 1–15. https://doi.org/10.1111/dpr.12678
Jeong, H., & Yoo, S. (2008). Impact of foreign aid on economic growth in South Asian countries. Asian Economic Policy Review, 3(2), 1–20. https://doi.org/10.1111/j.1748-3131.2008.00063.x
Joshua, O., Akinbobola, T. O., & Gibogwe, V. (2021). Globalization, foreign direct investment and economic growth in Sub Saharan Africa. In A. Sukar & K. Kufuor (Eds.), Investment dynamics in Africa (pp. 112–130). Oxford University Press.
· Ministry of Planning and National Development, Central Statistics Department. (2025). Somaliland gross domestic product report. Hargeisa, Somaliland.
· Sukar, A., Nigo, A. R. S., & Kufuor, K. (2011). Foreign direct investment and economic growth in the Southern African Development Community. In V. Gibogwe (Ed.), Economic integration in Southern Africa (pp. 88–105). Cambridge Scholars Publishing.
Profile of the Author
Abdifatah Ahmed Hurre is an MSc in Economics (Financial Specialisation), Mekelle University; MA in Project Management, Admas University. He is a researcher, expert in governance, and economic and political analyst in the Horn of Africa at large and with special focus on Somaliland.
He can be reached via:
Email: Afatah.hurre43@gmail.com
Tel: +252634278073
No comments:
Post a Comment