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How can Somalia avoid the ‘resource curse’?

How can Somalia avoid the ‘resource curse’?

The discovery of oil could bring great wealth to Somalia, but the country’s leaders will need to act wisely in order to ensure the benefits outweigh the downsides, writes Hakim Abdi.

During the 2018 Africa Oil Week last November, the Somali Ministry of Petroleum and Mineral Resources announced that 206 offshore oil blocks were available for exploration in the country. Fifty of these blocks, an area totalling 173,000sq km, will be auctioned in 2019 and the federal government of Somalia has invited bids from foreign energy companies.

Offshore Somalia is estimated to hold around 110bn barrels of oil, which would make them the sixth largest reserves in the world.

For a country that has been at the bottom of global rankings on the basis of transparency, human development, passport power, and safety, oil could be a significant source of hard currency capable of turning things around and fuelling development. But there are potential downsides to the discovery of oil in Somalia. The country might slide back into violence as vested interests such as clans, politicians and influential businessmen stake their claim on the newfound wealth. However, the benefits of oil wealth outweigh its risks if it is managed meticulously and with foresight.

The need for new sources of government funding is great. After 28 years of neglect, the country’s infrastructure leaves a lot to be desired. Opportunities for development include improving and supplying basic necessities including sanitation, clean water, electricity, medical facilities, and schools. Roads are either unpaved or non-existent, thereby reducing accessibility. Due to recurrent droughts in Somalia, increasing access between villages, towns and cities is critical, with a lack of access to humanitarian aid a major contributor to famine.

With billions of dollars in hard currency potentially coming into the Treasury, it would be tempting to follow what other African countries have done and pump money into projects without much planning or oversight. Yet the government must prioritise sensible, clean, well-maintained and accessible social housing for the 750,000 refugees in Kenya and Ethiopia that will need to be resettled back home.

Invest in renewables

Ironically, one sector that would benefit from oil revenue is renewable energy. Somalia could follow Norway’s example and use oil revenue to fund renewable energy projects that provide communities with sustainable and reliable sources of energy. Somalia is geographically well positioned to take advantage of three different forms of renewable energy: solar, wind and ocean current.

The solar energy potential in Somalia is well known – every year, Somalia receives between 1500 and 2500kWh per square metre of solar radiation. Wind is another resource that could be tapped given the Somali peninsula’s location close to the southwest and northeast monsoons. Some parts of Somalia are so windy that if 100-metre turbines are placed in the windiest parts of Nugaal, Bari or Sanaag they would produce between 750 and 1400 watts per square metre from wind speeds reaching up to 10 metres per second.

Meanwhile, studies have shown that harnessing a fraction of the energy stored in ocean currents is enough to supply power to millions of people. The aptly named “Somali current”, a continuous movement of seawater as strong as 3 metres per second that runs the length of the Somali coast, provides ideal conditions for generating marine power. This current is also the reason why the Somali basin is one of the world’s most productive areas for fisheries, another sector that can be further developed with oil revenues barring any oil spills.

Develop tourism

The travel and tourism sector could also benefit. Whether it is the 3,025km of coastline, the pristine mountain forests and rugged valleys in the north, or the tropical woodlands of the south, the Somali landscape does not lack tourism potential. The government can earmark funds for the development and maintenance of tourist infrastructure as well as reviving the national air carrier to market the country to the world. Tourism can bring significant revenue into the economy while generating employment opportunities for locals. In neighbouring Kenya, the travel and tourism industry brought in $1.2bn in 2017 and employs roughly half a million people.

f oil is discovered, the Somali leadership needs to be both prudent and pragmatic.

The United States recently pledged $900bn in development assistance to Somalia and opened a permanent mission in Mogadishu nearly three decades after closing its embassy there. With the current US administration’s enthusiasm for business deals on the continent, oil sector collaboration could pave the way to a future US-Somalia trade deal. This could lead to further involvement from the US private sector in the Somali market as conditions improve in the country and contribute much-needed foreign direct investment. However, the lack of financial transparency in Somalia may pose a challenge if the government is to convince the Somali people that these foreign investments are indeed good for the country.

The relationship between the Somali state and its people is marred by a lack of trust in government institutions that has developed after years of embezzlement by the political elite and their cronies. In 2017, Somalia ranked 180th – last in the world – in Transparency International’s Corruption Perceptions Index. The discovery of oil may exacerbate the situation, fuelling the so-called “resource curse” that has afflicted other African countries. However, the government can make a start to amending this relationship by adopting a practice common in some developed countries where government contracts and the salaries of all civil servants are made available to the public. This will help to make government operations transparent and ensure that the expenditure of public funds can be scrutinised by citizens.

The relationship between the federal government and its regional states is tenuous. Some regional states have circumvented the federal government and dealt with foreign governments and international corporations. For example, the government of the semi-autonomous region of Puntland unilaterally greenlighted oil exploration back in 2012. This relationship needs to be mended to guarantee that oil wealth is properly managed and that it reaches all Somalis.

The foundation of every government-funded project must be a plan for sustainable and diversified development that will continue decades into the future. The reasons for this are simple: the supply of oil is not unlimited, and oil prices are anything but stable. Relying solely on this resource while neglecting other development is a recipe for disaster.

Hakim Abdi, PhD, is a postdoctoral researcher at Lund University in southern Sweden.

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Written by African Business Magazine

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