Regulation and Social Responsibility: A Must If Somaliland Is To Have A Stable Economy

Hargeisa, 16 May 2009 – The arrival of BCIMR commercial bank in Somaliland is a great indicator of how fast the region is progressing economically, socially and politically as a bank that is a subsidiary of a major international banking organisation such as BNP-Paribas which is based in France, would not have taken the decision to open a branch that offers such a large variety of financial products and services in Hargeysa so lightly.

The most important factors for any businesses to consider when investing outside their home countries are security, political stability and most importantly, the potential for growth and expansion within the new market and within Somaliland, BCIMR has found all of these. Despite, the widespread poverty within Somaliland, what is clear is that not only is their peace but that peace itself is what the citizens of the nation value most and hence there is very little risk of their investment being wasted.

Somaliland has also enjoyed political stability for over a decade now and this is best illustrated by the free and fair election that is to be held this year with the two main opposition parties being in a better position than the current ruling UDUB party to form the next administration after the election. Furthermore, as is evident from the expansion both in size and trade of the major cities in Somaliland such as Hargeysa, Berbera, Burco and Borama, the potential for growth and expansion is not only a real possibility but it is one that is achievable within a short timescale.

In the last ten years, despite the civil war in the South, Somaliland has seen an explosion of business activity in the major cities such as Hargeysa which has been strongly driven by the tourism, construction and education industry. Currently, Somaliland welcomes over a hundred thousand visitors a years from Europe, the Middle East and North America who all come to spend their summer holidays in the country.

The construction and education sectors success and growth is evident in the large number of private schools and higher education providers that exist and the reconstruction of the major roads, towns, hospital and privately owned homes that line the streets of most major towns. It is this very boom that has attracted BCIMR Bank to Hargeysa and whilst it is a sign of progress and prosperity, the government of Somaliland must be warned in advance that if unregulated what can now be perceived as progress could easily turn into an economic disaster.

In order to avoid this disaster banking and lending practices must be regulated thoroughly to ensure that the consumers not only get value for money but also a service that is solidly trustworthy unlike the ponzi scheme that conned hardworking investors and savers in Hargeysa out of, what for some, were their life savings. In line with Lord Turner’s (of the UK) recommendations, the government of Somaliland must ensure that BCIMR and other banking groups do not encourage risk taking on the sale of exotic financial products by offering large commissions and incentives to bankers who sell these products to the public and that these same banks actually put aside reserve capital to compensate for any potential loss on their investment so that the government does not become burdened with the expensive task of bailing them out like in the USA and UK.

The government should also encourage competition within the market so as to make the market more consumer led than it been dominated by a few large corporation who have a monopoly within the banking sector and as a result heavily influence the policymaking process which would bring Parliamentary sovereignty in Somaliland into question.

There are many effective methods of regulating banks and general business activities but what is crucial is that this should be carried out by an impartial and well qualified agency staffed by professionals and academics with experience from the same sector. Furthermore, a select committee of MP’s should be set up to scrutinise banking and business rules and practices within the region so as to ensure that the corporations such as BCIMR remain accountable to the public and are governed in a way that best represents their interests as well as that of their customers.

The entire G20 Summit in East London was an excellent illustration of what the ramifications would be if the markets are not well regulated because despite the fancy rhetoric and the utopian like promises, the entire summit was called to discuss ways of getting back to banking basics and formulating regulation methods that would ensure that the financial system would not collapse again in the future. The Western style economic models that are encouraged by the developed world in Africa are risky and these are not risks they insure them against in case they go wrong.

The lesson to learn from the G20 summit is that the Anglo-American economic model breeds greed and should be discouraged and based on this, it is better for Somaliland to start with strong economic foundations by creating a system whereby good regulation is standard practice so as to insure itself and its people against the greed of a few which in the banking circles is known as “investments.”

In conjunction with regulation the government must encourage and to some extent, enforce social responsibility upon businesses that operate in Somaliland by creating clear and fair business tax structures which they can enforce for the greater good of the wider, poorer population. Just like in the West, in Africa a small percentage of businesses and wealthy families control over 95% of the wealth and Somaliland is no exception.

The business taxes that are collected should be used to invest in public policy ideas in the key areas of education, job creation, healthcare, housing and other social endeavours that are desperately needed in the country. It would be wrong to suggest that this system of taxation does not exist in Somaliland because it does, but the issue is that collected taxes rarely reaches the people and the social development goals it is aimed at assisting.

As a result of corruption, much of the meager collected business taxes are spent before it even reaches the treasury and when it does come as far as the treasury, it disappears in to the government executive’s pockets or expenses. Arguably, the Somaliland government must first tackle its own in the area of corruption before it enforces social responsibility upon businesses because business are unlikely to pay taxes if they can avoid it through bribing government officials.

The fact is that businesses hate regulation and taxation and would do anything to avoid both. In most of the developed world they hold the governments to ransom by threatening to invest in other countries that have less or none of both of the things they are running away from but unlike in these developed countries, the majority of companies that have invested or invest in Somaliland are Somali owned such as Dahabshiil, Daallo airlines and Rays Hotel.

This means that the Somaliland government does not need to fear these businesses leaving and finding a better business climate because the majority of their clientele are in Somaliland and they have nowhere to go to hide from the taxation. In fact if they could have found a better business environment for themselves they would have relocated many years ago, but the fact is that they cannot and because of this the government must be brave enough to stand up to them and enforce their obligation to pay the taxes they owe to the country and its people, which they in turn should use to invest in the services that are most needed by the people.

The government should also be looking at other ways of making businesses socially responsible such as creating employment for the population and where this does occur, or is already happening, it should work towards creating a minimum wage which the businesses can afford to pay without upsetting the flow of business.

Regulation and taxation are a must if there is to be stability and growth in Somaliland and if the government is brave enough to stand up to businesses in both areas then it will enjoy a successful working relationship where they are equals as opposed to slave and master. The government of Somaliland should never encourage profit before people and should avoid creating and nurturing a Wild West economy run by business fat cats who inflate prices and restrict supplies to create personal profits.

The government is challenged instead, to create a business environment that is both profitable economically for businesses and socially for the public it has been elected to serve. It will not be an easy task as greed is impossible to regulate but banking practices are not and this is where the government must take the initiative and lead the economic policy of the country rather than leaving it to the banks and businesses who the public distrust more than them.

Liban Obsiye,
Bristol, UK.
libanbakaa@hotmail.com