Somaliland wants to be a trading hub. Here are the problems

..and the potential.

Somaliland, a semi-desert territory on the coast of the Gulf of Aden, has set its sights on becoming a regional trading hub for the Horn of Africa. Though not internationally recognised, Somaliland’s "autonomous" status has insulated it from the turmoil that has subsumed Somali for the past two decades. It has a functioning political system, government institutions, its own currency and relatively low levels of political violence.

At the heart of its economic potential is the port of Berbera, used as an import and export hub by landlocked Ethiopia. Its two airports have undergone a USD 10 million Kuwaiti funded makeover which Somaliland hopes will be the start of efforts to develop its infrastructure, creating the potential for it to augment its position as an alternative trade corridor to Djibouti for Ethiopia.

Ethiopia’s USD 43bn economy, while largely closed to the outside world, is growing by 7 per cent a year and the country is keen to develop coffee and leather manufacturing exports.

The need for enhanced infrastructure in the region is demonstrated by persistent bottlenecks at ports in Mombasa, Dar es Salaam and Djibouti. The appalling condition of the Mombasa road linking the port with the rest of Kenya and the countries of the interior exacerbates the backlog.

Ethiopia’s over reliance on one trade corridor through Djibouti leaves the country vulnerable to fluctuations in its relationship with its trade partner, thereby compromising its ability to effectively manage the political economy of trade logistics. The World Bank has encouraged Addis Ababa to develop transport routes through Somaliland to diversify its options and improve its negotiating position with transit corridors.

Infrastructure development will provide a boost to Somaliland’s fledgling natural resources sector. Sharing the similar geology to the oil rich Gulf states, Somaliland and neighbouring Puntland, offer attractive prospecting opportunities for oil & gas companies. Canadian-listed Africa Oil Corp and Anglo-Turkish oil company Genel Energy, have signed contracts with the semi-autonomous governments and are exploring in the region.

In a situation similar to the standoff between Baghdad and Kirkuk, the activities of international oil companies have sparked controversy over which authorities have the right to issue exploration licences. Following the presidential election in Somalia in 2012, Somalia authorities are reasserting their claim that the issuing of such licences falls solely within the remit of the federal government.

The Somali constitution gives considerable autonomy to regional governments to enter into commercial contracts for oil deals, while a petroleum law, not yet adopted by parliament is being invoked by federal officials in Mogadishu to claim that the central government can distribute natural resources contracts.

The seeds of this controversy dates back to the 1991 overthrow of a dictator that plunged Somalia into two decades of violent turmoil, first at the hands of clan warlords and then Islamist militants, creating a political vacuum in which two semi-autonomous regions - Puntland and Somaliland – emerged in northern Somalia.

Multinational oil companies with licences to explore Somalia prior to 1991 have since seen Somaliland and Puntland grant their own licences for the same blocks. At present the federal government is too weak to press its claim and is unlikely to remain so into the medium term. Any concerted effort to force Somaliland and Puntland to rescind contracts has the potential to provoke violent clashes between armed groups and the security forces in the territories.

Activity by a range of investors in infrastructure development and oil & gas exploration is indicative of the potential to be unlocked in even the most challenging territories. With appropriate insurance coverages providing balance sheet protection against the challenges posed by unpredictable government action and the threat of political violence, opportunities abound for the intrepid investor.

Photograph: Getty Images

JLT Head of Credit & Political Risk Advisory

Getty
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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.