INVESTMENT PROSPECTS
What are the Prospects of Investing in the Federal Republic of Somalia
- Sunday, October 09, 2005 at 15:42
By Dr.Ali Abdullahi M Barkhadle
Somalia has been without a government since 1990. That government collapsed due to a civil war that was instigated when the government started ethnic cleansing, mismanagement of public finances, and corruption that was endemic in both the public and private sector. In the private sector corporate governance was something unheard of and on the public sector cronyism and nepotism became an art for looting state finances. So today our question is, in spite of the formation of a federal government for Somalia what are the prospects of investing in a country that has to yet fully resurrect from civil war?
Looking back at what happened in Somalia many will hope that lesson of history will have been learnt by all, but it still remains a topic that is often forgotten intentionally by many politicians and business people. After a while and after seeing the chaotic nature the civil war has left on Mogadishu and it’s environs two states emerged from the current ashes of chaos- one in 1993(Somaliland) and the other Puntland (1998) both with their own government, police force, parliament, and judiciary .While Somaliland advocates for total independence and cessation, Puntland prefers a federal system of government. Somaliland has no international recognition so far and it’s governed by remnants of the dictatorship era.
After a number of conferences the last one held in Kenya by IGAD (Intergovernmental authority on development, a regional body consisting of Sudan, Uganda, Ethiopia, Kenya, Somalia, Eritrea, and Djibouti) seems to have produced a viable government with a federal structure.
(Update Concerns 4th April 2006)
While security, relocation, international relations, financial assistance and human resource has been a challenging task for the new government there have been developments in all areas mentioned recently. The Government has relocated to Jowhar a town that is 90km from Mogadishu due to security concerns in the former capital, a number of countries have promised to provide technical and financial assistance but still the government has only got pledges with no tangible assistance from the Arab league or the International community.
Somalia has a huge pool of talented Diaspora with the capabilities of transforming the economy to a highly developed nation that will require the governments in the Federal states of Somalia to rethink their development models. Currently remittances and exports of Somalia have reached almost $1billion dollars most remittances coming from the Diaspora. That resource can be tapped when governments show sincere signs of cooperation with the only investors in Somalia and that is the DIASPORA Somalis that might bring along other international investors.
The government and any other foreign investor who needs to invest in Somalia also need to tap and coordinate with the said pool of individuals and specialists on Somalia.
The current legal frame work in Somalia can be termed as being underdeveloped and in some parts unavailable. The states of Puntland and Somaliland even have to put forth investment laws, company laws, and land laws though some are presently available while other laws still remain to go through parliament.
The current federal government has to also put together Investment laws, company laws, and land laws to effect any foreign direct investment. In the coming months the federal government will also need to set up committees to see into the formation of a legal structure to entice foreign investments if those laws are not available then direct foreign investments (DFI) cannot and surely will not come to Somalia.
The recent Oil and Mining deals in Puntland also needs to be revisited due to first, lumping together mining and oil concessions giving an unfair advantage to Consort Pty Ltd and Range Resources who are both juniors in oil exploration.
Secondly, giving out approximately 212,000km˛ that is the whole state to a single company is something that has never been heard of in the resources industry. It seems the negotiators had a very limited understanding of the mining and oil industry or were in need of quick money. For instance Puntland can be divided into many blocks using modern GIS systems and then a regulator is given the duties of regulating while the government looks into the taxation and royalty areas.
Thirdly, the above area of 212,000km˛ is too huge for a viable study to be done on. Even multinational corporations with huge budgets for explorations cannot bite into such a huge cake without damaging shareholder value.
The Malaysian model of Production sharing agreements (PSA) can or might be adopted for while as a start. But what remains to be solved is the vexing issue of giving away areas that have been in “force majeure” without due consent from original concession holders. It can or will generate a legal minefield for would be investors in a farm out process.
Somalia had issued a number of concessions and prospecting licenses to a number of International Oil companies in the 80’s when Hunt oil discovered oil in Yemen that protruded into Somalia. A number of Consortiums were created by Conocco, Amoco, AGIP, PECTEN, PHILIPS all had concessions in Somalia. The parent companies of original concession holders have changed due to takeovers, mergers and joint ventures and ownership questions still remains since most of these companies declared force majure.
Political risk has reduced immensely and the Somali people have developed internally and externally and will welcome any investors in the resources industry.
In conclusion Somalia seems to have managed its political problems via the emerged states and a federal structure but that needs economic and human development to follow. In a 1991 World Bank coordinated study intended to encourage private investment in the petroleum potential of eight African nations, geologists put Somalia and Sudan at the top of the list of prospective commercial oil producers. Today, Sudan has proved right with huge investments by China, Malaysia and India and the discovery of huge oil deposits in the Muglad basin. As for Somalia the Nugaal valley, The Awdal regions, Hafuun Areas and Mudug area seems to be the next big oil producing regions in Africa. The last time any exploration was done was in 1988 and the world has advanced technologically especially deep sea exploration. To add on that Somalia has got 3333km of coastline that has barely been explored fully.
According to the late Thomas O’Connor chief petroleum Engineer at the World Bank said “It’s there. There is no doubt there is oil there. You don’t know until you study further just how mush is there and it has commercial potential. It’s got high potential…… once the Somalis get their acts together.” In my humble view, I hope we get our acts together soon and I mean very urgently or the world will never look at us again.
_______________
The writer Dr.Ali Abdullahi M Barkadle is a Resource and Management consultant to Lundin Petroleum AB and other International organizations he is also the Chief Executive of Amsas consulting, and was a former Presidential candidate for the Federal Republic of Somalia. He can be contacted at info@amsasconsulting.com
NB: A full version of this paper can be received from Amsas Consulting Pty LTD for a small fee by visiting http://www.amsasconsulting.com
Source: AllPuntland.com
