Somalia oil bonanza – boon or curse?

Current Affairs

Somalia oil bonanza – boon or curse?

Seismic surveys have indicated that off shore Somalia is sitting on over a billion barrels of oil. Licensing rounds began last month and with unerring timing, the US has reopened its mission in the country. While there will be the usual scramble for oil by foreign companies, how much of this boon will the long-suffering people of Somalia enjoy? By Hakim Abdi*

The potential discovery of oil risks eroding the small steps Somalia has taken towards stability. On December 2, 2018, the US Department of State announced the re-establishment of ‘permanent diplomatic presence’ in Somalia nearly three decades after closing the US embassy in Mogadishu at the onset of the Somali conflict in 1991.

The announcement was followed by a statement from the new ambassador, Donald Yamamoto, that the US will invest $900m in the coming years “to create a better tomorrow for the people of Somalia”.

This was hailed as a recognition of the small but significant steps Somalia has taken towards stability. These steps include the election of Mohamed Abdullahi Mohamed (‘Farmaajo’) as President in February 2017, which marks the third successive peaceful transfer of power since the establishment of the Federal Government of Somalia (FGS) in 2012.

However, this US investment of almost a billion dollars is grounded in realpolitik.

In November, a month before the US State Department’s announcement on Somalia, the Africa Oil Week, which is a meeting place for the continent’s upstream oil and gas markets, was held in Cape Town.

There, the Somali Minister of Petroleum and Mineral Resources, Abdirashid Mohamed Ahmed announced that 50 (out of a total of 206) oil blocks, covering 173,000 square kilometers offshore Somalia, will be auctioned off in an inaugural hydrocarbon licensing round that will begin on 7 February 2019 and continue until 11 July 2019.

During this period, the FGS will receive bids from foreign energy companies and issue licenses to the ones that present the most compelling offer based on a set of predefined criteria.

By timing the opening of its permanent mission close to the bidding period and announcing its investment in Somalia, the US is strategically backing up bids from US energy companies. While it is expected that foreign diplomatic missions look after business and trade interests of the countries they represent, the host nation is also expected to look after its own interests and that of its people to ensure that foreign powers do not usurp their resources. And therein lies Somalia’s predicament.

The stability of Somalia is extremely fragile. Even without the involvement of foreign powers vying to get their hands on the country’s resources, numerous internal interests need to be satisfied in order to keep the peace.

Somali government officials have long balanced several interests along clan lines, business ventures, payoffs and cronyism. Somalia’s private sector has the well-deserved reputation of being ‘vibrant’ because of the entrepreneurial prowess of Somalis in the face of adversity. Unfortunately, this vibrancy has not translated into tax income for the government. Instead, the country is heavily dependent on foreign aid. According to the OECD and UNOCHA, just over $3bn in development aid were sent by donors in the five years after the establishment of the FGS (2013 – 2017).

Over the same period, another $3.5bn in humanitarian aid was sent by donors. A further $1.3 – 2bn are sent every year in remittances by Somali diaspora, according to several sources. So, a conservative estimate of the total funds that entered Somalia between 2013 and 2017 is $13bn, yet the government has barely been able to provide basic services such as proper roads, water, sanitation, and education.

Apart from remittances, the rest of the funds are supplied by international donors and there is a certain level of accountability that is expected from the FGS. Despite this, gross misappropriation of public funds for private gain, among other things, has earned Somalia the undesirable title of being labeled the most corrupt country in the world by Transparency International.

Corruption on steroids?
Now imagine a scenario involving hundreds of billions of dollars in oil revenue that does not require accountability to donors to justify further aid. This is a recipe for corruption on steroids.

Somalia’s offshore fields are estimated to hold 110bn barrels, which would place the country ahead of the United Arab Emirates (UAE) as the world’s 6th largest. The FGS authorised two seismic exploration surveys in 2014 and 2015 totaling just over 41,000 square kilometers of offshore southeastern Somalia. These surveys were performed by Spectrum ASA, a Norwegian company that focuses on regions of hydrocarbon prospectively and specialises in multi-client seismic surveys and imaging.

The first of these surveys was commissioned by Soma Oil and Gas (SOG), a UK-based company that was founded in 2013 to “pursue oil and gas exploration opportunities in Somalia”. SOG was embroiled in a corruption scandal after the UN Somalia and Eritrea Monitoring Group accused it of paying hundreds of thousands of US dollars to the Somali Ministry of Petroleum and Mineral Resources starting in 2014. (Incidentally, Hassan Ali Khayre was employed by SOG since its inception and until his appointment as Prime Minister in March 2017).

If these oil reserves are proven, either in part or in full, it might catapult Somalia back to turmoil as the various entities with interests in Somali politics such as clans, sub-clans, business elites, and opportunists from the diaspora attempt to get however much money they can.

We don’t have to look far to see how it may play out as the last three decades of Somalia’s history provides valuable hindsight. With Somalia’s weak institutions, this will inevitably lead to a form of ‘resource curse’, which is a term used to describe the failure of resource-rich countries to bring the benefits of their natural resources to the entire population.

A quick look at South Sudan shows how the resource curse might unfold. A report dated April 2018 from Global Witness alleges that the South Sudanese government and military officials are using the state-owned oil company as their personal bank account. South Sudan, like Somalia, is listed as one of the most corrupt in the world by Transparency International, and has been in political instability and conflict since gaining independence from Sudan. Then there is the issue of Somalia’s regional neighbors such as the UAE and Saudi Arabia taking advantage of its internal fragmentation to further their own interests. For example, the de facto independent Somaliland and the autonomous region of Puntland have both welcomed the UAE into their territories despite souring relations between the FGS and UAE over the latter’s attempt to bribe FGS officials.

Real development opportunities

All these risks to Somalia’s stability and independence notwithstanding, oil revenue brings with it real developmental opportunities for the country under the right leadership.
Perhaps, the most pressing is the reduction of Somalia’s external public debt, which is currently around $5bn. As for economic rehabilitation, Somalia doesn’t need to reinvent the wheel. There are countries that can serve as examples of good resource governance (Norway), intelligent use of oil revenue (Denmark), and providing a high standard of living for citizens (UAE).

There are also many examples of bad resource governance leading to overdependence on oil (Venezuela), poverty-driven economic migration (Nigeria), and severe income inequality (Angola).

Regardless of the economic model that the Somali leadership chooses to follow, there will be plenty of work to do if the standard of living in Somalia is to be raised. This includes infrastructure expansion, job creation, improvement of healthcare and sanitation, youth development, building resilience against recurrent drought and floods, enhancing literacy and capacity building, resettling the 750,000 refugees in Kenya and Ethiopia – the list goes on. In order to meet these challenges, Somalia not only needs funds, but also reliable partners willing to invest in its development.

One such partner is Turkey. Since 2010, Turkey has committed major infrastructure investments in Somalia and by 2016, bilateral trade between the two countries reached $123m. Its flagship carrier, Turkish Airlines, was the first major international airline to service Mogadishu when other airlines deemed it too risky, thus giving the impression of Turkish support for Somalia. Because Turkish Airlines was able to connect the Somali diaspora in North America and Europe to Somalia, the Istanbul-Mogadishu route quickly became one of the most profitable for the airline. One of the biggest assets Somalia has is its youth. According to the UN Assistance Mission in Somalia, 70% of Somalis are under the age of 35, but unemployment for 14 to 29-year-olds is around 67%. Presently, a person aged 28 years that has never left Somalia has not witnessed a period of peace and stability, let alone experienced basic government services.

Eager to develop their country and themselves, Somalia’s youth found numerous ways to lead impactful lives without waiting for top-down solutions that may never arrive. They have educated themselves at local institutions, started businesses, and taken on numerous social development projects. However, it is a struggle and the biggest hindrance is the lack of funds. The government has to prioritise youth and invest in them because they will be the ones who will inherit the country.

After nearly three decades of being at the bottom of the UNDP’s Human Development Index, the people of Somalia deserve demonstrable solutions that provide livelihoods and enhance their quality of life.

If oil wealth does indeed materialise, the Somali leadership will have to decide whether to continue on the path of corruption or choose the path of development where all citizens enjoy high standards of living. After all, the welfare of the many outweighs the greed of the few.

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

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