As Somalia starts to emerge from instability and chaos, 20 years of relative peace and stability are starting to pay dividends for its close neighbour Somaliland.
This November, it struck its first major oil deal since seceding from Somalia in 1991. Anglo-Turkish company Genel Energy received its licence from the Somaliland government in early November to explore and develop oil and gas reserves after pledging almost $40 million for exploration activities.
The independent oil and gas exploration and production company has become the first foreign investor to commit a significant amount of capital to the country’s energy sector, after initial investigations demonstrated “numerous oil seeps” confirming “a working hydrocarbon system,” a statement from Genel said.
Genel Energy, headed by erstwhile BP CEO Tony Hayward, is due to start exploration before the end of the year.
The driving force of this Horn of Africa nation’s economy has traditionally been livestock. With a livestock population that triples the 3.5 million civilian population, the livestock trade generates up to 65 per cent of the country’s GDP, Somaliland’s Minister of Planning Saad Shire said.
With a limited national budget of $120 million the Somaliland government is now starting to receive much-needed revenue from foreign private investors to support its development.
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Somaliland’s oil and gas reserves attracted the attention of other giant energy companies such as South African-based Ophir Energy, Jacka Resources Ltd of Australia, and Petrosoma Ltd, a subsidiary of British-based Prime Resources — all of whom announced their readiness to invest.
Somaliland has suffered from not being internationally recognised for the past 21 years. Its unconfirmed legal identity has hindered its economic prospects — few insurance companies have been prepared to insure foreign investors here. Subsequently, investors have tended to regard Somaliland as an economic leper.
For these reasons, the country has also been ineligible for financial support from the International Monetary Fund and the World Bank. However, in 2012 Somaliland’s private sector started to progress against the odds.
At the beginning of the year, the first UK-Somaliland investment conference was held to stimulate bilateral trade recognition. And a $17 million Coca Cola plant launched in May by a Djibouti conglomerate made it the largest private investment in Somaliland since 1991.
Investors are seeing Coca Cola’s decision to have an operation in the region as a positive statement about the country’s stable business climate.
Somaliland’s Berbera port is also expected to attract major investment in the coming years. Built originally by the Soviet Union during the Cold War, the port currently serves as a major gateway for the country’s livestock exports. There is huge potential for it to be a juncture for oil and gas exports coming out of landlocked countries like Ethiopia.
The port manager, Ali Omar Mohamed, is enthusiastic about the potential of expanding the port to make it a regional trading hub between Africa and the Middle East.
“We are strategically located — Berbera is located in a maritime lane — 30,000 ships pass by our port every year from Europe, the Middle East and Asia. We can develop Berbera into a major port like Singapore — with container terminals, free zones, oil refineries, and services related to maritime business,” Shire said.