How has the absence of international recognition and lack of external development assistance affected state-building in Somaliland? This paper examines how Somaliland’s government was motivated to establish credible, accountable and representative political institutions and engage with the business community to create a tax-based relationship with its citizens. Despite unique characteristics, Somaliland provides a valuable case-study for policymakers, suggesting that the international community adopt a tempered approach to aid interventions in fragile and post-conflict areas.
Somaliland was formed when it seceded from Somalia in 1991. It was deemed ineligible for international aid, and so political actors within Somaliland have never received development assistance.
Recent literature on foreign aid suggests that despite the effectiveness of individual aid projects, results at national level are more elusive. One explanation for this discrepancy is that high aid intensity may cause declining quality of governance and lower democracy indicators. While donor money can help restore social services in a country, it may engender predation and decrease the government’s need to foster relationships with its constituents, with negative effects on political accountability, institution building, and social-contract bargaining.
The lack of external financial assistance in Somaliland has shaped political incentives. It has led to: 1) increased influence for the business community; 2) compromise among opposing political actors; and 3) government accountability arising from dependence on constituent support:
- The business community has provided all government financing. As pastoral economies depend on stable management of public goods like water and grazing lands, business people have supported political reconciliation.
- Somaliland has a large number of political actors with relatively equal resources. The lack of outside support has forced compromise and co-option of opposition groups, as small groups have repeatedly tried and failed to form governments, unable to maintain them alone. The result has been a coalition government of widely supported and durable institutions.
- Public perception of government as an instrument of exploitative domination has been allayed by its ineligibility for foreign assistance and independent revenue. Rather than emerging as predatory, the state has increased accountability to its constituents.
Whether or not Somaliland receives international recognition, the international community should be extremely cautious about flooding the country with financial assistance. Both the financial accountability between the government and the business community, and the process of compromise and negotiation that balances interests within government could be undermined by significant external financial input.
- The government’s dependence on local revenue provides economic actors with leverage to demand greater accountability and representation. The large number of sub-Saharan countries receiving foreign assistance equal to 50-75 per cent of government expenditure cannot benefit from this process.
- Somaliland demonstrates the successful nature of ‘bottom-up’ state-building, focusing on local engagement, rather than the ‘top-down’ approach of attempting to reconcile the dominant political actors in a national conflict. Significantly, the business community supported the development of constructive policies at local level; international efforts to finance local polities may actually obstruct the development of such relationships.
- Whilst security would seem to be the priority for state rebuilding and providing a stable environment for economic development, early financial assistance to promote security risks cementing the authority of unrepresentative political institutions. The military stand-offs which motivated Somaliland’s political reconciliation and development would not have taken place if external aid had secured the country’s first interim government.
