The Horn Of Africa States: Leaking Finances And Other Structural Issues Draining Somalia’s Wealth – OpEd
Over the past half a century, Somalia has undergone tremendous and exhaustive struggles involving fratricidal wars, external interferences, climatic and natural catastrophes involving not only droughts but also flooding, and mass migration of skilled people out of the country. It is, however, slowly recovering, but this recovery process is undermined by factors which appear to be beyond the screens of most Somalis.
The country is losing vast amounts of wealth, in the billions annually perhaps, due to a combination of many factors including institutional weaknesses, governance failure and systemic financial structure weaknesses. They add up to weak financial systems, weak regulatory oversights and pervasive corruption starting at the very top of the country’s leadership and trickling down to the lowest levels in the country’s weak clan-based federal system.
It is a country where over ninety-five per cent of its businesses still operate without bookkeeping or transparent accounting, making it difficult even for the owners to know how they are doing in their business let alone the impossibility of adequate taxing and government revenue collection possibilities. This lack of transparency makes it difficult to track revenues, monitor costs and expenses or ensure compliance with tax obligations.
Since there is generally no bookkeeping or accounting, there are no auditing possibilities and where there is no accounting and bookkeeping possibilities both public and private, there remains weak auditing mechanisms, allowing for mismanagement of resources, fraud and corruption to go unchecked. It is what creates mostly mistrust of the population and hence giving rise to the bad politics with clans as the only defense mechanism of the corrupt political class, which currently dominates the country.
Since many of the businesses of the country have been created through stolen government funds or through dubious contracts, a significant portion of these businesses and assets are controlled through opaque ownership arrangements. One would probably be encountering a major corporate in the name of a family member (wives, children and/or siblings) or close friends and cousins. Final decision makers are beyond the bend and because of these hidden beneficiaries and unregistered stakeholders, it makes it difficult to regulate markets in the country, enforce taxation or prevent illicit financial flows.
To avoid taxation, many businesses mis-invoice payment for contracts to evade taxes, launder money or transfer wealth illegally across borders. It deprives the government of much needed revenues and hence the begging hands always going out to UN agencies, to other governments and to other non-governmental organizations. This distorts the true scale of economic activity in the country.
The country also suffers from corruption at its exit and entry ports both air and sea, border checkpoints and other customs facilities, where smuggling and tax evasion and movement of unregulated capital flow. Because of these weak border enforcement laws, a significant portion of wealth leaves the country without oversight.
Many of the country’s major corporations (traders, telecommunications, money transfer companies and banks) deposit large amounts of people’s savings outside the country with foreign banks, ranging from neighbors like Djibouti and Kenya, to the UAE and other countries, instead of keeping the funds internally to be deployed within the Somalia market and hence employ the large youthful population. This capital flight removes liquidity from the Somali market, limits domestic investment and hence hinders economic growth. On the contrary they help other countries, like Kenya, thrive.
Security, investments, and employment are deeply interlinked. When meaningful economic opportunities exist, communities have a strong incentive to preserve stability, as livelihoods depend on a peaceful environment. Conversely, the continuous outflow of funds undermines both investor confidence and local economic development, discouraging additional investments from domestic and international actors alike. As capital leaves the country, unemployment remains high and the structural conditions needed for lasting security weaken. It deprives Somalia of productive investments, job creation and economic diversification.
This loss of wealth combined with weak governance complicated further by lack of domestic investments continues to contribute to chronic unemployment among the youthful population, which then creates a fertile ground for extremist groups, both clannish and terror organizations to recruit vulnerable individuals.
These interconnected factors contribute to this ongoing economic hemorrhage of the country. How much Somalia is losing can be any one’s guess. However, if one goes by the rate of investments Somalis are making in Nairobi and other East African cities, one should be referring to billions of United States Dollars, annually. No wonder East and other Horn Africans call Somalis the “Gods of money”.
Like what you read?
Please consider supporting Eurasia Review. Thank you for your consideration!
