Economic Reform in Somaliland will Benefit the Country

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HARGEISA, Somaliland — As a nation that gained independence in 1991 from the despotic rule of General Siad Baree, Somaliland is working to overcome poverty but still has to grapple with severe income disparities and a 38 percent rural poverty rate. Economic reform in Somaliland is a sustainable solution to bolster and galvanize the economy.

In January 2016, the country’s government agreed to scale up initiatives to achieve its U.N. Sustainable Development goals by 2030. Despite this, Somaliland’s economy does not have the financial framework and economic capacity to sustain its 3.5 million people. The country is failing to meet its Millennium Development Goals (MDGs) for water, hygiene and sanitation because its financial systems lack the strength to catalyze development projects.

One solution to Somaliland’s financial troubles may be to expand the country’s tax base via both direct and indirect taxation. Tax revenues currently account for only seven percent of the country’s GDP. Revenue from corporate, sales, income and wealth taxes could be channeled toward infrastructure and development initiatives. An expanded tax base could also help improve Somaliland’s deficient government budget and expenditure.

Somaliland’s 45.7 Gini Coefficient figure, an indicator of income disparity, is greatly attributed to its regressive taxation policy. Economic reform with a progressive taxation system could alleviate the problems associated with regressive taxation.

To further increase the availability of funds, the Dahabshil Bank International (DBI) is aiming to provide Islamic banking services and strengthen the position of Somaliland’s central bank. Islamic banking has been growing at an exponential rate of between 10 to 12 percent just over the past few years.

Somaliland has a 60 percent unemployment rate, and 20 percent of its population relies on agriculture. It is vital for Somaliland to promote economic empowerment among its people. Boosting entrepreneurship is a viable way to achieve this. The U.S-Africa partnership endorsed by President Obama may also benefit Somaliland’s economy with widespread effects on business partnerships.

After the 2014 Somaliland Water Act’s establishment, both public and private sectors in the country have collaborated to secure a good water supply. This initiative is supported by both UN-Habitat and UNICEF and has garnered a great deal of public support. The African Development Bank has invested $10 million in bolstering the water development sector.

Somaliland has had a tumultuous history and is still reeling from food and water shortages that have plagued many regions in the Horn of Africa. Economic reform will benefit Somaliland and help alleviate poverty in the country.

Shivani Ekkanath

Photo: Flickr

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Shivani Ekkanath

Shivani is an Indian writer for The Borgen Project living in Singapore. Her hobbies are music, dance and writing. She loves reading about current affairs, political relations and other social issues.

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