CHAPTER FOUR
Data Discussions and Analysis
4.0
Introduction
This chapter presents and analyses the
empirical findings pertaining to the central research theme: The Impact of
Somaliland’s Non-Recognition in International Law on Foreign Investment
Opportunities. The chapter is structured into two principal sections. The first
section provides a comprehensive overview of the demographic and background
characteristics of the respondents, detailing variables such as gender, marital
status, age group, educational attainment, and nature of employment.
The second section offers a critical
examination of the core findings, with particular emphasis on the ways in which
Somaliland’s continued lack of formal international recognition constrains its capacity
to attract and retain foreign investment. In addition, this section analyses
the legal challenges encountered by foreign investors as a consequence of the
territory’s unrecognised status. It further considers potential legal
frameworks and strategic measures that may mitigate these challenges and
enhance Somaliland’s attractiveness as a destination for foreign investment,
notwithstanding its absence of international recognition.
4.1
Demographic and background characteristics
of respondents
Attributes
that were within the purview of demographic and background characteristics of
respondents were discussed in this section of data presentation. Demographic
and background attributes such as gender, age, mental status and education were
discussed under different sub-headings
Figure 1
Gender of the total
sample, the male gender had 73% while the female gender had 27% According to
the figure1, that illustrate the
gender of the National political Parties targeted, which denotes most national
political parties workers are male rather than female.
Figure 2
Age
The
age category 18-30 was 20% this was followed by age category 30-40 with 30%.
Respondents who fell between age 40 and above years accounted for 50%.
One
would observe from the figure 2 that
most of our respondents were in age bracket 18 and above 40 years. This trend
might suggest that study participants in national political parties are youth
which are physically strongly.
Figure 3
Marital status
About
75% of respondents were married, 20 % were single while the other category,
which include the divorced, the separated and the widowed had 5%, the
observation shows that majority of the respondents were married. Considering
the age of our respondents, it is not surprising that most of them were
married, as 80% of the respondents were above 30 years of age.
Figure 4
Education
Likely responses
on the level of education of respondents were in four categories; No education,
primary education, secondary education Collage and university education. About
73% of the respondents had university education, 10% had collage education
while secondary 10% and primary education had 4% and 3% respectively. One thing that is observable among the
respondents is high level of education.
The researcher I
identified most of his target respondent were university Degree this study show
that national political parties workers are in high level of education.
Figure 5
Occupation
Likely
respondents on their title of were in ten different Occupations about 37% of
the respondents were titled follower 30% politician 7% Secretarial of the
parties 3% executive 3% chairman of the parties 3% women’s wing 3% youth
secretarial and other 6% Admin &
finance 3% secretarial of central
committee of the part where by 3% was regional secretary.
Objective 1. To
Assess the Legal Challenges Faced by Foreign Investors in Somaliland as a
Consequence of Its Lack of Formal International Recognition.
This section
critically examines the existing legal and institutional frameworks governing
foreign investment and their practical implications. The analysis draws upon
empirical evidence obtained through interviews with key stakeholders, including
government officials, legal advisors, policy directors, and representatives of
the private sector.
The analysis
begins by outlining the principal legal instruments that underpin Somaliland’s
investment environment. According to Miss Hibaq Guled, Director of Policies at
the Ministry of Finance, the Government of Somaliland has established the
requisite legal and policy frameworks designed to facilitate and protect both
domestic and foreign investment. She emphasised that these frameworks are
intended to create a secure investment climate, a commitment that is expressly
enshrined in the Constitution (Article 11(3)), which guarantees the protection
of private and foreign investments.
Further insights
from governmental respondents confirm the existence of specific legislative
measures, notably the Somaliland Investment Act (No. 29/2014), which
provides the legal foundation for regulating international investment
activities. Participants in the focus group discussion generally concurred that
Somaliland has made commendable efforts to develop a coherent legal framework
for foreign investment. However, one participant highlighted the need for
periodic review and amendment of certain provisions, arguing that aspects of
the framework are outdated and require modernisation to align with contemporary
investment standards.
Miss Saida,
Director of Investment Promotion, underscored the significance of the national
investment policy in stimulating economic growth and attracting foreign
capital. She noted that the policy is designed to leverage Somaliland’s natural
resources while providing clarity and assurances to potential investors. In
this context, the Somaliland Investment Policy (2004) explicitly seeks
to mobilise and utilise the country’s economic resources and potential in an
efficient and sustainable manner.
Most respondents
acknowledged that the Government has also developed an Investment Guide,
which outlines investment opportunities, regulatory requirements, and practical
procedures for prospective foreign investors. Collectively, these policies,
legislative acts, and guidelines constitute the core legal instruments
governing investment activities and delineate the rights and obligations of
both domestic and international actors.
In addition,
public officials interviewed highlighted that Somaliland’s legal and policy
frameworks comprehensively address a range of investment-related issues. These
include the institutional and regulatory structures, dispute resolution
mechanisms, investor protection guarantees, provisions against expropriation,
labour regulations, work permit requirements, land ownership and leasing
arrangements, and various incentives such as tax exemptions and preferential
land allocations.
Despite these
provisions, participants in the focus group discussion noted that the legal
frameworks have both positive and negative implications. On the positive side,
respondents emphasised that the Constitution guarantees the right to foreign
direct investment and endorses a free-market economic system that fosters open
and fair competition. Instruments such as the Investment Act and the Investment
Policy were identified as vital mechanisms for promoting economic
diversification, safeguarding foreign capital, and enhancing investor
confidence. Conversely, some participants expressed concern that the
liberalisation of the market might expose emerging domestic businesses to
excessive competition and facilitate the exploitation of local resources by
more dominant foreign entities.
The Director of
Investment Promotion further explained that the principal objectives of the Somaliland
Foreign Investment Act include establishing clear procedural rules to
regulate, protect, and facilitate foreign investment.
The Act also
mandates the formation of a National Board of Investment, comprising
representatives from key government ministries and institutions, including the
Ministry of Commerce and Investment, Ministry of Foreign Affairs, Ministry of
Planning and National Development, Ministry of Health and Labour, Ministry of
Public Works and Transportation, Ministry of Finance, the Central Bank, and the
Chamber of Commerce. According to the provisions of the Act (Articles 3, 4, 7,
and 25), the Board is entrusted with approving proposed foreign investments,
registering foreign investors, reviewing existing investments, and determining
their value.
Furthermore,
staff from the Chamber of Commerce confirmed the recent adoption of a National
Investment Policy by the Ministry of Investment Promotion. They indicated
that this policy articulates investment principles and operational guidelines
consistent with relevant laws, and clearly delineates the roles and
responsibilities of various stakeholders involved in promoting and regulating
foreign investment.
Academic
respondents noted the legal and practical implications of international
agreements entered into by Somaliland in its capacity as a de facto state.
While acknowledging the constraints imposed by its unrecognised status, they
highlighted that such agreements nonetheless produce tangible legal and
economic effects due to Somaliland’s adherence to the principle of
self-determination as articulated in the United Nations Charter and other
relevant instruments of international law.
Mr. Hirad Jama,
Legal Technical Advisor to the Somaliland Parliament, affirmed that the
judiciary possesses the requisite competence to adjudicate both domestic and
international disputes pertaining to investment. He argued that Somaliland’s
judiciary has achieved significant institutional development since the
proclamation of the Republic on 18 May 1991 and the adoption of its national
constitution on 31 May 2001. He further contended that Somaliland’s courts are
legally empowered to resolve disputes arising from international agreements and
that the Constitution (Article 10) affirms Somaliland’s commitment to assume
international obligations consistent with its de facto statehood. Mr. Hirad
also maintained that Somaliland meets the criteria of statehood under
international law and, accordingly, bears responsibility for its international
legal commitments, including adherence to relevant conventions and customary
international norms.
In summary, the
findings suggest that while Somaliland has established a relatively robust
legal and policy framework to attract and safeguard foreign investment,
significant challenges persist. These include the need for periodic legal
reform to ensure that existing frameworks remain relevant and responsive to
emerging economic realities, as well as the broader implications of
Somaliland’s continued lack of international recognition, which continues to
pose legal and practical uncertainties for prospective foreign investors.
Objective 2;
Economic Consequences of Somaliland’s Non-Recognition on Foreign Trade and
Investment
Somaliland’s
persistent lack of formal international recognition has had profound and
multifaceted consequences for its economic development, particularly in
relation to foreign trade and investment. While Somaliland has made remarkable
progress in establishing relative peace, political stability, and functioning
governance structures since its self-declared independence in 1991, the absence
of de jure statehood continues to constrain its ability to fully integrate into
the global economy.
1. Limited
Access to International Financial Systems and Markets
One of the most
significant economic consequences of non-recognition is Somaliland’s exclusion
from the formal international financial system. Without official statehood, Somaliland
is unable to join key international financial institutions such as the
International Monetary Fund (IMF), the World Bank, or regional development
banks. This exclusion limits its access to concessional loans, development
grants, and technical assistance programs that many developing countries rely
upon to fund critical infrastructure and economic development projects.
Additionally,
the lack of internationally recognised sovereign status severely restricts the
government’s capacity to secure foreign direct investment (FDI) through
sovereign guarantees, issue internationally tradable bonds, or establish
bilateral investment treaties that offer investors legal protections against
expropriation or unfair treatment.
2. Diminished
Investor Confidence and Legal Uncertainty
Foreign
investors generally require legal certainty, enforceable contracts, and
reliable dispute resolution mechanisms before committing significant capital.
Although Somaliland has developed its own investment laws, policies, and institutional
frameworks, the absence of international recognition undermines investor
confidence in the enforceability of contracts and the protection of property
rights under international law.
Potential
investors may fear that disputes cannot be adequately resolved in the absence
of international treaties or that any investment-related arbitral awards might
not be enforced outside Somaliland’s borders. Moreover, since Somaliland cannot
sign bilateral or multilateral investment protection agreements independently,
investors may perceive a heightened risk of political and legal uncertainty,
discouraging long-term investment.
3. Trade
Barriers and Lack of Preferential Market Access
Somaliland’s
non-recognition status also limits its ability to engage directly in bilateral
or multilateral trade agreements. As a result, Somaliland cannot benefit from
preferential trade arrangements such as the African Continental Free Trade Area
(AfCFTA), the World Trade Organization (WTO) agreements, or trade preferences
granted under schemes like the EU’s Everything But Arms (EBA) initiative or the
United States’ African Growth and Opportunity Act (AGOA).
This places
Somaliland’s exporters at a competitive disadvantage compared to recognised
states that benefit from tariff reductions, quotas, and market access
preferences. Consequently, Somaliland’s export goods — primarily livestock,
hides, gums, and other primary commodities face higher tariffs and non-tariff
barriers in international markets, reducing their competitiveness and limiting
trade volumes.
4.
Constrained Diplomatic and Economic Partnerships
The lack of
formal recognition restricts Somaliland’s ability to establish full diplomatic
and economic relations with other sovereign states. While Somaliland maintains
informal ties and trade relations with various countries, including Ethiopia,
the United Arab Emirates (UAE), and Djibouti, these relationships often rely on
personal networks, informal agreements, or ad hoc arrangements rather than
legally binding treaties.
This informal
status limits the scope for long-term economic cooperation, comprehensive trade
agreements, or joint investment initiatives. For example, while the UAE has
made significant investments in the Berbera Port through DP World, this
investment remains an exception rather than the norm and still faces
reputational and legal uncertainties due to the lack of international
recognition.
5.
Vulnerability to External Shocks and Trade Disruptions
Somaliland’s
unrecognised status also makes its economy particularly vulnerable to external
political pressures and trade disruptions. For instance, the livestock export
trade — the backbone of Somaliland’s economy
has repeatedly suffered from bans imposed by importing countries, particularly
Gulf states, in response to animal health concerns or regional political
dynamics.
Without
diplomatic recognition, Somaliland has limited capacity to negotiate on equal
footing with other states or to participate in international forums to resolve
trade disputes. This vulnerability can lead to sudden revenue losses,
threatening livelihoods and undermining economic stability.
6. Missed
Opportunities for Development Aid and Technical Assistance
Beyond trade and
investment, non-recognition means that Somaliland remains largely excluded from
bilateral and multilateral development aid that is often channelled through
internationally recognised governments. While Somaliland does receive some
donor assistance through non-state channels and partnerships with NGOs, this is
typically insufficient to finance large-scale infrastructure projects,
industrial development, or human capital investments needed to attract and
sustain diversified foreign trade and investment.
7. Innovation
and Resilience Amid Constraints
Despite these
constraints, it is important to note that Somaliland has demonstrated
significant resilience and innovation. The territory has developed a relatively
stable financial sector through the use of remittances, informal money transfer
systems (hawala), and mobile money platforms such as Zaad. Its government has
also taken proactive steps to develop an investment-friendly legal framework,
improve port infrastructure, and strengthen relations with strategic partners
in the region.
However, while
these domestic efforts mitigate some barriers, they cannot fully substitute for
the benefits of formal international recognition, which remains a prerequisite
for realising the full potential of foreign trade and investment integration.
Conclusion
In sum,
Somaliland’s continued non-recognition produces substantial economic
consequences by limiting its access to global financial systems, deterring
foreign investment through legal uncertainty, restricting trade opportunities,
and constraining formal diplomatic and economic partnerships. While
Somaliland’s internal governance and stability offer significant potential for
economic growth, its unresolved international legal status remains a critical
barrier to achieving sustained economic transformation through robust foreign
trade and investment.
Objective 3.
Potential Legal Frameworks and Strategies to Attract Foreign Investment Despite
Non-Recognition
While
Somaliland’s lack of formal international recognition presents significant
challenges to attracting and sustaining foreign investment, various legal
frameworks and practical strategies can help mitigate these constraints and
create a more favourable investment climate.
The following
outlines key legal and institutional measures that Somaliland could strengthen
or adopt to enhance investor confidence despite its unique political status.
According to
officer from Somaliland chamber of commerce Stated that to be build investor’s
confidence we have ensure domestic investment laws are comprehensive, clear,
and aligned with international best practices. The existing Somaliland
Investment Act (No. 29/2014) and the Investment Policy (2004)
already lay a legal foundation for regulating and protecting foreign
investment. However, stakeholders have highlighted the need to update and
harmonise these instruments to address contemporary economic realities and
emerging sectors, such as renewable energy, digital infrastructure, and
extractive industries.
Respondents also stated that enhancing legal certainty for investors in
Somaliland will depend significantly on the use of robust contractual
arrangements. According to their views, legally binding investment contracts
should be carefully structured to include stabilisation clauses that protect
investors from unexpected regulatory changes, clear choice of law provisions,
and arbitration agreements that designate neutral venues and governing laws
acceptable to all parties.
In addition, several respondents suggested that, where feasible,
Somaliland could pursue quasi-bilateral arrangements with key economic partners
or subnational entities to provide further assurances to investors. They
explained that special economic agreements with regional states or city-level
governments in neighbouring countries could help facilitate cross-border trade
and investment projects, even in the absence of formal diplomatic recognition.
Such creative legal arrangements, according to respondents, would demonstrate
Somaliland’s commitment to providing a predictable and secure investment
environment despite its unique political status.
A legal expert
in Burca court stated that to enhancing investor confidence is to
establish fair, neutral, and enforceable
mechanisms for dispute resolution. In this regard, it is recommended that
Somaliland strengthens its legal framework by adopting or harmonising its
domestic laws with internationally recognised standards, such as the UNCITRAL
Model Law on International Commercial Arbitration.
4.
Establishing Investment Promotion and Protection Agencies
Respondents highlighted that establishing a dedicated and well-resourced
Investment Promotion Authority or One-Stop Investment Centre would be essential
to facilitate and attract foreign investment in Somaliland. According to
several participants, such an agency should provide clear and transparent
guidelines on available investment opportunities, assist investors with
obtaining licences, permits, and fulfilling compliance requirements, and offer
reliable aftercare services to address bureaucratic hurdles. Many respondents
also noted that this agency should act as an intermediary to resolve investor
grievances at an early stage, thereby preventing disputes from escalating. It
was widely agreed that such institutional support, paired with clear channels
of communication and accountability, would significantly build investor trust
and confidence.
In addition, respondents emphasised the importance of creating Special
Economic Zones (SEZs) governed by enforceable local rules. They indicated that
SEZs are a proven strategy for unrecognised or partially recognised territories
to attract foreign capital by providing a predictable and attractive regulatory
environment. Many pointed to the need for streamlined customs and tax
procedures, flexible labour and immigration rules, reliable infrastructure, and
dedicated governance structures, including specific mechanisms for dispute
resolution. The Berbera Free Zone, developed through a partnership with DP
World, was frequently mentioned as an example of Somaliland’s practical
progress in this regard. Respondents suggested that expanding such zones and
clarifying the legal frameworks that govern them would further enhance investor
interest and confidence.
Several respondents noted that although Somaliland cannot ratify formal
international investment treaties, it can strengthen investor confidence by
voluntarily aligning its domestic legal frameworks with well-known
international soft-law standards. Instruments such as the World Bank’s
Guidelines on the Treatment of Foreign Direct Investment, the UNCTAD Investment
Policy Framework for Sustainable Development, and the OECD Guidelines for
Multinational Enterprises were frequently cited as relevant benchmarks.
Respondents viewed this voluntary alignment as an important signal of
Somaliland’s commitment to recognised principles of investment protection,
corporate responsibility, and good governance.
The role of public-private partnerships (PPPs) was also highlighted by
respondents as vital for mobilising investment in major infrastructure
projects, including ports, energy, and logistics. Participants suggested that
clear PPP legislation and guidelines should be enacted to minimise political
risks and strengthen contractual safeguards for investors. Mechanisms such as
escrow accounts, sovereign insurance products, and partial risk guarantees
provided in collaboration with international development agencies were
recommended as effective tools to build investor confidence.
Transparency and good governance emerged as recurring themes in
respondents’ views. Many stakeholders stressed that Somaliland must strengthen
anti-corruption measures, guarantee access to information, and ensure that
procurement and investment processes remain transparent and competitive. They
recommended that publishing contracts, adhering to open government data
standards, and empowering independent oversight bodies would further
demonstrate institutional integrity and boost Somaliland’s credibility among
foreign investors.
Finally, respondents underlined the significant role of the Somaliland
diaspora in bridging trust gaps and attracting investment. Many noted that
diaspora investors are often more willing to accept political risks and can
connect Somaliland with international markets. Several respondents proposed
developing tailored diaspora investment instruments, such as diaspora bonds or
co-financing initiatives, as a practical way to mobilise capital and showcase
the viability of the local legal and regulatory environment.
In summary, respondents acknowledged that Somaliland’s lack of formal
international recognition remains a major challenge. However, they expressed
confidence that by modernising domestic legal frameworks, strengthening clear
dispute resolution mechanisms, expanding special economic regimes, and pursuing
robust investment promotion efforts aligned with international norms,
Somaliland can address key investor concerns and continue to attract and
sustain foreign investment despite its unique political context
