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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