Somaliland’s road to recognition passes through Ethiopia

By: FDI Intelligence

Somaliland’s road to international recognition remains an uphill struggle. Although the breakaway region has been functioning as a de facto independent state since 1991, with its own institutions, flag and currency, the global community has been reluctant in formally recognising its sovereignty — no state has done so in the intervening three decades. 

However, several international actors have selectively engaged with the region, particularly through development finance and direct investment, helping the government in the capital, Hargeisa, strengthen its argument for independence. 

Somaliland has been a beacon of stability in an otherwise troublesome area – the recent clashes between its security forces and the local community in the southern location of Las Anod may now challenge this perception – and it retains a strategic position as a key trading outpost in the Gulf of Aden. In this vein, the coastal city of Berbera stands out as its main asset. Touted as a viable alternative to the port of Djubuti, in the north-eastern country of the same name, to funnel the external trade of landlocked Ethiopia, the government won the backing of major foreign investors of the likes of UAE-based logistic powerhouse DP World to upgrade the whole area. 

However, Ethiopia has not followed up on its initial interest to become a direct shareholder of the Berbera port, thus jeopardising the real prospect of the whole project — and the country’s ambition to make it a key milestone on the road to independence. 

Somaliland’s GDP components

De-facto recognition

Somaliland had previously existed as an independent country during a five-day spell in 1960, between the end of the British protectorate and the country voluntarily joining its neighbouring Somali regions to form the unified Somali Republic. Civil war broke out in the 1980s, during the military rule of Mohamed Siad Barre, leaving the south in disarray — which continues to this day — while prompting Somaliland to break away and declare its own independence in 1991. 

Although establishing itself as a relatively well-functioning and peaceful region since, the international community has hesitated in recognising Somaliland as a sovereign country, mostly fearing that such a move would trigger other separatist regions like Puntland to break away from Somalia. 

Yet, the government in Hargeisa has achieved some level of success in engaging with its international partners, with several countries from the region and beyond establishing informal ties with Somaliland. In particular, the British government has become the country’s main international partner, alongside the government of the UAE. 

“Somaliland has been here [as an independent country] for the past 32 years,” finance and development minister Sa’ad Ali Shire tells fDi Intelligence. “The fact we are not a member of the UN or the African Union doesn’t mean we don’t exist. We are de-facto recognised.”

“The fact we are not a member of the UN or the African Union doesn’t mean we don’t exist. We are de-facto recognised.” Sa’ad Ali Shire, finance minister, Somaliland

Berbera corridor

A country of 5.7 million inhabitants, Somaliland’s gross domestic product grew from $1.8bn in 2011 to $3.38bn in 2021, according to figures from the country’s Central Statistics Department. The government has long planned on the development of the Berbera corridor to breathe new life into an economy that has been typically based on agriculture and herding. 

It signed a 30-year concession with DP World for the development of the Berbera port in 2016, with investment expected to tot up to $442m across three development phases. British International Investment, the development finance arm of the UK government, chipped in too, making Berbera one of the three African ports it is supporting in tandem with DP World (the other two being Dakar in Senegal and Sokhna in Egypt). 

DP World has already spent $250m to boost capacity at the Berbera port, which is now able to handle an annual 500,000 twenty-foot equivalent units — the standard measure of cargo container capacity. It also launched an adjacent free zone in late 2022, which has already signed up as tenant UAE-based food company IFFCO. At the same time, the Abu Dhabi Fund for Development is financing the Berbera Corridor, the road running from the Berbera port to the location of Tog Wajaale, on the Somaliland side of the Ethiopian border. 

“The port of Berbera is ideally positioned to serve Somaliland and the hinterland of the Horn of Africa region, especially Ethiopia,” says Supachai Wattanaveerachai, DP World’s CEO for the Horn of Africa region (see interview, opposite). 

“The port of Berbera is ideally positioned to serve Somaliland and the hinterland of the Horn of Africa region, especially Ethiopia” Supachai Wattanaveerachai, CEO for the Horn of Africa region, DP World

Ethiopia’s question mark 

While Ethiopia initially seemed committed to backing the endeavour through a 19% direct stake in DP World Berbera — which substantiated Berbera’s vision to become an alternative to the Djibouti port, which handles about 95% of Ethiopia’s external trade — the Ethiopian government has not followed up on this intention. 

“Now that the port is done, they seem newly interested in getting a share of it,” Mr Ali Shire says. “However, there isn’t any new official negotiation on this: what’s being negotiated is a transport and transit agreement that would allow goods bound for Ethiopia to transit duty-free through Berbera.”

Considering the limited size of Somaliland’s internal market, Ethiopia’s involvement remains key for the success of the whole Berbera corridor endeavour. 

“If Ethiopia is not onboard, it raises a big question on the feasibility of the port and corridor project,” says Ahmed Musa, a research fellow at the LSE. “Because of internal strife and leadership change, Ethiopia is more inward looking,” Mr Musa says, referring to the rise of Ethiopian prime minister Abiy Ahmed in 2018 and the Tigray War in northern Ethiopia. “That’s why it has become reluctant to engage with the project.” 

Besides, Mr Ahmed may have eyed another port altogether, as rumours have spread that he is interested in the port ofSaylacinstead — a sleepy port in northern Somaliland that is closer to the Ethiopian border.

Without Ethiopian participation, the development of the Berbera port may well be a Pyhrric victory for both Somaliland and DP World, as its brand-new costly cranes risk remaining idle will prove little help for the company’s bottom line, as well as Somaliland’s international ambitions.

This article first appeared in the February/March 2023 print edition of fDi Intelligence. This article has been amended since print publication to reflect the latest developments in Las Anod.