In “Peace-Building without External Assistance: Lessons from Somaliland,” Nicholas Eubank explores the second-order effects of state-directed foreign aid on political and economic development. Because foreign aid has worked its way into nearly ever corner of sub-Saharan Africa, there are few controls available to estimate these effects. Eubank isolates one such control in Somaliland, which has remained untouched due to the international community’s decision to make the state ineligible for aid after its unapproved secession from Somalia in 1991.
Eubank posits that because the Somaliland government did not benefit from aid revenues, it had greater incentive to reconcile with the local commercial interests, which, in turn, had a vested interest in peace and stability that served the country well. Somaliland indeed appears to have taken major steps forward since its decimation by civil war, rebuilding cities and towns, and increasing schooling and commercial activity. A UNDP/World Bank survey finds that Somaliland has significantly higher average income than Somalia proper, a reversal of the prewar distribution, with superior health statistics as well.
Folks like Dambisa Moyo have received recent attention for their criticisms of state-directed aid, and Somaliland serves as an excellent, if not wholly generalizable, case study in development without state aid. The theoretical advantage of aid-less development is that the government is dependent on its citizens for its revenues, and because “citizens and businesses can resist taxation, and by doing so increase the costs of tax collection, decreasing its efficacy, dependency on tax revenue creates a de facto mechanism of accountability which can be employed even in the absence of effective de jure accountability arrangements.”
Somaliland stands in stark contrast to most of sub-Saharan Africa, where, “in 2005 there were 16 sub-Saharan countries in which the ratio of foreign assistance to government expenditures is greater than 50%.” If Somaliland received an amount of state aid proportionate to the median sub-Saharan country, the government would have had control over approximately $94 million from foreign sources, triple its annual revenues.
Eubank argues that the absence of this external funding has allowed Somaliland to develop:
First, a lack of outside financial support increased the influence of the business community, which provided all government financing. Because pastoral economies are dependent upon stability and management of public goods like water and grazing lands, the influence of the business community has proved to be supportive of political reconciliation.
Second, with a large number of political actors with relative parity in terms of resources, a lack of outside support has forced compromise and co-option of opposition groups.
Somaliland government did not have an independent revenue base, making it dependent upon the continued support of its constituents.
The post-secession history of Somaliland is certainly not neat and orderly. The clans that came together to win their independence were unable to sustain their coalition, and the postwar transitional government broke into warring factions. The government and its opponents fell into a bloody struggle for power, with the government attempting to cease the Port of Berbera in order to fund its fighting. The government, however, was not strong enough to wrest control of the port from the opposing clan. With little hope to sustain itself, the government was forced to the bargaining table.
The peace conferences that followed were funded by local communities and the agenda largely reflected their interests, leading to broader government representation and a president favored by the port businessmen. Those early years saw additional fighting, but the government was again forced to reconcile with its opponents because it did not have the power to combat them. Civil society, thanks largely to the vested interests and relative power of commercial stakeholders, successfully pressured the government to preserve peace and stability.
Government decision-making and financial power have since remained relatively decentralized under a constitution constructed to prevent state predation. Somaliland is now “one of the only governments in Africa with ‘cohabitation’ between rival parties in the executive and legislative branches.” As an analyst put it in a 2009 Human Rights Watch report: “Some in the government don’t believe in our democratic process, but no one has enough power to destroy it.”
Since the civil war, the government has been dependent on business both for loans and tax revenues. The businessmen, for the most part, had a personal stake in “freedom of movement; freedom of trade; access to common grazing areas; access to common water sources; and the return of private property.” This is not to say their influence was wholly benevolent: livestock owners saw an opportunity to secure a monopoly of the market through politics, and did so, driving out smaller competitors. But by and large, business men positively influenced development: pressuring politicians to maintain stability and economic freedom, paying alms for social services, and conducting development projects.
As Eubank allows, the case of Somaliland is not necessarily generalizable:
Somaliland lacked natural resources that would have reduced government dependency on local revenues even in the absence of aid; it had some degree of parity among different clans, which prevented a single group from dominating others; commercial actors had an interest in promoting peace because of the nature of pastoral economic production; and the country’s relatively strong traditional institutions were able to mediate equitable agreements once resource constraints forced parties to the negotiating table.
While all of these characteristics are important, I would focus on the nature of dominant economic activity (e.g., pastoral production rather than natural resource extraction). The interests and power of the local businesses allowed Somaliland to follow a path similar to any student of European economic and political development:
Researchers studying state formation in medieval Britain and the Netherlands have argued that the modern, representative state emerged as the result of negotiations between autocratic governments who needed tax revenues in order to survive inter-state conflicts on the one hand, and citizens who were only willing to consent to taxation in exchange for greater government accountability on the other. In these historic cases, government dependency on local sources of revenue provided those in control of economic assets with significant leverage over the government which they were able to use to demand the development of more accountable and representative political institutions though a process generally referred to as “revenue bargaining.”
This revenue bargaining was only possible by the absence of state-directed foreign aid. Somalia provides an illustrative example of the impact of aid:
Somalia was Africa’s largest per capita recipient of international aid in Africa (with the exception of micro-states such as Gambia) [during the 1980’s]. These huge inflows of aid money, especially from the U.S., made it possible for the Siad Barre government to establish a patrimonial system wholly disproportionate to the productive economy. Indeed, it was the aid flows that made possible the strategy of assaulting the productive sectors such as agriculture and livestock. (de Waal)
While Somaliland is but one case study, it should set off some alarm bells. Beyond questions of state-directed aid effectiveness, second-order effects on the natural political development process suggest that aid might be better directed at the citizens themselves, or at least at the local communities. Rather than reinforcing existing state structures, outsiders might better serve inhabitants by helping the individuals increase their economic and political power in order to secure a better deal at the bargaining table with government.