Oil as an essential development tool for Somalia

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Oil is political. Much has been said or better yet negatively speculated about the FGS’s offshore oil strategy. At EABJ, we view the glass half-full and whether we are in a productive positive to contribute to the national thought-process on moving the needle forward.

 

We don’t engage in twitter diplomacy for political clout or have any formal relationship with the government and thus are completely independent in our views. As per usual, most of the twitter pundits have a perennially suspicious and antagonist approach without bringing any fresh ideas or constructive policies to the table. Since most of the people care or claim to care about the Somali people, we want to focus on oil as a development tool in Somalia with a specific focus of using oil revenues to invest in education and health-care across the country. Therefore, oil has the potential to be a powerful developmental tool if not politicized – which would be a rare but possible feat in Somalia.

In our investigation we look at oil for development programs that have been successfully run by Norway through their organization Norad whose mission statement is “to help countries avoid oil curse.” The reason why Norad was established was due to the understanding that good governance was a critical element in managing oil resources. At this moment, it is not up for debate that Somalia lacks effective governance let alone ‘good’ governance. The fact that institutions don’t exist to have any checks or balances is a given but the troubling matter has been that after several years of revolving ineffective governments there has been no concrete effort to create those institutions. Therefore, our initial suggestion would be that the institutions and systematic governance checks be put in place before or at least during the selling licenses of the oil blocks.

Somalia formally joined Norad in June 2018, outlining on the website that “the planning of an OfD programme in Somalia was formally approved and in 2018 and 2019 Somalia and Norway will work together to map the status and needs of the Somali petroleum sector, and jointly plan an OfD programme. Selected technical assistance activities and capacity building combined with the development of a holistic programme document and an appropriate agreement structure for an institutional cooperation programme will be the main activities in 2018 and 2019. The Ministry of Petroleum and Mining in Somalia is assigned the responsibility for the coordination of the planning of an OfD programme.”  This is precisely the information that the Somali public needs to know about with clear transparency. It is less useful to know who the oil blocks are sold or licensed to than to know where the revenues of those oil blocks are going to – especially in the name of development.

After having studied the various cases of Norad development work from Asia to Latin America and Africa they clearly have the know how – it is very clear that they focus on capacity building. The real question is whether our federal government has the know how? We would somehow need the Norad agreement with Somalia to have an increased transparency and accountability like their program in Uganda. We would also need an increased involvement with our environmental ministry since the environmental impact will be substantial and Somalia is currently experiencing an environmental degradation through its charcoal trade and the negative effects of climate change. Unless we have a plan, this will only be further exacerbated by oil exploration and production.

Taking Advantage of Norad’s Oil for Development (OfD) Program 

 

Competent Governance

The key actors involved in the governance of oil are the state, the oil companies and civil society, these being influenced by a network of national and international politics and socio-economic factors. The state’s role in the governance of oil is very much focused on national and international policies used to avoiding a resource curse while civil society, a collective term for nongovernmental organizations (NGOs) and non- 3 corporate organizations and institutions, has also emerged as an important actor in the political economy of oil (Bridge and Le Billon, 2013). Through holding the government and oil companies accountable for their actions, many believe that civil society groups are a key in reducing the negative social and environmental costs of oil. Ferguson (2005) describes the oil industry as operating from within ‘secured enclaves’, with the extent of their ‘security’ and the way in which they are governed varying, depending on the states that have nominal jurisdiction over them. These enclaves shield the companies, preventing any company-community dialogue, and that it is therefore the role of the government to bridge civil society concerns between the other two actors. It is then the government’s role to both encourage oil production and economic interests, while at the same time not only communicating but enforcing civil society’s interests and social and environmental concerns.

There is an undeniable proven link by economist that countries with more resources tend to have higher levels of corruptions, lower levels of governance and higher levels of lawlessness. Countries with fewer or no natural resources tend to have lower levels of corruption, higher levels of governance and more reliance on human capital as a resource. Since the civil war when Somalia entered a combination of a full-blown un-hinged capitalism and dubious aid economy there has been an oxymoron where the countries natural resources are currently largely untapped yet the country suffers from severe and crippling levels of corruption, virtually no governance (and a dire resistance to a formal government or any organized governance), and a disdain for investing or relying on human capital. We therefore have a situation which bewilders economists and continues to be an enigma for most regular Somalis who reside outside of Mogadishu.

We should therefore state that we are very fortunate to have discovered petroleum resources in our country and our shores. It is a wondrous development tool to fund education, healthcare and energy (electricity) to empower the next generations. Without understanding that governance needs to come from actual functioning government institutions run by competent individuals who have demonstrable knowledge in that field or function – oil as a development tool whether implemented by Norad or ourselves, will be a non-starter and another futile exercise. As aforementioned, oil is political since decisions about finding, moving and using the resources bring together groups of people with different interests and agendas including some of the most powerful actors in the global economy. Oil shouldn’t be solely viewed as an industrialization tool although it is an effective one but as a social developmental impact tool. In Rostow’s model of development it is correctly described as a “take-off” in development, yet many countries have instead seen a worsening of their economy after oil production, with lower levels of democracy, and a greater chance of conflicts. This, in addition to various social and environmental costs, has caused many to experience oil as a curse rather than a blessing. Economists such as Collier describe the various mechanisms which may cause a ‘resource curse’ which are largely centered around good governance and the lack of effective regulation. Policies of accountability and transparency with strong regulatory institutions are considered key methods of avoiding or reducing the negative effects.

Environmental Governance

At this early phase it may seem understandable that the Ministry of Environment may not be as involved with Norad as it should be, but we disagree because as economists we know that the production of oil creates environmental impact known as a negative externality. This negative externality is defined as the costs incurred by other members of society not taken into account by producers and consumers and therefore damaging the eco-systems themselves. Some of these costs have been widely covered such as the Niger Delta and the Gulf of Mexico while others not so visible, often occurring on a smaller scale but when aggregated they add up to large problematic consequences. These include more long-term activities such as the regular 4 chemical discharge from exploration, drilling and transportation. In Somalia’s case – the early stages of exploration have potential environmental impact which have an impact on fishing industry. Oil itself maybe released into marine environments throughout blowouts, accidental spills or even intentional pollution and therefore making coastal environments more at risk of degradation. Damage to life along the coast is caused by direct physical contact with oil which covers marine life, either causing immediate damage or inhibiting an organisms life-function. These long-term effects include sea floor sediments which may contain oil particles for decades (Børresen, 1993). Nigeria has experienced an ecological disaster as a result of its oil industry, largely from oil spills and gas flaring. Unsustainable oil production has rendered the Niger Delta region unlivable and one fo the most severaly damaged eco-systems with its residents suffering the health costs.  There are approximately 300 spills per year in the Delta with devastating consequences for Ogoni fisheries and farms, and studies have revealed levels of hydrocarbons in Ogoni streams in 1997 of between 360-680 times the EC permissible levels (Watts, 2004). Although the geopolitics of Somalia’s oil is different from that of Nigeria’s, Somalia should be aware that it has a great challenge to face in its own environmental governance of the resource.  One area of focus in OfD’s programme is environmental governance and, using a political ecology approach. The institutional capacity-building approach has the ability arguably to create and strengthen the structure of environmental institutions at the macro-level and strengthen Somalia’s environmental oil governance.

Clean Energy for development

The Somali Energy Sector is one of the most under developed in the world.  The access rate of electricity is about 15% across Somalia meaning that of the 13 million people living in Somalia – a stunning 11 million Somalis have virtually no access to electricity in their daily lives. Most of these people are living in the rural and peri-urban areas of Somalia of which 68% consist of woman and children.  The remaining 2 million Somalis living in urban areas pay some of the highest price in the world for unreliable service.  Affordable and clean access to electricity remains one of the main challenges to Somalia’s economic development.  Both public and private sectors suffer from highly capacity constraints, weak legal and regulatory frameworks, limited financing and investment, and lack of data for effective decision making continue to hold back the clean energy sector development.

The burden of limited, clean and expensive electricity access is also felt by households, healthcare facilities and schools, force businesses to limit their productivity and in some cases to move their operations to other countries with reasonably price tariffs.   Currently the transmission and distribution systems of electricity in Somalia are by largely owned by the private sector and are generally viewed as natural monopolies exploiting their power to dictate prices.

Therefore, in this dire situation, EABJ team believes that the federal government of Somalia should consider a regulated utility model.  When utilities are privatized, with a highly regulated and good quality governance in place, this will encourage the private sector to increase and improve production efficiency in order to maximize their profit.  The public sector must ensure that the private sector do not exploit their monopoly status – as is currently the sad reality. The regulator should protect the consumer’s interests through setting measures to control price and fix maximum amount of revenue the natural monopolies can recover from users. Such measures also incentivize the companies to keep costs down, innovate technically to compete more effectively and to act in line with the clean energy for development and the interests of consumers and other stakeholders.

Furthermore, the existing private utilities have neither the financial capacity nor the technical capabilities to build modern, affordable and reliable electric power systems. More importantly, through some interactions EABJ team has engaged with them, they also suffer from the inefficiencies that are generally associated with government run departments. Both the quantity and the quality of the employees are generally based on non-commercial reasons and the cost associated with this squandering is passed on to the consumer.

Clean Energy for development is the golden thread connector for both entities and hence growth in Somalia’s economic development.  The Ministry of Energy and Mining has not yet involved Norad, in its initiative for the development of this sector.  Although the Ministry may have its reasons for not forming their bilateral agreement with Norad in the energy sector, however EABJ views that Somalia would benefit otherwise.  Norway is known for their elevated expertise in the management and cleaner extraction of energy from the remains of fossil fuels together with increased new technology and deployment of renewable resources of energy.  Norad views clean energy for development as the heart to assisting in economic growth and prosperity for the developing countries.  Norad’s core mission in their fight against poverty is through Clean Energy for development and have assisted in many projects throughout the globe.  Their main assistance for the developing countries have been around increasing access to electricity, Norad has provided a central advisory role for a regulatory, environmental and quality model; developed a hydropower plant in areas with water abundances; invested and built electricity transmission lines for electricity access in rural areas; helped in writing energy policies; anti-corruption and assistance of building mini grids

Gender equality for the clean energy for development is also crucial in increasing female professionals in the energy sector, as per the actions taken by Norad but also the Ministry of Energy and mining should not forget that there are many strong, naturally entrepreneurially capable Somali woman that are the main driving force for the SME development in Somalia and not to mention they have been the resourceful backbone of the vulnerable society.  EABJ advices the Ministry of Energy to consider into looking on the issues of gender equality and equal opportunities in involving more female professionals and business owners for the energy sector.

In conclusion, EABJ commends the federal government for seeking out Norad for their Oil for Development Program. However, unlike the many bilateral and multilateral agreements Norad has undertaken with various African countries (Uganda, Tanzania, Ethiopia, Mozambique, Angola) who have benefitted greatly from this expertise, it is our sincere apprehension that the federal government may be over their depth in understanding the holistic approach needed to undertake oil for development. There needs to be a clean energy strategy and an environmental strategy to both benefit from the oil for development and counter its very real negative effects. Nonetheless, the most pressing issue is that the government needs to actually govern and have a governance strategy with clear transparency, expert professional civil servants in appropriate posts, and a genuine effort to build regulatory institutions. Until all these interconnected elements are in place together, Norad’s effort will be futile and oil for development will be another Somali pipe dream.

By: Sagal B.H. Musa  &  Zahra Sufi

EABJ

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