Thriving Somali Business and the Need for Government
There has been ongoing discussion—and debate—about Somalia's economy in the absence of a central government. Some studies argue that Somalia’s economy has actually improved since the fall of Siad Barre’s regime, primarily because of the absence of a predatory state. But what does this mean? Does it suggest that Somalia doesn’t need a government? And if it does, what kind of government would work?
Road to Anarchy
Somalia has been without a central government since Siad Barre was overthrown in 1990. In the northwest and northeast, regional governments—Somaliland and Puntland—have been established. However, the southern regions of Somalia, particularly south of Galkayo, lacked a central authority for 15 years, with warlords and tribal chiefs filling the vacuum. Recently, the Islamic Courts Union gained control over much of Southern Somalia, ousting the warlords.
The international community has made numerous attempts to establish a central government in Somalia, but these efforts have repeatedly failed. The current government remains weak and appears to be following in the footsteps of its predecessors.
Better Off Stateless?
Some argue that Somalis are better off without a government. In his paper “Better off Stateless,” Peter T. Leeson attributes Somalia’s improved economic situation to the absence of a predatory state, which had stifled entrepreneurship for decades. Somalia’s economy today thrives on private business and ownership.
Researchers Tatiana Nenova and Tim Harford explore this in their study, “Anarchy and Invention,” noting how Somali entrepreneurs have creatively used “foreign jurisdictions or institutions” to manage certain tasks. For example, hawala businesses—Somalia’s informal money transfer system—are registered in Dubai. Somali businesses rely on networks of trust, often rooted in the tribal system, to secure property rights and enforce agreements.
The Role of Hawala
The hawala system is perhaps the most critical sector in Somalia’s economy. Originating in the 1980s as a response to government restrictions on banking, hawala became the primary method for Somalis abroad to send money home. Today, this trust-based system handles over $1 billion annually—likely even more. All it takes to send money is a name, location, and tribe, and the recipient receives it the next day almost anywhere.
During a visit to Dubai, where most hawala companies operate, I saw their ingenuity firsthand. Using tools like MSN Messenger, hawala representatives coordinate exchange rates, transactions, and communication across countries. This system is efficient and seamless, highlighting Somali adaptability. Hawala companies now offer expanded banking services and invest in various sectors of the economy.
Somali Business Ingenuity
One major advantage Somali traders have is their mobility. Many entrepreneurs move wherever there is opportunity. For instance, I know a businessman who began in Kenya, expanded to Dubai for wholesale, and then opened a manufacturing branch in Indonesia. He is now considering moving to China due to lower costs. Somalis are active in sectors like real estate, textiles, logistics, retail, telecommunications, and oil throughout Africa. In fact, Somalia boasts some of the best telecommunications systems in Africa.
Does Somalia Need a Government?
For most of its history—spanning over 4,000 years—Somalis lacked a central government, organizing themselves around tribal sultanates and kingdoms. Islam spread peacefully in Somalia, leaving no recorded conflicts with other Muslim entities. Tribes historically united against external threats, such as the Portuguese or Ethiopians. The question remains whether this decentralized system could function in modern Somalia.
In his book, “The Law of the Somalis,” Michael van Notten describes Somali tribal traditions and customary law, arguing that these systems can replace formal governance to maintain stability. He contends that foreign models of government, which divide people into rulers and the ruled, lead only to chaos in Somalia. Instead, he suggests strengthening Somalia’s tribal laws and economy. Indeed, Somaliland, Puntland, and the Islamic Courts Union have all used tribal systems to establish stability in their regions.
However, I believe Somalia needs a government—one that is small and decentralized. The tribal system should be recognized and integrated into the constitution in a limited but defined role. A government is essential for providing public services such as healthcare, education, resource management, and welfare.
Challenges Ahead
The Somali business community largely agrees that a government is necessary. Despite economic ingenuity, there is a pervasive sense of instability among ordinary citizens, even in relatively stable regions like Somaliland and Puntland. However, any future government must be created by Somalis and tailored to Somali realities. Past attempts to impose foreign models have resulted in weak, dysfunctional administrations.
The current political scene is dominated by three problematic groups: warlords, corrupt officials from Siad Barre’s regime, and clan representatives. These actors are deeply distrusted by the Somali people. Moreover, the tribal division of political positions—such as alternating the presidency and prime ministership between Hawiye and Darood—has only led to gridlock, bribery, and conflict. Clan elders, who hold significant influence, are not formally recognized in the political system, further exacerbating governance issues.
Conclusion
While Somalia’s entrepreneurial spirit has flourished in the absence of government, the country needs a functional, Somali-driven administration to ensure stability and development. The road ahead is fraught with challenges, but with a decentralized, inclusive government, Somalia can build on its resilience and ingenuity.
