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Published On: Sat, Jul 29th, 2017

Somaliland economic development model: Mixed economy

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AbdirashiidAxmed

 

Somaliland economy can now be characterized as a pure capitalism. Many private enterprises thrived over the years and a small percentage of the society has amassed wealth while the great majority of the population is in abject poverty. The role of the state is very small compared to the private enterprises. The government budget is around 300 million dollars. This relatively small budget is hardly enough for covering the salaries of the civil servants and the security institutions. Government expenditure on infrastructure is almost negligible, not to mention any social security benefits. The government runs some electricity and water supply services, but these are very limited and do not cover more that 20% of the demand.
In this section, an attempt is made to briefly highlight the different economic models and, in the end, the model that best suites Somaliland is analyzed.
Marxism Model is the economic model (system) that was followed by the former Soviet Union. This model is still being applied in some countries like Cuba.. This model advocates for total control by the government over all economic resources of the country. Everything is public and private ownership of assets is not allowed. This economic system has almost disappeared and is becoming extinct.
Capitalist Model is the opposite of Marxism. Under this economic model, all properties must be privately owned since all properties were created by individuals according to them. Under this model, the government can manage only some public goods like the national defense. The taxation role of the state is also accepted under this model. However, according to this model, the government must not run any business enterprise that can be privately managed. Under this model, the market forces of supply and demand are the engines of the economy. Every business activity must be left to the private business firms whether individually owned or owned by a group of people.
Mixed Economy model is a mixture of the previous two models. While the private sector takes the lead, the public sector is not ignored. The state runs some public enterprises. The argument for the public sector (state owned enterprises) is that the private sector might not function in a perfect manner in all cases. In under-developed economies, like Somaliland, the private enterprises might not succeed in the successful industrialization of the economy. The reason could be the lack of access to sufficient capital or unwillingness to take the risks involved in large-scale capital intensive projects. When access to financial capital is a constraint like the case is in Somaliland, the government shall borrow funds from international creditors and shall jointly establish capital intensive projects with local companies. Similarly, the government can make joint venture projects with international partners, either with governmental or with private organizations.
Public Private Partnership (PPP) Policy
The PPP policy of economic development is a mixed economy policy that aims at the acceleration of economic development for the least developed countries in the world. The rationale for this policy is the assumption that the government can raise investment funds for the implementation of large-scale projects that are critical for the achievement of the two main goals of increasing employment and the industrialization of the country. On the other hand, the private sector in these least developed countries is assumed to have gained the managerial capacities to manage large-scale projects but the problem of the sector is capital constraint. In other words, the financial sector of these countries is not strong enough to provide the financial resources that the entrepreneurs in these countries need to finance the mega projects that would enable the respective countries to take off economically. The PPP policy addresses the financial constraint of the private sectors and the inefficiency problems of the state institutions by combining the government’s financial resources with the management of the private sector. In this way, the government and selected business organizations (national or international) establishment business enterprises in certain sectors of the economy that contribute most to increasing employment and industrialization in order to speed up economic growth in the country.
In Somaliland, the introduction of the PPP policy is the need of the hour. It is obvious that the private has amassed managerial capacities over the last quarter of a century but the industrial base is very week and requires great impetus from the government that is expected to be elected in November this year.
The new government shall assign its economic and legal advisors to draft the PPP policy that should be passed into law through the national parliament. The economists and legal experts who are working on the policy document shall visit selected number of developing countries who can share their mixed economy legislation and practice with the Somaliland government. The economists should also do the write-up of the proposal documents for the PPP business projects that would be financed during the coming 5 years through PPP policy. The newly elected president also expected to establish the government that shall implement the PPP projects over the coming 5 years and beyond.
The Somaliland government partners like the British, the USA, the Swedish and Arab governments are supposed to funds the PPP projects. Any other donor or creditor organizations would be welcome to come on board and contribute to the implementation of this policy in Somaliland. However, the financing terms of any funding agreement by the international partners would be based on the profit sharing principle since the Somaliland constitution does not allow interest based transactions of any kind.

Abdirashid Ahmed Guleid
abdirashidaa@gmail.com

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