Is Somaliland Trading Away Prosperity In The Ethiopia Sea Access Deal?

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In this analysis, Faisal Hawar, explores the impact the sea access grant to Ethiopia would have on Somaliland economy in the foreseeable future, asking whether the deal would be a boon, as argued, or bane to the people of Somaliland.

In the complex tapestry of Somali politics, I choose to navigate witha low-profile demeanor, steering clear of myopic debates entangled in stereotypes andemotion-driven opinions. Despite my discreet presence, my professional journey spansover 25 years, deeply immersed in the realms of Foreign Direct Investments (FDI) andlocal investment dealings, culminating in a substantial portfolio exceeding $30 billion.
Within this extensive landscape, I have led groundbreaking initiatives, notably the $1
billion Global System for Mobile Communication (GSM) project, the transformative $3
billion Thuraya Satellite venture, and the monumental $4 billion Abu Dhabi Islamic Bank
(ADIB), acclaimed as the largest capital money Islamic bank on a global scale. Beyond
these landmarks, my engagement extends to diverse projects like the Ebtikar Sim Card
factory, Contact Centre, Zanzibar Telecom, and Kuwait Energy Company, where our oil
production capacity reaches 28,000 barrels per day across seven host countries.
This multifaceted portfolio also encompasses numerous FDI endeavors, spanning
telecom operations licenses and upstream oil and gas investments across Africa and
various global regions. Armed with such extensive background, I humbly intend to
contribute my two cents opinion and advisory to the ongoing political discourse among
my fellow countrymen.
Unlike the prevailing discourse, this analysis does not blindly oppose or support the
Somaliland-Ethiopia deal solely based on considerations of Somalia’s sovereignty or the
other hand Somaliland’s bravado independent statehood. Many have already debated
along these lines. Instead, I aim to delve into the intricate dynamics of leasing sea access
and land corridors, emphasizing the imperative for a thorough evaluation of the shortterm and long-term economic implications.
The objective of this article is to furnish readers with a nuanced understanding of the
potential economic risks and benefits entwined with this proposed venture. By steering
clear of the well-trodden paths of sovereignty debates, I aspire to contribute to informed
discussions surrounding the future economic landscape of Somaliland. The piece
endeavors to open a dialogue on the matter, shedding light on diverse aspects that
necessitate careful consideration before advancing any leasing agreements.
If we could eavesdrop on the unspoken wishes and dreams of coastal nations, their
earnest pleas to the Almighty Allah would likely surpass mere expressions of gratitude for the gift of sea access and ports. Beyond seeking blessings for their maritime endeavors,
they might fervently implore for the added fortune of possessing numerous landlocked
neighboring states, envisioning a trajectory that catapults their economic prosperity to
unparalleled heights. As a Somali reader endowed with acute discernment, there’s little
need for explicit elaboration on the aspirations and yearnings of a landlocked nation—
particularly when considering our neighboring Ethiopia!
Ethiopia, our landlocked neighboring nation with a population of 120 million, is
unequivocally seeking its own sovereign sea access, ports, a military base, and a direct
pathway corridor leading to its borders. This assertion is substantiated by Ethiopia’s
existing commercial access to the Assab Port of Eritrea and the ports in Djibouti, each
equipped with advanced railroad and highway infrastructure connecting to Addis Ababa.
While Ethiopia also has commercial access to the Berbera Port in Somaliland and the
Lamu Port in Kenya, along with the option of utilizing a few other ports in Somalia, it’s
essential to recognize that these established connections do not fulfil Ethiopia’s specific
objectives in the current negotiation.
Historically and in the recent rhetoric of Prime Minister Abiy Ahmed, clearly conveyed to
his Parliament and the nation, Ethiopia is explicitly seeking a share of sea access in the
Red Sea and the Gulf of Aden. This pursuit is evident in the Prime Minister’s statements,
emphasizing a strategic interest in securing a long lease or exploring alternative means
for access, underscoring Ethiopia’s commitment to achieving this objective.
The economic bedrock of Somaliland, understood by the common man, relies on three
distinct lifelines. Firstly, the annual export of locally-reared livestock, supplemented by
approximately 40% imported from Ethiopia. Second, port handling charges for goods
destined for Ethiopia play a significant role, and third, potential port charges and the trade
of Ethiopian export goods via the Berbera port contribute to the economic vitality of
Somaliland.
Despite the potential for Somaliland to face a trade deficit with Ethiopia, heightened by its
substantial daily import of Qaad/Jaat, which exceeds $600 million annually, the current
vibrancy of trade, commerce, and services in Somaliland, including major businesses,
hinges significantly on the provision of goods and services to the landlocked neighbor,
Ethiopia. Approximately 60% of local business activities are intricately tied to import and
export transactions with Ethiopia. It is essential to sensibly acknowledge that all the
economic channels supporting Somaliland’s economic backbone today will cease to
function once a long lease for sea access and pathway corridor-land is finalized with
Ethiopia. This may potentially lead to the establishment of a quasi-Ethiopian enclave
within Somaliland’s territory.

Foreseeing the Economic Fallout

The Impending Losses for Somaliland’s Economy, Trade, and Services Arising from Leasing Sea Access and Pathway Corridor to Ethiopia may include:

1. Livestock export via Berbera Port, Somaliland’s economic mainstay:
strategically situated and favored for Ethiopia’s livestock and fresh meat exports,
stands as a pivotal economic asset for both nations. Its close proximity to the
animal habitats in the Somali State of Ethiopia and Oromia allows for swift
transportation, with living livestock and fresh meat reaching Berbera port within
hours. The handling of these exports is facilitated by seasoned Somali livestock
experts. However, the prospect of signing a leasing contract for sea access and
pathway corridor, creating a quasi-Ethiopian enclave within Somaliland, threatens
to sever this vital economic lifeline for Somaliland. In doing so, Somaliland risks
undermining its own economic interests and shooting itself in the foot.
2. World Food Programme (WFP) Aid: Since the iconic “We Are the World”
initiative in 1985, which sought to raise funds for famine relief in Ethiopia, the World
Food Programme (WFP) has consistently supplied Ethiopia with millions of metric
tons of wheat and other grains annually. Initially routed through the Djibouti port,
more recent agreements have extended this crucial aid via Berbera port,
presenting a lucrative contract for Somaliland. This collaboration not only
generates revenue through port service charges and handling fees but also opens
up transportation opportunities for delivering food supplies inside Ethiopia. It could
stand as yet another significant and potentially missed opportunity for Somaliland.
3. Ethiopian Agro-Farm Exports: Ethiopia’s expanding global export of agro-farm
cash crops such as Coffee, Legumes, and Pulses is notable, with shipments
passing through both Djibouti and Berbera ports. While Coffee finds its way to
markets in the US and EU, Pulses, including lentils, chickpeas, beans, Sesame
seeds, Teff, Sorghum, and Maize, dominate Ethiopia’s grain exports, primarily
heading to Yemen and the Gulf States. This thriving export industry could stand as
yet another significant and potentially missed opportunity for Somaliland.
4. Oil and Gas Transit: The recent discovery of commercially viable oil and gas
deposits in the adjacent Somali State of Ethiopia presents Somaliland with a
significant and latent economic opportunity. The prospect of crude oil and gas
transiting through Somaliland’s land and port entails a colossal revenue potential,
with transit fees being a customary practice in the oil and gas industry. This is
particularly relevant for landlocked countries with oil production capabilities that
need to access sea-front ports in neighboring countries.
A pertinent example: illustrating the potential of a crude oil transit fee
arrangement is the relationship between South Sudan and Sudan. In the 2012
Transitional Financial Arrangement (TFA), a fixed fee of $9.10 per barrel was
set, supplemented by additional processing and transit fees, resulting in a total
of approximately $24.50 per barrel. South Sudan was also obligated to pay a
$3 billion compensation package to Sudan over several years.
Fast forward to 2022 negotiations, where both countries engaged in
discussions for a new transit fee agreement, with South Sudan seeking lower
fees due to fluctuating oil prices and changed circumstances. In 2024, Sudan
proposed a novel approach, suggesting a fee based on a percentage of the
prevailing global crude oil price, potentially ranging from 10-15%.
Somaliland, following this precedent, could stand to generate substantial
revenue from the transit of Ethiopia’s crude oil. However, this potential
economic windfall is at risk of being overlooked, as Somaliland considers
leasing its sea and land, ultimately paving the way for Ethiopian administrative
control within its borders.
5. Natural Gas Transit Fees: Much like the transit fees applied to crude oil,
landlocked countries also pay a fee to the sea-port-owning country for each unit of
natural gas transited. The determination of these natural gas transit fees involves
consideration of several factors, including:
Existing Fee Structures: In the case of Turkmenistan and Azerbaijan, their gas
pipeline agreement employs a variable fee system based on distance and
volume, spanning a range of $0.5 to $1.5 per 1,000 cubic meters (scm).
Bolivia and Brazil: The gas pipeline agreement between Bolivia and Brazil
features a nuanced fee structure, incorporating various charges influenced by
factors such as distance, volume, and other variables. This complexity makes
it challenging to pinpoint a single average fee.
LNG Conversion: In instances where landlocked countries opt to export
liquefied natural gas (LNG), they may encounter additional costs associated
with liquefaction and transportation. These costs differ from those associated
with pipeline gas transit and add another layer to the overall fee
considerations.
6. Mineral Ores Transit Fees: Much like the established systems for crude oil and
natural gas transit fees, mineral ores also incur transit fees for landlocked
countries, constituting a substantial revenue source for the seaport country.
Several factors come into play when determining these fees:
Type of Ore: The nature of different ores, with variations in qualities, processing
requirements, and transportation needs, directly influences the applicable fees.
For instance, fees for transporting iron ore may differ from those associated with
rare earth metals.
Volume of Ore: Higher volumes typically result in lower per-ton fees.
Distance Traveled: Longer routes or the utilization of more complex
transportation modes, such as trucks versus railways, generally lead to higher
fees.
Infrastructure Costs: The establishment and maintenance of dedicated ports,
rail lines, or roads designed for ore transportation contribute to the overall fee
structure.
Examples of existing fees further highlight the diversity of this system:
Zambia and Tanzania: The transportation route for Zambian copper through
Tanzania involves periodically negotiated fees, with estimated costs ranging from
$20 to $40 per ton.
Mali and Senegal: The transit of Malian gold through Senegal reportedly incurs
fees calculated as a percentage of the gold’s value, potentially around 2%.
This prospective revenue stream will go unrealized should Somaliland decide to lease
its seas and land to landlocked Ethiopia, thereby highlighting the substantial economic
and revenue generation opportunities that stand on the brink of being forfeited.

Navigating Ethiopia’s Recognition Offer: A Precarious Balancing Act for
Somaliland’s Future

As Somaliland contemplates Ethiopia’s unilateral recognition offer, the looming threat of
a significant economic fallout and the potential loss of territories forever raises critical
questions. The merit of Ethiopia’s recognition proposition and the perceived equitable
trade of acknowledgement for sea access and a pathway corridor beckons scrutiny,
prompting Somalilanders to ponder the logical acceptability of such a deal.
Amidst the jubilation echoing through Somaliland, a crucial aspect comes into focus—
whether the public is fully apprised of the international landscape where numerous
countries, despite amassing significant recognition from UN member states, faced
challenges in achieving UN membership due to opposition from the very nations they
sought to secede from. Illustratively, Kosovo garnered over 115 recognitions, Palestine
secured 139, Western Sahara obtained more than 46, and Taiwan, despite having 14
recognitions, continues to grapple with securing broader acceptance within the
international community.
These examples underscore the intricate complexities and potential hurdles that
Somaliland might encounter on its path to full international recognition, while possibly and
irreversibly losing sea and land territories.
Conclusion: A Call for Prudent Decisions
In light of the potential economic windfalls outlined above, I earnestly urge Somaliland’s
leadership and intellectuals to reconsider the decision to lease its seas and pathway
corridor land to Ethiopia. Rather than relinquishing control and sovereignty, Somaliland
could explore more profitable and manageable Foreign Direct Investments (FDIs) that
align with its economic interests. Let us not risk surrendering Somaliland’s freedom to the
more powerful and populous Ethiopia, potentially paving the way for an overpowering
influence over Somaliland’s future. Prudent choices today will shape a prosperous
tomorrow for Somaliland and its people.
A Word of Wisdom on External Interference: A Challenge and a Caution
As Somaliland navigates the complexities of these pivotal decisions, it is imperative for
politicians, intellectuals, and the general public to stand resilient in the face of external
interference, criticism, and opposition, particularly from our brethren in Somalia. This
resilience becomes even more critical as we approach the final stages of deliberation on
this precarious deal. While fully acknowledging the deep bond that unites us as part of
the broader Somali race, we must challenge ourselves to avoid succumbing to a historic
mistake that could result in the permanent loss of both our seas and land to the larger
and more populous Ethiopia.
It is essential not to let potential disagreements and political discourse with our Somali
brothers, even if they vehemently criticize Somaliland, overshadow the imperative of
safeguarding our precious seas and ancestral land. Let our decisions be guided by a
commitment to prosperity and the meticulous preservation of Somaliland’s future for all
Somalis.

Engineer Faisal Hawar.
Fhawar@gmail.com