Global Policy Forum

Somali Businesses Stunted by Too-Free Enterprise


By Ian Fisher

Mogadishu Journal
August 7, 2000

There are five competing airlines here; three phone companies, which have some of the cheapest rates in the world; at least two pasta factories; 45 private hospitals; 55 providers of electricity; 1,500 wholesalers for imported goods; and an infinite number of guys with donkeys who will deliver 55 gallons of clean water to your house for 25 cents.

What Somalia does not have is a government, and in many ways, that makes it the world's purest laboratory for capitalism. No one collects taxes. Business is booming. Libertarians of the world, unite!

So it may come as a surprise that business people in Mogadishu, the wrecked and lawless capital, are begging for a government. They would love to be taxed and would gladly let politicians meddle at least a bit in their affairs. "The thing is," Abdi Muhammad Sabria said, "it's a lot better to pay a tax than to go through what we are going through."

Last year Mr. Sabria and his partners opened a pasta factory here, and at the moment they cannot make enough to meet demand. But they pay $3,000 a month just for gunmen, including the one who sits with an AK-47 across the factory's spotless concrete floor from the pasta cutting machine. Because there is no port, they lose up to 10 percent of their imported supplies on the beach. They had to dig their own well. They generate their own power. "You have to provide everything for yourself," Mr. Sabria said. "You have to collect the garbage on your own street." Even this requires a payment to local toughs, who often block private garbage trucks.

Established business people here are all too aware of the paradox they face: what helps make their business so good -- freedom from government -- is exactly what will kill their businesses in the long run. It may be true that the government that is best governs least. But at least it governs.

"Security is the doorstep for development," said Muhammad Ahmed Hirabe, an economist collecting statistics on the business climate in Mogadishu. His partner, Muhammad M. Sheik, added: "Lack of government is not good for the economy and the whole business environment. That is the bottom line."

And so businesses are among the key supporters of the peace conference in the neighboring country of Djibouti, in which some 2,000 Somalis are gathered to try yet again to establish a government. Businessmen are backing various candidates for top posts, in ways that make other Somalis nervous about the influence they may have on a new government.

But the business people argue that their success has irreversibly altered the way government is viewed in Somalia. The unavoidable reality is that business will shape whatever government is formed, most likely by making it far smaller than its predecessor.

Business has been one of the few sources of stability in Somalia since the military dictator Muhammad Siad Barre was overthrown in 1991 and no one rose to replace him. In anarchy deepened by local warlords, private interests swooped in to provide essentials like water, telephones and electricity, though not in the most efficient ways.

The three telephone companies, for instance, operate entirely independently of one another. Having access to all people with phones means having three telephone lines -- one from each company. Drinkable water is delivered mostly by donkey. Smuggling thrives, in everything from guns to cigarettes to electronics. One of the major exports is charcoal, to the Persian Gulf states. The trade has caused an environmental disaster as well as battles between tree cutters and herdsmen whose camels eat from the trees.

But the market's invisible hand has worked in remarkable ways: competition is so fierce that international phone calls are just $1.50 a minute. The main market downtown is jammed with goods. And after Mr. Sabria's factory opened last summer, a price war sharply cut the cost of pasta, one of the staples in this former Italian colony.

The company started off selling high-quality pasta at about $8 for a 10-kilogram (22-pound) box. Then importers moved to undercut them, selling a lower-grade pasta shipped in from Dubai at $5 a box. Not to be outdone, Mr. Sabria's company introduced its own lower-grade line, for about $4.60 a box. Now, three months later, he says he has wrested the market back from the importers. "They are crying," Mr. Sabria said with predatory glee. "We still hold them, and there is no way they can get out."

It is striking that Somalia, unlike many parts of Africa, has achieved this thriving business climate on its own, without the usual aid and advice from rich nations. They have all but disengaged from Somalia since the failure of the United Nations operation here in the early 1990's. Somalis have learned that they are pretty good at making money.

"It's entrepreneurism that's doing it," said Ahmed Abdisalam Adan, director of programs for Horn Afrik, Somalia's first independent radio and television station, established last year. "It's who has more creativity. It's who is willing to take risks. Before it was the government. The government could make you rich one day and poor the next."

Indeed, in General Siad Barre's heyday, the government controlled nearly all commerce, from airlines to sugar factories to hotels. It was consequently one of the most corrupt on the continent -- typical of African governments, whose leaders often run publicly owned industry into the ground as they siphon profits into private bank accounts. If the Somali businessmen's smaller-is-better vision becomes reality, it will be a radical departure.

In general, these businessmen say, government has a strong role to play as a regulator of existing industries. For example, it might force the telephone companies, to integrate their lines, or ban the export of charcoal. But they argue that any new government should focus on essentials like roads, education and health. "A lot of services can be covered by the private people," said Abdul aziz H. A. Sheikh, managing director of Somalia Telecommunications, one of the three phone companies.

But the economist, Mr. Sheik, argues that a small government is an impossibility, given the state of Somalia's public works nearly a decade after the government fell. There are few roads, no central power plants, no water and hardly any habitable public buildings. "If it is very small, who is going to rehabilitate?" he asked. "The private sector can't do that."

The private sector is clearly hard pressed. Mr. Adan, 40, who started his radio and television company with two people who like him had fled to Canada, said that at the outset his security guards had been forced into firefights with the gunmen of a local warlord. The telephone company chief, Mr. Sheikh, says thugs regularly prevent him from digging trenches for phone cable.

Smaller entrepreneurs, too, find it difficult to work in chaos: Abdi Muhidin, 23, who goes to the beach near the ruined downtown nearly every day to dig flakes of gold from the volcanic rock there, can make as much as $10 a day, a good wage here. But bandits often rob him. "Yeah, it happens," he said, as he scraped the rock with a metal rod. "What I would like to have is peace."

One of the eight gunmen guarding a reporter (at $200 a day) squatted down and told Mr. Muhidin, "I don't want a government." Mr. Muhidin did not bother to look up. "Yes," he told the gunman, "for you it's better not to have one."

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