The Horn of Africa States: Why Investors are Wary of the Region

By Dr. Suleiman Walhad
May 28^th, 2024

Despite the significant size of both area and population, the plentiful natural resources, and the geostrategic location, why do international investors both near and far avoid the Horn of Africa States region or are wary of it? Is it the uncertainty of the region’s stability and peace? Is it the high corruption levels in the region or the undisciplined almost infantile leadership or are investors looking for some other hands such as the international multilateral financial institutions to lead the way and guide them or are these same institutions themselves creating the obstacles through fearful and critical reports on the region?

There is no doubt that the region has not been able to attract international financial institution of repute to the region, as the region all the time produces, with the glimpse of an eye, some terrifying reports of itself. This causes potential investors to shun the region. But perhaps what is terrifying most is the fact that the leaders of the region both ruling and opposition cannot sell themselves to their own citizens or worse, enrage people against themselves because of their self-centered behavior, where they limit decision-making processes on major issues affecting their nations to themselves or in other words, in the hands of a few, who could be motivated by other reasons far from patriotism and national interests.

Marcus Tullius Cicero, the Roman leader who wrote about how a government should be run in one of his cardinal philosophies, included that the “best form of government embraces a balance of powers.” He was basically saying that a just government must founded on a system of checks and balances and this is perhaps what is missing from the current leadership of the region where tyrants have bred more tyrants and every potential aspiring leader appears to be another aspiring tyrant.

This has caused the region a lot, not only in terms of lives and properties, but also in terms of the future of the region in many ways, so far. Should the people of the region accept their fate that nothing will change and that things are as they are and will always be?

That would, indeed, be defeatist. It is on this matter that this article will address and, in particular, why the region is unable to appeal to potential investors. It is how nations rise or fall and more particularly the Horn of Africa States, which has been on a declining trajectory and is the main subject of this article.

The Investment Challenges of the Region

The region, indeed, has negative perception with respect to others be they the international community, investors, financial institutions and even the marauding mercenary armies of NGOs who come to the region. We shall address these matters in that order:

1. The International Community

The international community as represented by governments like the United States, The United Kingdom, the Scandinavian countries, China and Russia and others from far and wide, multilateral organizations like the United Nations Organization, the African Union, and the European Union and others have been working in the region for over three decades now but have not been able to settle the fake regional problem.

I call it fake because most of the regional leaders involved in the conflict are a limited number of people who use clannish and personal ambitions to disrupt not only the efforts of these well-meaning international bodies and the lives of the region’s people.

This has gone too far and too long. They are related and are distant cousins and when they meet, they greet each other like brothers under the glare of the mediating parties, who often ask themselves what the issue is, if they can smile to each other, hug each other and reminisce their past histories together. It is time, the international community and foreign governments changed their tune to the region and insisted that any leader who does not respect the settlement of the countries of the region in a peaceful format would be taken to the international Court of justice. The innocent populations that are being used for personal gains should not be accepted.

1. Investors

The potential investors in the region could either be local or external and the most important is the local investor who appear to be part of the problem of the region. Peace is necessary for any investor to operate in a region. Most local investors, however, do not play their rightful and dutiful roles in establishing peace and stability in the region. Perhaps the first thing they should be doing is to be paying their taxes to the governments, which they do not at present or if they do, only a meager amount to keep the corrupt governments silent.

Local private capital, indeed, is a major corrupting factor in the countries of the future and they bribe officialdom, instead of paying their taxes to the government. Major corporations include the financial institutions of the countries of the region, the telecommunications companies and the money transfer companies which have thrived as a result of the large diaspora of the region across the globe. Non of these corporations pay their tax obligations and it is probably high time that the international community looked to them and asked them to pay their taxes instead of providing grants and aid to the governments. Each country should first look into itself and raise monies from its local business and more particularly the large and medium sized companies instead of the small businesses which are barely surviving to feed their children and paying for their health and educational services which the governments are unable to provide.

1. Financial institutions

The financial institutions of the region include banks, insurance companies and money exchange companies. There is also a growing micro-finance companies. In a recent 2024 Deloitte report on “How financial institutions can meet expanding stakeholder expectations”, it noted the following:

“Is the big push in the global financial services industry in support of environmental, social, and governance (ESG) objectives adequately being enabled inside those organizations? Or are those pledges and initiatives at risk of falling through the cracks in the face of competing priorities, leaving such firms open to claims of greenwashing?”

It is more on the governance issue we have at stake in the Horn of Africa States region, although the environmental and social issues are at stake as well. The Central Banks of the region simply toe the line of governments and in some cases, they are no more than treasury houses for the governments. How much they control the financial systems in their countries is not clear but in some countries like Somalia, the government does not even have a currency and all transactions are done in United States Dollars.

The deposits of the population and particularly in Somalia are at the disposal of the owners of the banks and are not controlled. No wonder they use the deposits to build their own other businesses in real estate, telecommunications, trading and others. The Federal Government of Somalia does not have any leverage on these financial institutions, which bribe officialdom.

It is perhaps time the World Bank and the International Monetary Fund looked into all these central banks and financial institutions, instead of dishing out more loans and grants to the region. The financial systems of the region, perhaps, need to be reorganized and fixed to the minimum, to be in line with the financial systems of the world, instead of being shady as they seem to be at present.

1. Marauding NGOs

There are too many NGOs in the region and they operate in the region, many not going through the governance systems of the region. They have, indeed, disabled the governmental services of education, health, social and community services, agriculture and fishing. Instead of working with the respective ministries of governments, NGOs work directly with the populations of the region. All aid and grants should have been channeled through the governments of the region so that it could coordinate all the activities and projects going on in the country.

At present there is no such coordination and governments have little idea how many projects are going in each country and hence the planning and project implementations of the countries of the region may not really be related to the needs of those countries. There could be repetitive projects or unrequired and unnecessary projects or projects that really needed financing and funding being totally ignored.

1. Failed Governance systems

The governments of the region and the political elite involved have also been taking advantage of the chaos and mess they have unknowingly or deliberately created together. These parties, including the opposition who probably are only waiting on the sides for their turn, have the same agenda of “It is My Turn”. They do no not realize that they could have done better, indeed, much better if they put the burning houses in a better shape and in a better order.

How to address the Challenges

Perhaps we should go back again to Cicero for guidance. He had, indeed, a moral compass. While maintaining his long-term objective of ensuring the continuity of the republic, he at the same time made compromises on issues and did not just stick to his cardinal objective. This was to manage the state effectively. He once complained to his friend, Senator Atticus about another friend Senator Cato and said:

“As for our friend Cato, you do not love him more than I do: but after all, with the very best intentions and the most absolute honesty, he sometimes does harm to the Republic. He speaks and votes as though he were in the Republic of Plato, not in the scum of Romulus.” (Letter II.1, written in Rome, June 60 BCE).” (Source Google:
APR 20, 2023 – Massimo Pigliucci, Prof. of Philosophy at City College, evolutionary biologist, student of Greco-Roman practical philosophy on ‘How to run a country with Cicero.’

The professor highlighted that one must note the contrast between Plato’s utopia –The Republic and the actual reality of Roman politics. Here the leaders of the region both ruling and opposition should continue to stick, most of the times to their agendas, basically tribal and clannish, and accept compromises to preserve the whole of the states, something the region has been missing over the past three decades. What is one going to rule if the nation state itself disappears because of the intransigence of its politicians. Money, which appears to be the motivation of most politicians should be relinquished to the background to allow the survival of the state.

In a nutshell, foreign investors look for stability of a country or region. They also look for a favorable goodwill of governments and friendly legal systems that are enforceable and hence workable. In addition to the above, they look for a good infrastructure which not only includes rail and roads but also good educational systems and good health services, as foreign staff of foreign investors often bring in their families which must be catered for. Another major factor which foreign investors look for are favorable taxation and stable currencies.

Where does the region stand in those measures? We leave this for the Horn African countries to address to these matters. However, the leaderships of the countries of the region should note that by working together, they would stand a better chance in succeeding not only to attract foreign direct investments but also mobilize local investors to participate in the development of the region, which is large and could be prosperous. Ensuring that local private capital is equally important and more so when they pay their dues to the states in the form of taxes and other fiscal requirements.

It is how the horn of Africa region can rise again and compete in the global markets. The region is endowed with many assets but making it peaceful and attractive is not only the role of the governments but also its business, its elders and academics and, indeed, its citizenry. Put the region in order and it will be the better place.