Somaila risk report
Somalia ranks among the world's most corrupt countries. Insecurity is also a major issue; the ongoing instability greatly restricts business. Corrupt government officials tolerate illegal activities in return for bribes. Dysfunctional institutions facilitate an environment of lawlessness, and the absence of any form of regulatory framework hinders prospects of economic competitiveness. Business is based on patronage networks, and tight monopolies dominate the market. Somalia’s Provisional Constitution criminalizes several forms of corruption (including abuse of office, embezzlement and bribery); however, implementation is non-existent. The governing elite is continuously involved in allegations of embezzlement of public funds from the already meager Somalian coffers. Finally, bribery is commonplace in all sectors, and procurement contracts frequently involve corruption.
Judicial system Very high risk
Businesses face a high corruption risk when dealing with the courts. The institution is subject to political interference and suffers from high levels of corruption, rendering it ineffective (HRR 2015; FitW 2015). Civil courts in Somalia are practically nonfunctional; a combination of traditional and customary, sharia and formal law guide the institution and in some local courts depend on dominant local clans for establishing authority (BTI 2016). Court orders are not respected by Somalian authorities (HRR 2015).
Police Very high risk
Corruption is rife within the security apparatus. Impunity is widespread, and authorities do not maintain effective control over the police force (HRR 2015). In addition, the police are ineffective (HRR 2015). To stay protected from crime, companies in Somalia are forced either to cooperate with violent groups or to arm themselves against threats (BTI 2016).
The Somali National Army is the country's most important security institution. It suffers rampant corruption: Army leaders have systematically inflated troop numbers to obtain greater funding. Furthermore, family and business ties link officials responsible for provisions and the companies contracted to provide the food rations (worth USD 8 million per year) (UN Security Council, Oct. 2015). Cases of corruption and misappropriation within the army led President Hassan Sheikh Mohamud to order the replacement of the chief of the armed forces in 2015 (UN Security Council, Oct. 2015).
Public services Very high risk
In 1991, Somalia’s state institutions witnessed a complete collapse, and efforts to rebuild the country’s public administrations since have been modest due to ongoing armed conflict and rampant corruption (BTI 2016). There are no legal or institutional frameworks regulating the market in Somalia, thus market competition is absent and the economy is controlled by patronage networks with close ties to the ruling elite (BTI 2016).
Land administration Very high risk
Somali authorities are incapable of protecting property rights (BTI 2016). The construction boom the country is currently witnessing has further fueled conflict as title deeds are either unavailable or forged (BTI 2016). Forced evictions by both private and public actors, coupled with the absence of land deeds and corruption, will most likely further exacerbate land conflict in the future (BTI 2016). The country has no functioning land registry (BTI 2016).
Tax administration Very high risk
The tax administration is absent in Somalia, and most businesses operate in the informal sector and thus go untaxed (BTI 2016). The government lacks the capacity both to collect taxes and to control the country's territory, parts of which are under the rule of rebel groups (BTI 2016). This has allowed rebel leaders and warlords to establish their unique tax collection system from traders and businessmen operating in areas under their control (BTI 2016).
Customs administration Very high risk
Businesses are likely to face extensive corruption in the customs sector. Bribery is common when clearing goods through the Mogadishu port (Hiiran Online, Jan. 2015). Generally, the diversion of revenue from ports is very common; for instance, revenue from the Mogadishu port totaled more than USD 5.5 million per month during 2013 (to put this in perspective, the Somali central bank in 2014 received an average of USD 4.6 million per month) (HRR 2014).
Trade in counterfeit goods is widespread at Somalia's borders and has also served as a source of financing for armed rebels such as Al-Shabab (BTI 2016).
Public procurement Very high risk
Public procurement in Somalia holds high corruption risks for business. The majority of public tenders are treated as confidential (BTI 2016). "Secret contracting," where officials close public procurement deals in complete absence of transparency and oversight, is a common practice (HRR 2015). Reportedly, some regional entities have closed contracts with oil companies independently from the government (BTI 2016).
Public funds are found to be frequently diverted and misappropriated due to corruption (HRR 2015). In one major case, it was found that approximately 80% of payment transfers made by the central bank of Somalia was to private persons for non-business purposes (BTI 2016; HRR 2015). Government officials with close ties to the president also actively used the central bank to control overseas recovered assets including cash and gold held in banks during the Somalian civil war as well as government property abroad (HRR 2015, HRR 2014). The bank's governor resigned after details of the case were revealed in 2013. His predecessor, appointed by the President, also resigned weeks later due to heavy political interference and corruption (BTI 2016). The case has triggered the government to set up a Financial Governance Committee to restore the trust of international donors. The committee is responsible for controlling corruption and securing transparency in the handling of public assets; however, only a small proportion of government contracts are shared with the committee (BTI 2016).
Natural resources Very high risk
The natural resources industries are jeopardized by corruption and insecurity. The sector is almost completely unregulated; the petroleum industry is particularly problematic (UN Security Council, Oct. 2015). Several members of the political elite have signed extractive industry contracts with international companies in secret (BTI 2016). Furthermore, growing hostility over resource-sharing between the federal government and regional administrations has driven the latter to sign oil and gas contracts independently of the federal government (UN Security Council, Oct. 2015).
Licensing in the natural resources sector is also challenged by the absence of a regulatory system and widespread corruption. International energy companies have obtained oil exploration licenses from different local and national authorities (BTI 2016). Evidence also suggests that the Somalian Ministry of Fisheries and Marine Resources has been transferring money acquired from selling fishing licenses into a private ministerial bank account in Djibouti (UN Security Council, Oct. 2015).
In one ongoing corruption case, the British company Soma Oil & Gas Holdings Ltd. is being investigated by the UK Serious Fraud Office for corruption in Somalia. The company allegedly made salary payments to Somali oil officials totaling USD 500,000. The company claims that the UN monitoring group has misunderstood the intention of the payments, which were meant for funding a capacity-building program in Somalia (Mail & Guardian Africa, Oct. 2015).
The country's legal framework relies on the Provisional Constitution, which criminalizes abuse of office, bribery of national and foreign officials, embezzlement and trading in influence. However, the government does not implement anti-corruption laws effectively, and officials engage in corruption with impunity (HRR 2015). Governance in Somalia is, to a large extent, based on informal mechanisms and institutions, which are in turn, based on patronage and clientelistic networks serving personal interests and affiliations (BTI 2016). International funding has further consolidated the current structure of government, and senior officials are often involved in accusations of corruption and embezzlement of foreign funds (BTI 2016). Neither appointed nor elected officials are subject to financial disclosure laws (HRR 2015).
State-building is hampered by large-scale corruption and misappropriation of public funds (BTI 2016). There is no developed revenue system in Somalia. International funding and payments made at sea and airports are the main sources of revenue for the country, but there is no transparency in the collection or distribution of these funds (BTI 2016). The country’s institutions are dysfunctional, and there are no integrity mechanisms in place to curb corruption. Somalia has signed but not yet ratified or acceded to the African Union Convention on Combatting and Preventing Corruption. Somalia is not signatory to the UN Convention against Corruption.
Freedoms of speech and press are protected under the Constitution, but these rights are completely violated in practice; Somalia ranks among the most dangerous countries in the world for journalists (HRR 2014; FotP 2015). Several journalists were killed both in 2013 and 2014 (BTI 2016).
Traditions of social engagement are strong in Somalia, and these have further prospered since the onset of the Somalian civil war as the state's collapse made social network structures vital for survival (BTI 2016). Furthermore, foreign funding has also encouraged the creation of numerous NGOs (BTI 2016). Nonetheless, NGOs are not effectively consulted by the government. Further, armed opposition groups such as Al-Shabab undermine freedoms of association, and civil society activists are often the victims of attacks (BTI 2016).
- Bertelsmann Foundation: Transformation Index - Somalia 2016.
- Freedom House: Freedom in the World - Somalia 2015.
- Freedom House: Freedom of the Press - Somalia 2015.
- US Department of State: Human Rights Practices Report - Somalia 2015.
- UN Security Council: 'Letter dated 9 October 2015 from the Chair of the Security Council Committee pursuant to resolutions 751 (1992) and 1907 (2009) concerning Somalia and Eritrea addressed to the President of the Security Council', 9 October 2015.
- Mail & Guardian Africa: 'As British oil firm is probed for corruption in Somalia, Mogadishu rejects proposed UN freeze on oil deals', 3 October 2015.
- Hiiran Online: 'Somalis against corruption', 13 January 2015.
- US Department of State: Human Rights Practices Report - Somalia 2014.