By: Khaalid Hassan.H. Mahamoud(Msc)

In a recent article called ‘How much will it cost to rebuild Somalia?’ published on Dissidentnation.com, it is estimated that Somalia will need at least $15-20 billion total finance the rebuild most key infrastructure for the coming decade and invest at least $5 billion to construct its manufacturing infrastructure to meet Somalia’s domestic demand. The author suggests that these investments could be financed t through loans from international organizations or seek foreign investors from the UK or Turkey.

These are plausible options but have disadvantages like high interest cost charged by international financial institutions. And recent examples from other developing and developed countries show that interest expenditure can amount up to 20 percent of a governments annual budget. Ìn the case of Somalia, a war-torn country with high risks it would certainly be charged the highest possible rates of interest. And thus creating fiscal and budget constraints that affect governments expenditure in the social needs of the people(education, health, water, etc). The other option of seeking foreign investments in sectors like minerals, oil, natural gas and agriculture would create the necessary influx financing the industries create employment in the short run but on the long run profits would flow back to foreign capitals and these multinationals tend to avoid paying taxes.

However, there is another alternative. The idea is simple. Authorities can issue bonds and market them to Somali emigrants in rich countries. There are several advantages to milking members of a diaspora. They are often patriotic: they like the idea that their savings will pay for bridges and clinics at home. Somali diaspora money, including savings could be used to finance the countries financing needs.  The idea of issuing diaspora bonds should be considered as a viable alternative to raise finance for Somalia's development. The great advantage of diaspora bonds is that they are sources of finance that are long-term in nature and therefore less volatile: it is usually long-dated securities redeemed only upon maturity. Somalia has one of the biggest diaspora communities of all the African countries. A diaspora bond would reduce Somalia to rely on Western 'donors'. Diaspora bonds would allow Somalia to choose its own development path, rather than following the conditionality imposed by donors and that accompany “development” financing.

Israel has shown successfully how diaspora bonds can be leveraged as an instrument for development finance. Since it issued its diaspora bonds in 1951 over US$32 billion has been raised for development in Israel, particularly for infrastructure development in the transport, energy, water and telecommunications sectors.  India is another example of the successful use of diaspora bonds. India raised an estimated total of $11.3 billion. The Indian government created a body that would focus specifically on liaising with the Diaspora. To incentives the purchasing of bonds India gave tax exemption for Indian nationals from income and wealth tax. The World Bank is now advising several nations about diaspora bonds. Kenya, Nigeria and the Philippines may soon set up pilot schemes.

Lastly, Islamic laws (Sharia) prohibit receiving or paying interests. But even this obstacle has been overcome with the issuing of Islamic bonds by a number of Middle Eastern countries. In Islamic bonds the Investors share the profits rather than receiving interest payments.

The idea of issuing diaspora bonds should be considered a viable alternative to raise finance for Somalia’s development. Authorities, whether the TFG, Somaliland or Puntland could work toward Somali Diaspora Bond offerings. A diaspora bond may be a more productive use of diaspora funds than contributing to the land bubble by purchasing land because it would allow governmental authorities to address public infrastructure and service needs and would help to reinforce the centralized budget process underpinning governmental processes. Diaspora bonds may be a better source of capital for governmental authorities than the open market because the diaspora is likely to accept a lower yield and later maturation date than the market might. Diasporas are patriotic, patient, and less sensitive to currency and political risk. Such a project would need to be developed in close partnership with an appropriate external financial advisor, such as the Somali owned money transfer companies (Xawalas) would play a key role in marketing the bond and offering to the Somali diaspora spread across the world.

By: Khaalid Hassan.H. Mahamoud(Msc)

Economic Researcher with the Dutch National Commission for Sustainable Development(NCD0) and Member of Delft City Council in the Netherlands

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