From goats to oil: Somaliland hopes for windfall to boost its economy

Wanted: investors for small African nation with good oil and mineral potential – no seat at the United Nations but a history of independence in rough neighbourhood.

The breakaway nation of Somaliland is a tough sell but the announcement this week that serious hydrocarbon exploration is about to kick off there shows that oil talks, regardless of political status.

For Somaliland, an internationally unrecognized state of 3.5 million people that declared independence from Somalia in 1991, it promises to be a game changer.

"We need to find a way to earn hard currency besides selling goats, sheep and camels to Arabs. This is the only way we earn hard currency now," Hussein Abdi Dualeh, the Minister of Energy and Mining, told Reuters on the sidelines of an African oil conference in South Africa organized by Global Pacific & Partners.

Ophir Energy PLC, Australia-based Jacka Resources and Genel Energy, which is headed by former BP chief executive officer Tony Hayward, are all about to start exploration in Somaliland.

Mr. Dualeh said the investments would be worth tens of millions of dollars, small change in the global oil industry but a windfall to a government that only has a budget of $120-million (U.S.).

Gas discoveries off Mozambique and Tanzania and oil finds in Uganda and Kenya have sparked a hydrocarbon scramble into previously unexplored parts of Africa.

Oil companies often go where other investors fear to tread, including other unrecognized statelets such as Kurdistan.

"Oil companies are concerned about geology, not politics," Mr. Dualeh said.

He also said Somaliland offered investors something sorely lacking in anarchic Somalia: stability.

"We control our borders, we have a police force and military. We have had four governments come and go with democratic elections," he said.

The territory has not exactly been an oasis of peace, however. Fighting erupted there in January after the leaders of the northern regions of Sool, Sanaag and Cayn decided to band together into a new state called Khaatumo.

Somaliland's troops have since clashed with militia fighters loyal to Khaatumo, with reports of dozens of casualties.

And what about pirates?

"The pirate problem is not off our coast, it starts in the Indian Ocean with Somalia. We have a nimble coast guard that does its job with limited resources," Mr. Dualeh said.

If oil is discovered, Somaliland would also welcome the steady stream of revenue that would follow.

Mr. Dualeh said livestock sales across the Red Sea to Saudi Arabia followed a seasonal pattern with sales peaking during the annual hajj pilgrimage.

"We need to get stuff out of the ground. Selling livestock during the hajj is not sustainable," he said.