The Central Bank of Somalia: An inspired reform or a costly mistake?
It is important not to shy away from necessary reforms. More than ever, it will be the delivery of the key reform objectives, rather than nationality, that will ultimately influence perceptions.
The Central Bank of Somalia (CBS) is the government’s banker. It sets the country’s monetary policies and promotes financial stability and economic progress through prudential and conduct risk regulations. In that context, its role in Somalia’s recovery has never been more important.
Recent changes to the Central Bank Law (which previously required all of the bank’s directors to be citizens of Somalia) have created understandable unease. Many have expressed dismay at what they consider to be an obvious weakening of one of the key pillars of the country’s constitution.
This is looking at the issue in the wrong way. It is important to be cautious about the assumption that these changes are inherently undesirable. If the intention is to try something radical by making it simpler to bring the best to Somalia in order to break the destructive allure of the 4.5 ecosystem, then that is to be welcomed. The failure to implement even the most basic of reforms is of course nowhere more apparent than at the CBS where Somalis had been at the helm over the years but made no discernible progress. The CBS is not an isolated example but it is a potent illustration of why the country’s institutions are in such woeful state.
" It is important for the CBS to have the right leadership whose core overriding priority is doing what is best for Somalia. They must be able to help the bank discharge its objectives effectively to support the country’s recovery. Competent leadership, underpinned by strong accountability structures, are likely to provide greater legitimacy for enabling much needed progress at the CBS, just as bringing incompetent lackeys, whether Somali or non-Somali, is likely to damage it immensely and set Somalia back decades."
Competence taking precedence over nationality should therefore make sense if the alternative is perpetuating the worst practices of the past where one’s claim to their 4.5 colour, and not expertise, was the deciding factor. It is unfortunate that we have all become so used to the default position of 4.5 that alternatives to it are automatically seen as outrageous.
For the same reasons, one should neither overestimate the perceived advantages of having a non-Somali at the CBS, nor conclude that the change in the law is a sorry indictment on all the qualified Somalis that can do the job. The CBS needs a Governor who is competent with the right level of skills, expertise and integrity and who can be an effective guardian of Somalia’s national interest – a criteria by which everyone must qualify. Bringing non-Somalis into the equation will not render these requirements unnecessary.
It is also important for the CBS to have the right leadership whose core overriding priority is doing what is best for Somalia. They must be able to help the bank discharge its objectives effectively to support the country’s recovery. Competent leadership, underpinned by strong accountability structures, are likely to provide greater legitimacy for enabling much needed progress at the CBS, just as bringing incompetent lackeys, whether Somali or or non-Somali, is likely to damage it immensely and set Somalia back decades. It would also be misguided to try to use the change in the law as the fig leaf that can help disguise the underlying challenges at the CBS – that would never work.
Ingredients of success
The effectiveness, and indeed competence, of the bank’s Non-Executive Directors (NEDs) will also be critical to the overall success of any reform. The NEDs should be critical and constructive expert challengers, not cheerleading bag carriers who see the CBS as a gateway to taking up positions without doing anything. The widely accepted model of no accountability would need to be replaced by appropriately rigorous structures of checks and balances that prioritise measurable objectives on operational delivery and clear standards for conduct and behaviours.
Another key necessary pillar for implementing positive change at the CBS will be the tone from the top and the extent to which the bank’s senior leadership can reinforce change through their actions. The egregious examples of incompetence and misconduct we see in public institutions in Somalia largely reflect the actions of those at the top where incentives are never linked to integrity and the delivery of key objectives. Without the transparency and legitimacy that comes from being held properly and publicly to account, nothing will change.
Building public legitimacy for reform is also key
The CBS is a source of material risks for the both its management and the wider government. The circumstances on the ground mean the likelihood for things to go wrong is considerably high and there are many routes to failure and very few to success. This is an important point that should not be lost on anyone taking on the challenge to reform the CBS.
As the general reform enthusiasm fades overtime, exerting meaningful reforms will naturally become much more difficult. Success will ultimately depend on good leadership, management and earning the trust of the bank’s staff in order to change deeply ingrained culture and processes. One’s ability to bring people on the reform journey, and the way in which one can influence a wide range of stakeholders to embed sustainable progress, will also determine success.
That will be the acid test which will show whether this was an inspired reform or a costly mistake.
(The personal views, thoughts and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization or other group or individual).
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