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This paper, commissioned as part of CGD's work on weak and fragile states, examines how the lack of recognition of Somaliland by the international community—and the consequent ineligibility for foreign financial assistance—has shaped the region's political development. It finds evidence that Somaliland’s ineligibility for foreign aid facilitated the development of accountable political institutions and contributed to the willingness of Somalilanders to engage constructively in the state-building process.
In the absence of other sources of revenue, the New Charter government of Somaliland had incentives to establish credible political institutions and engage with the business community to create a tax-based relationship with its citizens to fill its coffers. The Somaliland government‟s inability to rely on foreign aid forced it to explore endogenous sources of revenue, inducing legitimate state-building as officials needed to be accountable to the general public, including the local business community.