In late December Israel became the first country in the world to recognise Somaliland as an independent sovereign state, in a move that could help stimulate investment in the previously isolated territory but which some analysts fear could also significantly increase risk levels in the Horn of Africa.
Israel’s foreign minister Gideon Sa’ar (pictured above left) announced that Israel and Somaliland would establish full diplomatic relations. Somaliland has acted as a de facto independent state since breaking away from Somalia in 1991 but, until now, had yet to be officially recognised by any member of the UN.
Somalia’s President Hassan Sheikh Mohamud branded Israel’s move a “naked invasion” and the “greatest abuse” of Somali sovereignty in its history. Somali lawmakers passed a symbolic motion to declare the recognition “null and void”. The African Union (AU) Political Affairs, Peace and Security Council also denounced Israel’s gesture: “the Council strongly condemns, in the strongest terms, the unilateral recognition of the so-called ‘Republic of Somaliland’ by Israel.” Egypt, Turkey, the Gulf Cooperation Council (GCC) and the Organisation of Islamic Cooperation all also condemned the recognition.
Strategic imperative
Israel’s move appears to be partly motivated by the country’s strategic necessity to combat the Houthis in Yemen, a political and military organisation which has intensified attacks on Israel throughout its war against Hamas in Gaza. The United States formally re-designated the Houthis as a “foreign terrorist organisation” on 4 March 2025.
The port of Berbera in Somaliland, which sits on the Gulf of Aden, is just a few hundred miles away from Houthi-controlled areas and could give Jerusalem a stronger vantage point from which to contain the Houthis.
Shiri Fein-Grossman, CEO of Israeli think tank the Israel-Africa Relations Institute, has said that “everyone just looks at the map and understands what Israel is looking for here… the recognition of Somaliland gives Israel a strategic location near the Houthis in Yemen and comes at a time when Israel needs as many friends as possible.”
Menzi Ndhlovu, senior analyst at the Signal Risk consultancy, tells African Business that Israel’s recognition of Somaliland could also be part of a “broader quid pro quo tied to Trump’s Gaza Peace Plan… There’s a triangulation happening between Gaza, Ethiopia and Somaliland that has largely been missed. Israel has been encouraging Ethiopia to play a role in Trump’s plans for Gaza… In return, Israeli recognition of Somaliland – backed by the United States – would strengthen Somaliland’s hand internationally and make it easier for Ethiopia to secure port access through Somaliland. It is essentially part of a multilayered quid pro quo.”
On 1 January Somaliland’s ministry of foreign affairs rejected allegations by Somalia’s President Mohamud that the recognition was conditional on Somaliland accepting the resettlement of Palestinians.
Somaliland recognition welcomed
Regardless of Israel’s motivations, the news has been welcomed within Somaliland, with many business leaders hopeful that this could be the first step towards Somaliland being recognised by other major powers such as the United States and, in turn, becoming more deeply integrated into global markets.
While economic fundamentals such as inflation and the exchange rate have tended to be fairly stable in Somaliland, Liban Osman, the vice minister of Somaliland’s ministry of health, tells African Business that the lack of international recognition has limited its ability to grow.
There have been a handful of major investments into Somaliland by international players. Dubai-based logistics company DP World has invested $442m in developing and operating the Port of Berbera, for example. Back in 2012 Coca-Cola invested in a $17m bottling plant in Somaliland. However, the lack of formal recognition has meant that, for now, such moves have remained the exception rather than the rule.
“Without recognition, it is very difficult to do business and trade. We are not members of the regional economic organisations such as the East African Community (EAC) and are therefore isolated,” Osman says. “People in Somaliland cannot move freely because our documents and passports are not internationally recognised.”
“It is very difficult for traders and businesspeople to wire money from Somaliland to China, Turkey, or Dubai – all the markets we want to buy products from,” Osman adds. “We are doing our best but there are very tough economic barriers for people in Somaliland.
Hana Kaise is co-founder and general partner at Bilow Capital, a venture capital fund based in Hargeisa. She is optimistic that these barriers could gradually be lifted and that increased foreign investment flows could then follow. “Formal recognition would represent a critical inflection point [for Somaliland], bringing much-needed international investment attention to a region defined by a thriving entrepreneurial spirit, strong trading culture and an increasingly sophisticated pipeline of growth-stage businesses,” Kaise tells African Business.
“From a venture capital and private equity perspective, recognition has the potential to materially improve investor confidence, reduce perceived risk and unlock access to institutional capital, trade finance and cross-border partnerships that have historically remained out of reach.”
Retaliation fears
Some have raised the possibility of a more immediate risk for the territory: the potential for increased terrorist activity in retaliation for Israel’s move. Indeed, the Somalian terrorist organisation Al-Shabaab has vowed to resist with violence any attempt on the part of Israel “to claim or use parts of Somaliland,” saying “we will not accept it, and we will fight against it.”
Ndhlovu suggests, however, that the ability of Al-Shabaab to retaliate violently against Somaliland – and the ability of Somalia to retaliate politically and economically – is ultimately limited. “Somalia might not necessarily retaliate against Israel itself. It might strike [economically] at a middle-player – perhaps Ethiopia. But I think we’ve already seen the first lever of retaliation, and that was Somalia’s decision last week to scrap all deals with the UAE [including port deals and security cooperation], which they have accused of undertaking subversive actions undermining Somalia’s territorial integrity because of their work at Berbera,” Ndhlovu says.
“Can anything be done beyond that? I highly doubt it. Somalia has not had any kind of [effective] jurisdiction over Somaliland for a very long time now. Al-Shabaab is also mainly limited to western and parts of central Somalia,” he adds.
“Somaliland is highly developed. It has functioned as an independent state for the better part of the last three decades. It is safe, it has developed its own currency, it manages its own monetary affairs. It has got its own security. Even Somaliland’s navy is a bit more competent than Somalia’s navy,” Ndhlovu says.
“All the heavy hitters are on Somaliland’s side. Somalia might issue some rhetorical statements or symbolic gestures, but it is all smoke, no fire.”
While the relative economic stability of Somaliland and the promise of its nascent tech scene is a cause for optimism, full integration into global markets would depend on much broader recognition, likely spearheaded by Washington DC. But President Trump recently indicated he is not ready to change the long-standing US foreign policy position, asking “does anyone know what Somaliland is, really?”
Ndhlovu predicts that “Israel will put some money behind its recognition, and that might lead to some more investment from other powers such as the United States and the UAE. But a miraculous transition overnight is highly unlikely.”