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In "failed state" Somalia, instability is lucrative for some

MYT 6:50:01 PM

MOGADISHU/NAIROBI (Reuters) - Life got easier for trader Siad Hussein when Somali Islamist militants pulled out the capital. He no longer pays a Jihad tax nor does he have to watch mortars kill his customers.

A government policeman walks at the scene of an explosion in Hodan district of Somalia's capital Mogadishu, February 17, 2012. REUTERS/Feisal Omar

Small mercies, Hussein said in Mogadishu's frenetic Bakara market, under government control since al Shabaab withdrew its fighters from the city in August under pressure from African troops, ending the almost daily artillery fire.

But the recent security gains in Mogadishu, where vines crawl out of blown out houses and famine victims squat under once majestic colonial facades, have not been matched by political progress, a headache for foreign powers and regional allies.

On a trip this month to the coastal city, British Foreign Secretary William Hague described Somalia as the "world's most failed state" as he drummed up interest ahead of a London conference on February 23 to tackle Somalia's festering turmoil.

U.S. Secretary of State Hillary Clinton and U.N. chief Ban Ki-moon will attend the meeting London hopes will refocus and better coordinate the international response to Somalia.

One reason for the lack of political progress is that war and instability are lucrative. Somalia's power brokers, pirate kingpins and business tycoons are reluctant to give up the status quo.

Diplomats say many players in Somalia's turmoil find that by spoiling reform they can continue to reap the spoils of war.

Talk of peace and reform unsettles bribe-seeking politicians, traders smuggling arms and contraband, militants making deals with pirates and aid contractors taking cuts.

Hussein's frustration is now vented at Somalia's rotten political system, where corruption is rampant and the selfish interests of power brokers too often trump national interests.

"Cash that ends up with the leaders is not cash for Somalia," said Hussein who sells sweets and soap in Bakara's labyrinth of crowded alleyways. "I don't know why the world is blind to what is going on."

How much money is stolen, or handed directly to politicians is hard to pin down. Some Arab countries are known to carry suitcases stuffed with cash into Somalia, diplomatic sources say, so it is difficult to track the money.

The Somali government points to the establishment of a new anti-corruption commission as evidence it is fighting the endemic graft that has left it ranked world's most corrupt country for the last five years by Transparency International.

"The (government) is known by ordinary Somalis as being so corrupt that it has no legitimacy," said J. Peter Pham of U.S. think-tank the Atlantic Council.

"But these will be the people that the international community will 'engage' - the same ministers and parliamentarians whom donor states know to have stolen most of the bilateral assistance given them in recent years."

THREAT TO BRITAIN

The chaos in Somalia has seen piracy off its shores blossom into an international criminal enterprise that the One Earth Foundation said costs the world economy up to $7 billion a year.

Pirate gangs, their investors and financiers raked in at least $155 million in ransoms in 2011.

While patrolling warships bristling with hi-tech weapons and private armed guards have cut the number of attacks, a lack of effective government and alternative livelihoods mean piracy still draws a steady stream of recruits.

Ever since warlords overthrew dictator Siad Barre in 1991, plunging the Horn of Africa country into civil war, the West has focused on building a strong central government. That is what Western democracies are comfortable with, analysts say, but it defies Somalia's clan-based social structure.

Britain says the political process must be broader and more representative to succeed. London also wants to make it harder for militants to operate under the cover of Somalia's mayhem.

British nationals are among al Shabaab's ranks of foreign fighters and provide a credible threat to British security - an uneasy reality ahead of the London Olympics this summer.

"Our engagement in Somalia is not a luxury, it is a necessity," Hague told an audience at British think-tank Chatham House earlier this month.

Al Shabaab's exit from Mogadishu and a twin-pronged offensive by Kenyan and Ethiopian troops in the country's south as well as a roadmap toward a new constitution and elections by August offer an opportunity to turn the corner, Hague said.

The insurgents, however, are not a spent force, a fact underlined this month by their formal union with al Qaeda.

"No-one hitches their fortunes to a falling star," said Bruce Hoffman at Georgetown University in the United States.

MORE STICK, LESS CARROT?

The U.N. Security Council is expected to pass a resolution to boost by nearly half the African Union peacekeeper force, AMISOM, that has been in Somalia since 2007.

Raising the troops number ceiling to near 18,000 would allow Kenya's forces in Somalia to re-hat under AMISOM and see the peacekeepers operating far from Mogadishu for the first time.

While there is broad agreement regionally and among Western diplomats on a bolstered AMISOM force, question marks hang over who will foot the bill.

Britain wants a deal on the sustainable funding of AMISOM.

The European Union, which pays the salaries of AMISOM troops and has already committed 307 million euros to the force, wants guarantees from the Somali government before offering more.

"The political apparatus has to demonstrate they are sincere and serious when they speak of peace ... of ending the transition," an EU diplomat told Reuters, adding its share of the financial burden would have to fall.

Britain acknowledges there has been little political progress made by a string of Western-backed administrations since 2004.

Somalia's future political structure remains a largely blank canvas. Britain and others are clear that the current transitional institutions must go.

"We welcome the London conference," Somali government spokesman Abdirahman Osman told Reuters. "But we need help in terms of resources. The tasks are huge and time is short."

Frustration is mounting within some Western embassies at the failure of Somalia's political leaders to keep pace with the hard-fought security gains.

There is increasing talk behind closed doors of punishing those deliberately stalling the political process, possibly via targeted sanctions such as travel bans and asset freezes.

Muddying the waters is the fast growing political influence in Somalia of Turkey and Gulf states including United Arab Emirates and Qatar.

"For Somalia, the Gulf states probably mean easy cash with few caveats," said a Western diplomat in Nairobi.

Expectations of a game-changing conference in London are low.

"Britain does good political theatre. They're playing for a tie to prevent embarrassment," a diplomatic observer said.

(Additional reporting by Mohamed Ahmed in Mogadishu, William Maclean and Adrian Croft in London; Writing by Richard Lough; Editing by James Macharia)

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