updated 7:33 AM MST, Nov 17, 2017

Somalis face an economic death penalty

  • Published in Opinion

by Mohamed Mukhtar
Sunday, January 22, 2012

Somalis face an economic death penalty as banks across USA continue to cut off cash transfers to Somalia. Sunrise Community Bank in the state of Minnesota, USA, is the latest US bank to close down accounts of Somali money transfer companies. The bank is afraid of   being in violation of government rules if the money ends up in the wrong hands.  

The remittances are a lifeline to thousands of Somalis who cannot meet their basic needs without the ability to receive financial support from their relatives in the diaspora. Daniel Wordsworth, president of the American Refugee Committee, said “With famine and drought already impacting families throughout Somalia, the cessation of bank transfers will be devastating on a national scale.”

The Somali diaspora is estimated at 1.5 million worldwide. According to the Somali government the annual remittances from the diaspora are about one-third of the country’s income. USA is believed to be home to some 150,000 to 200,000 ethnic Somalis and Minnesota is host to the largest Somali community in USA. Shannon Scribner of Oxfam America said “It is estimated that $100m in remittance goes to Somalia from US every year.”
The diaspora uses remittance system or Hawala to repatriate funds. Abdulsalam Omer, a former UNDP officer, describes the nature of Hawala: “The system is favored because it usually costs less than moving funds through the formal banking system, it operates 24 hours and seven days a week, it is almost always reliable and it requires minimal paper work. In remittance systems, funds are paid to an agent on one end in one country or region and dispersed by another agent in a different country or region. The system is built on a relationship of trust and therefore can flourish in an environment characterized by the absence of oversight or regulation such as Somalia.”
Remittances offer a crucial financial lifeline that enable receivers to purchase basic consumer goods and enable access to private social services that would not be possible otherwise. In this article, let us briefly look at the role of remittances in Somalia.
Remittances enable people to meet their basic needs such as food, clothing, and housing. Anna Lindley surveyed randomly 538 remittance recipients in Hargeisa and found average household income from remittances to be around $215 per month and 96% of the respondents use remittances to pay their living expenses.
Remittances have far reaching effects and bring benefits beyond the actual recipients. Cindy Horst writes “indirect beneficiaries include, for example, relatives and neighbours of those receiving remittances, who are usually assisted in money or in kind, xawilaad owners and workers, business people and those employed as maids or labourers.”
The civil war in Somalia has severely damaged the educational infrastructure of the country; some schools have been stripped of their fittings and furniture while others have been converted to houses by internally displaced people and clan militia; school materials and educational records have disappeared in the chaos. According to UNICEF, in 2005, 285,574 Somali children were in primary schools representing a 5.7% increase from the previous year. Primary education enrolment showed improvement from 19.9% in 2005 to 31% (37% boys, 25% girls) in 2008. 
Lindley has examined closely the influence of remittances and diaspora donations on education and identified two prongs that remittances contribute to the Somali education. First, remittances enable families to send their children to school. Before 1991, Somalia had a policy of universal compulsory free primary education but since the civil war education has been made available only to those who can afford it. Second, families use remittances to cover direct costs such as school fees and enable some children to attend school rather than go to work.
By any health standards, Somalia has some of the worst health indictors. Life expectancy is around 47; one quarter of children die before reaching five; only 20% of the population have access to safe drinking water; there are no public health provisions; 70% of Somalis have no access to health care services; for every 100,000 people, there are 0.4 doctors and 2.8 nurses.
After the collapse of the Somali state, private initiatives have started to address the health crisis in the country and remittances are crucial to these efforts. For example, before the civil war, there were seven major public hospitals in Mogadishu and numerous small private clinics. When the civil war broke out all major hospitals, except Medina in the south and SOS in the north were crippled. Private health facilities started to fill the gap. In 2000, there were 62 health facilities in Mogadishu and new ones have continued to appear although there are no regulations or codes of practice that control them.
Remittances play two roles. Firstly, they enable families to access private healthcare and secondly, they have helped in the proliferation of private medical facilities and pharmacies in major cities and towns although their quality is questionable.
Recipients spend most of the money on food, education and other basic needs and sums left over go to improve houses or build new ones. Despite the conflict and political uncertainty, Somalis in the diaspora acquire properties in Somalia believing that they will return to their country some day. This has prevented the collapse of the property market in some parts of Somalia.
Somalia where the economic stress is very high any added financial burden can cause the entire financial house of cards to collapse. Remittances are used to cover unforeseen and urgent events such as ‘diya’ or blood payments, funeral expenses and medical treatments. Given the situation that Somalia is in the demand for cash relief is exceptionally high.
Somalia is currently facing a serious humanitarian situation and the diaspora efforts are more successful than the aid agencies. Laura Hammond, a senior lecturer at the School of Oriental and African Studies in London, said "The diaspora is one of the main lifelines to the famine areas and their support is more effective than that of most aid agencies because they are able to deliver funds to precisely where they are needed almost instantly. Aid agencies have technical expertise, but when it comes to getting money to where it's needed quickly they can't begin to compete with the diaspora.”
It is undeniable that the remittance system comes with risks and potential for abuse. Distinguishing between abusers and legitimate enterprises is not an easy task. However cutting all cash transfers to Somalia is jamming together innocent clients who remit honest money back home to their relatives and those who abuse the remittance system to finance the conflict in Somalia. More importantly, the impacts are greatest on the weakest – those who cannot help themselves.
Mohamed Mukhtar