Hanging by the thinnest thread

Last week, we launched our report Hanging By A Thread: The ongoing threat to Somalia’s remittance lifeline at Chatham House in London. Here, Ed Pomfret, campaigns and policy manager for Oxfam Somalia, explains why the remittances system is so important.     

Remittances sent by Somalis living abroad back to loved ones at home are a huge part of the Somali economy. Some estimates put the figure as high as 40%. The 1.3 billion US dollars sent from around the world each year adds up to more than the total humanitarian aid, development assistance and foreign direct investment combined.

Somalia remittances

Somalia is a highly fragile country and the humanitarian indicators are extremely bad: nearly three quarters of a million people depend on humanitarian aid for their very survival and over 32,000 children are severely malnourished. In plain English, this means that they are at death’s door. Maternal mortality figures are some of the worst in the world, and it remains extremely difficult and expensive to access education.

On a very personal level, studies have shown that at least 40% of Somalis rely on remittances for survival …at least 40 percent of Somalis rely on remittances for survival. The biggest study done on the topic for the Food and Agriculture Organization of the United Nations demonstrated that recipients tend to spend the money on food, clothing, shelter, healthcare and education

Despite this bleak picture, there is also a huge amount of entrepreneurial activity in any town that you care to visit. Small shops, street stalls, but also tech focused businesses are ever present. 

Of course, often the hardest starting point in setting up a business, wherever you are in the world, is raising capital to get it off the ground. In Somalia this is also the case and many business people rely on this capital injection.

Oxfam, Adeso and several other NGOs have been raising alarm bells about the threat to this remittance lifeline for several years. The problem is that in Somalia the banking system collapsed during the civil war, so you can’t just wire money from your account in London, Minneapolis or Melbourne straight to your family member’s account in Mogadishu. To get the money into Mogadishu, Somali money transfer operators (MTOs) need a bank account in the country they are sending the money from. The cash is then wired
to Dubai and transferred into Somalia.

But, in the past few years, banks in the West have become increasingly nervous of providing banking services, because of counter terror and anti-money laundering regulations. These regulations clearly have the right intentions, to stop money falling into the hands of criminals, but the unintended consequence is that it leads to banks being fearful of the risks of sending money to countries they perceive as unstable. In the absence of banks and an adequate identification system, banks feel it is just too risky to be part of the process of sending money into
Somalia.…banks feel it is just too risky to be part of the process of sending money into Somalia.

Oxfam, Adeso  and the Global Center on Cooperative Security have just released a report, Hanging By A Thread: The ongoing threat to Somalia’s remittance lifeline. The report contains very clear recommendations to the Somali, UK, USA, and Australian governments, and the World Bank and G20, to
ensure that the Somali remittances system is placed on a more sustainable footing. The steps taken by a number of Western governments over the past year have been largely positive, but ultimately not enough to prevent the critical lack of access to banking services that now exists for Somali MTOs.

The UK has made some progress with its Safer Corridors initiative, which aims to build banks’ confidence in Somali MTOs by strengthening their accountability and transparency mechanisms. The UK Government, however, needs to move quickly to implement the programme and ensure more active engagement with the banking sector.

In September 2014, the US Treasury Department publicly acknowledged that MTO account closures could be disastrous for US and Somali interests, and promised to clarify expectations for banks partnering with MTOs perceived to be high risk. The Treasury Department and USAID have also worked with Somalia’s Central Bank to improve its financial management systems. Yet these important steps have not stemmed the tide of bank account closures that have been largely driven by government regulation. Unless the US government takes urgent and extraordinary action to restore the full
flow of remittances through formal channels, many Somali families will struggle to survive

In Australia, like in the US, only one bank, Westpac, is currently partnering with MTOs, but even this relationship came under threat in August 2014 when the bank announced its intention to close the bank accounts of MTOs. Under public pressure, Westpac delayed the closure, but only temporarily. The Australian Government has established a working group with Somali remittance organisations, affected communities trying to send cash back to Somalia, and the banking sector to find solutions to keep the lifeline open, but it remains highly uncertain whether remittance services will be able
to continue long term.

Listen to what some recipients in Hargeisa, Somaliland think about the situation:


Read more

Photo: “People’s entire lives are dependent on these remittances, and until the day that Somalia can take care of its own people, we remain dependent on them.” Hawa Warsame. Credit: Adeso 

Author: Ed Pomfret
Archive blog. Originally posted on Oxfam Policy & Practice.