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Remittance: Not all good news.

by Liban Obsiye & Yusuf Salah
Thursday, December 20, 2012

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Billions are sent every year around the world to loved ones, business partners and for community development through remittance companies. For many from war torn nations like Somalia where most institutions were destroyed including banks, these companies have been a life line for them and their families. The number of remittance companies has blown out of proportion and most have flashy headquarters in the developed world. Although there are no official reliable statistics many argue that Dahabshiil is the largest Somali led Remittance Company in the world but they know have real competition as more and more investors are entering the already crowded market. Every other advert on Somali TV promotes remittance companies and it appears it is they who are able to afford the enormous advertising costs to keep these western based Somali broadcasters operating.

Remittance companies were almost unheard of in Somalia before the war but with the total state collapse of Somalia in 1991, they were needed to ferry cash around for daily needs and business development. Their impact has been glorified by academics and immortalised by their owners who refer to them as the oxygen that keeps a dying nation alive. Some like Dahabshiil have been so successful that they have an office in most cities in the world and have even expanded into telecoms, banking, retail and property. Despite the obvious success of remittance companies, very little attention has been paid to their negative impact on Somali society.

Remittance companies do facilitate the financial needs of individuals and businesses. NGOs and businesses use them to transfer cash, pay salaries and then store it again. However, the wealth generated by some remittance companies from these operations is then invested heavily into other parts of the market like food and transport which, because of their large continually flowing cash tap, allows the companies to develop, dominate and abuse their position within a market made up of small individual and family companies. Many small business owners have complained about the suffocating effect of competing with these companies who have diversified aggressively into other markets without government intervention. Even in the self-declared independent state of Somaliland, the democratically elected government of a British trained economist has been unable and unwilling to act to tackle this issue. If they did they may allow for the creation of medium size enterprises which could create more employment and bring forward more innovation and provide its citizens with real choice and better prices in the market place.

Remittance companies, regardless of their size, have created the kind of dependency that the earlier generations of Somali people detested. Somalis by their very nature are proud, independent and resourceful. War has left most it allowed to live poor, desperate and without public services or support. The only hope for many in Somalia has been kind relatives sending money home to support their loved ones. While the earlier generation were used to working and were mainly self-sufficient before the civil war, the new one which has lived through and grew up in a state of uncertainty have come to see remittance money as income. Where as a young man dared not think of marriage without employment in peacetime, they now calculate how much they need to live on with their potential partner and then send it to their relatives in the west demanding that their needs be taken care of. How can a nation develop, even with peace as in the case of the self-declared independent state of Somaliland, if its citizens have not had the opportunity to work before? Where will the work ethic suddenly appear from even if jobs were to magically spring up? More importantly, how quickly would the economy slow down if those who are now happy to spend money they’ve not earned freely have to one day use their own hard earned dollars for entertainment, food and transport?

Over the years many people who regularly sent money realised that the dependency culture was counterproductive and financially and emotionally costly. Instead they sent lump sums for family members to establish a business to support themselves. This is far more sustainable but the majority of people do not do this and use remittance to fund family members who have now become comfortable living of others.

The fact that remittance companies are diversifying is a promising sign in that they realise this gravy train will have to come to an end. But while they operate they are a sign of a failed or, like in the case of Jamaica and others which still use them despite peace since independence, weak state banking institutions. Banking and other key institutions will take time to develop in Somalia, but a state banking system is crucial to any future credible foreign investment. Foreign investors in Africa as a whole are generally very nervous about political and social instability, lack of infrastructure and human resources.  If they are asked to use remittance companies to move around their cash and savings this will tip them over the edge as their shareholders are unlikely to trust an unofficial banking system to safeguard their financial interests.

More importantly for internal consumption,  economic growth and competition a national banking system is required to finance business start-ups and assist the future growth of smaller and medium enterprises that could break the strangle hold of the bigger companies in most of the Somali product and service markets.

 Remittance companies have played an important role in Somalia throughout its civil war. However, as peace slowly returns they are becoming the symbol of what use to be before. They will not disappear quickly as the process of institution building has not even begun in Somalia and where it has, like in the case of the self declared state of Somaliland, they are too weak to play any real role. Remittance companies are necessary for now but the real symbol of development will be a functioning future national bank.

Liban Obsiye : [email protected]
@LibanObsiye (Twitter).
Yusuf Salah: [email protected]


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