The Government of Somaliland has recently passed an Executive Order aimed at stabilizing the foreign exchange market and tackling the dwindling exchange rate of the Somaliland Shilling (SlSh) against the United States Dollar. Over the past couple of years, the Somaliland Shilling has dropped from SlSh 6,500 to the Dollar to about SlSh10,000 or almost 54%. However, it should be noted that compared to the Region’s other currencies, the Somaliland Shilling has fared relatively well or at least was in line with its peers. But, the economy is quite weak and the unemployment rate is relatively higher. In addition, the status of unrecognized state is additional burden, as we have no access to the International and regional institutional banks like the International Monetary Fund (IMF) and World Bank (WB) – we cannot borrow a dime.
The fundamental causes of the recurring currency depreciation are deep-rooted and require equally long-term strategic remedies
In short, we are consumer nation that imports far more goods that we produce. On top of that, we virtually export nothing following the banning of livestock export to Saudi Arabia. But we receive reasonable foreign currency from Somaliland expatriates and some foreign aid, which are far below the amount needed to make ends meet.This is causing serious deficit in the balance of payments.
In similar circumstances, a normal recognized country would obtain some short-term credit from international or regional financial institutions or governments. Therefore, the pressing central question is:
In the absence of any external support how does Somaliland finance this evident foreign currency shortfall?
The answer is: Since we have no access to any credit or grant, we are financing the shortfall from the following rather unorthodox sources:
The low income citizens of the nation are getting poorer by the day, while the more affluent sectors are importing luxury product like SUV vehicles., high value furniture, expensive medical treatment and vacation to Europe and the Gulf. NOTE: this is a time bomb, which if not defused on time, could explode in the form of a Revolution of the Hungry.
From the above, it is obvious that our long-term economic illness requires the adoption and implementation of long-term strategic restructuring of the entire economic activities. Indeed, we need to revise and rework all the aspects of our way of life, which over the years, proved to be recipe for failure.
In the meantime, the Government of Somaliland has recently embarked on the adoption of short-term remedies aimed at addressing the immediate effects of the currency depreciation.
The first target was the US$ denominated Electronic Money. The government has imposed minimum US$ 100 transfer limit on the US$ denominated electronic money. The local E-money operators (Zaad and E-Dahab) are instructed to adopt a minimum limit of US$100 in respect of the amount of cash that customers can transfer or the online purchases they could make. In other words, customers can transfer only amounts exceeding US$ 100 from their US$ denominated E-mail Accounts. On the contrary, the customers can transfer an unlimited amount of Somaliland Shillings (SlSh.) through their SlSh E-money accounts.
In other words, the Government has literally shutdown the dollar denominated electronic money and the operators were told to shift the SlSh E-money. This measure is long overdue correction, but thanks to God, has finally arrived.
This step will dramatically reduce the volume of transactions going through the US$ E-money channels. On the other hand, the volumes of SlSh E-money transactions will soar as people buy and sell all small items using the local currency.
We may not realize the effects of the measure now. But within a couple of months, the ordinary man on the street will literally forget the existence of something called US$. Only the importers of goods will have to worry about the availability and pricing of the greenback – just like any other people across the Globe. The demand for the US$ will be psychologically erased from the mind of the common man. Nobody will worry about how or where to get 2 dollars in order to make telephone call of pay for breakfast. Instead, you will transfer SlSh 10,000 from your e-money account and go to work. Only then, we will realize that the dollar E-money episode was Movie Show and you were taken for long ride. Consequently, and based on the forces of Demand and Supply, the exchange rate of US$ dollar should come down, albeit probably marginally.
Secondly, the Somaliland Government has also discouraged major corporations from engaging in Foreign exchange market. The Government has revoked the exchange license of leading exchange houses like Dahabshiil, Omaar, and Telesom. These three firms are essentially involved in other sectors of the economic activity but they have recently acquired exchange license and literally took control on the exchange market. Whilst these giant corporations are highly respected business houses, the government obviously believes that Somaliland market is quite small and these sharks could inadvertently monopolize the market and dictate the prices. That is the reason why the government has barred their involvement in the foreign exchange market.
Thirdly, from now on, the Forex market will be controlled by the Central Bank and the actual pricing will be in the hands of the small ex-changers who are operating in the actual open market. The prices they set are deemed to be the genuine market rates. I strongly urge the government authorities to retain and respect the role played by these small Street Currency Ex changers. I believe these guys are the secret of Somaliland as they provide the platform for a classical example of a free, knowledge and willing marketplace. The rate they set is just like the ones fixed by the money market operators in New York or London – this is how the West has started the currency trade in the first place. Any currency restrictions and other top-down solutions will fail.
Hassan Abdi Yousuf
in Riyadh, Kingdom of Saudi Arabia