This presentation precisely indicates that remittance is the sole source of hard currency entering the country from abroad.

1. Lecturer: Daud Dahir Hassan
Economist and Islamic Finance Expert
Dauddhassan4@gmail.com

2.  At independence the Somali economy was at a near subsistence
level, and the new state lacked the administrative capacity to collect
taxes from subsistence herders and farmers. The state could rely on
the customs taxes from international trade, which were easier to
collect, but tariffs failed to meet the needs of a government with
ambitious development goals.
 Somalia therefore relied on Italian and British subsidies, which
funded about 31 percent of the new nation's current budget in the

3.  Somalia also received grants and loans from countries in the East
and the West, which made possible the articulation of an ambitious
development plan by 1963. A five-year plan with a budget of more
than US$100 million in grants and loans, it focused on investment
in infrastructure.
 In 1970 at the first anniversary of the military coup Siyad Barre
proclaimed Somalia to be a societal state:

4. “In our Revolution we believe that we have broken the chain of a consumer economy
based on imports, and we are free to decide our destiny. And in order to realize the
interests of the Somali people, their achievement of a better life, the full development of
their potentialities and the fulfillment of their aspirations, we solemnly declare Somalia
to be a Socialist State”.

5.  Although the new Sufism of Socialism, Hantiwadaag, could be
translated as "sharing livestock," camel herds were not nationalized,
and shepherds were assured that the Hantiwadag would not affect
their animals. To pacify international business, in 1972 Siad Barre
declared the Liberal Investment Act. Because the modern economy
was too small, nationalization was more open than a radical change
in the economy (Metz, 1993).

6.  During the 1970s, foreign debt increased faster than export
earnings. By the end of the decade, Somalia's debt of 4 billion
shillings equaled the earnings from seventy-five years' worth of
banana exports (based on 1978 data). About one-third was owed to
centrally planned economies (mainly the Soviet Union, US$110
million; China, US$87.2 million; with small sums to Bulgaria and
the German Democratic Republic (East Germany).

7.  Another one-third of the debt was owed to countries in the
Organization for Economic Cooperation and Development (OECD).
Finally, one-third was owed to members of the Organization of the
Petroleum Exporting Countries (OPEC) (principally Saudi Arabia,
US$81.9 million; Abu Dhabi, US$67.0 million; the Arab Fund for
Economic and Social Development, US$34.7 million; Kuwait,
US$27.1 million; and smaller amounts to Iraq, Qatar, the OPEC
special account, Libya, and Algeria, in that order).

8.  The Somali economy in the 1980s, when viewed in standard
economic terms, was characterized by minimal economic reform and
declining GDP per capita. But the macroeconomic perspectives,
which were based on questionable data, presented an unreliable
picture of the actual Somali economy. At that age economy could not
attract foreign capital, and virtually all international funds made
available to Somalia in rescheduling agreements came with the
provision that international civil servants would monitor all

9.  Today, Somalia is still emerging from the effects of a long civil war,
political-social conflicts and extended drought. Despite this, the
economy, mainly based on traditional primary productive sectors, is
growing. Somalia maintains an informal economy largely based on
livestock, remittance/money transfer companies, and
telecommunications. Somalia's government lacks the ability to
collect domestic revenue and external debt – mostly in arrears – was
estimated at about 77% of GDP in 2017.

10.  Even before the state collapse Somalia was an exporter of labor to
other members of the League of Arab States (Arab League), and
Somali citizens received remittances from these workers. These
remittances constituted the largest source of foreign exchange in the
economy. Based on an assumption of 165,000 Somali overseas
workers, with an average annual wage of US$6,150, one-third of
which was being remitted, one economist has calculated that more
than US$330 million was being remitted annually.

11.  This figure represented fifteen times the sum of Somalia-based yearly
wages and nearly 40 percent of total GNP, including remittances. The
official remittance figure was US$30 million, the amount channeled
through banks. Most unofficial remittances--in the form of foreign
exchange and household goods and appliances sent home from abroad--
went to urban traders. This fact explains the apparent abundance of
supplies in Somali cities, which, based on the foreign exchange estimates
from official sources, would not have been possible. A large portion of the
remittances went to supply arms to the rural guerrillas who toppled the

12.  After the collapse of the state in 1991 Somalia has become more dependent
on remittances from family members working abroad. Today, remittances
are by far the largest single source of hard currency entering the country,
and are vital to the country’s limited ability to feed and sustain itself.
 Remittances from the Somali Diaspora in abroad are primarily intended
for supporting the needs of the households in Somalia and those families
and relatives who are still in refugee camps in Africa and in other parts of
the world.
 A survey conducted by world bank estimates that more than 25-32% of
families in Somalia receive Remittances from abroad. The money received
is used for basic necessities such as food, clothing, education, health and
for simple investment purposes such as the purchase of house or land, or
set up a small business.

13.  Study estimates that remittances to Somaliland alone (which is home to
about 1/6 of the total population in Somalia, which is estimated at about
fifteen million people) reach as much as US $700 million per year – two
times the value of livestock exports in a normal year. Another study
calculates that remittances constitute nearly 40% of the income of urban
households in the northern towns of Hargeisa, Burao, and Bosasso.
Remittances to southern Somalia are less well-documented. Mogadishu is
unquestionably the largest recipient of remittances; it probably accrues a
similar level of remittances as does Somaliland, our best estimate is that
remittances at the national level may range from $ 1 billion to $ 2 billion a

14.  Hawala has since then played a very crucial role in the survival and economic
growth of the people in Somalia and it is considered to be an important factor in
linking the Somalis in the Diaspora with their country of origin. Though the
remittance companies in western countries and in other parts of the world have
made notable progress in meeting international standards for accountability and
transparency, it appears, however, that these firms are still tackled with certain
impediments that can lead to the creation of a climate of suspicion and
uncertainty The western banks are still reluctant to allow the Somali Hawala
remittance firms to hold accounts with them, In this case, money transfer
companies in Hawala should engage in serious dialogue with official financial

15.  The absence of a functioning central government in Somalia precludes the
possibility of establishing formal financial institutions and the laws and
regulations that govern them.
 On the positive side, remittances are believed to reduce poverty, as it is the poor
who migrate and send back remittances. But this view has its critics. It is
sometimes argued that remittances may increase inequality, because it is the rich
who can migrate and send back remittances, making recipients even richer. These
questions should be studied at the macro level using cross-country data, and at
the micro level using household surveys. The impact of remittances depends on
their use, especially on schooling of children.

16. I am an independent researcher now doing researches on Role of Remittances on Economic
Growth in Somalia and Islamic banking in Somalia. Challenges and opportunities.
Further information you can contact me:
+252 90 7688150
+252 61 8410742
Or
Dauddhassan4@gmail.com
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