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Remittances - a lifeline to survival

Aid workers, who say the country received about $125 million in aid in 2004, have reckoned that Somalis received around $750 million in remittances over the same period. (IOM)

For the majority of Somalis, money sent by relatives and friends living abroad has been the single most important source of income since their country's economy collapsed in the 1990s.

"Today, remittances are by far the largest source of hard currency entering the country, and are vital to the country's limited ability to feed and sustain itself," Prof Muhammad Ali Abukar, an economist, told IRIN.

Abdi Sabriye, a prominent businessman in the capital, Mogadishu, told IRIN that remitted money played a major role "in almost all businesses, from small [US] $2,000 businesses to multimillion enterprises".


Remittances from abroad began to influence the economy in the 1970s, as the number of Somali workers in the Gulf states increased. The money gained more importance in the mid-1980s, when more people went to live abroad, mostly in western countries.

In the 1970s and 1980s, the usual method of remitting money to Somalia was for migrant workers in the Gulf to purchase high-value consumer goods and ship them to their families at home, who could then sell them for cash.

Expatriates could also transfer their salaries via Somali traders, who used the foreign currency to purchase goods for import into Somalia, and then paid the worker's relatives in Somali shillings after selling the goods - a system known locally as 'Cadeyn'.

Following the overthrow of President Mohammed Siyad Barre in 1991, and as economic hardship set in, Somalis became more dependent on money from relatives abroad.

By the early 1990s, the money transfer business "typically relied on trusted relations with a known broker, usually from the same clan, who would ensure that funds were delivered to family members in Somalia," Abukar explained.

But after the introduction of the first private satellite-phone companies in 1994, the remittance business really took off. According to Abukar, "These two sectors - financial service and telecommunications - have been amongst the most innovative and dynamic sectors of the post-civil-war Somali economy."


"Although statistics are unreliable, by most accounts remittances have long been one of the most important sources of hard-currency earnings for Somalia - even more so than livestock exports. They are a lifeline for the survival of millions of Somali families," Matthew Bryden, Horn of Africa project director for the International Crisis Group, an international crisis prevention and resolution organisation, told IRIN.

According to Abdirashid Duale, chief executive officer of Dahab Shiil Remittances, the largest money-transfer company in Somalia, funds from abroad provide 90 percent of foreign-exchange earnings. "At least one-third of the entire population rely exclusively on remittances for their livelihoods," he explained.

"In the main towns, up to two-thirds of the population depend on it. No accurate figures are available, but it is estimated that remittances fund more than 80 percent of the start-up capital of new businesses," Abdirashid told IRIN.

"It enabled the Somali community to survive on its own," he said. "One could say that without remittances coming from abroad, many people would not have survived the prevailing poverty conditions and the huge unemployment."

Between one and three million of Somalia's estimated seven million people are thought to live outside the country, and a 2003 UN survey concluded that about 25 percent of families in Somalia received remittances from those living abroad.

Unlike aid, which comes into the country in the form of food and other non-cash items, remittances go directly to the beneficiaries who decide how to spend the money.

"It ... tends to be skewed in favor of the urban households - with better education - rather than rural poor households," Abukar said.

Somali sources estimate that annual remittances could be as much as $1 billion.

Aid workers, who say the country received about $125 million in aid in 2004, have reckoned that Somalis received around $750 million in remittances over the same period.

Max Gaylard, the UN's humanitarian coordinator for Somalia, told IRIN: "The remittances are critical to Somalia's existence. The money does not only support families and livelihoods, but also goes into investment - there is a building boom currently going on across the country, and it is being fuelled by remittance money."


Apart from Dahab Shiil, other Somali-owned money-transfer companies include Global Money Transfer, Amal, Al Mustaqbal Money Transfer and Towfiq. All charge a commission of between three and seven percent for small transfers, of which local agents usually get a portion.

After the 11 September 2001 terrorist attacks in the US, Somali money-transfer companies came under international scrutiny. The biggest company, al-Barakat, was shut down after the US government linked it with terror groups - a charge vehemently denied by the company.

According to Bryden, "the challenge is to make as much of it as safe as possible - reliable and transparent - in order to limit the potential for abuse, and allow the sector to stabilise and mature over time".

"The international security focus on remittance companies since 9/11 will only address part of the problem of terrorist financing. The reality is that money-laundering is a much larger problem than the remittance sector, and people who want to move funds for criminal purposes - including terrorism - continue to have many other options," he pointed out.

Some degree of international regulation was inevitable, and "companies that want to function openly will have to be prepared to accept higher costs of doing business legally," Bryden said.

Abdirashid noted that one of the biggest problems facing money-transfer businesses globally was the multitude of differing regulations in countries from which the money was sent.

Reduced employment possibilities in the Gulf States and changes in previously more liberal western policies were also factors, Abukar noted.

Gaylard warned that "any interruption to remittances would be catastrophic for Somalia", adding that during the last two years the UN Development Programme had made efforts to help the sector.

"The notion that remittances could suddenly stop is alarming, but - thankfully - unrealistic," Bryden commented. "People will find a way to send money - through other businesses, family contacts, or third parties in other countries - so, even if remittance companies find it difficult to operate, the money will continue to flow."

See IRIN's global overview: Remittances - money makes the world go round

This article was produced by IRIN News while it was part of the United Nations Office for the Coordination of Humanitarian Affairs. Please send queries on copyright or liability to the UN. For more information: https://shop.un.org/rights-permissions

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