Earlier this month, Kenya suspended the licenses of 13 Somali money transfer agencies operating in Nairobi in a bid to limit funding to al-Shabab militants. In an email interview, Sarah Hearn, an associate director and senior fellow at New York University’s Center on International Cooperation, discussed the role of remittances in Somalia’s economy.
WPR: How important are remittances for Somalia’s economy?
Sarah Hearn: Remittances, described as Somalia’s lifeline, are the largest source of family support and development finance in the country. There are no official remittance figures, but NGOs have estimated that migrants send up to $1.3 billion per year back to Somalia. That is greater than Western donors’ annual development and humanitarian spending, and is equivalent to around half of Somalia’s gross domestic product.
Remittances are especially crucial for the poorest women, who are the most reliant on them, and during crises because they go up in response, helping families to survive conflict and humanitarian shocks.
Remittances are also an important source of private capital for growing Somalia’s economy. They fund savings and land investments, and are the only source of start-up capital for small businesses. Remittances have underpinned economic development in the more stable regions of Somaliland and Puntland. The United Nations estimates that about 30 percent of remittances to Somaliland are dedicated to capital and financial investments.
WPR: What role do remittances play in the funding and operations of al-Shabab?
Hearn: Control of Kismayo port was the major source of finance for al-Shabab until Kenyan forces ejected them in 2012. Since then, al-Shabab has supplemented its income through local extortion and protection rackets and illegal commodity trading. It is also likely that the group receives support from al-Qaida.
Remittances appear to be less significant. There have been one-off criminal investigations in the United States into diaspora fundraising for al-Shabab, but so far these have been statistically insignificant compared to remittances from the roughly 1 million diaspora Somalis around the world.
Because Somalia does not have a commercial banking system, Somali money transfer operators (MTOs) provide Somalis with an accessible cash transfer service. Everyone operating in Somalia uses MTOs, including the U.N. and NGOs. Since 9/11, MTOs have had to comply with stringent counterterrorism rules mandated by the West and Kenya. Although there are risks of al-Shabab abusing the system, there have not yet been any counterterrorism investigations into Somali MTOs. The perception of risk by governments and banks may be greater than the reality.
WPR: How has the suspension of money transfers to Somalia affected the government and al-Shabab, as well as civil society and the private sector economy?
Hearn: It is very early to make definitive judgments on the impact. Kenya is not the largest source of remittances to Somalia. Humanitarian NGO and U.N. financing operations in Somalia will be hard hit because they rely on MTOs to transfer cash from their major operational hubs in Nairobi. It would be safe to assume that Somali government operations will be disrupted, and that the greatest burden will fall on the poorest people who rely on international assistance.
Somalis in Kenya will be badly affected, which may contribute to worsening relations between the Kenyan government and the Somali community. In addition, if the suspension lasts for long, MTOs may transfer their operations to another country in the region. This would disgruntle Kenyan businesses that are hoping to cash in on Somalia’s reconstruction.
It is possible that al-Shabab’s operations will be disrupted, but the group has alternative sources of income and they will use smuggling routes for cash.
Source: World Politics Review/Global Insider
