Business in Somalia: Why ‘hawala’ firms are crucial to rebuilding the economy.

Halkaan ka akhri

Somalia’s crippled financial system faces severe challenges even as the country struggles to emerge from two decades of conflict.

Peace-building and reconstruction work will cost billions of dollars. The question of how this is to be paid for is crucial.

Though Somalia potentially has sufficient natural resources, these are yet to be developed and the current level of funding for the Transitional Federal Government does not inspire confidence that the international community is keen to foot the bill.

Further, the country has been suspended from accessing global financial markets, and cannot expect to borrow to finance the cost.

On top of all that, rampant borrowing by Somalia’s former military regime has left a pending debt crisis, especially since the country has not taken advantage of the many opportunities for debt relief that have presented themselves over the past 20 years.

As of 2007, the national debt stood at $3.3 billion, 81 per cent of which is in arrears.

Though the private sector is growing, the country lacks a strong banking sector able to mobilise domestic savings for the investment that would provide the fuel for economic growth and the resources for reconstruction.

According to a 2004 report by KPMG, the banking sector currently consists of a virtually nonexistent formal sector and an active informal sector.

The former includes central banks in Mogadishu and in the self-governing regions of Puntland and Somaliland.

The country has no commercial banks, though the central banks in Bosasso and Hargeisa offer limited commercial banking services, creating an undesirable conflict of interest with their role as treasurers of their respective regional governments.

Though the Central Bank of Somalia reopened its offices in Mogadishu and Baidoa in December 2006, it continues to have limited functionality.

Despite a draft Central Bank Bill and Banking Bill having been developed, these are yet to become law and the bank operates under Decree Law No 6 of October 18, 1968.

The informal sector, which is dominated by privately owned remittance companies, offers more promise.

What started as a way for Somalis fleeing poverty, repression and, more recently, anarchy to send cash back to their extended families in Somalia has in many cases blossomed into full-blown financial operations.

Source: The East African

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