Diaspora Crucial To Somali Economy

Somalia has been engulfed in civil war for 20 years, resulting in the collapse of central state institutions, the destruction of social and economic infrastructure and massive internal and external migration. However, despite the absence of a state and its financial, economic and social institutions, combined with other challenges, the traditional Somali spirit of entrepreneurship remains strong and the private sector resilient and robust.

Indeed, the private sector has managed to grow impressively, particularly in the areas of trade, commerce, transport, remittance services and telecommunications, as well as in the primary sectors, notably in livestock, agriculture and fisheries. Aggregate trade data reported by partner countries to the IMF reveal that by 2006, Somalia’s imports had almost doubled, reaching a historical record of $461 million in 2004. In the first six years of the new millennium, exports almost tripled, reaching $266 million in 2004.

This economic activity is powered by remittances from Somalia’s vast Diaspora which, as a proportion of the country’s population, is perhaps the largest in the world. One in every 8 Somalis lives abroad, most of them having either fled the repression of Siad Barre’s military dictatorship or the chaos that followed his ouster and the collapse of the state. They constitute 80% of the country’s skilled manpower and send close to $1 billion every year to relatives in the country.

Without these remittances, the country’s private sector would undoubtedly fold. It already faces significant challenges accessing credit and other financial services. The collapse of the central government in 1991 led to the ultimate collapse of the country’s commercial banking sector, which had previously been plagued by corruption and mismanagement. There are currently no formal financial institutions operating in Somalia nor any fully functioning formal financial sector regulatory bodies, making it impossible to encourage and harness domestic savings. Further, the country is also locked out of international capital markets. Somalia relations with international creditors were frozen in late 1980s due to the economic mismanagement of the Barre regime.

The remittances also dwarf any international aid the country receives as Overseas Development Assistance. Somalia is one of the poorest countries in the world with a per capita income less than half the regional average and, in 2003, it was estimated that nearly three-quarters of the population lived on less than two dollars a day. Per-capita aid to Somalia, had reached $41 in 2003, totaling $272 million. Remittances, at roughly four times that number, clearly show that the major inflow of “aid” comes from Somalis themselves.

Most beneficiaries live in urban areas, with the remittances constituting about 40 percent of the income of urban households. Less than 10 percent of transactions are destined for rural villages. According to a paper prepared for the UN conference on Somalia held in Istanbul in May this year, individual transfers are usually in small amounts averaging $132, sent regularly to cover basic family needs. In fact, household consumption, including expenditure on education and health, accounts for between half and two thirds of remittance spending. However, studies in Somaliland show that remittances are increasingly being used to fund new organizations and development projects, and such transactions usually involve larger sums.

Whether invested or consumed, remittances have important macroeconomic impacts generating positive multiplier effects, while stimulating various sectors of the economy. Studies in Mexico show that for every dollar received from migrants working abroad translates to a $ 2.69 in the Gross National Product. Other studies analyzing links between remittances and poverty in Ghana suggest that raising remittance by 10 percent reduces the share of those in poverty by 3.5 percent and has a negligible impact on income inequality. A study in Hargeisa found that households earning less than $2 a day had no direct access to remittances from abroad and had to rely on gifts from family members or neighbors.

It is not only by sending money that the Somali Diaspora is contributing to the resurgence of Somalia. They are also giving of their time and skills. Many have returned to help the fledgling Transitional Federal Government create lasting institutions while others are undertaking individual initiatives aimed at improving the lives of Somalis. In 1999, a Somali Canadian family returning to Hargeisa identified an unmet demand for English language primary education for the children of families returning from the West. They founded the Blooming Primary School, which by March 2005 had a student population of nearly 600. Fully a quarter of the pupils wee exempted from paying fees, including 60 from the Hargeisa Orphanage.

As Somalis work to rebuild their country from the ashes of the last twenty years, it is certain that those in the Diaspora will continue to play a critical role.