“Cash Back”: Diaspora Remittances to Somalia

[Cross-linked at Future Challenges – Bertelsmann Stiftung’s Blog]

As of May 2011, annual remittances to the continent of Africa exceeded 40 billion US dollars. According to the World Bank, remittances to sub-Saharan Africa totaled 21.5 billion USD. “Cash backs” from emigrants to the Global South have become essential to local economies. In the case of Somalia, it began in the 1970s when ever more Somalis went to the Middle East to work and started sending high-value consumer goods back home which could be sold for cash. Others used a system known locally as ‘Cadeyn,’ transferring their salaries via Somali traders, who, in turn, used the foreign currency to buy consumer goods for import into Somalia and then paid the worker’s relatives in Somali shillings after selling the goods.

However, as technologies improved and the financial sector and telecommunications industry intermeshed, money transfers became more formalized. Somalis abroad switched from sending goods and money by way of traders, and began deploying money transfers via satellite phones in the early 1990s. Diaspora remittances have become more important to Somalis since Somalia’s political and economic collapse. After the 1991 overthrow of President Mohammed Siyad Barre, and the subsequent descent into civil war, Somalis have became increasingly dependent on remittances from Somalis abroad.

Today, 812,700 Somalis live abroad or 8.7 percent of Somalia’s population. Many emigrate from Somalia to Ethiopia, the United Kingdom, the United States, Yemen, Djibouti, Kenya, Egypt, Saudi Arabia, Canada and Sweden. The World Bank currently does not have information on remittances to Somalia, but it is clear that a significant percentage of Somalia’s 9.4 million people rely on remitted monies from relatives abroad.

In the context of today’s famine in the Horn of Africa, remittances from Somalis abroad are especially important- especially when we consider the devaluation of both the Kenyan and Somali shilling as food imports fuel demand for the US dollar. Remittances from the Somali diaspora to the worst-hit areas in the south of the country are up by 10%, according toIRIN Global. Economist Professor Muhammed Ali Abukar told IRIN that “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.” In 2004, Somalis received 750 million USD in diaspora remittances, compared with the 125 million USD received by non-governmental organizations in the same year. It is estimated that 80 percent of capital used by start-up businesses in Somalia is remitted from abroad. A 2003 United Nations study showed that up to a quarter of Somalis receive remittances from relatives abroad.

What can diaspora remittances do to alleviate the effects of the famine? Is money more or less important in the context of severe food insecurity?

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