Somaliland — Halima Mohamed, an expert on infectious diseases, was working on a
primary-health project in the town of Erigavo in eastern Somaliland when she
began feeling ill. "I realized I'd caught pneumonia," she says. "The drugs I
needed were available, but expensive, and I didn't have the cash on me."
Mohamed, a Canadian
member of the Somali diaspora, knew that Erigavo, one of the most inaccessible parts
of Somaliland, had no banks. So she called the chief executive of the region's largest
money-transfer company, Dahabshiil, at his London office.
happen to have a money-transfer office here, do you?" she asked.
"Of course," he
arrived within minutes.
cheap transaction was the perfect illustration of the pragmatic versatility of
the money-transfer industry in the Horn of Africa. Remittances to the Somali
region alone are estimated at $1.3 billion each year. But these transfers now
risk becoming impossible: Long-standing Western worries that remittance flows
serve as a cover for money laundering and the funding of armed Islamist groups
mean the taps could soon be turned off.
Barclays's decision in May 2013 to close the accounts of the money-transfer
operators that dominate remittance flows in the region -- postponed but
not rescinded as a result of a British High Court injunction -- is fueling
mounting dismay in Hargeisa, the capital of Somaliland,
a self-declared republic in northwestern Somalia. "I really don't know what is
going to happen. We have been shouting and screaming," says Minister of
Planning Saad Ali Shire, a man so soft-spoken it is hard to imagine him doing
any such thing. "The president has been writing letters, we have made appeal after
appeal, but nothing has been done. We are a creative people, but I fear the
price will end up being paid by the poorest in our society."
issue raises the specter of a financial crisis, which would coincide with what agricultural
experts predict will be the region's worst drought since 2011, expected to lay waste to
crops and livestock. For political and business leaders in Somaliland, it brutally
exposes the continuing vulnerability of the 23-year-old effort of collective
will that is this still-unrecognized nation state.
* * *
months are usually a time of celebration in Somaliland, as members of the
diaspora who fled into exile when civil war raged in the late 1980s and early
1990s reconnect with their roots. In contrast to their fellows in Somalia --
dismissively dubbed "the south" here -- they can pretty easily satisfy their human
homing instinct. While suicide bombings and armed attacks by al-Shabab make Mogadishu
and the rest of Somalia one of the world's riskiest destinations, Somaliland, a
former British protectorate, is a haven of parochial calm. It
has forged its own path
since Somali National Movement rebels declared independence from military
dictator Mohamed Siad Barre's regime in 1991.
Hotel lobbies in
Hargeisa fill up; seats on flights become impossibly expensive. At tables in
newly built pizzerias and cafes, the latest model of trainers peep from under
traditional diracs (kaftans) and macawis (sarongs). If you eavesdrop on
smartphone conversations, you will catch accents from Minnesota, Toronto,
Liverpool, London's East End, and Scandinavia. The capital's dusty main drag
fills up with four-wheel drives, which shoo sheep and donkeys off the road to
cluster bleating in doorways and on veranda steps.
international airport reopened in 2013, the returnees -- teasingly nicknamed
"fish and chips" in tribute to dietary habits supposedly picked up abroad -- can
fly direct to Somaliland's capital, rather than landing in the dilapidated, oven-hot
port of Berbera and making a grueling 160-kilometer drive. The airport's main
hall is decorated with a large wall frieze that says a great deal about
Somaliland's relationship with the world. It is a montage of photographs of
President Ahmed Mahamoud Silanyo shaking hands with former British Foreign Secretary William Hague and the leaders of Djibouti, South Sudan, Ethiopia, and
Saudi Arabia. The underlying message is clear: See what respect we've won
abroad; see what statesmanship we display.
That craving for
respect, the result of Somaliland's unrequited quest for recognition as a
sovereign state, distinct from its dysfunctional southern relative, makes
itself apparent at incongruous moments. During a question-and-answer session at
Hargeisa's recent International Book Fair, for instance, I was disconcerted
to be asked by a young man in the audience: "Are you for us or against us, and
if you are against us, what are your reasons?" A diplomatic answer -- "The
writers attending this festival wouldn't be here unless they were sympathetic" --
triggered a surprisingly loud round of applause.
In truth, there
is plenty to admire. Western donors may balk at making a formal gesture of recognition
that would simultaneously undermine decades of costly support for the fragile Transitional
Federal Government (TFG) in Mogadishu and give a fillip to secession movements
Privately, however, foreign officials have overwhelmingly warm
words for what Somaliland has achieved: A rare, hybrid
system of government that juxtaposes multiparty democracy with traditional rule
by clan elders. Monitored elections. Crime rates of which many industrialized
nations would be proud. An enviable record on security (though, as a visitor, one
of the disadvantages of dealing with a government determined to establish a whiter-than-white
reputation is being assigned an obligatory detail of armed guards on any trip
outside the capital, to ward against a repeat of 2008 bombings by al-Shabab in which some 30 people died).
failure to win nation status has made it difficult to attract investment and
aid, the inadvertent benefit has been a vigorous "can-do" attitude. The recent
establishment of a Somaliland Development Fund to channel donor support into a government
works program is expected to soon start delivering clean water, better roads,
and electrification. Bombed to rubble by Siad Barre's air force in 1988 -- black-and-white
photographs of the era are reminiscent of post-World War II Dresden -- Hargeisa
is now a jostling city of 800,000 inhabitants with, it seems, a building site
on virtually every street corner. It is all a far cry from the continuing drama
in "the south," where an African Union peacekeeping force, AMISOM, battles both
al-Shabab and local warlords, and the non-elected TFG's credibility continues
to be undermined by factionalism and gross corruption.
uneasy transition from informal coping mechanisms to the formal systems of a
conventional state remains deeply incomplete, leaving its 4 million inhabitants
trapped in an ambiguous limbo-land, juggling a host of anomalies and idiosyncrasies.
issue passports -- and its missions abroad certainly issue entry visas to the
rare tourist -- but few foreign countries accept them. To win a valid passport,
Somalilanders must travel east to Puntland, a region that harbors its own autonomous
leanings vis-à-vis Mogadishu, to get the necessary papers. Somaliland currently
does not control its own airspace, and it is in talks with the TFG and the United Nations,
to which airlines currently pay their fees, to claim that right. Somaliland has
no national postal service, so letters and packages are usually sent to DHL
offices in Nairobi, Kenya, or Addis Ababa, Ethiopia, and then flown in. It has no insurance
industry, either, which scares off foreign investment. The recent opening of a Coca-Cola bottling factory, whose day-glo drinks are now on sale in
every Hargeisa restaurant, has been a rare exception.
And then there's
the absence of an internationally recognized banking sector, which makes
Somaliland particularly reliant on remittances -- an industry that is now in
* * *
Barclays was one
of the last major international banks to still accept accounts held by money-transfer operators (MTOs),
whose activities are seen in the West as open to abuse. But a record $1.9 billion
fine slapped on HSBC by U.S. authorities for conducting
business with banks in Mexico and Saudi Arabia with possible links to drug trafficking and terrorism
appears to have tipped the balance for Barclays. The
profit margins no longer seem worth the reputational risk. Now, ironically,
Barclays finds itself in the role of "bad guy" by dint of its slowness in
pulling out of the MTO sector.
was delayed when MTO Dahabshiil took the bank to court in 2013. But if allowed to go through,
it will have huge implications for the whole of the Horn of Africa. Thousands
of families in Djibouti, Uganda, Ethiopia, Kenya, Sudan, and South Sudan depend
on regular remittances from hardworking relatives abroad -- payments so modest
they make the fees charged by conventional banks impractical. Dahabshiil, the
biggest regional MTO, with 400 payout locations in the Horn of Africa, points out that
the United Nations, the World Health Organization, the World Bank, Oxfam, and Save the Children
also rely on its services to pay staff, contractors, government departments,
and partner NGOs. Humanitarian agencies, which prefer giving drought-hit
farmers cash disbursements instead of market-distorting deliveries of food aid,
are also alarmed.
But the level of
vulnerability in Somaliland and Somalia dwarfs those of other countries in the
neighborhood. Officials say Somaliland alone receives an annual $400 million in
remittances, accounting for 25 to 40 percent of the republic's GDP. Critically, neither
it nor Somalia has functioning private banks to fill the void.
For the past
year, Somaliland's parliament has failed to enact legislation allowing the
creation of a commercial banking sector. The reluctance, government insiders
say, is rooted in the belief that sends the muezzin's call to prayer echoing
from every corner of Hargeisa five times a day: the Islamic faith. Mindful of a
constitution explicitly drafted according to Islamic principles, Somaliland's
parliamentarians have approved an Islamic Banking Law, but have yet to pass its
commercial equivalent. They fear it could introduce the charging of interest on
economic activity, which is unacceptable under sharia law.
parliament; we have sat down with the chairman to explain how important this
is, how much we need these foreign banks. We push and push and push," says
Abdilahi Hassan Aden, director general of Somaliland's (unrecognized) central bank. "But we are still waiting."
A Western advisor
to the government sees parliament as ultimately persuadable, but not without
work. "A lot of this is about changing the narrative when it comes to religion,
changing mentalities," the advisor says. "Islamic countries like Malaysia or
Indonesia, for example, still manage to have commercial banking sectors."
In private, some
officials voice the suspicion that a commercial banking law has been so long in
coming because the MTOs, influential local economic players that they are, until
recently preferred the remittance system to remain just as it was. It’s a charge Dahabshiil, for its part, rejects. Abdirashid Duale, chief executive officer, insists the company is keen to see legislation allowing commercial banking passed. "Dahabshiil is very supportive of any law or other initiative that supports the commercial banking sector," he says.*
which says it does background checks on all the customers it can, sees itself
instead as a victim of world events. "All of this started because of 9/11," Duale says. "Before then,
there was no difference between us and a grocery store opening a bank account
to deposit its earnings. With 9/11, the world changed, especially for Muslims."
MTO operators say
Barclays's move would do the opposite of improving competition on a continent
whose inhabitants already pay well over the odds for their money transfers. U.S.-based
Western Union and MoneyGram, which the Barclays decision would not affect,
charge far higher fees than Dahabshiil, which prides itself on being the
cheapest MTO in the world.
Dahabshiil has now
applied for and been granted a banking license under Somaliland's existing
Islamic banking legislation. But if that materializes, there would still be an
open question of how thousands of rural families who will never see the inside
of a bank -- too far away, too expensive -- would survive financially.
After a spirited
lobbying campaign by the Somali diaspora, fronted by Olympic sprinter Mo Farah,
whose family lives in Somaliland, the British government set up an action group in the fall of 2013 to try to hammer
out a solution. The Department for International Development (DFID), alongside
the British Treasury, is working on establishing a "safer corridor" for
remittances. Its feasibility study explores ways of improving customer due
diligence, from biometric fingerprinting to PINs to bar codes, and the
establishment of an independent "trusted third party" to audit transactions. But
more than a year after the remittance issue first blew up, the "safer corridor"
remains a distant aspiration.
who were in Hargeisa to address a conference on money laundering, attended by Somaliland
government ministers, remittance companies, the local Chamber of Commerce, and
the World Bank, dismiss the "safer corridor" idea as a non-starter. (They have been
commissioned by Dahabshiil to carry out a regional banking survey.) "It's a Hans
Christian Andersen story concocted by DFID, a case of the emperor's new
clothes," says Peter Norris of Obiter Consult. "It's been very unhelpful in
luring everyone into a false sense of security."
"The idea that
you can have some massive computer system and somehow feed all this information
in … and the computer will somehow work out which clients are dodgy and which are
clean is a nonsense," he adds.
Norris think that a different approach is needed. The governments of Somaliland,
Puntland, and Somalia each need to set up a supervisory body to police money-transfer and banking activities in their respective regions and then feed the
information back to financial intelligence units, monitoring bodies set
up by Western governments to regulate their own financial markets.
that would mark another, arguably overdue step in the country's transition from
post-conflict outlier, reliant on the survival instincts of its adaptable,
entrepreneurial citizens, to conventional state.
* * *
is adopted in the coming months, money transfers loom too large in the lives of local
residents to disappear overnight. In the old days, Somalilanders simply stuffed
suitcases full of cash and boarded planes; friends of friends and strangers
were, by necessity, entrusted to do the right thing. The irony, people say now,
is that Barclays's move will drive money transfers underground, beyond any
scrutiny at all.
"At the end of
the day, the money will still come in, but at much higher transaction cost and
with less transparency," says Shire, Somaliland's minister of planning. "So who
do you punish by doing this? Is it the pirate, the terrorist, or the poor man?"
*Update, Aug. 26, 2014: This story has been updated to reflect a response from Dahabshiil. (Return to reading.)
Photo by SIMON MAINA/AFP/Getty Images