Somaliland: Central Bank Triggers Hyperinflation

By Jaafar M Sh Jama
The Central Bank of Somaliland adjusted the exchange rate to six thousand shillings per US dollar on January 21, 2016. The previous rate was six thousand and ninety shillings to the dollar, sometimes reaching seven thousand fifty in unregulated markets and currency exchange kiosks. The exchange bureaus, shop keepers, retailers and service providers continue to charge goods and services based on pre-January 21st exchange rates.
The price of rice, sugar, milk, vegetable, clothes, cooking oil, fuel, water electricity and transportation fares have climbed sharply, seriously affecting most families. A vendor on the streets of Borama said, “The rate change caused unbearable hardship as most of the service providers assess charges in U.S. dollars rather than shillings.”
The average home pays between twenty and fifty dollars a month for electricity. All of the electric companies rely on petroleum fuel, the cost of which has declined significantly over the past year. The companies have not reduced their electricity rates to reflect the price drops in diesel and petrol fuels.
Families receiving remittances from abroad and those with meager incomes are both impacted by the price hikes as their shillings buy fewer goods. The goal of the bank was to erode the U.S. dollar and increase the value of the shilling by setting a standard rate, and ultimately, to decrease the price of goods and services. Somaliland wants to collect taxes from domestic businesses and private companies with the exception of ports, airports, and livestock exports that generate hard currency.
The bank is trying to save itself by exercising its authority to force the use of a state bank rather than the independent, private remittance companies that businesses have come to rely on for the last twenty-five years. The Somaliland population has consistently minimized the use of local currency, preferring rather to use the much more stable U.S. and European currencies.
The shilling will even become even less valuable as business is done through ZAAD, a cellphone banking that allows deposits, withdrawals and transfer of funds. A study published in 2012 by Mobile Money for the Unbanked, and supported by The Bill & Melinda Gates Foundation, the Master Card Foundation and Omidyar Network, found that 40% of the subjects studied in Somaliland were using ZAAD for mobile banking. Twenty-six percent of those studied used it to pay bills (highest rate of usage in the world) and 32% used it to send and receive money.
Livestock exports and foreign remittances are the backbone of the economy. The dependability of these sources of income in the future is uncertain due to the persistent droughts and poor livestock management that threaten the survival of livestock populations. Somaliland cannot effectively implement economic and financial regulations until the public sector is able to enter into a bilateral agreement with international organizations. This is not forthcoming as no such agreement has been presented to, let alone be recognized or accepted by all relevant parties. The state-owned bank should keep its hands off the private sector that has served Somaliland so well to date. The best way to tackle current economic hardships is to prevent the import of kat, which erodes Somaliland’s economy substantially. It is time to move away from a subsistence economy to a healthy and growing consumer-based economy. Stability in the state-regulated financial sector is necessary for this type of healthy economic growth and development to occur.
jaafarjama@hotmail.com

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