The Somalia Remittance Paradox
Ever wonder why it costs so much money to send money back home? What the hell is so difficult about taking money from one person and giving the same amount of money to another person? It’s not like they are actually flying those bills across the ocean from the US or UK to your Ma. So what… are they just gouging the little guy because they can? Compare what it costs to send $100 via Western Union to Uganda ($20) against what it costs to send $100 to Mexico ($10.99). What if your family lives in… Somalia? What will Western Union charge you to send them money? NOTHING… because they don’t send money to Somalia. This despite a huge potential market in Somalia.
According to the CIA (look under Economic Overview):
In the absence of a formal banking sector, money exchange services have sprouted throughout the country, handling between $500 million and $1 billion in remittances annually.
Compare that to the total remittances for other African Nations as reported by IFAD:
Not to mention how many people in the Diaspora are out there… sending money back home. (source: WorldBank)
Worldwide, one of every 35 people, an estimated 175 million, live outside their country of origin , up from 75 million in 1965
Yeahp.. a big market for remittance companies… and one they are ducking like an ugly guy on a blind date. So what’s the deal? Well, it is more than simple greed or incompetence. All over the continent people are paying larger fees or using unreliable methods to transfer money to their friends, family and villages. Why is that? The reasons are many and vary from country to country. But I want to focus on Somalia and the reasons this country specifically has been given the short end of the stick. Although an extreme example, I think the problems remittance companies have in Somalia influence their business practices across the continent.
So, back in 1988 Somalia was falling into the political chaos from which they have yet to emerge and; not unlike many countries, poverty led to political unrest which, led to more poverty…. which only made the country more unstable and finally led to its complete collapse. By 2001 most of what is laughably called Somalia’s GDP came from remittances. Then came September 11, 2001. Suddenly, there was a microscope on international money. Every nontraditional transfer of funds was viewed as a threat… fattening the wallet of Al Queda and Osama Bin Laden, and leading to the fall of western civilization as we know it. Somalia with its entire economy resting on outside sources…. and not incidentally a Muslim majority was suddenly seen as a hot bed of terrorist activity and a funnel for terrorist dollars going directly to Al Queda… at least in the mind of the CIA. And to be fair… viewed through the lens of September 11th I can see how a surface evaluation of the data might have led to the conclusions they reached. Cut off the flow of money. Stop the terrorists.
However… international policy should not be made based on surface level evaluations of preliminary data (and WOW haven’t we all witnessed the effects of that shortsightedness for the last seven years! but I digress) Let’s look closer at the clues that led the governments of Britian and the US to their faulty conclusions.
Clue #1: Lack of information about who was receiving and transfering money.
This lack was interpreted as shady, secret dealings. When in fact what it was a reflection on the cultural reluctance to share personal information. Somali’s are private people willing to share tribal connections but unwilling to share the level of personal data that is common in the West. The local remittance companies–understanding this cultural reluctance accepted less than ideal identification and thereby put themselves square in the bullseye of American Anti-terrorist policies.
Clue #2: Somalia is a Muslim country
With tensions running high after 9/11, there was no inclination to review and compare the subtle differences between a Muslim nation like Somalia and one like Afghanistan. There was no patience for those small voices saying… well yes they are Muslims but not that kind of Muslim! A more careful review of the Somali culture would have shown one that had historically resisted radical Islam of the flavor we are blessed with in these modern times. Ironically the continued anarchy in Somalia post 9/11 terrorist policies against Somalia have made it open to radical Islam… as evidenced by this article from Human Rights Watch or this one from The Council on Foreign Relations
So what happened? Well, in a country with no way to support itself aside from remittance dollars and goats; the US and Britain joined forces and closed the doors on Somalia’s #1 remitter in 2001. Thus making it more difficult and more expensive for Somalis in the Diaspora to send money home (not that it stopped them… estimates have remittance dollars to Somalia between $700 million USD and $1 billion USD. The laws are so stringent that the world’s #1 and #2 remittance companies (Western Union and MoneyGram) cannot take on the risk of doing business in Somalia. Local remitters still try, but the costs are high and the damage (to the already crippled Somali economy) is done.
Ironically USAID has been funneling money into Somalia as fast as the Anti-terrorist regulations have been turning it away:
Sadly the evidence shows that while remittance monies can have a significant impact on the standard of living for the recipient, AID money is like a band-aid on a bleeding jugular… completely ineffective.
And here is my favorite bit of news in this whole story… 7 years later… not one of the companies that was destroyed by these anti-terrorist policies has been proven to have had terrorist ties. Great. So, let’s waste time, money, resources, kick a country while its down, actually create the environment we were trying to destroy AND be so totally distracted by our own ignorance that we let the bad guys continue to recieve their money from what ever source they have… cause we were too busy fighting the ghost of Black Hawk Down in Somalia. Fabulous.
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