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The Importance of Remittances for Somalia

Somalia has been in the international headlines for the past two weeks due to an attempt of broad
crackdown on terrorism financing and money laundering that will affect the bulk of remittances flowing
each year into Somalia, securing essential livelihood.
WHAT EXACTLY HAPPENED AND WHY?
As part of the anti-terrorism strategy, the US is implementing new regulations for bank transfers to
specific countries, including Somalia, in order to fight the global financing of terrorism and money
laundry. The new measures create a high regulatory risk for US banks that perform money transfers
between the US and Somalia anti-terror laws hold banks responsible if they transfer money to criminal
or terror elements. Money transfer agencies have been accused in the past of helping to fund groups
involved in terrorist activities, and since the banks act as a middleman for the agencies, they are being
caught in the prosecution process. As a consequence, more and more banks have terminated business
with Somalia.
In 2013, UK-based Barclays cut international ties with the Somali company Dahabshiil, who brought in
the majority of the countrys $1.2bn in yearly remittances. Now, US-based Merchants Bank informed
Somali-American transfer operators about cutting their relation and has done so starting the 5th
February 2015.
HOW ARE SOMALIS AFFECTED?
Remittances from around the world to Somalia total an estimated US$1.3 billion, and at least $200
million of this comes from the US. Over 40 per cent of families in Somalia depend on remittances for
food, clothing, medicine and education, and since Somalia does not have a formal banking system,
the consequences of cutting remittances will exacerbate the impact on the Somali people. The
amount of remittances to Somalia is estimated to be more each year than humanitarian aid,
development aid and foreign direct investments combined.
The result of the regulations is that transfer agencies have now to rely on smaller local banks. However,
those banks could only transfer around 20% of the yearly remittances that are usually transferred from
the US.
Many experts fear that young men who would struggle to secure their livelihood as a result of the cut
might seek the most attractive opportunities to secure livelihood in engagement with piracy or armed
groups like Al-Shabaab.
WHAT ARE THE REACTIONS?
Somalias Prime Minister, Mr. Sharmarke, together with aid workers and experts, asked banks to back
down on these decisions: We need to find a permanent solution to keep open this vital humanitarian
lifeline. He also noted the crucial connection that remittances have to a peaceful development and
stability of the Horn of Africa.

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Executive director of the Adeso aid group noted that remittances form the backbone of Somalias
economy.
Members of the American Congress expressed in a letter to Secretary of State John Kerry that cutting
off money from diaspora could significantly strengthen the appeal of terrorism and piracy for young
Somali men.
Nick Kay, the Special Representative of the Secretary General to Somalia, believes that remittances "are
the lifeblood [...] for many, many Somalis, so from a humanitarian perspective it is clearly worrying if
there is a complete stop in remittances".
Philippe Lazzarini, the Deputy Representative and Humanitarian Coordinator to Somalia, made clear in
his reaction that remittances are linked to the peace and state building efforts, and thus warned that the
latter could be undermined by the consequences of a cut.