Somalia: Puntland President's Statement at Money / Value Transfer Service Meeting in Garowe

Puntland President's Statement at Money / Value Transfer Service Meeting in Garowe

Puntland State of Somalia

Meeting on Money / Value Transfer Service

Garowe, Puntland State of Somalia August 12 – 14, 2013

Statement by the President of Puntland State of Somalia

H.E. Abdirahman Mohamed Mohamud (Farole)

All Praise and Thanks be to Allah.

The Deputy Parliament Speaker, the Ministers and Honorable Parliamentarians, Private Sector, Representatives from UNODC, World Bank and INTERPOL,

Excellencies, Ladies and Gentlemen:

Good morning. I am pleased to address you at the opening ceremony of this three-day Meeting on Money / Value Transfer Service that brings together Puntland Government, Private Sector representatives from Money Transfer Companies (Hawala), Telecom and Banking Industries, Industry Experts, and supporting institutions of UNODC, World Bank and INTERPOL that co- organized this important meeting with Puntland Government institutions. This is an important and timely topic around the world and Puntland is honored to host this meeting.

I would like to briefly address three major issues:

1. Background on the formation of Hawala companies;

2. Challenges;

3. Recommendations for the way forward;

Background

The state collapse of 1991 in Somalia led to the political disintegration of the nation-state and produced the breakdown of institutions and basic services, even though the Somali financial institutions totally collapsed well before the political collapse. With the emergence of this vacuum, the Somali private sector stepped in to cover basic services in a range of critical areas, including education, healthcare, telecommunications, and banking industries.

The Somali money-transfer companies, known as Hawala companies, emerged in the mid-1980s to fill the gap of the Somali financial institutions weaknesses and to satisfy the country’s growing financial transactional needs. There was a government foreign exchange restriction in place at the time. In effect, the emerging Hawala system served as a substitute for the Somali Commercial Banking activities. At the time, due to the government’s restrictions on foreign exchange, two types of exchange rates developed: the government official rate and the market rate, which the government considered the “black market rate” but was in effect the market rate.

Additionally, the prescription of the International Monetary Fund (IMF) in Somalia in 1980s introduced higher official exchange rate, which in turn led to higher market exchange rate (black market). This development generated ever growing higher inflation every time the official rate is raised and ultimately led to the state’s economic collapse.

Currently, the Somali Central Bank lacks institutional capacity and serves solely as the Government Treasury, whilst important Central Bank functions are lacking, such as banknotes issuance, monetary policy, and the Central Bank’s role as government’s economic adviser.

In the early 1990s, Somali entrepreneurs transformed Hawala system into prominent companies serving the growing demand of Somali refugees in camps and Somalis displaced people within the country. Hawala offices were at first established in Somali refugee camps in neighboring countries and in Somali communities resettled in Western countries, in a makeshift way to address the immediate needs of the Somali people in difficult times, and this was indeed commendable thanks to the first Somali entrepreneurs who undertook this important initiative to address the Somali people’s needs.

As such, Hawala system played an important role to alleviate the plight of Somali refugees in the 1990s and today that important role continues. Today, Hawala system contributes to the livelihoods of Somali families in Somalia, creates employment and investment opportunities, and eases business transactions and international trade, in the absence of commercial banking system operating in the country. Currently, some Hawala companies have grown into private banks and have established a pool of funds as a Saving Bank. Without Hawala service, the lives of the Somali people certainly would have been at higher risk for starvation, poverty and without a future.

Challenges

Understandably, there are many challenges facing the Hawala system, as it operates many countries around the world. Governments want to know and understand the flow of money back and forth to promote accountability and impose necessary safeguards to ensure legal transactions.

A second challenge is that, currently, there are too many Hawala companies operating in the market. This is a challenge for two reasons: 1) all countries where Hawala system operates do not have standard regulations, including Somalia; and 2) too many Hawala companies create workload for financial regulators.

The third challenge is the risk of bankruptcy and illegal transactions. The Somali Hawala industry has a history of companies going bankrupt, thereby losing the funds of Somali investors and depositors. Additionally, Hawala companies might at times engage in illegal activities that potentially fund criminal activities in Somalia, including terrorism, piracy, human smuggling, and other criminal activities. Those involved in piracy ransom transactions and transfer, which includes private security companies and possibly some Hawala companies, also impose major threat to Somali security.

Recommendations for the way forward

The issue of money transfer is an important matter as it affects the livelihoods of the Somali people in Somalia and the Diaspora communities who send remittances to relatives and support the country’s economy. Certainly, the benefits of the Hawala system far outweigh its negative aspects. However, Somalia and the world have to trek carefully to balance the Somali people’s needs and the necessary checks and supervision, to ensure legal transactions and prevent security risks.

Today, the Somali people in refugee camps and inside Somalia are dependent on Hawala system for their economic livelihoods. It is estimated that Hawala system contributes to the Somali economy nearly US$2billion per year, constituting a big portion of the Somali fragile economy today. Thus, stopping Hawala transactions constitutes imposing economic sanctions on Somalia that could potentially create black market activities and security risks.

Our government’s position is to promote Hawala companies’ compliance with international standards and regulations, good practices, and accurate reporting systems for information sharing purposes. This compliance satisfies the concerns of governments in Somalia and around the world, whilst ensuring that the country’s economic lifeline is not disrupted.

Additionally, Somali governmental authorities – at the Federal and State levels – require international assistance to enforce Hawala compliance internally to meet domestic and international requirements and thereby strengthen Somali financial institutions to tackle security challenges at home.

Similarly, the telecom industry’s mobile money transfer systems require government regulations to meet security and revenue requirements. Both the Hawala systems and the Telecom industry should comply with government regulations and pay taxes, as taxation funds government’s provision of security for economic development.

During discussions over the course of three days, it is my hope that this important meeting will produce tangible recommendations for the way forward to ensure the economic livelihoods of Somali people, while protecting security and taxation standards and regulations.

Thank you and God bless.