The Somaliland Surprise: How an Unrecognized State is Getting by without Cash

[Jacaylbaro]

Abstract: Somaliland is an autonomous region in northwestern Somalia that is a self-declared sovereign state, but has not been recognized internationally. This lack of recognition has harmed Somaliland’s currency and trade prospects, but the economy remains surprisingly efficient despite these setbacks.

 

Summary: Somaliland declared itself sovereign and split from Somalia in 1991, and despite a lack of international recognition, it has done remarkably well since then. Successful elections were held in 2005, and the state has mostly avoided the clan tensions and violence that have plagued southern Somalia.

 

Lacking international recognition, Somaliland’s hard currency, the Somaliland shilling, has no exchange rates and cannot be traded on international markets. Hyperinflation has deemed the shilling basically worthless and US dollars are far more common in the country. With a relatively poor population and an enormous diaspora community in Europe, the US, and Canada, Somaliland (like the rest of Somalia) has thrived from remittances through money transfers from companies like Dahabshiil. Some accounts have estimated that remittances account for 80% of the economy.

 

Somaliland remains a poor country whose economy is heavily dependent on agriculture exports. A livestock export ban to Saudi Arabia was recently lifted, providing a large increase in market potential for Somalilanders. Oil and natural gas reserves have been discovered on and offshore as well.

 

Analysis: Since I am moving to Somaliland in August, I am very interested in learning more about the state’s currency and economy. I’ll be living in a place with no banks; where I get paid in cash (US dollars) and cannot deposit that cash anywhere except for my room. I’ll be interested to see once I’m there the breakdown between Somalilanders who use S-land shillings versus US dollars, as well as how exactly Dahabshiil works. My dad and I plan to figure out how to use the service so that he can transfer me money in an emergency. But overall, as a region that prides itself on being self-sufficient and as efficient as possible, I find it impressive that Somaliland has experienced as much success as it has. The spirit of enterprise seems abundant – Somaliland also boasts some of the lowest mobile phone rates in all of Africa.

 

 

John Enos

Africa and Diplomacy