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This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. For current information and action alerts from Africa Action, visit http://www.africaaction.org. Please note that many outdated links in this archived document may not work.

Somalia: Remittances and US Action

Somalia: Remittances and US Action
Date distributed (ymd): 011113
Document reposted by APIC

Africa Policy Electronic Distribution List: an information service provided by AFRICA ACTION (incorporating the Africa Policy Information Center, The Africa Fund, and the American Committee on Africa). Find more information for action for Africa at http://www.africapolicy.org

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: East Africa
Issue Areas: +US policy focus+ +economy/development+ +peace/security+

SUMMARY CONTENTS:

This posting contains two reports from the UN Integrated Regional Information Networks (IRIN) on the impact of the closure of the AlBarakaat money exchange service in the U.S., Canada, Dubai, and other countries. It also contains brief excerpts with background on Al-Barakaat and other major remittance companies, or hawilaad.

+++++++++++++++++end profile++++++++++++++++++++++++++++++

Africa Action background note:

Judging the accuracy of U.S. government information about AlBarakaat is not possible without data that have not been made available to the public. However, there can be no doubt of the blows to the company itself, and to Somali businesses and families holding accounts with Al-Barakaat.

U.S. officials made no effort to cushion the blow for ordinary Somalis, or to express any concern for this "collateral damage" from their action. Indeed, speaking to a New York Times reporter about the issues, an unnamed "senior Treasury official" suggested that Somalis could just use "more traditional wire-transfer services, such as Western Union" (New York Times, November 9, 2001). [A call to Western Union from Africa Action resulted in one local agent asking us to confirm that "Somalia" was indeed a country. Western Union provides no services for wire-transfer to Somalia.]

The potential for positive U.S. engagement with Somalis toward building stability in that war-torn country, and therefore barriers against international terrorism, will only be made more difficult by this latest US action.


"Disaster" Beckons As US Cuts Lifeline

UN Integrated Regional Information Networks
November 8, 2001

IRIN-CEA Tel: +254 2 622147 Fax: +254 2 622129 Email: IRIN@ocha.unon.org. http://www.irinnews.org

[This Item is Delivered to the "Africa-English" Service of the UN's IRIN humanitarian information unit, but may not necessarily reflect the views of the United Nations. If you re-print, copy, archive or re-post this item, please retain this credit and disclaimer. Reposting by commercial sites requires written IRIN permission.]

Somali communities both in Somalia and throughout the diaspora have reacted angrily to the decision by the US government on Wednesday to close down and seize the assets of a leading Somali-owned money transfer company, accusing the US of acting with anti-Islamic bias and putting at risk the welfare of tens of thousands of Somalis.

On Wednesday, US authorities ordered the immediate closure of the Al-Barakat money transfer company and the seizure of its assets worldwide, accusing it of transferring funds on behalf of the chief terror suspect, Osama bin Laden, and his Al-Qaeda (Al-Qa'idah) network. In doing so, the US government claimed on Wednesday that Al-Barakat had been formed for the specific purpose of aiding terrorists. "By shutting these networks down, we disrupt the murderers' work," said US President George Bush.

However, Al-Barakat's founder and chairman, Ahmad Ali Jimale, told IRIN from his office in Dubai that he had absolutely no links with Bin Laden or Al-Qaeda, insisting that his business was clean, and had been established for the benefit of the Somali people, not of Bin Laden. "These accusations are nothing but lies," said Jimale. "If the US authorities undertake a thorough investigation... they will find that we have nothing to do with any illegal activities."

Jimale said he formed Al-Barakat, which now operates in 40 countries worldwide, following the outbreak of civil war in Somalia in 1991 and the collapse of the country's banking system, as a means of helping Somalis who had fled the country as refugees to transfer much-needed funds to relatives back home. To date, the hawalad transfer system, as the informal banking network is known, remains the only way of transferring funds to Somalia.

Yasin Khalif, a manager of Amal, another Somali-run hawalad company so far unaffected by the closures, told IRIN such transfers were the only means of income for between 70 and 80 percent of the Somali population. It is estimated that in an average year, a staggering US $200 million to $500 million is transferred to Somalia through the hawalad system. By contrast, just $60 million was injected into the Somali economy last year through international humanitarian aid.

"Shutting down the hawalad is tantamount to condemning hundreds of thousand of Somalis to a slow death," said Khalif, adding that since a ban on Somali livestock exports was imposed by the Gulf states last year because of an outbreak of Rift Valley Fever, "hawalad is the only significant economy in the whole of Somalia".

Michel Del Buono, an economist and Somalia specialist, believes that Al-Barakat has established itself as one of the cornerstones of the Somali economy during its decade in business. He said he believed that its closure would spell dire humanitarian consequences for a country already in the grip of severe food shortages. "If we talk about the collateral damage of this decision, this is equivalent to killing civilians," he said. "It could spell disaster for Somalia."

Although there were three or four other hawalad companies still operating in Somalia, none of them had the reach of Barakat, said Del Buono, speculating that "if they [the US] stop Barakat, it's only a matter of time before they move on the others".

According to US media reports, The US authorities on Wednesday refused to disclose evidence which they say implicates Al-Barakat in terrorism, claiming that such evidence is classified, but said they believed that Jimale was an associate of Bin Laden's and allege that Barakat's network had moved tens of millions of dollars a year into Al-Qaeda.

In total, 62 individuals and organisations with ties to Barakat and a Swiss-based money transfer company, which the Americans also suspect of complicity in financing terrorism, have had their assets, totalling $43 million, seized.

Yusuf Garad, the head of the BBC Somali service, which along with other international organisations like the United Nations use the hawalad system to pay their staff in Somalia, said Wednesday's decision represented a "big setback for the Somali community". He said even if Al-Barakat had been "misused by terrorists", it seemed unfair to close down its entire operation on which so many people depended. "If a terrorist uses a certain phone company to arrange a terrorist attack would it be just to then close down that company?"

But whatever the impact on Somali communities overseas it is back in Somalia itself that the impact of yesterday's action by US authorities would be felt with full force. Ubaho Farah, a 63 year-old grandmother and Mogadishu resident, told IRIN she and 12 members of her extended family were living on the $150 a month one of her sons remitted to Somalia each month.

"We survive on this money, and if it stops we have no other means of survival. We would be forced to either beg or steal," she said.


UN Office for the Coordination of Humanitarian Affairs (OCHA) Integrated Regional Information Network (IRIN)

SOMALIA: Widespread dismay over Barakaat closure

NAIROBI, 12 November (IRIN) - Somalis from every walk of life have been reacting with dismay, anger and fear to the decision last week by the US government to order the closure the Al-Barakaat money transfer company, one of Somalia's biggest, which is also the only source of income for tens of thousands of destitute Somalis.

Scores of people reportedly took to the streets in protest against the decision, according to Somali media sources, coinciding with independent statements of regret being issued by the interim president and a council of elders. "One is innocent until proved otherwise," said the interim president, Abdiqassim Salad Hassan, on Sunday, reflecting a commonly held belief that the US decision to shut down Al-Barakaat was taken with insufficient evidence.

The US government last week ordered the closure of Al-Barakaat's offices in the US, and seized all its assets, claiming that its money transfer network was being used to channel funds to prime terror suspect Osama bin Laden and his Al-Qaeda (Al-Qa'idah) network. Representatives and the management of Al-Barakaat have vigorously denied the claims, arguing that their books are open to scrutiny, and that any investigation would vindicate them.

Abdiqassim said on Sunday that the US should have produced evidence of Al-Barakaat's alleged support for terrorist groups before ordering its shutdown. Tens of thousands of expatriate Somalis use the money transfer system every month as the only means of sending remittances to family members living in Somalia, many of whom are entirely dependent on these remittances for their survival.

"It was a surprise to all Somali people in general and for the government to hear from US President George Bush that Barakaat was included in the list of organisations linked to Al-Qaeda," Abdiqassim said on Sunday night. "There are thousands of Somali families, especially poor ones, who survive on remittances from relatives."

Meanwhile, Somali elders met in the capital Mogadishu on Sunday to defend the role Al-Barakaat plays in Somalia, AFP reported on Sunday. They appealed to the US administration to launch a fair and thorough investigation.


The Role of Remittances on Economy in Somalia

Report for the ILO Mission, June 1998

[full text available on-line in Maroodi Jeex (Summer 1999) at http://www.anaserve.com/~mbali/remit.htm]

2. Historical Background of Remittance on Somalia

Remittances from Somali emigrants and workers abroad have always been a historical part of the country's economy since a large number of Somali nationals have emigrated to other countries in search of better education, trading or employment opportunities.

The bulk of the migration started in late 1960's when thousand of truck drivers and youngsters emigrated to the central, eastern and south eastern countries of Africa ; they were attracted by the gainful employment opportunities offered to them by several Somali transport companies who had a constant fleet of trucks operating in those countries.

Another large scale migration resulted from the oil boom in the Arab Gulf States during the early 1970s.

From 1982 to early 1988, due to the political instability, the regime at the time placed restrictions, threats, harassment's and even killings to the people in general and particularly in the northern and north-eastern parts of the country that resulted in factional and clan political armed conflicts among the people and the government. Thousands of the affected fled to various countries such as Gulf States, Western Europe, North America and to some African countries such as Kenya, Ethiopia, Djibouti and Uganda.

Finally, with the collapse of the Somali state in early 1991 and the subsequent civil war, hundreds of thousands of Somali nationals fled the country. ...

3.2 Purposes

In line with Somali culture, the relationship between people is based on deep kinship ties, clan networks and the extended family system. In the urban areas, the ties are broadened and include neighbours and friends at schools and workplaces. The networks perform many socio-economic functions and have a great impact on family and household businesses.

Families with low incomes rely on remittances sent by their family members, relatives or friends living abroad.

Therefore if a member of the family succeeds in emigrating he/she has the duty of providing assistance to members of the extended family or close friends who are living in Somalia.

According to the information obtained from most of the households interviewed, the remittances from Somali migrants abroad are mostly used for:

  • Household consumption (food);
  • Children's education;
  • Family events such as weddings, births or funerals; and
  • Establishment of micro and small-enterprise such as shops, kiosks etc.

The transfer of remittances, is meant to sustain relatives and/or families and the amount remitted depends on the income level of the provider. ...

The exact number of Somalis abroad, their earnings and the amount repatriated is not available. In the absence of such data, the alternative is to make educated guess estimates. Due to the absence of formal statistics or accurate information on financial markets all data should be cautiously regarded.

Table I: Estimate of Somali nationals living abroad

 	Country		Number of Somali Migrants
	Gulf Countries 		120,000
 	Italy 			 20,000
	Britain			 20,000
 	Denmark 		 10,000
 	Germany 		  9,000
 	Holland			 25,000
 	Sweden 			 12,000
 	Norway 			  3,000
 	Switzerland 		  4,825
	Canada 			 70,000
	USA 			 50,000
 	Australia		  3,000
	Total 			321,825

...

Remittances from abroad are transferred via satellite telecommunication systems (i.e. telephone/fax) to local headquarters of financial intermediaries or companies at the country level, money is transferred from region to region using HF radio message transmitters (see Annex C).

Today, financial brokers number in the hundreds; these can be classified into three categories in terms of their size, areas of operation, capital as well as technological facilities.

  1. The first and most important category of financial brokers are those with large amount of operating capital, approximately 1,000,000 US$ or more, and who have branches and representatives in many parts of the world. This category also provide other services such as telecommunication, temporary savings and some times advance payments t their clients. Besides these, they have radio communication stations within the country for transferring money to remote areas.
  2. The second category of Brokers are small scale enterprises. Their primary goal is to import goods such as food items (rice, pasta, edible oil, etc.), construction materials (cement, iron, galvanized sheets, etc.), clothes, and spare parts, while on the other hand they export livestock on hoof, hides and skins, fish etc. The money transfer business is only to support their trading activities.
  3. The third category of Brokers include those whose main activities is the provision of inter-country telecommunication services using HF radios formerly used by the Military and Police institutions. This group makes currency transfer only in Somali shillings, in addition they serve the first and second group of brokers to transfer remittances to the inland after converting the hard currency received into the local shillings.

...

The largest proportion of the remittance transfer business is handled by the three major companies listed below:

Barakat Bank of Somalia
Dahab-shil Ltd
Amal Express Ltd

...

The provider of the remittance presents the amount of money to be transferred to the financial broker and obtains a receipt which details the amount of money transferred, the name of the recipient, the currency paid, the full address of the recipient (town, village, telephone available, people who know the recipient and ins some cases the clan of the recipient)

The financial broker sends a fax or a telephone message within 24 hours to his representative or branch office in the recipient's town; the representative then locates the recipient by contacting him personally or by telephone.

The recipient goes personally to the financial broker's representative; he needs to provide sufficient information of his identity. In addition to providing personal documents such as passport with visas or an old ID in case of doubt of the identity, he must provide the full name of the sender, county of residence, house telephone number, clan name, nick-name or code name. When this has been completed the recipient signs a receipt and obtains his/her money.

If the recipient is not in a main town where the financial broker has a representative, he/she will be contacted by radio at his own village or town and will be informed about the arrival of his money; he/she will then be requested to travel to the nearest branch office where the broker will pay him directly or through his/her representative. 4.3 Time Spent and Frequency of Transfer

The transfer of money only begins after the representative office at the supply point receives the money from the customer. On the same day, the payment order is sent by fax or telephone to the headquarters of the company. At the head quarters the payment orders received from different area representatives are processed, classified and filed according to their destinations in Somalia. This process usually occurs within 24 hours. Thereafter, the list is sent by fax or telephone; where no fax service is available, the names of senders, beneficiaries and their addresses, clan-line and residence area are transmitted through radio stations in every local representative office.

According to the customers and the companies, the problems associated with security, bureaucracy, fraudulence and general pitfalls are absolutely minimum if not negligible. ...

4.4 Service Charges

The merchant bankers charge a service fee for the transfer of remittances. This fee ranges between 1% to 8 % depending on the geographical origin of the remittance and the remoteness of its destination. ...

...

ANNEX C:

COMPANY PROFILES

1. Barakat Bank

Company name Barakat Bank
Year of establishment 1991
Headquarters Dubai "UAE"
President Ahmed Ali Jumale
Ownership Sole proprietor

Main representation Offices: Europe 33, USA 9, Canada 5, Middle East 6, Far East 3, Africa 13, Somalia 44
Total 113

2. Dahab-Shil Company

Company Name Dahab-shil
Year of Establishment 1988
Headquarters Hargeisa "Somalia"
President Mohamed Said Duale
Ownership Sole Proprietor
Main representation Offices: Australia 7, New Zealand 3, USA 10, Canada 6, Africa 10, Middle East 19, Somalia 39
Total 87

3. Amal Express Company

Company Name Amal Express
Year of establishment 1997
Headquarters Nairobi "Kenya"
President Ali Yasin Farah
Ownership Private Limited Company
Main representation offices Europe 43, USA 31, Canada 11, Africa 1, Middle East 4, Somalia 25
Total 115


This material is being reposted for wider distribution by Africa Action (incorporating the Africa Policy Information Center, The Africa Fund, and the American Committee on Africa). Africa Action's information services provide accessible information and analysis in order to promote U.S. and international policies toward Africa that advance economic, political and social justice and the full spectrum of human rights.

URL for this file: http://www.africafocus.org/docs01/som0111.php