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COVID-19 has transformed Somaliland’s remittance lifeline
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In April 2020, when the effects of the COVID-19 pandemic were first beginning to be felt, the World Bank projected that remittances to low- and middle-income countries would fall by 20%. Such a precipitous drop would have been catastrophic. Remittances are a lifeline for millions of people around the globe and a key driver of several national economies. In Somaliland, a country of less than 4 million people in the Horn of Africa, they amounted to $1.4 billion in 2018, or around 50% of its GDP.

Analysts understandably drew a lot of attention to this projected decline, but in the intervening months they’ve missed the ways in which the industry has adapted to the new circumstances. Drawing on interviews with some of the Somaliland’s leading financial institutions, we argue that two key changes have taken place. On the one hand, the pandemic has interrupted the operation of the more established remittance organisations. But on the other, it has provided business opportunities to relatively new market entrants, such as cashless digital remittance providers and the two banks in Somaliland that use the SWIFT transfer system. We also show that though remittances dropped almost 7% in 2020 when compared to 2018, remittances picked up again during the year. This suggests that although the remittance lifeline is affected, it is still intact.

The remittance flow through traditional money transfer operators has dropped

Senders that use the more established hawala companies have to visit physical offices to send money. This business model has been interrupted by the pandemic in at least two ways. First, COVID-19 control measures such as the lockdowns, stay at home orders, and social distancing have disrupted personal visits. Second, the transfer of cash between countries has been interrupted by the suspension of international flights. Let us explain.

Since 9/11, international banks have become risk averse and implemented strict financial policies such as Know-You-Customer procedures. This has affected Somali hawalas as banks consider them high risk in terms of money laundering and terrorist financing. Consequently, hawala operators have gone back to a business model based on the physical transportation of cash. Hawala operators receive cash from customers in sending countries and then send it by air to Dubai, which operates as an international financial hub for Somali transactions and funds transfer to the Somali regions. It then flies again to Somaliland and Somalia, where it is finally remitted to recipients. In normal times the system works, but bypassing the banking system hawala operators have further increased the perception that they are high-risk.

[1] Url: https://www.opendemocracy.net/en/beyond-trafficking-and-slavery/covid-19-has-transformed-somalilands-remittance-lifeline/