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Somalia today is a war ravaged country after 13 years of civil war has decimated the economy. Today, the country is being held hostage to clan based fighting and regional divisions as Somalia has split into separate entities. Another war it is fighting is environmental as droughts are common resulting in famine. Today, the nation is in anarchy, greatly divided and overcome by violence. Lawlessness dominates many parts of Somalia as it is for the most part ruled by clan based factions and warlords. Few security and police forces are in tact with no border protection allowing for the free movement of arms from other countries including anti-aircraft guns and RPG’s. The country is swamped with weapons galore, it now finds itself within a mix of infrastructure destruction and new entrepreneurialism. Surprisingly, amongst all this violence, some regions of the country are doing okay. Since the departure of the United Nations ‘UN’ peacekeeping force that failed to keep stability within Somalia in the 1990’s, Somalia itself has become more Islamic. A new safe haven for terrorists and other Islamist militant groups? Below is a summary discussion of some of the developments taking place within war-torn Somalia and how it relates to its currency.

POLITICS: collapsed state with no effective central government, no formal government. The dictatorship government of Mohamed Siad Barre was overthrown in 1991, the country then fell into anarchy as armed rebel clans took over power. Lawlessness immediately took over as Somalia disintegrated into clan factions. In 1993, a UN peacekeeping force was sent to Somalia to help stabilize the region resulting in the deaths of 18 U.S. troops. Over the last few years, there has been extensive negotiations and attempts towards establishing a new parliament and central government. In August 2000, successful negotiations led to an interim transitional government led by Salad Hassan although it had little impact outside the city of Mogadishu. After extensive peace talks that have taken place in Kenya in 2002-03, Somalia is widely expected to have a new government soon with the selection of the President being made by the parliament. Whether or not this government can function, have any influence and last a reasonable amount of time is uncertain without any large scale international military and/or direct financial assistance.

Today, Somalia is essentially divided into three separate sections as there is no permanent government in place.
In the north, the independent Republic of Somaliland is attempting to achieve international recognition as a sovereign state as the majority of its citizens support statehood. Somaliland independence was obtained in June 1960 from the United Kingdom. Just to the south of this region lies Puntland which declared independence in 1998 but is not recognized internationally as a sovereign state. To the south of Puntland lies the main country of Somalia which achieved independence in July 1960. It is here in the Somali Republic where the main capital city of Mogadishu lies in southern Somalia. It is in this southern region of the Somali Republic that is encountering the majority of this instability and conflict with violent clan clashes. The two northern regions are relatively quite stable. Somaliland itself is strategically positioned home to a valuable military naval base at Berbera which has caught the attention of the United States as a vehicle to help fight terror in the region. Does the long term future hold for a united Somalia or three different sovereign countries? Some analysts believe the entire region may split into six regions following clan based roots. Long term peace maybe difficult due to competing clans and ethnic factions being financed with military hardware by outside interest groups.

ECONOMY: primitive unregulated economy - primarily agricultural based, recent hyperinflations in 2000-01 nearly collapsed the Somali economy. During the 1990’s, the economy was destroyed from an on-going civil war after the country fell into anarchy in 1991 while famine and droughts struck different regions of the country followed by an export ban on livestock. In 2001, the Somali economy received a further blow as the United States in response to terror attacks froze the Al-Barakaat financial network which follows the money-moving system of ‘hawala’ which is popular in Islamic countries. The economy is rebuilding in some rural areas due to entrepreneurs taking advantage of lack of government & bureaucracy/corruption. Somalia is facing head on significant infrastructure challenges including minimal electrical power, transportation network that is inferior, health issues regarding water quality and waste disposal. The Somali economy by year 2000 declined by 50 percent in GDP output when compared to its 1990 GDP output level primarily due to the civil war. Remittances from abroad (ie. Canada) form an important part of the Somali economy and foreign exchange earnings estimated to be valued at upwards of $500 million USD/year. At present, there is minimal monetary assistance in the form of foreign donor assistance except for food aid.

Economic Statisitics
GDP at $4.3 billion USD (2001) using purchasing power parity with corresponding GDP/Capita at $600 USD. Market GDP is at $1.2 billion USD. GDP growth 2002 at 3.5 percent, year 1998 in recession, 1999 in expansion. Inflation is running at over 100 percent, 1994 inflation at 100 percent. External debt at $2.6 billion USD (2001). Livestock represents 40 percent of GDP. Exports: United Arab Emirates. Imports: Djibouti. Economic structure consists of agriculture at 65 percent, industry at 10 percent, services at 25 percent.

POSITIVE: AIDS/HIV only at 1 to 2 percent which is low by many African standards. CONCERN: very low literacy level at 37 percent, few skilled laborers, very high infant mortality rate, kidnappings in Mogadishu, prone to famine and severe droughts.

BANKING SYSTEM: no formal banking sector, no central bank, no foreign exchange reserves. Money exchanges are prevalent throughout Somalia. The closure of the Al-Barakaat bank in late 2001 as a response by the U.S. government to stop financing terror as it was thought that Al-Barakaat might be skimming monies to support terrorist organizations. The correspondingly slashed remittances to Somalia by upwards of 50 percent and greatly reduced foreign exchange monies within the Somali economy.

REGIONAL ANALYSIS: Djibouti, Ethiopia, Kenya, Middle East, Indian Ocean
Somalia is a Muslim nation strategically located close to the Islamic Middle East. There is great suspicion by many in the West that Somalia in its current state of chaos and fighting between factions with its numerous warlords is presently a perfect environment to maintain as a home for many international drug dealers, arms dealers and terrorists. Wide speculation is prevalent that Somalia has direct links to global terrorism. In November 2002, Mombassa, Kenya was struck by terror attacks, it is thought that Somalia was believed to be refuge for the al-Qaeda terrorists that led these attacks. Also in question is the 1998 Tanzanian & Kenya bombings. As suggested in a UN report, some analysts believe that Somalia is a middle ground for the arms smuggling trade (ie. shoulder fired missiles). Today, Ethiopia is the dominant military power in east Africa.

KNOWLEDGE: Mining/Oil and Expatriates - Somali Economy of the Future
It is speculated that Somalia is rich both mineral and energy resources. Somalia to date has no oil production although both Somaliland and Puntland are thought to hold substantial reserves. Other natural resources that could be exploited include iron ore, uranium, bauxite, copper, tin, manganese, agricultural and fish resources offshore in the Indian Ocean.

During the 1990’s, many Somalis left during the civil with many of the skilled educated leaving. However, many of these expatriates, some who are now quite wealthy have returned to help rebuild Somalia as witnessed in the area of wireless communications - mobile cellular phone. A surprise is the extent of the excellent wireless communication system in the cities. These expatriate entrepreneurs are setting up a wide array of small and medium sized businesses over the last few years taking advantage of the unregulated business environment. In Mogadishu, the University is being rebuilt with several Somali professionals returning.

ISO Symbol ‘SOS’, Somali shilling, Somaliland shilling. At time of review on April 5, 2004, the Somali shilling had an official exchange rate of 2620 SOS to the US-dollar (‘USD’). The shilling is prone to serious counterfeiting, illegal reprinting of banknotes has impacted the market valuation of the shilling. Faction leaders and businessman print shillings to facilitate transactions. As much of the economy is dependent upon remittances from abroad, the US-dollar serves as a parallel currency to the shilling as the USD is widely accepted for business transactions, credit cards are not.

Within the northern region of Somaliland which is a self declared independent country but not recognized globally, the authorities in Somaliland do issue their own currency known as the ‘Somaliland shilling.’

CURRENCY HISTORY: historical valuations for the Somali shilling include: October 2, 2003 at 2606.9 SOS to the USD (official exchange rate), year 2000-01 the shilling collapsed in value due to counterfeiting, November 2000 black market exchange rate at 13,000 SOS to the USD which was a significant fall from the previous 10,000 level, black market exchange rate fell to 12,000 SOS to the USD in 1997, and in 1992 the market exchange rate hit 15,000 SOS to the USD just before the UN peacekeeping force arrived in Somalia to help reign in stability. Other quotes have official rate for November 1999 at 2567 SOS to the USD, January 1996 at 7,000 (market), January 1995 at 5,000 (market), July 1993 at 2,600, December 1992 at 4,200, June 1990 at 1,300, 1989 at 491, 1987 at 105, year 1981 a two tier exchange rate system was introduced (market & official rates), the shilling was very stable during the 1970s trading between 6 to 7 SOS to the USD, from 1960-71 fixed at 7.143 SOS to the USD.

CURRENCY FORECAST: the Somali shilling is given a very low ranking and categorized as a extremely dangerous currency due to the current state of economic and political instability, but more importantly due to the illegal reprinting of banknotes ‘counterfeiting’. The eventual implementation of a central government and central bank will reverse the shilling ranking in due course. Somalia with its rumoured terror links quite possibly remains a potential target by the United States with its concurrent war on terror. However, if the Somali region could solidify under one powerful central government, Somalia does have great potential. The political framework may follow that of countries such as Canada, Switzerland with a strong central government with state governments in the regions to best serve their local constituents. Unfortunately, this may be much more difficult to achieve than it sounds. The United Nations with its peacekeeping forces spent billions in the 1990’s and failed to garner a peaceful state coupled with the failure to implement a functioning central government. A new solution is required, BI.C believes that massive foreign military intervention to sweep the country in order to disarm the people and to implement police security forces will be necessary. This route is most likely politically unacceptable in the west. At present, the international community is providing very little in military and financial assistance to Somalia unlike Iraq and Afghanistan. Somalia too will require billions to rebuild, but the political will from abroad is not there at this time. The outlook for Somalia is unclear. Great instability remains.
UPDATED: April 5, 2004.

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