12 February 2016

Somalia: Closing Up Regulatory Gaps Key in Somalia's Fight Against Al-Shabaab

analysis

After 25 years of protracted clan-based conflict, Somalia is finally seeing some positive changes.

The country had become a failed state after former president Siad Barre's dictatorial regime was overthrown in 1991. In the years that followed, the dynamics of the conflict changed substantially. What started as grievance-based insurgencies turned into a war economy with widespread looting. The situation then turned increasingly violent, led by extremist groups such as the Islamic Court Union, which was succeeded by al-Shabaab.

The Institute for Security Studies (ISS) conducted various field trips to the capital city of Mogadishu in early 2014 and late in 2015. On the second visit, ISS observed noticeable differences, which pointed to social and economic development in the country. Shops have opened and buildings have been constructed and renovated. People moved about freely, roads were busy and many residents could be seen relaxing on the beach. Security personnel were seen visibly patrolling the streets, with armoured vehicles and machine guns.

Local sources told ISS that the city's nightlife and the general social climate had greatly improved, and the Aden Adde International Airport in Mogadishu was abuzz with domestic and international commercial flights. According to a source, the airport sees an approximate average of 1 500 travellers per day, most of whom belong to the Somali diaspora.

China Central Television (CCTV) has reported that the port of Mogadishu is attracting 'more and more international shipping traffic and foreign investors,' while Kenyan news channel KTN recently described Mogadishu as 'the newest business destination in East Africa.'

These changes can be seen not only in Mogadishu, but also in other key areas of the country, including Kismayo, Beletweyne and Baidoa.

Improvements have also been seen in Somalia's security situation, with United Nations envoy Nicholas Kay recently saying that the country is steadily recovering. 'At last, Somalia is facing the problems of a country coming together rather than falling apart,' Kay is quoted as saying.

Somali Prime Minster Omar Abdirashid Ali Sharmarke told CCTV Africa that 'after 25 years of feeling unable to come home, the positive changes in the country have given them [members of the Somali diaspora] hope, and they want to return and help rebuild Somalia into a prosperous and successful nation.'

The drivers behind these changes remain unclear, however. Some analysts have linked developments to the Sunni-Shia conflict in the Gulf, based on reports that Somalia might receive financial support for joining the Saudi-led forces against the Shia Houthi group in Yemen.

Somalia is reported to be one of three East African states (along with Sudan and Eritrea) to have joined the coalition, led by Saudi Arabia, to fight in Yemen. Sudan and Eritrea are said to have received billions of dollars to be part of the anti-Houthi coalition; and it is presumed that the same would apply to Somalia. The latter allows the coalition to use its air space, land and territorial water. Another noteworthy development is the Federal Government of Somalia's (FGS's) recent decision to cut diplomatic ties with Iran, which is said to support the Houthi group.

Other analysts link the various changes seen in the country to the federal system of government and the forthcoming election in 2016. Despite following a federal system historically, the country began to re-implement federalism after endorsing the Provisional Constitution of 2012. In accordance with Vision 2016, the aim is to fully federalise the country by the end of the term of the current government.

Regardless of whether change is being driven by these factors, or perhaps something else entirely, the effects seem to be encouraging.

However, a big question mark is placed over the regulation of these developments. Somalia does not yet have effective state institutions in place to guide and regulate activities in the country. In a recent book titled The Real Politics of the Horn of Africa, author Alex de Waal says that 'at no point in its history has Somali political life been governed by formal institutions since 1991; but it has been regulated by element of societal consensus.'

According to De Waal, the economy in Somalia is largely based on foreign wages (remittances), trade and services (especially the telecommunication sector) - which are not regulated by the FGS. A 2013 report described how the country has not had an effective central bank since the demise of Barre's regime.

The bank was since re-established, but is still not functioning effectively. Specialised private financial institutions, which are not monitored by the FGS, are therefore the key players in the economy. Many of these financial institutions operate along the same lines as Somalia's entrenched clan system.

The 2013 report, authored by Victor Owuor, identified the ways that investors use to get resources, including money, into Somalia. The first and main method is via informal money-transfer schemes known as 'hawala', which are operated by remittance institutions or banks such as Dababshiil, Amal Express, Mustaqbal, and Kaah Express.

An official United Kingdom-Somalia remittance factsheet published in March last year estimated that a minimum of US$1.3 billion is remitted annually to Somalia by members of the diaspora; and that this accounts for approximately half of Somalia's gross national income and 80% of investments.

There are no financial records of these transfers, and the transactions are based on trust. A customer deposits money at a remittance institution abroad, and the recipient receives the money from a networked dealer in Somalia. According to Owuor, hawala is 'cost effective, efficient, bureaucracy-free and reliable, and yet it does not leave a paper trail.'

Somalia does not currently have the institutions or systems to allow for conventional financial protocols, where money is accessed via established banks or financial institutions - which are in turn controlled by a central bank through established mechanisms. Money flows primarily through mobile telephony schemes.

A reliable estimation indicates that at least 70% of Somali people have access to mobile services, which could be used for money transfers. Mobile telephony not only provides a cheap means of communication, but it also serves as a financial lifeline to inhabitants. According to the Owuor report, individuals can transfer up to US$1 220 at a time to another mobile user, even if the recipient is not subscribed to the same mobile provider.

Considering how poorly regulated financial flows and transactions are in Somalia, it's easy to see how extremists and other criminals could exploit these gaps.

Groups like al-Shabaab rely on unregulated money transfer systems to receive and channel their finances. It is also claimed that al-Shabaab enjoys significant support among members of the diaspora; and many say that the bureaucratic structure of al-Shabaab is more deeply entrenched in the clan system than the state apparatus.

In a way, the social and economic improvements seen in Somalia could therefore serve to strengthen al-Shabaab's financial capacities and social bases.

To combat this, the FGS must prioritise measures to regulate changes. The Africa Union Mission in Somalia (AMISOM) could also be engaged, given its mandate to take all measures needed to reduce the threat posed by al-Shabaab and assist the FGS in establishing effective and legitimate governance structures.

To weaken al-Shabaab, the FGS needs to regulate money transfers, trade and telecom services by monitoring remittance institutions, banks and telecommunications companies.

This can only work if effective state institutions are established, including a central bank, custom and specialised financial intelligence unit with relevant policies, strategies and capabilities. It's also time for AMISOM and the international community to throw their full weight behind the FGS. One of the surest and most effective tools to drain al-Shabaab of its power is by draining its financial sources.

Meressa Kahsu, Researcher and Training Coordinator, Conflict Management and Peacebuilding Division, ISS Addis Ababa

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