1. ZERO DOLLAR IN CIRCULATION VS EXCESSIVE SoL SHILLING SHILLING SUPPLY.
Firstly, the quantity of US Dollar in Somaliland’s FX market has become very low while SoL Shilling is being pumped into the local market. This had significantly devalued local currency against the US dollar. The exchange rate for $1 hit 8,800 last week. This is record low for the local currency.
Secondly, Unstability of exchange rate eroded the confidence of both businesses and Consumers. Some folks threatened stop using the national currency.
Thirdly and finally, mobile money replaced both the US dollars and SoLSH (in local markets).Almost all purchases from school fees, house rent, Khat to food, TELESOM’S ZAAD is the number one currency. Conveinance, secuirity and portability of mobiles money are widely preferred.
2. WHAT ARE THE MAIN REASONS FOR THE ABOVE PROBLEM (1)
2.1 Why the quantity US DOLLAR is is low:
a) Supply side factor: Livestock ban, drought, limited aid flow in Somaliland, election delays which halted investment, Remmittance recieved through ZAAD, Yemen crisis etc.
b)ZAAD Factor: this service became an intermediary which exhausts US dollar from the fx market by replacing it with digital numbers. US Dollar notes accumulated in the hand of ZAAD operator. There is the possibility of capital flight here – Foreing currency earnings of Somaliland might be invested in opportunities in Djibouti and elsewhere.
C)Despite decreased supply, US Dollar demand increased due to Khat farmers in ethoipia demanding US DOLLAR from khat importers. They do not require ETB but USD. The political sitaution in ethoipia and the related economic slow down, like Somaliland, undermined investment and hence their foriegn currency earnings.
2.2 Why is SL shilling is so excessive:
a) Supply side factors: Kulmiye Goverment money printing, Some goverment taxes, fees and fines are received in Dollar, official exchange rate way below the market rate, 100% increased of civil servants’ salaries and their number, National budget expenditures increased ettc.
b) Dahabshiil Tremitance Co, Factor: Becouse Dahabshil’s close relationship with the Kulmiye goverment, the SoL Shilling goes to their FX department and they became the biggest Shilling accumulater of local currency (Shilling). They, however, are unable to trade their shilling in the market becouse no body is using the Shilling. People had deposited their dollars in ZAAD MEans Mobile E-wallet and making transcting with this electronic money. Dahabshil is dedperate for US dollar which is in the hands of its rival, Telesom Telecomunication company Owns Zaad dervises. The EDahab services of Dahabshil Remetance e-wallet mobile, like eCash and SOMTEL for under Dahabshil group of Companies , is a total failure. The market share of EDahab is negligible…
3. WHO Is AFFECTED BY SHILLING DEPRECIATION.
Victims of this depreciation are Goverment workers (around 50, 000), Dahabshiil which is unable to maintain enough US dollars for its remmittance customers.
While no increased inflation has yet been reported due to major Wholesale/Import traders who had been using USD only for several years, the limited dollar in circulation has the potential to heighten the already inflationary local economy. Such an inflation will affect millions in Somaliland who depend on food imports.
Telesom The leader of Telecomunication in Somaliland and The Owner of the Zaad service e wallet mobile many and largest reserve of the dollar in Somaliland Ex- Albarakat group that US Freeced theire accounts in September 11 is the net benefitor of this sitaution becouse the acquired the ability to “Print” their DOLLAR and SHILLING. By using their ZAAD, they pay their staff salaries and use the DOLLAR for overseas purchases of machinery or they may invest the deposits in neighboring countries.
4. INSTITUTIONAL FAILURE
Central bank of Somaliland grossly failed to stabilise exchanges rates. Since 2010, the incumbent governer is the fourth nominated by Silanyo. Compare this to UDUB Party whose Central Bank Governer, the late Dualle, served both under Ex Somaliland presidents Egal and Riyal and set an excellent record of monetary management. For 15+ the exchange remained stable at an average rate of 6200 for 1 USD.
Other contributing factors include leadership crisis at the top, corruption and bad governance.
Somaliland Needed Stronger Rules for Central Bank and Stronger Government to solve this un knowledgeable leadership corpt ethics.