Federal Republic of Somalia SOMALIA ECONOMIC UPDATE August 2018 | Edition No. 3 Rapid Growth in Mobile Money: Stability or Vulnerability? Federal Republic of Somalia Somalia ECONOMIC UPDATE Rapid Growth in Mobile Money: Stability or Vulnerability? August, 2018 Macroeconomics, Trade & Investment AFRICA TABLE OF CONTENTS Acknowledgements ........................................................................................................................ ii Foreword........................................................................................................................................... iii ARAR..................................................................................................................................................... iv Executive Summary.......................................................................................................................... v Nuxurka Soo Koobidda ................................................................................................................... x PART I. Recent Economic Developments ..................................................................................................... 2 1.1 Growth is recovering modestly—but it has not dented poverty................................................... 2 1.2 Real GDP growth weakened in 2017.............................................................................................. 2 1.3 Drought led to an uptick in inflation.............................................................................................. 5 1.4 Fiscal policy improved—but challenges remain............................................................................. 5 1.5 A foundation is being laid for monetary policy and financial sector regulation............................. 8 1.6 The drought increased Somalia’s trade deficit .............................................................................. 8 1.7 The growth outlook for 2018–20 is positive amidst significant risks............................................. 9 PART II. Growth in Mobile Money: Stability or Vulnerability? ................................................................... 14 2.0 Key messages.................................................................................................................................. 14 2.1 Mobile money plays a critical role in Somalia................................................................................ 15 2.2 Mobile money providers are key players in Somalia’s financial sector ......................................... 17 2.3 Risks of mobile money system and the need for regulation ......................................................... 18 2.4 Mobile money services do not meet all financial services needs.................................................. 19 2.5 Regulation of mobile money should be phased in, in a way that ensures the stability of the system 20 2.6 Conclusion and recommendations................................................................................................ 27 References ..................................................................................................................................................... 39 LIST OF FIGURES Figure 1.1: Real GDP growth fell to just 2.3 percent in 2017....................................................................... 2 Figure 1.2: Private consumption was the main driver of growth between 2013 and 2016......................... 3 Figure 1.3: The share of livestock in agricultural output increased ............................................................ 4 Figure 1.4: Livestock exports declined sharply in recent years due to Saudi ban on Somali exports and drought............................................................................................................................... 4 Figure 1.5: Somalia is at the bottom of the World Bank’s Doing Business Indicators.................................. 4 Figure 1.6: Food prices were the main source of inflationary pressure in 2016 and 2017.......................... 5 Figure 1.7: Cereal prices increased during 2016–17, with the northern regions hit worst......................... 5 Figure 1.8: Revenue collection by the Federal Government of Somalia improved steadily between 2013 and 2017........................................................................................................................... 6 Figure 1.9: Expenditure by the FGS has soared since 2013—and almost all of it is recurrent..................... 7 Figure 2.1: The volume of mobile money transactions in Somalia topped $2.7 billion a month in 2017.... 15 Figure 2.2: Remittances are a more important source of income than official development assistance in Somalia...................................................................................................................................... 16 Figure 2.2: Mobile money business models are moving toward financial service provisions........................ 18 Figure 2.4: Both businesses and individuals in Somalia prefer large financial institutions ............................ 19 Figure 2.5: Domestic credit to the private sector is lower in Somalia than in other countries in Sub-Saharan Africa ....................................................................................................................... 20 Figure 2.6: Regulation of mobile money should be introduced in four phases ............................................. 21 Figure 2.7: Main digital attributes leveraged in digital innovations for financial inclusion ............................ 27 LIST OF BOXES Box 2.1: Risks related to Somalia’s mobile money system.............................................................................. 19 Box 2.2: Regulating mobile money services in Pakistan................................................................................. 23 Box 2.3: Strengthening institutional capacity at the Central Bank of Somalia ............................................... 24 Box 2.4: Kenya’s “test and learn” approach to regulation of mobile money ................................................. 25 Box 2.5: Lessons from Sierra Leone’s regulatory sandbox ............................................................................. 25 Box 2.6: Regulation as a driver of innovation in the Philippines..................................................................... 26 Box 2.7: Collaborating to perform customer due diligence and identity verification .................................... 26 LIST OF TABLES Table 1.1: GDP in Somalia, 2013–16 (millions of dollars) ................................................................................. 3 Table 1.2: Balance of payments in Somalia, 2013–17 (percent of GDP)............................................................ 9 Table 2.1: Players in Somalia’s financial sector ................................................................................................. 17 Table 2.2: Phased-in approach to regulation of mobile money ........................................................................ 22 Table 2.3: Digital innovations for financial inclusion being tested in Africa...................................................... 28 Abbreviations AML/CFT Anti-money Laundering and Combating the Financing of Terrorism CBS Central Bank of Somalia CPI Consumer Price Index FDI Foreign Direct Investment FGS Federal Government of Somalia FMS Federal Member States HIPC Heavily Indebted Poor Countries August 2 0 1 8 | Edition No. 3 i ACKNOWLEDGEMENTS This third edition of the Somalia Economic Update was prepared by a team led by John Randa and Thilasoni Benjamin Musuku. The core team consisted of Catherine Ngumbau, Mahjabeen Haji, Ephraim Kebede, Tim Kelly, Fuad Mohamed Sharif, Isabella Hayward and Margaret Odhiambo. The team acknowledges contributions from Susan Wangui, Hassan Hirsi, Barbara Karni, and Janerose Lubisia. The report benefitted from the insights of several peer reviewers, including Allen Denis, Angelique Umutesi, Harish Natarajan, Michael Corlett, and Ahmed Mohamed Tawfick Rostom. The team received overall guidance from Abebe Adugna (Practice Manager, Macroeconomic, Trade and Investment) and Niraj Verma (Practice Manager, Finance, Competitiveness and Innovation); Yutaka Yoshino (Program Leader, Equitable Growth, Finance & Institutions); Bella Bird (Country Director for Tanzania, Somalia, Burundi, and Malawi); Preeti Arora (Country Program Coordinator, Tanzania, Somalia, Burundi, and Malawi); and Hugh Riddell (Country Representative for Somalia). ii S om a l i a Eco n om i c Update • 2018 FOrEwOrd It is my pleasure to present the third editi on of the World Bank Somalia Economic Update series. These reports are prepared in close partnership with Somali stakeholders and aim to contribute to government policy-making and to a nati on on topical economic matt onal conversati cularly grateful to ers. We are parti our colleagues at the Ministry of Finance and Ministry of Planning, Investment and Economic Development who have contributed and provided guidance throughout the process. This editi on of the Somalia Economic Update is focused on mobile money – how it is used within the economy, how it is helping spur economic acti vity and how further innovati on and stability can strengthen its impact on the economy. Mobile money is widespread in Somalia: almost three-quarters of the populati on aged 16 and older use it on a regular basis. Mobile money is now the main transacti on instrument used by both individuals and businesses in Somalia: presenti ng an opportunity to increase access to fi nance, spur inclusive growth, and promote resilient communiti es. However, with increasing dependence on mobile money as a medium of exchange comes increased vulnerabiliti es. If Somalia is to ensure mobile money contributes vely to economic recovery, smart regulati positi on will be needed to address the risk and vulnerabiliti es of the system and to promote competi on and innovati ti on. This report comes at a ti me when Somalia is recovering from a devastati ng drought which plunged over on into extreme need. Inclusive access to fi half the populati al element of Somalia’s nance is an essenti Recovery and Resilience Framework. The World Bank’s hope is that this issue will be an important element of the forthcoming 4-year Country Partnership Framework for Somalia. I look forward to parti cipati ng in the discussions on this editi on of the Somalia Economic Update. Bella Bird World Bank Country Director for Tanzania, Burundi, Malawi and Somalia August 2 0 1 8 | Edition No. 3 iii ArAr Waxaa ii farxad ah inaan soo bandhigo qoraalkii saddexaad ee warbixinaha isku xig xiga ee Baanka Aduunku ka soo saaray dhaqaalaha Somaaliya. warbixintaani waxaa wada diyaariyey la hawl galayaan Soomaaliyed, iyadoo ujeedadu tahay in wax lagu biiriyo dejinta siyaasadda dawladda eek u aadan dibu habaynta qaran ee la xiriirta arrimaha dhaqaalaha. waxaan si khaas ah ugu mahad celinaynaa axsaabteena qaaliga ah ee wasaaradda Maaliyadda iyo wasaaradda QOhsaynta, maal gashiga iyo horumarinta dhaqaalaha, kuywaasoo bixiyey h agis iyo wax ku kordhin muhiim ah hanaankii loo maray soo saarista warbixintaan. Warbixintaan ugu danbaysay ee la xiriirta dhaqaalaha Soomaaliya waxay xoogga saaraysaa hanaanka lacagaha ee taleefoonada gacanta loo adeegsado, sida loogu isti cmaalo dhaqaalaha, siday u caawiso adeegyada dhaqaalaha io dibu habaynta, saamaynta ay ku leedahay xasilinta dhaqaalaha. Lacagaha taleefonada gacanta lagu isti cmaalo waa kuwo si balaaran uga jira guud ahaan Soomaaliya; qiyaasta saddex meelood dadka ay da’doodu ka weyntahay 16 sano si joogto ah ayey u isti cmaalaan. adeegsiga lacagaha taleefoonada gacanta la isugu daro waa habka ugu wyn ee lacagaha la isugu gudbiyo markay noqoto mid qof loo dirayo ama wax is dhaafsiga ganacsiga Soomaaliya. wuxuu muujiyey fursado sii kordhayo oo lagu gaarayo dhaqaalaha, dariiq koboc iyo kor u qaadis uu ku sameeyey adkaysiga bulshada. Sidaa darted, iyadoo ay sii kordhayso ku ti irsanaanta lacagaha telefoonada gacanta la isugu diro uuna xudun u noqday habka dhexe ee isku bedelka iyo sarifk a haddana waxay taasi kordhisay nuglaanshaha, haddii Soomaaliya ay xaqiijiso in hababka lacagaha taleefoonada la isugu diro noqdaan kuwo bed qaba, si wanaagsanna loo isti cmaalo waxay talaabo wanaagsan u tahay soo kabashada dhaqaalaha wadanka, hab saxan oo loo adeegsado ayaana loo grado baahan yahay si loo xaliyo khataraha iyo dayaca adeegsiga habkaani leeyahay iyo kor u qaadista fi cusub iyo tartan furan oo uu yeesho suuqaani. Warbixintaani waxay soo baxday mar Soomaaliya ay ka soo kabanayso abaar si daran u burburisay, taasoo ku riixday kala bar dadka Soomaaliyeed inay noqdaan kuwo qaba baahi daran. waxaa intaas dheer in la maal geliyo waxay tahay arrin lagama maarmaan u ah soo kabashada iyo habka isku xiran ee soo kabashada iyo adkaysiga Soomaaliya. Baanka aduunku wuxuu rajaynayaa in arrintaai ay tahay mid lagama maarmaan u difcadda sanadka afraad ee habka isku xiran ee la hawl galayaasha Soomaaliya. waxaan rajaynayaa inaad ka soo qayb gashaan doodaha ku aadan qoraalka ugu danbeeyey ee looga waramayo dhaqaalaha Soomaaliya. Bella Bird Agaasimah Bangiga Aduunka ee wadamada Tansaaniya, Burundi, Malawi iyo Soomaaliya. iv S om a l i a Eco n om i c Update • 2018 EXECUTIVE SUMMARY Part 1: Recent Economic Developments Growth in recent years has not been sufficient to and Outlook: reduce poverty. Between 2013 and 2017, real GDP Somalia’s economy grew by an estimated 2.3 grew by an average of 2.5 percent while population percent in 2017, reflecting the severe impact of the grew by 2.9 percent a year. The result was a 2016/7 drought on agriculture. The drought caused contraction of per capita GDP of 0.3 percent a year. enormous losses in livestock and crop production This performance is significantly below the average and led to food insecurity that affected more than 6 for fragile countries, Sub-Saharan Africa, and low- million people in 17 of 18 regions of Somalia. With income countries. Growth remains too low to the help of the international community, Somalia provide enough jobs for the expanding labor force, narrowly averted widespread famine in 2017. But particularly young people. In 2016 half of all Somalia economic losses are estimated at $1.7 billion1. lived in poverty, and almost a third lived in extreme poverty. In Somaliland, where comparable data are Modest economic growth in 2017 was supported available, the incidence of poverty remained high by private consumption on the demand side and between 2013 and 2016, falling only slightly, from by the services sector on the supply side. Large 69 percent to 64 percent in rural areas and from 57 remittance inflows facilitated private consumption. percent to 52 percent in urban areas. On the supply side, anecdotal evidence suggests that the main sources of growth were construction, Implementation of fiscal policy by the Federal telecommunications, and money transfer services. Government of Somalia (FGS) improved markedly The services sector—particularly telecommunication in 2017. Domestic revenue mobilization increased, and mobile money—has been a vibrant and vital budgets became more realistic, and execution of enabler of economic growth in Somalia. the budget improved. These developments should allow Somalia to build the fiscal buffers that allow The manufacturing sector remains sluggish, as both the government to start providing meaningful the difficult security environment and the harsh service delivery to citizens. On the revenue side, the business environment limit private investment in government, with support from the International the sector. Somalia ranked last in the 2017 Doing Monetary Fund’s Staff Monitored Program (SMP), Business ratings. A big part of the problem is related continued efforts to broaden the tax base, enhance to electricity, which ranges between $0.50 and $1.00 compliance, and reduce wasteful expenditures. As a per kilowatt hour depending on the city and area, is result, revenues increased from $113 million in 2016 highly restrictive, leading to access at rates among to $143 million in 2017 to $42 million in the first the lowest in the world. quarter of 2018. On the expenditure side, improving the efficiency of public spending and service delivery The drought led to an uptick in inflation. Average is a priority. Consumer Price Index (CPI) inflation increased from –1.1 percent in 2016 to 3.4 percent in 2017. Food Sustaining progress on both revenue collection inflation was 6.8 percent in April 2018, up from –0.7 and expenditure management is critical if the percent in 2016. Food price inflation accounted for government is to expand the provision of public 51 percent of the increase, followed by housing, services and support inclusive growth. Priority policy water, and electricity, which together contributed areas to foster inclusive growth include programs another 38 percent. financing essential services to reduce infant and August 2 0 1 8 | Edition No. 3 v Executive Summary maternal mortality, initiatives to increase enrollment deficit to increase, as livestock exports declined rates at all levels of education and close primary and and food imports increased. Exports decreased secondary enrollment gaps, and efforts to increase from 15.1 percent of GDP in 2016 to 14.5 percent the availability of clean water and sanitation. The in 2017; imports increased from 61.9 percent of financing of infrastructure and improvements in the GDP to 69.6 percent over the same period. The business environment would also help support new drought devastated livestock exports. The volume firm entry and boost opportunities for employment. of live animal exports—Somalia’s largest export, Monetary policy is limited, because the economy accounting for more than 70 percent of export continues to be highly dollarized. The Somali earnings—declined by 75 percent, from 5.3 million shilling—which is used only for small, face-to-face animals in 2015 to 1.3 million in 2017. Imports transactions—has been relatively stable since 2012, increased, driven partly by increases in food imports exchanging at 23,539 to the U.S. dollar in December in response to the drought. 2017. Multiple currencies, including airtime, are used as mediums of exchange. In addition to the The current account deficit increased from 6.3 Somali shilling and the U.S. dollar, Somalis regularly percent of GDP in 2016 to 7.4 percent of GDP in use the currencies of Djibouti, Ethiopia, and Kenya 2017. Remittances and official grants combined as mediums of exchange in border areas. increased by 7.9 percent of GDP. The trade deficit increased by 9.0 percent, increasing the current Somalia has been working on currency reform account deficit by about 1 percentage point. Foreign under the SMP. The authorities have set currency direct investment (FDI) financed about 70 percent of reform as one of their highest priorities. Phase 1 the current account deficit, indicating an enormous of the currency reform will involve the mopping potential in Somalia. up of existing small denomination Somali shillings in circulation with the new currency issued by the Economic Outlook: Central Bank of Somalia (CBS). After strengthening its GDP growth is projected at 3–4 percent over 2018– institutional capacity and developing independent 20. This outlook is predicated on the maintenance monetary policy instruments and of the security gains achieved so reserve management guidelines, far; recovery of agricultural output, the CBS plans to introduce new as weather conditions improve; Achieving higher Somali shilling banknotes, including gradually improving private growth will require larger denominations, as Phase 2. investment; continued support by an acceleration of Introduction of the new banknotes development partners; and improved structural reforms, will mark the first time the CBS will revenue collection. The outlook also particularly in fiscal have issued currency since 1991. presupposes that Somalia’s livestock policy and public The move will help the authorities financial management, sector continues to recover from end counterfeiting. The authorities the provision of basic the effects of the drought through are also working on fostering restocking. services to promote financial development, inclusion, human development. and stability while strengthening Achieving higher growth will require compliance with AML / CTF regulations: anti-money an acceleration of structural reforms, particularly laundering and combating the financing of terrorism. in fiscal policy and public financial management, the provision of basic services to promote human The 2017 drought deteriorated the trade balance development and inclusion, and improved by about 9 percent of GDP. It caused the trade agriculture sector resilience to weather shocks. vi S om a l i a Eco n om i c Update • 2018 Executive Summary Somalia needs to continue to build the fiscal buffers Higher oil prices in 2018 and beyond could hurt needed to provide basic services to its people. Somalia’s economic prospects. Oil prices could rise Continued efforts to broaden the tax base, enhance to more than $60 a barrel in 2018–19, a 20 percent compliance, and reduce wasteful expenditures increase over 2017. Such increases could increase would increase the resources available to help meet Somalia’s import bill, worsen its external imbalance, basic needs, including in health, sanitation and water and weaken private consumption, darkening the delivery, and education (See Somalia Economic growth outlook. Update Volume 2: “Mobilizing Domestic Revenue to Rebuild Somalia”.) Improving the efficiency of The risks associated with reforms delays are high. public spending and service delivery is a priority The economic reforms to unlock inclusive growth on the expenditure side. More efficient spending may be delayed because of political contestation, could be achieved by containing the large public mistrust among political leaders and fragmentation wage bills that crowd out other critical components among different levels of government – each of of public expenditure. which could undermine/distract reformers. Likewise, institutional Given the frequency of droughts and capacity to implement reforms, and floods, improving agriculture sector Insecurity in Mogadishu ensure compliance remains weak. resilience must remain a central and southern Somalia These risks – which are manifested element of Somalia’s growth and continues to pose on a cyclical basis, but with varying poverty reduction agenda. Efforts significant risks to degrees of severity – can undermine must include irrigation; better water economic activity in the important gains, and at worst can management, land management, medium term. destabilize Somalia’s fragile political and environmental protection; and settlement. In turn, a slowdown on improved agricultural technology and extension the reform path could delay the normalization of services (These issues among others are addressed Somalia’s relations with the International Financial in the Country Economic Memorandum – Institutions (IFIs) through the Heavily Indebted Agriculture Report – published in 2018). Poor Countries (HIPC) process, which in turn would delay Somalia’s access to IDA and critical national Risks to the Outlook: investments. Key risks to medium-term growth prospects include security concerns, higher oil prices, delays Part 2: Mobile Money in Somalia: in implementing structural reforms, and political Mobile money has become an essential and and policy uncertainty. Insecurity in Mogadishu and widespread part of Somalia’s economic eco-system. southern Somalia continues to pose significant risks Almost three-quarters of the population 16 and to economic activity in the medium term. The FGS is older (73 percent) use mobile money. Penetration restructuring its security forces to improve security rates are highest in urban areas (83 percent) and in Mogadishu and working with Federal Member camps for internally displaced people (72 percent). States to enhance stability across the country. Al- But even in rural areas, 55 percent of the population Shabaab retains its ability to launch deadly strikes uses mobile money2. Mobile money is now the main against the government and AMISOM, constraining transaction instrument used by both individuals and donor activity, and diminishing prospects for FDI and businesses in Somalia. About 36 percent of GDP other investment. flows through mobile money systems. Mobile money balances are arguably the main monetary asset in Somalia. The value of mobile money transactions in Somalia is estimated at $2.7 billion a month. August 2 0 1 8 | Edition No. 3 vii Executive Summary Mobile money services occupy multiple roles within to economic recovery, regulation is needed to Somalia’s financial ecosystem. Mobile money is the address concerns and uncertainties about risk main channel for accessing financial services. The and vulnerabilities of the system and promote demand for digital money has arisen largely from lack greater competition and innovation. Safeguarding of faith in the Somali shilling, the difficulty of using the system’s stability and tackling possible U.S. dollars for low-value transactions, and the low macroeconomic effects associated with disruption transaction costs and ease of use of mobile money to mobile money platforms (such as sudden or services. In the streets of Mogadishu and elsewhere, unexpected contraction of the money supply) should the exchange of goods and services is done largely be a major priority. A major concern for policymakers through mobile money, even for small transactions. and regulators is how to introduce mobile money Reducing the burden of cash provides freedom regulation in a smart way that removes the “cliff- of movement and a sense of security while doing edge” associated with new supervision and regulatory business or carrying out day-to-day transactions. frameworks. Introducing regulation gradually would Unlike elsewhere in Africa, balances on mobile also strengthen compliance and reduce potential money wallets tend to be held rather than cashed disruptions to mobile money services as better out, because mobile money substitutes for the platforms and systems are implemented. lack of a formal banking sector. Mobile money is trusted despite the fragile status of the country Innovation in mobile money services can be and the nascent development of its institutions. promoted most effectively through a “regulatory sandbox” approach linked to Somalia is ahead of many other capacity development at the CBS. developing countries in its use of The regulatory sandbox approach mobile money. In other African A phased-in approach is where the regulator allows countries, mobile network operators to regulating mobile providers to ignore some or all legal are still thinking about how to money would mitigate requirements in order to experiment incentivize customers to maintain risks and give both the with and test new products and balances in their mobile money regulator and regulated business models. The sandbox is a wallets. In Somalia operators have time to implement learning tool that informs the process already partnered with local retailers policies and systems. of refining products or business and merchants to ensure smooth models and crafting regulatory policy. digital exchanges, even for low-value transactions. Capacity building includes increasing regulatory and analytical capacity to examine experiments and pilot Mobile money presents a major opportunity to help programs associated with the regulatory sandbox. increase access to finance, spur inclusive growth, Lessons learned can be used to set the foundation and promote the resilience of communities. The for more sophisticated innovations that expand the use of digital payment also improves efficiency, base of digital financial products and attract new by increasing the speed of transactions, lowering investors while safeguarding financial stability. transaction costs, ensuring security of payments, and providing a safe way to save. A phased-in approach to regulating mobile money would mitigate risks and give both the regulator and However, a high level of dependence on mobile regulated time to implement policies and systems. money increases vulnerabilities in the absence It would also strengthen compliance and financial of appropriate regulation. To maximize the inclusion, as mobile money service providers opportunities for mobile money to contribute implement better platforms and systems. These viii S om a l i a Eco n om i c Update • 2018 Executive Summary systems cannot operate in a vacuum. For example, foundational infrastructure. Capacity building an effective identification system would help includes building regulatory and analytical capacity narrow the significant financing gap in Somalia to examine the financial health of mobile network and address de-risking issues. Better mobile operators and perform risk-based supervision. money regulation and a robust identification Infrastructure improvements include putting in system are closely connected and need to be place a system that ensures parity between offline developed in parallel. and online credit, as well as a core banking system, an interbank payment, and clearing and settlement Investments in better regulation can be effective system. These changes would set the foundation for only if they are tied with capacity development more sophisticated innovations that would expand at the CBS and the National Communications the base of digital financial products and attract new Authority (which regulates the sector) and enabling investors in Somalia. Section endnotes 1 World, and FAO (Food and Agriculture Organization). 2018. Rebuilding Resilient and Sustainable Agriculture in Somalia. Washington, DC. 2 World Bank. 2017a. Mobile Money Ecosystem in Somalia: Household Survey and Market Analysis. Washington, DC. August 2 0 1 8 | Edition No. 3 ix Nuxurka Soo Koobidda Qaybta 1: Muqaalka guud iyo kobaca dhaqaalaha waxayna keentay wadanka lagu tusmeeyo inuu ee wakhtiyadaan danbe yahay kan ugu hooseeya heerka ganacsiga Qiyaasta la sameeyey, waxaa dhaqaalaha dunida inteeda kale. Soomaaliya kobcay 2.3% sanadkii 2017, iyadoo ay saamaysay dhinacyada beeraha iyo xoolaha abaartii Abaartu waxay sababtay sicir barar. Cel celis ahaan darayd ee 2016 iyo 2017. Abaartu waxay keentay qiimaha macsiiha ascaarta waxay kor uga soo bur bur xoogan oo soo gaaray xoolaha nool kacday 1.1 oo ay ahayd 2016, iyadoo korortay iyo wax soo saarkii dalagyada, waxayna taasi 3.4 % sanadkii 2017. qiimaha cuntada ayaa kor sababtay cunno yaraan saamaysay dad ka badan u kacay 6.8% bishii Abriil 2018, iyadoo qiimaha 6 milyan oo qof oo ku nool 17 ka mid ah 18ka cuntada uu kor uga soo kacay 2016 oo uu ahaa gobo lee wadanka Soomaaliya. Iyadoo gacan 0.7%, isagoona gaaray 51% kor u kac, iyadoo ay laga helayo bulshada caalamka, Soomaaliya raacaan sidoo kale qiimo koror ku yimid kirada waxay ka baaqsatay inay ku dhacdo macaluun guyaha, biyaha iyo korantada, oo ay ku kordheen daran sanadkii 2017. Laakiin burburka dhaqaale Iyana 38% ee abaartaas ka dhashay waxaa lagu qiyaasay aduun gaaraya 1.7 bilyan oo dollar. Kororka dhaqaalaha ee dhowanahan jiray ma ahan mid ku filan inuu yareeyo saboolnimada. Intii u Dhaqaale kororka ugu danbeeyey ee 2017 waxaa dhaxaysay 2013 ilaa 2017, kororka dhaqaalaha tageeray isticmaalka gaarka ah ee aadan dhinacyada wax soo saar ee wadanka cel celis ahaan wuxuu baahiyaha, taasoo ay bixinayaan qaybaha wax ahaa 2.5%, halka kororka tirade dadku sanadkii soo diraya. Si balaaran dhaqaalaha ka soo gala ahayd 2.9%. Tani waxay tilmaamaysa in qofkiiba adeegyada xawaaladaha oo si gaar ah dadku u kororka dhaqaalaha eek u aadayaa uu yahay isticmaalaan. Dhinaca bixinta, waxay warbixintu 0.3 sanadkii. soo bandhigistaan waxay aad uga cadaynaysa in isha ugu weyn ee kororka hoosaysa cel celiska wadamada ka hooseeya dhaqaaluhu galay ahayd qaybaha dhismaha, is saxaaraha afrika ee iyagu aadka u nugul iyo gaarsiinta iyo adeegyada xawaaladaha lacagta. wadamada kale ee dakhliga dadkooda soo gala Adeegyada isgaarsiinta iyo lacagaha taleefonada hooseeyo. kororka dhaqaalaha ayaa weli ah mid gacanta ayaana ahaa kuwa sida rasmiga ah u aad u hooseeya si ay u abuurmaan shaqoyinka fududeeyey kororka dhaqaalaha Soomaaliya. ay helaan xoogga shaqayn kara ee wadanka, gaar ahaan dhalinyarada. sanadkii 2016 kala Dhinaca warshadaha isagu weli waa mid aan jirin, bar dadka Soomaaliyeed waxay ahaayeen iyadoo ay jiraan dhibaatooyin amaan iyo duruufo kuwo ku nool saboolnimo, iyadoo saddex laba dible u xiray maal gashiga dhinaca ganacsiga meelood ay ahaayeen kuwo saboolnimadoodu gaarka looo leeyahay. Soomaaliya waxay sii daran tahay. Dhinaca Soomaaliland, oo kaalinta ugu danbaysa ka gashay dunida heerka xogta laga helay la is barbardhigi karo, heerka ganacsiga marka loo eego dunida inteeda kale saboolnimadu waa weli waa mid aad u koraysa sanadkii 2017. Dhibaatada ugu weyn waxaa marka la eego xogta laga helayo intii u dhaxaysay qayb ka ah arrimaha la xiriira korantada, taasoo 2013 ilaa 2016, iyadoo hoos u dhaceedu aad u qiimaheedu aad u sareyo iyadoo 1 kw uu yahay yaryahay, waxayna ahayd 69% halka ay hoos ugu qiimahiisu 0.50 ilaa 1 dollar, iyadoona ay ku xiran soo degtay 64% meelaha miyiga iyo 57% oo ay tahay saacadda iyo magaalada aad joogo oo ahayd meelaha magaalooyinka hoosna ay ugu qiimo ahaan ay u kala duwan yihiin, arrintaani si soo degtay 52%. weyn ayey ganacsigii inuu hormaro u xanibtay, x S om a l i a Eco n om i c Update • 2018 Nuxurka Soo Koobidda Fulinta siyaasad cad oo ay la timid Dawladda duruufo keeni kara in la ganacsado ayaa sidoo Federaalka Soomaaliya ayaa keenay waxoogaa kale caawin kara in shirkado cusubi soo galaan hormar ah sanadkii 2017. Waxaa kordhay iyo fursadaha kor u qaadaya shaqaalaynta. dhaqaalaha ka soo xerooda canshuuraha gudaha, miisaaniyaduna waxay noqotay Siyaasadaha ku aadan lacagta waa kuwo aad u mid xaqiiq ahaan la isku halayn karo, iyadoo xadidan, maxaa yeelay dhaqaalaha wadanku weli sar goynta miisaaniyadda la hor mariyey. waa mid ku salaysan hanaanka dollarka oo ah Horumaradaani waxay siinayaan Soomaaliya lacagta la isticmalayo. Shillinka Soomaaliya ayaa fursad ay ku dhisi karto hanaan wanaagsan oo isagu ah keliya mid si aad u yar oo xadidan u ogolaanayana dawladda inay bilowdo bixinta loo isticmaalo, hanaanka isku bedelka shilinka adeegyada muhiimka ah ee muwaadiniintu ay iyo dollarkuna wuxuu ahaa mid ah cagajiid u bahan yihiin. dhinaca canshuuraha, dawladdu iska ahaa tan iyo 2012, waxbadanna aysan oo taageero ka helaysa hay’adda lacagta iska bedelin, heerka sarifku wuxuu ahaa halkii aduunka ee IMF, barnaamijkeeda la socoshada dollar in lagu sarifo 23,539 kun oo shilliin bishii barnaamijyada dhaqaalaha ee shaqaalaha Diiseembar 2017. sidoo kale waxaa jira lacago (SMP), iyadoo ay sii socdaan dadaalada salka kale oo isticmaalo, waxaa ka mid ah lacagaha loogu dhigayo canshuuraha, fulinta hanaanka taleefonada ku hadal ahaan loogu shubto iyo yaraynta kharashaadka sida macno darada oo sarifka dollarka loo adeegsado. waxaa ka leh u baxa. Waxay keentay inay kordhaan baxsan Shillin Soomaaliga iyo Dollar lacagaha dhaqaalaha ka soo xeroonaya canshuuraha, kale ee kala ah Jabuutiyaanka, Itoobiyaanka iyado dhaqaalaha la helayey markii hore ay iyo Kenyaanka oo iyagana si joogto ah loogu ahayd $113 milyan 2016, waxayna noqotay isticmaalo sarifka shillinka goobaha xuduudaha $143 milyan 2017, iyadoo kor u sii kacday ee wadamadaani Soomaaliya kala leeyihiin. $42 milyan rubacii hore ee sanadkaan 2018. dhinaca kharashaad, waxaa la hor mariyey in si Soomaaliya waxay ka shaqaynaysay dib u qaabaynta wax tar leh loo kharash gareeyo dhaqaalaha ku lacagta, barnaamijkaas oo hoos imanayayey baxaya dawladda iyo qoondaynta adeegyada barnaamijka Baanka Aduunku leeyahay ee SMP. la bixinayo. Maamuladdu waxay siiyeen ahmiyad weyn sidii dib u habayn loogu samayn lahaa lacagtaa. Joogtaynta horumarka la gaaray ee dhinacyada Wejigii 1 ee dibu habaynta lacagta waxaa canshuur ururinta iyo maamulka wax ku oolka ah xoogga lagu saaray sidii loo hagaajin lahaa ee lagu sameeyey kharashaadka baxaya, haddii shillinka tirade yar ee duqoobay ee suuqa ku dawladdu ay sii waddo waxay kordhinaysa wax jira, kaasoo adeegsigiisa hab wareegna uu aad qabadka ku aadan adeegyada ay bixinayso iyo u yaryahay, iyadoo lagu bedelayo lacag cusub oo taageero rasmiya oo dhinaca kororka dhaqaalaha Baanka Dhexe ee Soomaaliya soo saaro. Marka ku yimaadda. Muhiimad siinta meelaha ay tahay la xoojiyo awoodda hay’adda maamula iyo in dhaqaalaha laga kobiciyo oo ay ku jiraan horumarinta siyaasad madax banana oo lacagta barnaamijyada u baahan maaliyadda si loo ah iyo dejinta dariiqyo cad oo dhinaca maamulka yareeyo dhimashada hooyada uurka leh iyo ah, Qorshayaasha Baanka Dhexe ee Soomaaliya dhallaanka, kordhinta heerarka waxbarashada ee uu ku soo saarayo lacag cusub oo shillin iyo yaraynta farqiga daran ee ka jira diwaan Soomaali ah, wejiga 2aadna waxay noqonaysaa gelinta waxbarashada dugsiyada hoose iyo sare, inuu si balaaran isagu u maamulo. Soo saarista sidoo kale dadaalada ku aadan sidii lagu heli lacago cusub waxay ka dhigaysaa in Baanka lahaa biyo nadiif ah iyo wanaajinta saxada. Maal Dhexe ee Soomaaliya uu markii ugu horaysay gelinta kaabayaasha dhaqaalaha iyo horumarinta lacag uu isagu maamul soo saaro tan iyo 1991. August 2 0 1 8 | Edition No. 3 xi Nuxurka Soo Koobidda Arrintaani waxay caawin doontaa dhamaynta dibadda (FDI) ayaa keenay maaliyad dhan 70%, iska hor imaadka maamula. Maamuladu sidoo tanoo tilmaamaysa in Soomaaliya leedahay kale waxaa u sahlanaan doonta inay kuwada muhiimad dhaqaale. shaqeeyaan qorshe hrouamrinta dhaqaale, dejin iyo hanaan xoojinaya oo hagaya sharciyada Milicsiga Dhaqaalaha AML/CTF; ka hortagga isdaba marinta dhinaca Koroda dhaqaalaha wax soo saarka guud ee lacagta iyo soo afjaridda lacagaha loo isticmaalo wadanaka (GDP) wuxuu muujinayaa 3 ilaa 4 % cel argagixisanimada. celis ahaan sanahada 2018 ilaa 2020. Milicsigaani wuxuu tilmaamayaa in la gaaray xasilooni Abaartii 2017 waxay uga sii dartay isu miisaanka dhinaca amaanka ah. soo kabashada wax ganacsiga ee dhinaca dakhliga wax soo saarka guud soo saarka beeraha, horumarinta xaaladaha ee wadanka 9%. Waxay keentay in ganacsigu uusan cimilada, horumarinta maal gashiga gaarka loo kordhina, iyadoo dhoofka xoolaha la joojiyey leyahay; taageerada socota ee la hawl galayaasha iyo iyadoo xadiga cunada la soo dejinayaa ay dhinaca horumarinta iyo horumarinta ururinta korortay. Waxaa yaraaday wax dhoofintii iyadoo canshuuraha gudaha. milicsigu wuxuu ahayd 15.1 wax soo saarka guud ee wadanka tilmamayaa sidoo kale in xoolaha Soomaaliya sanadkii 2016, halka ay ka noqotay 14.5% ay noqonayaan kuwo ka soo kabta dhibaatadii sanadkii 2017, alaabooyinka wadanku dibadda abaartu ku reebtay, ayna markale noqonayaan ka soo dhoofsanayo ayaa kordhay, iyadoo horay kuwo la suuq geyn karo. uga ahayd wax soo saarka guud ee wadanka 61.9%, waxayna gartay 69.6% isla wakhtigaan In la gaaro koror dhaqaale oo balaaran waxay u aan kor ku soo sheegnay. Abaartu sidoo kale bahan doontaa in si baahsan loo sameeyo dibu waxay baabi’isay dhoofkii xoolaha. Waxayna qaabayn xoog leh, khaas ahaan siyaasadda lacagta yaraysay tayadii xoolaha la dhoofin kari lahaa iyo maamulka maaliyadeed ee dawladda, hanaan 75%, xoolaha ayaana ahaa udub dhexeedka iyo maamul wanaag oo sal u noqda adeegyada si kor sheyga ugu balaaran ee Soomaaliya ay dibadda loogu qaado horumarinta dadka iyo wax qabadka iyo u dhoofiso, iyagoo ahaa 70% waxa soomaaliya in la horumariyo qaybaha xoolaha iyo beeraha si ay dibadda u dhoofiso, waxayna hoos u dhaceen adkaysi ugu yeeshaan dhibaatooyinka uga imanaya 75%, sanadkii 2015 Soomaaliya waxay dhoofin dhinaca cimilada. jirtay 5.3 milyan oo neef oo xoolo ah sanadkii, waxayna sanadkii 2017 hoos ugu soo dhaceen Soomaaliya waxay u bahan tahay inay sii xoolaha wadanku dhoofiyo 1.3 milyan oo neef. waddo inay dhisto hanaan adkaysi dhaqaale si Waxaa kordhay waxa la soo dejinayo, waxay kor ay u bixiso adeegyada aasaasiga ah oo ay siiso u qaaday qayb ahaan cunooyinka la soo dejinayo dadkeeda. Dadaalada socoda ee ay salka u si jawaab loogu helo abaarta. yihiin canshuuraha, u hogaansanka sharciga iyo yaraynta kharashaadka dawladda waxay kordhin Xaddiga wakhtigaan jira ee dhinaca kororka karaa dakhliga la heli karo si loo helo gaaritaan ah wuxuu ka soo kacay 6.3% dakhliga guud ee dhab ah oo wax looga qabanayo baahiyaha wadanka sanadkii 2016 isagoo gaaray 7.4% dakhliga aasaasiga ah ee dadka oo ay ka mid yihiin guud ee wadanku sanadki 2017. Xawaaladaha caafimaadka, saxada, biyaha iyo waxbarashada iyo dhaqaalaha rasmiga ah ee loogu deeqay (fiiri Warbixintii ugu danbaysay ee dhaqaalaha wadanka ayaana keenay kor u kaca dhaqaalaha Somaaliya ee tirsigeedu yahay 2 oo sheegaysay wax soo saarka guud ee wadanka 7.9%. Ganacsiga “Hagaajintsa canshuuraha gudaha si dib loogu ayaa isna kordhay 9.0%, tanoo ka dhigaysa in dhiso Soomaaliya”). Horumarinta kharashaadka kororkiisu yahay 1%. Maal gashiga tooska ah ee ku baxa dawladda iyo adeegyada ay bixinayso xii S om a l i a Eco n om i c Update • 2018 Nuxurka Soo Koobidda oo lagu jaan gooyo kharashaadka la bixinayo. Qiimaha shidaalka ee aadka u sareeya 2018 iyo Si balaaran oo loo adeegsado maaraynta ka horba wuxuu si xun u dhaawacay rajadii koror kharashaadka la bixinayo waxaa lagu gaari ee dhaqaalaha Soomaaliya. Qiimaha shidaalku karaa in lagu joogteeyo kharashaadka dawladda waa la filayaa inuu kor uga sii kaco wax ka ku baxa qaybaha muhiimka ah ee u bahan badan $60 foosatadii inta u dhaxaysa 2018 ilaa kharashaadka dawladda. 2019, wuxuuna kor u kacay 20% sanadkii 2017. Kororkaan wuxuu Soomaaliya ku sii kordhinayaa Iyadoo wax laga qabanayo abaaraha iyo daadadka kharashaadka uga baxa wax soo dejinta, wuxuuna joogtada ah, horumarinta adkaysiga xoolaha adkaynayaa isu miisaanka dibadda, wuxuu iyo beeraha Iyana inay ahaadaan qodobka udub tamar tirayaa adeegyada gaarka loo leeyahay, dhexaadka u ah kororka dhaqaalaha iyo qorshaha isagoona mugdi ku sii ridaya muuqaalka guud ee lagu yaraynayo saboolnimada Soomaaliya. kororka dhaqaalaha Soomaaliya. Dadaalada waa inay ku jiraan hanaanka waraabka, hab wanaagsan oo maamulka biyaha, Khataraha ku hareeraysan dibu qaabaynta waa dhulka iyo ilaalinta deegaanka ah; iyo sidoo kale kuwo Iyana sareeya. Dibu qaabaynta dhaqaalaha horumarinta farsamada casriga ah ee beeraha si dabarka looga furo xanibaadyada haysta iyo xoolaha, iyo hanaanka fidinkta beeraha kororka dhaqaalaha ayaa u muuqdo kuwo dibu (Arrimahaan iyo kuwo kaleba waxaa lagu xalin dhac ku imanaya, sababo la xiriiraa arrimaha karaa hanaanka qorshaysan ee dhaqaalaha siyaasadda, is aamin daridda ka dhex taagan wadanka ee ay tilmaantay warbixintii beeraha hogaamiyayaasha siyaasadda iyo isku dhacyada iyo xoolaha ee la daabacay 2018). ka dhex taagan heerarka kala duwan ee dawladda, midkasta oo arrimahaan ka mid ahi Milicsiga Khataraha waxay laba dible u xiraysaa dadkii dibu habaynta Khataraha wakhtiga dhexe ee ku hareeraysan samayn lahaa. Waxaa intaas dheer, tayada kororka dhaqaalaha waxaa ugu weyn amaanka, hay’addaha maamul si loo fuliyo dibu habayn qiimaha aadka u sareeya ee shigaalka, dib u iyo in la xaqiijiyo u hogaansanka oo noqdo mid dhaca ku imanaya fulinta dib u habaynta qaab tamar daran. Khatarahaani, waa kuwo si joogto ah ugu xayndaaban, laakiin waxaa jiri karta dhismeedka, siyaasadda iyo hubanti la’aanta fursado lagu goyn karo dabarkaas, waxaana lagu siyaasadda. Sii socosahda amaan daradda ka gaari karaa talaabooyin muhiim ah, waxayna taagan Muqdisho iyo gobollada koonfurta waxay sii jiritaankoodu noqonayaan kuwo sii kala fur keenaysaa khataro waaweyn oo ku yimaadda fura Soomaliya, meeshana ka saara xasilinta talaabooyinka uu dhaqaaluhu ku kobcayo siyaasadda haddaba cagaha badan aan ku xilliga dhexe. Dawladda Federaalka Soomaaliya taagnayn. Dibu dhaca ku imanaya dibu habaynta waa inay dib u dhistaa xoogageeda amaanka waxay dib u dhigayaan in ay sii murjiyaan in si loo wanaajiyo amaanka Muqdisho iyo wada Soomaaliya markale caadi ku soo noqoto iyo shaqaynta Xubnaha Dawlad goboleedyada xiriiradii ay la samayn lahayd hay’addaha lacagta xubnaha ka ah Federaalka si loo helo deganaan aduunka, iyagoo hay’adahaasi ka shaqaynayo siyaasadeed oo ka dhacda guud ahaan wadanka. hanaan lagu caawinayo wadamada saboolka Weli ururka Alshabaab waxay awood u leeyihiin ah, Soomaaliyana ay dib uga dhici karto helista inay qaadaan weeraro dhimasho badan geysta dhaqaalaha taakulaynta ah ee dibadda iyo maal oo ay ku qaadaan dawladda iyo ciidamada nabad gashiga qaran ee muhiimka ah. ilaalinta AMISOM, waxay xanibaan hawlaha deeq bixiyayaasha iyo rajadii laga qabay maal gashi ka yimaadda dibadda iyo maal gashi kale oo wadanku helaba. August 2 0 1 8 | Edition No. 3 xiii Nuxurka Soo Koobidda Qaybta 2: Lacagaha taleefonada gacanta loo kala gudbinta lacagtu yihiin kuwo maalin kasta adeegsado ee Soomaaliya si caadi ah u socda. Si taas ka duwanse marka Lacagaha taleefonada gacanta loo isticmaalo qaaradda Afrika la eego, isu dheeli tirka lacagaha waxay noqdeen kuwo lagama maarmaan ah, kuna taleefoonada waa kuwo yar marka loo eego sii fidaya qaybaha Soomaaliya, udub dhexaadna lacagta gacanta lagu qaato, waayo lacagaha u noqday hanaanka dhaqaale ee wadanka. taleefoonadu waxay curyaamiyaan hawlihii Qiyaastii saddex meelood dadka da’doodu ka caadi ahaa ee bangiyadu qabanayeen. Hanaanka weyntahay 16 sano oo ah 73% ayaa adeegsada isticmaalka lacagta ee taleefoonada lagu diro hanaanka taleefoonada lacagah ala isugu diro. waa mid dadku aamineen iyadoo ay jirto xaalad Isticmaalku wuxuu ugu badan yahay meelaha aad u nugul oo wadanka ah iyo horumar la’aan magaalooyinka ah oo laga isticmaalo 836%, haysata hay’adihii horumarinta ee maamulka. sidoo kale xeryaha gudaha ee lagu barakacay 72% ayaa dadka ku nooli isticmalaan adeeggaan. Soomaaliya waxay hormuud ka tahay adeegsiga Laakiin dhulka miyiga ah xitaa dadka isticmaalaa isticmaalka lacagaha taleefoonada marka loo eego waa 55%. Lacagaha taleefoonada la isugu diro wadamada kale ee dunida ee soo koraya. Marka waa kuwa ugu balaaran ee hadda habka kala la eego wadamada kale ee Afrika, shirkadaha gudbinta lacagta loo isticmaalo, iyadoo loo taleefoonada gacantu weli waxay ka fekerayaan adeegsanayo qof qof iyo ganacsiba gudaha sidii ay dadka u hanaan lahaayeen si ay isugu Soomaaliya. Qiyaasta 36% dakhliga guud ee dheeli tiraan lacagaha taleefoonada iyo kuwa wadanka ayaa mara hanaanka lacagaha la isugu gacanta lagu qaato. Soomaaliyase shirkadaha diro taleefoonada. Wuxuuse hanaankaani su’aal taleefoonadu waxay mar horeba qabsadeen ka keenay hanaanka isu dheeli tirka lacagaha dhamaan gudaha tafaariiqley iyo ganacsadeba iyo hantida ee Soomaaliya. Bishiina waxaa lagu si ay u xaqiijiyaan hanaan hufan oo isku bedelka qiimeeyey lacagaha taleefonada gacanta la isugu lacaghaha ah iyadoo la marayo hanaanka gudbiyo ee Soomaaliya $2.7 bilyan bishiiba. farsamada casriga ah, welibana qiimaha lacagaha la isugu dirayo waa kuwo aad u hooseeya. Adeegyada lacagaha taleefoonada la isugu diro ee Soomaaliya waxay qabsaden doorar kala duwan oo Lacagaha taleefoonada gacantu waxay keeneen hanaanka dhaqaalaha Soomaaliya ah. Lacagaha fursado waaweyn si ay gacan uga geystaan taleefoonada la isugu diro waa kuwa ugu helitaanka maaliyadda, kor u qaadista kororka balaaran iyo adeegyada ugu weyn ee adeegyada dhaqaalaha iyo kordhinta u adkaysiga dhibaatoyinka lagu kala helo lacagta. Baahida loo qabo ee bulshadu u adkaysato. Isticmaalka hanaanka hanaan xawaare ah oobalaaran oo lacagaha casriga ah ee lacag bixinta taleefoonadu waxay ah ayaana sii kordhaya iyadoo ay dhinaca sidoo kale hormarisay waxtarka, iyadoo kor u socoto hubanti la’aan iyo aamin darro ku timid qaaday degdegga lacag isu gudbinta, qiimaha shilinkii Soomaaliga, dhibaatooyinka ka imanaya lacagta la isugu gudbinayo oo yar, xaqiijinta isticmaalka lacagta Dollarka oo si heerkoodu bedqabta meesha lacagta lagu bixinayo, iyadoo hooseeyo isugu gudubta, iyo qiimaha lacag bixisay dariiq bedqaba oo wax lagu dhigto. isu gudbinta oo yar iyo fududaynta adeegyada lacagaha taleefoonada la isugu diro. wadooyinka Sidaa darted, ku tiirsanaanta saree e lacagaha Muqdisho iyo meelaha kaleba waxaa isku taleefoonada la isugu diro waxay kordhisay bedelka badeecooyinka iyo adeegyada lagu dayacnaanta ku timid maqnaanshaha hanaan qabtaa si balaaran oo dhaq dhaqaadoodu xor sharciyeed oo rasmiya. Si loo kordhiya habka yahay, iyadoo ay jirto dareen amni daro ayaa ugu wanaagsan ee looga faa’iidaysan karo haddana ay ganacsiga ama fulinta hawlaha fursadaha ku duugan lacagaha taleefoonada xiv S om a l i a Eco n om i c Update • 2018 Nuxurka Soo Koobidda la isugu diro si ay wax ugu kordhiyaan soo qabkooda oo keenaya inay soo jiidato maal gashi kabashada dhaqaalaha, waxaa loo baahan cusub iyo bed qab dhaqaale. yahay sharciyo si wax looga abta walaacyada jira iyo khataraha aan la xaqiijin eek u xeeran Dariiqa lagu gaarayo in lagu sharciyeeyo lacagaha iyo dayacnaanta ka jirta nidaamkaa iyo kor taleefoonada waxay yaraynaysaa khataraha ku u qaadista tartar sareeya oo furan iyo dibu meeran, waxayna siinaysaa sharciyo iyo nidaamka habayntooda. Bedqabka nidaam degan oo h wakhtiyeysan si loo fuliyo siyaasado iyo nidaamyo anaankaani yeesho iyo xalinta waxyeelada ku lagu dabaqo. Sidoo kale waxay xoojin doonta timaadda hanaanka dhaqaalaha ee ka imanaysa adeegsiga iyo hanaanka dhaqaale, Shirkadaha isticmaalka lacagaha taleefoonada gacantu bixiya adeegyada taleefonada lacagah ala geysanayaan (waxyeladaan ama dhibaato ku isugu dirana ay fulin karaan nidaam qeexan timaadda lacagaha la adeegsanayo) waa inay iyo hanaan ay ku shaqeeyaan. Nidaamyadaan noqdaan muhiimadaha koowaad ee la siinayo ma yeelanayaan dul duleelo. Tusaale ahaan, arrintaan. Walaaca ugu weyn ee siyaasad Hanaan cadayn ah oo wax tar leh wuxuu caawin dejiyayaasha iyo sharci dejiyayaasha waa sidii ay karaa inuu meesha ka saaro farqiga dhaqaalaha u soo bandhigi lahaayeen sharciyo lagu dhaqo ee ka jira Soomaaliya iyo xalinta yaraynta isticmaalka lacagaha taleefoonada gacanta la arrimaha khataraha. Hanaan wanaagsan oo isugu diro oo yeesha hanaan si hufan u socda ah sharciyada lacagaha taleefoonada iyo kor si looga ilaaliyo dhibaato inay geystaan ama ay u qaadista nidaamka kala cadaynta oo la isku ku timaadd. iyadoo la fulinayo figrado cusub iyo lifaaqay waxay xoojinayaan horumarinta habab qaab dhismeed sharciyeed oo lagu dhaqo. Soo is dhinac yaal oo hormarsan. saarista sharciyo waxay si hufan u xoojinaysaa adeegsiga iyo haraynta dhibaato ku tiimaadda Maalin gelin wanaagsan oo lagu sameeyo sharciyada adeegaan m uhiimka, loona isticmaalo hab ka waxay wax tar ka dhigaysaa isku xirka tayada wanaagsan kan hadda jira iyo nidaam degsan oo horumarinteed ee Baanka Dhexe ee Soomaaliya loo meeleeyo. iyo Hay’adda qaran ee isgaarsiinta (taasoo ah sharciyada lagu dhaqayo) iyo fududaynta aasaaska Dibu habaynta adeegyada lacagaha taleefoonada kaabayaasha. Tayada dhismaha waxaa ka mid gacanta la isugu diro waxay kor u qaadi karaan ah dhismaha sharciyada iyo tayada qiimayn wax tarkooda “Sharciyada lagu haynayo” waxaa si loo fuliyo hanaan maaliyadeed oo fayo oo lagu gaari karaa awood horrumarineed oo la ay yeeshaan shirkadaha taleefoonada iyo wax siiyo Baanka Dhexe ee Soomaaliya. Sharciyada qabad ku salaysan hanaan wax tar oo sal ay u qaabkaan loo dejiyo waa kuwa u ogolanaya tahay khatarta oo la yareeyo. Kaabayaasha kuwa bixiya adeegyadaan inay iska indho tiraan, dhaqaalaha oo la hormariyo oo ay ka mid yihiin ayna buuxiyaan dhamaan sharciyada loo bahan in la meeleeyo nidaam lagu maareeyo khatarta yahay si ay ula jaan qaadaan hababka cusub si loo xaqiijiyo farqiga ka imanaya marka aaladdu ee soo baxa iyo qaybaha kale ee ganacsiga. densantahay iyo markay shidan tahay, sidoo Habkan shaxda sharci ee adeegaan lagu kale hanaanka nidaamka bangi, hanaanka isku dhaqayo wuxuu wanaajinayaan, siinayaana xirka lacag bixinta bangiyada iyo nadiifinta iyo barnaamij rasmiya oo u noqda sharciga lagu dejinta nidaamka. Isbedeladaani waxay keeni dhaqo. Casharada aan barangay ayaa loo karaan aasaas lagu sameeyo dibu habayn, isticmaali karaa in lagu dejiyo aas aas isku xiran taasii sii balaaran karta aasaaska adeegsiga oo dib loogu habeeyan si balaaran hanaan aas lacagaha telefonada lagu isticmaalo iyo inay aaas ah oo loo isticmaal farsamada casriga ah soo jiitaan maal gashadayaal cusub oo ay hesho ee isticmaalka lacagaha talefoonada iyo bed Soomaaliya. August 2 0 1 8 | Edition No. 3 xv Recent Economic Developments August 2 0 1 8 | Edition No. 3 1 Recent Economic Developments 1. recent Economic developments 1.1 growth is recovering modestly—but cantly below the 1.1 percent average per is signifi it has not dented poverty capita growth since 2010 in fragile countries and Sub-Saharan Africa countries. Not surprisingly Somalia’s economy has grown modestly in recent given this contracti on, the incidence of poverty has years, and it remains vulnerable to recurrent remained high. Half of all Somalis lived in poverty shocks. Between 2013 and 2017, real annual GDP and almost a third lived in extreme poverty in 2016.1 growth averaged 2.5 percent. Growth occurred Regional dispariti es are large, with the highest despite adverse weather conditi ons that severely incidence of poverty among internally displaced reduced agricultural output in late 2016 and early people living in sett lements, people living in rural 2017. Weather-related shocks have led to land communiti es, and nomads. degradati on, low agricultural producti vity, livestock mortality, and forced displacement, which have 1.2 real gdP growth weakened in 2017 aff ected poor communiti es and depleted their ability to cope. For Somalia to enhance and sustain The GDP estimate was revised upward in 2017, economic growth and escape chronic poverty, based on new information (Table 1.1).2 The new it must increase its resilience to shocks (These esti mate puts GDP at $6.8 billion in 2016 and issues among others are addressed in the Country $7.0 billion in 2017 (in current U.S. dollars). GDP Economic Memorandum – Agriculture Report is dominated by private household consumption published in 2018 expenditure, which represents 132 percent of national income, followed by imports (62 percent), Growth has not been sufficient to reduce poverty. exports (15 percent), and gross capital formation Annual populati on growth of 2.9 percent in 2013– (9 percent). 17 caused per capita GDP to shrink by 0.3 percent a year during this period (Figure 1.1). The contracti on The economy grew 2.3 percent in 2017, despite the severe drought, down from 4.4 percent in Figure 1.1: real gdP growth fell to just 2.3 percent in 2017 2016. The drought caused enormous economic 530 526 5.0 losses of agricultural producti on (crops, livestock, 4.4 3.9 and livestock-related products). With the help 520 518 4.0 of internati onal community, Somalia averted Real GDP growth (percent) GDP Per Capita ($) 510 511 3.0 widespread famine in 2017, but losses caused 504 2.3 large-scale food insecurity that aff ected more than 500 497 2.0 6 million people in 17 of 18 regions of Somalia and 1.4 cost the economy an esti mated $3.2 billion in losses 490 1.0 and damage1. The crops and livestock subsectors 480 0.4 0.0 accounted for 60 percent ($1.9 billion) of this loss, 2013 2014 2015 2016 2017 with livestock the worst hit. GDP Per Capita (current US$) Real GDP growth Source: Data from IMF and World Bank. Note: Per capita GDP has been declining because of higher population growth rate and depreciation of the Somali shilling 1 Poverty is defi ned by having a total daily per capita consumpti on expenditure lower than the internati onal poverty line of US$ 1.90 at 2011 PPP. Extreme poverty is defi ned by having a total daily per capita consumpti on expenditure of less than US$1.25, expressed at 2011 PPP. 2 The re-esti mati on of Somalia’s GDP was based on new, more reliable data. They include daily consumpti on per capita from the 2016 Somalia High Frequency Survey; mates of government fi esti on expenditure and public investment based on the fi nal consumpti scal accounts of the FGS and Federal Member States; import and export data from the IMF Directi sti on of Trade Stati cs; and private capital formati mates based on imports of machinery and constructi on esti on material from UN-COMTRADE mirror data. The new series are consistent with previous versions. They are presented in appendix A. 2 S om a l i a Eco n om i c Update • 2018 Recent Economic Developments Table 1.1: gdP in Somalia, 2013–16 (millions of dollars) gdP in current prices gdP in constant prices (2012 = 100) item 2013 2014 2015 2016 2013 2014 2015 2016 GDP (at market prices) 6,481 6,562 6,659 6,762 6,481 6,509 6,765 7,061 Consumpti on expenditure 8,545 8,940 9,093 9,287 8,545 8,828 9,086 9,386 Household + NPISH expenditure 8,273 8,621 8,773 8,926 8,273 8,513 8,766 9,021 Government expenditure 272 319 320 361 272 315 320 365 on Gross capital formati 555 582 566 639 555 584 582 694 Net exports of goods & services –2,618 –2,959 –3,000 –3,164 –2,618 –2,904 –2,904 –3,018 Exports of goods and services 943 945 1,038 1,020 943 932 1,021 996 Imports of goods and services 3,561 3,904 4,038 4,184 3,561 3,835 3,925 4,014 Source: Data from World Bank and IMF. Demand side business environment for private investment as On the demand side, private consumption has on, in order to be able to well as revenue collecti driven recent growth, financed by remittances nance public investment. fi from the diaspora (Figure 1.2). Real GDP growth grew by 2.9 percent year between 2013 and 2016. Supply side During the same period, private consumpti on On the supply side, services were the main expenditure grew by a weighted average of 3.7 contributor to growth. The lack of supply-side percent a year, government consumpti on by 0.5 data makes it difficult to analyze the composition percent, and private investment by 0.7 percent; net of growth in Somalia. However, it is generally exports contracted by 2.0 percent. acknowledged that services and agriculture are the main anchors. In the face of a severe drought Figure 1.2: Private consumption was the main driver of growth between 2013 and 2016 and poor agricultural performance, services— 4.0 3.7 parti cularly constructi on, telecommunicati ons, and money transfer services—supported modest Contribution to GDP 2013-16 (percent) 3.0 growth in 2017. Somalia’s mobile money sector 2.0 is vibrant. If supported by appropriate regulati on, 1.0 0.7 it has the potenti al to drive growth and increase 0.5 resilience in Somalia. (Part 2 of this Update 0.0 Private Government Investment Net examines the opportuniti es and challenges of Consumption Consumption Exports -1.0 harnessing mobile money for fi nancial inclusion and resilience in Somalia.) -2.0 -2.0 -3.0 Preliminary estimates indicate that agriculture’s Source: Data from IMF and World Bank. share of gdP is the largest it has been since before the war (Figure 1.3). Between 2013 and 2016, For a country emerging from conflict, the mated 70 percent the sector accounted for an esti investment contribution of 0.7 percent is too of GDP, up from 62 percent in 1986–882.3 Within low, highlighting the challenge of improving the agriculture, the share of the livestock subsector gures and data reported in this secti All of the fi 3 mates by the World Bank and IMF. on are based on the new GDP esti August 2 0 1 8 | Edition No. 3 3 Recent Economic Developments Figure 1.3: The share of livestock in agricultural output With favorable climatic conditions in 2018, the increased recovery in the livestock sector has begun. This is 120 key as the livestock subsector is the largest employer Share of agricultural output(percent) 100 of rural people and the most important source of export earnings. Export earnings from livestock 80 fell, as a result of both the 2016–17 drought and 60 11.4 the December 2016 Saudi ban on imports (Figure 18.3 18.1 1.4). Total animal exports dropped by more than 70 40 percent in 2017. The April – June 2018 Gu rainfall 56.8 20 43.7 37.2 was signifi cantly above average but with substanti al 0 crop losses due to fl ooding in riverine areas hence 1980 1986-88 2013-16* Livestock & livestock products Crop Production Forestry Other overall July harvest is expected to be average. Source: IMF, World Bank, and FAO 2018. September off -season Gu harvest is however expected to be above average due to increased rose from 37 percent in the prewar period to recession culti vati on opportuniti es created because about 57 percent in recent years. Dependence on of fl ooding. Livestock exports are expected to pick agriculture which is suscepti ble to climati c shocks up with Saudi ban lift ed in July 2018. has increased output variability. Livestock exports and GDP shrink during drought and recover when The manufacturing sector remains sluggish. the country receives suffi cient rainfall. This increases Private investment is limited by insecurity and poor Somalia’s vulnerability. Crop producti on declined, business conditi ons. Somalia ranked last in the to about 11 percent (down from 18 percent in the 2018 Doing Business rati ngs (Figure 1.5). It has one pre-war period), as result of the reducti on in cereal of the lowest access and most expensive electricity producti on and the collapse of some key export rates in the world (between $0.50 and $1 per products, such as bananas which was hit hard kilowatt hour). These circumstances, coupled with by several factors including prolonged civil war; security threats, have made it diffi ract cult to att adverse weather conditi ons; and loss of preferenti al private investment or the technology needed for access to European markets, among other factors. modern manufacturing. Figure 1.4: Livestock exports declined sharply in recent Figure 1.5: Somalia is at the bottom of the World Bank’s years due to Saudi ban on Somali exports and drought doing Business indicators 6.0 0 5.0 Doing Business Ranking, 2018 40 4.0 Millions of heads 110 80 3.0 150 2.0 120 160 168 1.0 190 190 187 187 186 186 160 Protecting Minority Investors Paying Taxes Starting a Business Getting Electricty Permits Dealing with Construction Getting Credit Resolving Insolvency Trading across Borders Registering Property Enforcing Contracts 0.0 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Source: Food Security and Nutrition Analysis Unit database. Source: World Bank and IFC 2017. Note: The linear trend growth in livestock exports continued till 2015. However, the Saudi Ban in 2016 and drought in 2017 precipitated a significant drop in live animal exports. 4 S om a l i a Eco n om i c Update • 2018 Recent Economic Developments 1.3 Drought led to an uptick in inflation Somalia, with the northern regions hit worst. In the first quarter of 2017, maize prices in the Central The average Consumer Price Index (CPI) inflation region rose 20 percent and sorghum prices 10 increased from –1.1 percent in 2016 to 3.4 percent percent over the level during the 2011 drought; in in 2017. Food inflation was 6.8 percent in April 2018, the Juba Valley these prices rose 9 percent and 30 up from –0.7 percent in 2016. The main driver was percent, respectively (Figure 1.7). Prices were high food prices, which accounted for 51 percent of the in Shebelle and the North-west regions, though they increase, followed by housing, water, and electricity, did not reach 2011 levels. In the North-east regions, which together contributed another 38 percent. mainly Bari, maize and sorghum prices rose more Figure 1.6: Food prices were the main source of than 50 percent. The Deyr rainy season in the fourth inflationary pressure in 2016 and 2017 quarter of 2017 brought much needed relief with 8.0 lower cereal prices recorded in most regions due 6.0 to increased supply as a result of improved cereal Monthly inflation rate (percent) production. This trend is expected to continue 4.0 throughout 2018. April to June 2018 Gu rainfall was significantly above average though flooding caused 2.0 substantial crop losses in riverine areas. 0.0 1.4 Fiscal policy improved—but challenges -2.0 remain -4.0 Overall Inflation Food Implementation of fiscal policy improved markedly Source: IMF 2018. in 2017. Domestic revenue mobilization increased, the budget was more realistic, and budget Cereal prices rose significantly during the drought. execution improved. These changes should allow Increased demand and low availability of cereals Somalia to build the fiscal buffers that will allow the led to increased prices. Locally produced sorghum government to start delivering services to citizens. and maize prices rose by different margins across Figure 1.7: Cereal prices increased during 2016–17, with the northern regions hit worst a. Average white maize prices b. Average red sorghum prices 1.40 1.40 1.20 1.20 Dollars per Kilogram Dollars per Kilogram 1.00 1.00 0.80 0.80 0.60 0.60 0.40 0.40 0.20 0.20 - - Jan -00 Aug -00 Mar -01 Oct -01 May -02 Dec -02 Jul -03 Feb -04 Sep -04 Apr -05 Nov -05 Jun -06 Jan -07 Aug -07 Mar -08 Oct -08 May -09 Dec -09 Jul -10 Feb -11 Sep -11 Apr -12 Nov -12 Jun -13 Jan -14 Aug -14 Mar -15 Oct -15 May -16 Dec -16 Jul -17 Feb -18 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Central Juba Valley Shebelle North-west North-east Central Juba Valley Shebelle North-west North-east Source: IMF 2018 and Food Security and Nutrition Analysis Unit 2018. August 2 0 1 8 | Edition No. 3 5 Recent Economic Developments Revenue performance sector, which are expected to increase revenue The government continued its efforts to broaden on in 2018. The authoriti collecti es took to a bold the tax base, enhance compliance, and improve and justi ed move to collect sales tax at source fi collection. FGS revenue collecti on improved steadily (Mogadishu port). This faced sti resistance from ff in the last fi ve years, with remarkable gains in tax-payers who refused to comply because of a 2017. Total revenue (domesti c revenue plus donor lack of sati sfactory consultati on and concerns at grants) more than doubled between 2013 and inequitable implementati on, targeti ng one port 2017, rising from $117.4 million to $246.5 million over others. A number of consultati ngs ve meeti (Figure 1.8, panel a). Domesti c revenues have with Ministry of Finance offi cials and the Prime driven increases in total revenues. The increase in Minister’s Offi ce were required to lift the stalemate. domesti c revenues was driven by implementati on Key lessons of this reform include the importance of of new revenue measures, including a sales tax on tax harmonizati on across regions of Somalia, as well telecommunicati ons and hotels, the removal of as early consultati ons. income tax exempti ons for parliamentarians, and the payment of sales tax and landing fees arrears by Trade taxes accounted for 68 percent of domestic Turkish Airlines. As a result, domesti revenue in 2017 (Figure 1.8, panel b). The second- c revenue grew 26.5 percent in a single year, soaring from $112.7 largest category is administrati ve charges and million in 2016 to $142.6 million in 2017 (Figure 1.8, fees, which accounted for 21 percent of domesti c panel a). revenue. Income and corporate taxes contributed just 2 percent. The government will need to The good revenue performance extended into the undertake legal reforms and develop the capacity first quarter of 2018, when the FGS exceeded its to exploit inland revenue, the potenti al for which target. Domesti rst quarter of 2018 is great. c revenue in the fi was $42.3 million, up 47 percent over the $28.8 million in same period in 2017. Taxes on goods and Despite progress in revenue collection, FGS services as well as sustained performance in trade revenue remains very low (2 percent of gdP), taxes, drove the improvement. The authoriti es making it difficult to provide services. Domesti c introduced a sales tax on imports (collected at the revenue stood at 58 percent of total revenue port) and a sales tax on the telecommunicati on and covered only 60 percent of recurrent Figure 1.8: Revenue collection by the Federal Government of Somalia improved steadily between 2013 and 2017 a. Total Revenue b. Domestic Revenue Sources 300 100 250 12% 80 5% 28% 21% 21% Millions of dollars 200 Percent share 103.9 60 150 55.3 40 26.9 61.0 78% 76% 100 41.7 62% 68% 68% 142.6 20 114.3 112.7 50 84.3 75.8 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Trade taxes Non-Tax Revenue Other indirect taxes Domestic revenue Donor funding Other taxes Income & corporate taxes Source: Data from the Ministry of Finance of the Federal Government of Somalia. 6 S om a l i a Eco n om i c Update • 2018 Recent Economic Developments expenditure in 2017. Given the enormous social The FgS wage bill rose by a factor of 2.5 and infrastructural gaps in Somalia resulting between 2013 and 2017, from 44 percent of total from years of conflict, a significant increase in expenditure to 53 percent. The number of civil government revenue is critical. servants increased by 72 percent between 2013 and 2017, rising from 2,849 to 4,908. More than half of The challenge of revenue mobilization in Somalia them (56 percent) work in the administrati on sector is closely linked to issues of fiscal federalism. FMS while the remainder is distributed among social, collect and retain all taxes within their jurisdicti ons; economic and security sectors. The number of civil the FGS collects revenues in Mogadishu only. servants is projected to increase 13 percent to 5,558 This politi cult to create a cal context makes it diffi in 2018. Provision of goods and services rose by a harmonized system of taxati on across the country. factor of 1.5 during this period, but its share of total Without a mechanism to address imbalances across spending fell, from 46 percent to 34 percent. states, fi scal autonomy will exacerbate economic inequiti es across Somalia. Revenue and functi onal Spending priorities remained largely unchanged assignment are key to achieving meaningful over the past five years. In 2017 about 90 percent revenue mobilizati on and service delivery across of spending went to security and administrati ve the country. services; 8 percent went to economic services and Just 3 percent went to social services. Improved Expenditure performance in spending service delivery will require a gradual shift FgS Expenditures grew significantly in recent to economic and social services, parti cularly as the years, rising from $117 million in 2013 to $244 government improves revenue collecti on. million in 2017 (Figure 1.9, panel a). Recurrent expenditures account for almost all expenditure; Public debt capital spending accounted for just 3 percent of Somalia’s outstanding public debt in 2017 is total spending in 2016 and 2017, the highest level estimated at $4.5 billion, equivalent to 65 percent since 2013. Most expenditure goes to compensati on of gdP. Based on reports from more than two-thirds of employees and purchases of goods and services, of Somalia’s creditors, $2.7 billion of the external which together accounted for 87 percent of debt (equivalent to 60 percent of GDP) is in arrears. expenditure in 2017. The debt is owed to multi lateral creditors ($1.5 Figure 1.9: Expenditure by the FgS has soared since 2013—and almost all of it is recurrent a. Total Expenditure b. Composition Expenditure 300 260 248 244 250 6% 7% 10% 6% 9% 199 200 Millions of dollars 188 171 46% 38% 41% 34% 151 44% 150 144 135 117 100 51% 47% 53% 44% 41% 50 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Approved budget Actual expenditure Compensation of employees Goods and services Grants Contingency Capital Source: Data from the Ministry of Finance of the Federal Government of Somalia. August 2 0 1 8 | Edition No. 3 7 Recent Economic Developments billion [33 percent of GDP]), Paris Club creditors elite capture, as people with resources or access ($2.4 billion [53 percent of GDP]), and non–Paris to resources remain in a better position to invest. Club creditors ($0.6 billion [14 percent of GDP]). The gap between the demand for and the supply of Arrears to international financial institutions have financial services is estimated at about $2.2 billion limited the scale of their financial assistance in (equivalent to 30 percent of GDP)3. The family the short run as well as their full reengagement and friends dominate financial intermediation. with Somalia. Businesses and individuals largely bypass the financial sector, because of unfavorable lending 1.5 A foundation is being laid for terms and conditions (partly a reflection of lack of monetary policy and financial sector competition) and institutions’ limited understanding regulation of customer needs. Monetary policy is limited, as the economy The CBS is implementing much-needed reforms continues to be highly dollarized. The Somali shilling in order to be able to execute its supervisory, (So. Sh.)—which is used only for small, face-to-face regulatory, and licensing roles. It is working transactions— has been relatively stable since 2012, to reestablish the functions of core economic exchanging at 23,539 to the U.S. dollar in December institutions and foster financial development, 2017. Multiple currencies, including airtime, are inclusion, and stability while strengthening used as mediums of exchange. In addition to the compliance with anti-money laundering and Somali shilling and the U.S. dollar, Somalis regularly combating the financing of terrorism (AML/ use the currencies of Djibouti, Ethiopia, and Kenya CFT) standards. Efforts to lay the foundation for in border areas. sustainable financial sector development and strengthen compliance with AML/CFT standards Somalia has been working on currency reform are underway, and preparatory work to undertake under the IMF Staff Monitored Program. The Phase 1 of a currency reform is complete. According authorities have set currency reform as one of their to the IMF, if Somalia fails to comply with AML/CFT highest priorities. Reform involves two phases. In the standards, correspondent banking relationships first, the Central Bank of Somalia (CBS) will replace with Somali institutions (especially with the Central the existing Somali shillings in circulation with Bank of Somalia) will be at risk, potentially reducing the new currency issued in small denominations remittance inflows—Somalia’s lifeline—and making (1,000, 2,000, 5,000, and 10,000). In the second them more volatile. phrase, after strengthening its institutional capacity and developing independent monetary policy instruments and reserve management guidelines, 1.6 The drought increased Somalia’s trade deficit the CBS will inject larger denominations of Somali shilling banknotes. Introduction of the new The 2017 drought increased Somalia’s trade deficit banknotes will mark the first time the CBS will have by 9 percent, as exports fell and imports rose. issued currency since 1991. The new notes will help The share of exports in GDP fell from 15.1 percent the authorities end widespread counterfeiting, but of GDP in 2016 to 14.5 percent in 2017; the share will require increased capacity in the CBS to manage. of imports increased from 61.9 percent to 69.6 percent. The drought devastated livestock exports. Limited financial intermediation constrains Exports of live animals—which account for more business growth. To expand, businesses must use than 70 percent of export earnings—declined by their own funds or borrow from friends or family 75 percent, from 5.3 million animals in 2015 to 1.3 members. The lack of credit facilities perpetuates million in 2017. The contribution of other exports— 8 S om a l i a Eco n om i c Update • 2018 Recent Economic Developments hides and skins, oil seeds, fruits, vegetables, and potential in Somalia. Improvements in the security gums and raisins—remained small. These products and the business environment could increase FDI. are sold in a few traditional markets, mainly in the United Arab Emirates, Saudi Arabia, and Oman. 1.7 The growth outlook for 2018–20 Food imports rose in response to the drought. is positive amidst significant risks The World Bank projects Somalia’s GDP to grow Reflecting the deterioration in the trade balance, by about 3.2 percent in 2018 and 3–4 percent in the current account deficit increased from 6.3 2019–20. This growth outlook is more modest percent of GDP in 2016 to 7.4 percent of GDP in than performance of other fragile state emerging 2017. The large deterioration in trade balance was from conflict but still better than the 2.3 percent substantially offset by increases in current transfers, mainly remittances and official transfers, which growth performance of 2017. The outlook for together increased by 7.9 percent of GDP. However, 2018 is predicated on maintenance and extension as deterioration in the trade balance was larger of the security gains achieved, improvements in than the increase in remittances and official grants, weather and agricultural production, a gradual the current account deficit increased by about 1 increase in private investment, continued support percentage point in 2017 (Table 1.2). to the government by development partners, and improved revenue collection. It also assumes that The current account deficit was financed by Somalia’s livestock sector continues to recover from increased capital inflows (FDI and other flows). the effects of the drought, through a program of FDI covered about 70 percent of the financing of restocking. Revitalization of the sector is important the current account deficit in 2017; other flows not only because rural livelihoods depend on it but financed the rest. The growth in FDI since 2013 also because livestock exports are an important has been in double digits signaling an enormous source of foreign exchange. Table 1.2: Balance of payments in Somalia, 2013–17 (percent of GDP) 2013 2014 2015 2016 2017 Item Preliminary Estimate Current account balance –3.4 –5.2 –4.7 –6.3 –7.4 Trade balance –40.4 –45.1 –45.0 –46.8 –55.1 Exports of goods and services 14.5 14.4 15.6 15.1 14.5 Imports of goods and services 54.9 59.5 60.6 61.9 69.6   Current transfers (net) 37.5 40.3 40.8 40.9 48.2 Private (net), including remittances a 20.1 20.1 19.5 19.8 21.9 Official (including direct budget support) 17.4 20.3 21.2 21.2 26.3   Capital account and financial account 3.4 5.2 4.7 6.3 7.4 Of which foreign direct investment 3.5 4.0 4.5 4.9 5.3 Other capital flows (net) –2.4 –1.1 –2.0 –0.8 –0.3 Overall balance 0.0 0.0 0.0 0.0 0.0 Source: World Bank and IMF estimates. Note: a. 2013 data from Barclays Bank, PLC. August 2 0 1 8 | Edition No. 3 9 Recent Economic Developments The growth recovery is set to continue beyond services, and other means—remains a central 2018, lifted by gains from ongoing reforms as well element of the growth and poverty reduction as improved security. Rising domestic demand, agenda in Somalia. remittances, and donor inflows and consolidation of peace and security are expected to drive growth Various risks could derail growth in 2019–20. Although it is improving, growth in Somalia remains fragile, as ongoing security challenges Achieving higher growth will require acceleration continue to impede economic activity. Risks that of structural reforms, particularly in three areas: may weigh on growth prospects include security fiscal policy and public financial management, concerns, higher oil prices, delays in implementing provision of basic services (to promote human structural reforms, and political and policy development and inclusion), and improved resilience uncertainty. to weather shocks in the agriculture sector: Insecurity in Mogadishu and southern Somalia • Somalia needs to continue to build the fiscal continues to pose significant risks to economic buffers needed to provide basic services activity in the medium term. The FGS is to its people. Broadening the tax base, restructuring its security forces to improve security enhancing compliance, and reducing wasteful in Mogadishu and working with Federal Member expenditures would provide resources that States to enhance stability across the country. Al- could be used to meet critical social and Shabaab remains a resilient force, diminishing developmental needs, including in health, prospects for investment. sanitation and water delivery, and education. Improving the efficiency of public spending Higher oil prices in 2018 and beyond may dim and service delivery is also a priority. More economic prospects. The outlook for oil prices efficient spending could be achieved by anticipates a rise to more than $60 a barrel in containing the large public wage bills, which 2018–19, a 20 percent increase over 2017. A larger crowd out other critical components of public increase in oil prices could undermine consumption expenditure and service delivery. and Somalia’s growth prospects. • Human development programs need to reduce infant and maternal mortality, increase The 2018 floods might diminish recovery from enrollment rates at all levels of education, 2017 drought. Rainfall totals during the first half of the April to June Gu season in 2018 were some close primary and secondary enrollment of the highest on the 1981-2017 record, equivalent gaps, and increase the availability of clean to between 130 and over 200 percent of average. water and sanitation. Better infrastructure— The heavy rainfall marked the end of prolonged coupled with improvements in the business drought which started in late 2016 across much of environment—would also help support the the country and supported crop development and entry of new firms and boost employment. the regeneration of pasture and water resources. • Improving the resilience of the agriculture However, the heavy rainfall and subsequent sector—through irrigation and better flooding has also led to fatalities, massive water management, land management displacement, and damage to infrastructure and and environmental protection, improved cropland. Needs were expected to increase in agricultural technology and extension displacement sites and riverine areas in the 10 S om a l i a Eco n om i c Update • 2018 Recent Economic Developments near term. FEWS NET and FSNAU estimated 700,000 Likewise, institutional capacity to implement people in flood-affected areas needed livelihoods reforms, and ensure compliance remains weak. support through September 2018, roughly 300,000 These risks – which are manifested on a cyclical of whom are likely to need emergency food basis, but with varying degrees of severity – can assistance. undermine important gains, and at worst can destabilize Somalia’s fragile political settlement. In The risks associated with reforms delays are high. turn, a slowdown on the reform path could delay The economic reforms to unlock inclusive growth the normalization of Somalia’s relations with the may be delayed because of political contestation, International Financial Institutions (IFIs) through mistrust among political leaders and fragmentation the Heavily Indebted Poor Countries (HIPC) process, among different levels of government – each which in turn would delay Somalia’s access to IDA of which could undermine/distract reformers. and critical national investments. Section endnotes 1 World Bank and Others. 2018. Somalia Drought Impact & Needs Assessment (DINA). Washington DC. 2 World, and FAO (Food and Agriculture Organization). 2018. Rebuilding Resilient and Sustainable Agriculture in Somalia. Washington, DC. 3 Ernst & Young. 2018. Expanding the Circles of Trust: Unleashing the Power of Financial Intermediation and Global Connectedness for Somalia. August 2 0 1 8 | Edition No. 3 11 SPECIAL FOCUS Special Focus 2. Growth in Mobile Money: Stability or Vulnerability? 2.0 Key messages • espite its fragility and underdeveloped financial institutions, Somalia has one of the most active D mobile money markets in the world. With an estimated 155 million transactions—worth about $2.7 billion—a month, mobile money is a source of strength and resilience. • Mobile money has superseded the use of cash in Somalia. Even though a new phenomenon, about 7 out of 10 Somalis regularly use mobile money services, as the number of mobile money subscriptions has grown at an average rate of about 20 percent a year since 2014. In addition to retail payments, mobile money is used for salary transfers, bill payments, remittances and cash transfers, and savings in mobile wallets. • Mobile money has improved financial inclusion. About 70 percent of women have mobile money accounts—just 5 percentage points fewer than men. • The mobile money sector is also vulnerable. In addition to the absence of consumer protections, lack of systematic know-your-customer requirements, and lack of monitoring of mobile money services by the central bank of Somalia—the mass adoption of services itself raises concerns about the magnitude of system vulnerabilities, and potential macroeconomic effects in cases of disruptions. Unmitigated disruption in service delivery including transient outages caused by technical glitches could be devastating for the livelihoods of the Somali population that depend on mobile money services to meet their daily needs. • The challenge for policymakers and regulators is to introduce mobile money regulation while avoiding a “cliff-edge” in the transition from a mobile money market that has operated without supervision and regulation. Stability of the overall financial system is a priority. A phased approach to regulation is recommended to mitigate risks and allow time for implementation for both the regulator and the sector. The regulatory policy stance should also permit greater innovation, by allowing experimentation in pilots without the need to fully comply with regulatory requirements (an approach known as the regulatory “sandbox” approach). This approach is likely to help refine the regulatory framework. • This note provides concrete recommendations on how to introduce mobile money regulation in Somalia, based on best practices and examples from around the world. These recommendations can be summarized as follows: — Create safeguards for consumers’ funds, and ensure the safety and reliability of services. — Adopt the regulatory sandbox approach, in order to encourage innovation, improve compliance and risk management, and reduce opportunities for agent fraud and other harmful conduct and hold providers liable for agents. — Protect data and consumer information, and ensure that consumers have access to effective redress and complaint-handling mechanisms. — Strengthen regulatory reporting and public disclosures, minimizing disruption of mobile money services at each stage of implementation. This part of the Somalia Economic Update is organized as follows. Section 2.1 examines the critical role mobile money plays. Section 2.2 describes the players in Somalia’s financial sector. Section 2.3 discusses the risks associated with Somalia’s mobile money system. Section 2.4 discusses the gaps mobile money services has left in the economy. Section 2.5 examines regulation in the sector. Section 2.6 summarizes the main conclusions and recommendations. 14 S om a l i a Eco n om i c Update • 2018 Special Focus 2.1 Mobile money plays a critical role in percent of people in displaced persons camps and Somalia 55 percent of rural residents also use mobile money. Size and benefits of the mobile money market An estimated 155 million mobile money Mobile money represents one of the main transactions a month are made in Somalia (World transaction instruments used by both individuals Bank 2017b). The value of these transactions is and businesses in Somalia. The official currency estimated at about $2.7 billion a month (about 36 is the Somali shilling, but its use is limited in what percent of GDP) (Figure 2.1).4 As mobile money is mostly a dollarized economy. According to IMF represents a large share of the money supply, estimates, almost all current shilling notes in the domestic economy is highly dependent on circulation are counterfeit, as no banknotes have the stability and continued operation of mobile officially been issued by the CBS since 1991. Lack of money platforms. Monthly cash in exceeds cash out faith in the Somali shilling and the difficulty of using which results in an ever-increasing cache of money dollars for low-value transactions has increased available to mobile network operators. demand for mobile money as a mechanism to cope with a volatile domestic economy. In the Half of all transactions are person to person streets of Mogadishu, the exchange of goods and transfers, mostly day-to-day transactions. services is done largely through mobile money, They account for 30 percent of the value of all even for small transactions. Reducing the burden transactions. of cash provides freedom of movement and a sense of security while doing business or carrying The second-highest volume of transactions are out day-to-day transactions1. merchant/retail payments, which account for almost a quarter of all transactions and about 14 About 7 out of 10 Somalis regularly use mobile percent of the value of transactions. Other uses money services, thanks to average annual growth for mobile money include salary transfers, bill in the number of mobile money subscriptions of payments, remittances, and cash transfers from about 20 percent since 2014 (World Bank 2017b). development organizations. Usage is highest in urban areas (83 percent), but 72 Figure 2.1: The volume of mobile money transactions in Somalia topped $2.7 billion a month in 2017 Product mix by volume Product mix by value Focus on mobile money subscribers Focus on mobile money subscribers 0.8% 6.3% 11.5% 4.4% P2P transfers represent half of the number of transactions but only account for 30% of the mix by value 14.1% 30.4% P2P transfers Disbursements 22.5% 49.9% Bill payments Merchant payments Airtime top-up 14.9% International remittances 30.0% 10.3% Salaries and cash transfers from development organizations make up 5% of 5.1% the number of transactions but 30% of the Total number of transactions per month Total value of transactions per month amount transferred (excluding cash-in and cash-out) is Worth (excluding cash-in and cash-out) amounts to 155m transactions US$2.7bn per month Source: World Bank 2017b. Nominal 2017 GDP of $7.0 billion comes from the IMF’s Somalia Country Report (IMF 2018). 4 August 2 0 1 8 | Edition No. 3 15 Special Focus Mobile money is critical in a country in which Having an account is associated with a variety of remittances are a greater source of income than positive outcomes. Research suggests that access official development assistance (Figure 2.2). to a savings account can help people accumulate Official remittances from the diaspora are estimated savings and smooth household spending on at about $1.4 billion a year, equivalent to about necessities. In Kenya, for example, market vendors 23 percent of Somalia’s GDP (IMF 2017). About (primarily women) saved at a higher rate and 3.4 million people—roughly 40 percent of the invested 60 percent more in their businesses after population—depend on remittances for their daily being provided with a savings account. In Nepal needs, and about 80 percent of all new business households headed by women spent 15 percent ventures are funded by remittances2. Remittances more on nutritious food and 20 percent more on account for about 6 percent of the value of all education after receiving free savings accounts. In mobile money transfers. Malawi farmers who opted to receive their earnings in a savings account spent 13 percent more on Mobile money is helping close the gender gap in farming equipment and increased their crop values financial inclusion. In 2017 about 73 percent of the by 15 percent4. population had access to a mobile money account, with only a 5 percent gap between men (75 percent) Mobile money helps households manage financial and women (70 percent). risk. When hit with an unexpected drop in income, mobile money users in Kenya did not reduce Mobile money wallets are also used for savings. household spending. In contrast, households without Only about a quarter of the population engages a mobile money account or with poor access to a in savings activities, only about 15 percent of the mobile money network reduced their consumption population (and just 7 percent of women) has a bank of food and other items by 7–10 percent. account, and less than 5 percent of people with bank accounts are active users. More than half of people who save do so with a mobile money account3. Figure 2.2: Remittances are a more important source of income than official development assistance in Somalia 70 62.4 60 50 40 Percent 30 22.7 20 19.0 17.0 13.4 12.5 12.2 12.0 10.0 9.4 6.5 10 - Liberia Sierra Somalia Malawi Rwanda Mozambique Niger Burundi Burkina Mali Low income Leone Faso average Net ODA received, 2015 (% of GNI) Personal remittances received, 2016 (% of GDP) Source: World Development Indicators (World Bank 2017c). Note: Figures shows latest data available for each set of indicators. Data for Somalia on remittances were not available from the World Development Indicators database. Instead, the estimate from IMF (2017) was used. GNI = Gross National Income. Formal banking is not common in Somalia partly because anyone under the age of 40 was not old enough to hold a bank account before the start of the two-decade 5 long war. Most people are accustomed to alternative forms of finance to meet individual and business needs. 16 S om a l i a Eco n om i c Update • 2018 Special Focus 2.2 Mobile money providers are key A complex web of ownership interconnections players in Somalia’s financial sector exists between leading mobile network operators and some financial service providers. Somalia’s A sound financial sector can underpin economic leading money transfer business and mobile growth and development and provide pathways network operators have always been connected, toward financial inclusion and poverty reduction. The financial health and vulnerability of Somalia’s but with the growth of mobile money, the financial sector cannot be assessed using traditional connections between banks and mobile network tools, because data are not available. A series operators have increased as actors seek to expand of World Bank studies and other reports on the their range of services. Services include innovations Somalia financial sector provide insights into supply to facilitate direct transfers between mobile money and demand conditions. A picture is beginning to wallets and bank accounts, which allow financial emerge of the sector, including opportunities and service providers to capture different segments of challenges for its main participants (Table 2.1). the market. Table 2.1: Players in Somalia’s financial sector Player Description • Main regulator of financial institutions. Central Bank of Somalia • Licenses and supervises banks and money transfer businesses under the Financial Institutions Law (FIL) of 2012. Currently developing regulation for mobile money services. • Six banks operate in Somalia. • Bank branches are in urban areas only. Commercial banks • Commercial banks function mainly as trade financing institutions; some are part of larger conglomerates with overlapping financial and nonfinancial sector interests, resulting in large conglomerates and the crowding out of smaller money transfer businesses. • Fourteen licensed money transfer businesses operate across Somalia. Money transfer businesses • International remittances constitute their core business. • Some are part of widely diversified enterprises with overlapping financial and nonfinancial sector interests. • All mobile network operators provide mobile money services. • The networks are consolidated into three large conglomerates, divided by region. Mobile network operators • Leading mobile network operators are part of widely diversified enterprises and are developing partnerships with money transfer businesses to facilitate international transfers. Source: World Bank 2018a. August 2 0 1 8 | Edition No. 3 17 Special Focus Mobile money is one of the main channels used to Money transfer businesses are increasingly access financial services in Somalia. A World Bank partnering with mobile network operators to survey finds that about 73 percent of the population use mobile money channels for international uses mobile money. In contrast, just 15 percent have remittances. Mobile money channels, which are access to formal banking services. About two-thirds popular for domestic transactions, are increasingly of users keep funds in their mobile accounts rather challenging the dominance of money transfer than cash them out5. Demand for digital money businesses for international remittances. Money has risen largely from the absence of large-scale transfer businesses emerged organically as an Somali shilling currency operations (although the alternative to the traditional banking system after official currency of Somalia is the Somali shilling, the collapse of the government and economy in its use is limited in an otherwise dollar-dependent 1991. Although they mostly facilitate international economy), as well as relatively low transaction remittances, a few have adapted their business costs and ease of use of mobile money services. model to include banking, microfinance, and mobile money. The current use of mobile money Mobile network operators have been transitioning as a channel to receive international remittances toward the provision of financial services (Figure reflects the strong links that exist between mobile 2.2). This evolution of business models from network operators and money transfer businesses. telecommunications toward banking functions offers different opportunities for mobile network 2.3 Risks of mobile money system and operators, banks, and third parties to play roles in the the need for regulation mobile money value chain. These evolving business The mobile money system is vulnerable—with models require agile regulatory approaches that potentially serious implications on the wider can adapt toward shifting business models. If well economy. Consumer protection, systematic know- implemented, regulation can bolster financial your-customer requirements, and monitoring of stability, access, and consumer protection for both mobile money services by the CBS are lacking individuals and businesses and strengthen the (Box 2.1)—and outright failure (from outages on competitiveness of the financial services market. any major mobile money platform) could result in significant macroeconomic effects, including the contraction of the money supply. Figure 2.3: Mobile money business models are moving toward financial service provisions MNO Network Take Cash In/ Hold Deposits for Data Cash Out Move Money Settle (Forex) Transmission MNO Bank or Third Party Bank F1-Led Business Models MNO Bank or Third Party Bank MNO Bank MNO MNO-Led Source: mPay Connect Consulting, MMT APAC presentation 2009. 18 S om a l i a Eco n om i c Update • 2018 Special Focus Box 2.1: risks related to Somalia’s mobile money system Somalia’s mobile money system faces three main sources of risk: 1. Lack of customer protection: Customers have no guarantee that their e-money can be redeemed for cash, as there is no parity between virtual and real funds. As the fl oat held on the phones of mobile on is for the mobile network operators to use those money users grows ever larger, the temptati funds in in risky investments or overseas transacti ons, as there is no requirement for them to hold funds in a trust fund or bank account. 2. Lack of systematic know-your-customer requirements: Personal data are not systemically registered for mobile money accounts (especially in southern Somalia), and there is no formal agreement to protect consumers in case of disputes. The ease of opening multi ple mobile money accounts without fi identi on makes AML/CFT eff cati cult. Links to global fi orts diffi nancial markets could be impeded by the absence of strong practi ce related to customer due diligence. 3. Lack of monitoring of mobile money services by the CBS: The lack of monitoring of mobile money services means that consumers have litt on against malfeasance by mobile money le protecti operators. The uncontrolled and unregulated issuance of e-money could put infl onary pressure on ati consumer prices, parti cularly when parity is not maintained between balances in trust accounts by nancial insti fi ons and e-fl tuti oat managed by the mobile network operator held on mobile wallets. Source: World Bank 2017a. Businesses and individuals have a preference for 2.4 mobile money services do not meet large companies undermining competition. Based all financial services needs on recent surveys, businesses and individuals in despite the growth and popularity of mobile Somalia appear to have a strong preference for money services in Somalia, the uses of mobile large and consolidated insti ons that are part tuti money beyond payments remain limited. Much of large conglomerates, which they perceive as remains to be done to increase the depth and more resilient and stable (Figure 2.4). The largest breadth of uses. conglomerates do not interconnect with smaller cult players. Their large market shares make it diffi The financing gap in Somalia is significant and for smaller players to compete and discourage entry. cannot not be filled by mobile money service Figure 2.4: Both businesses and individuals in Somalia providers alone. A 2018 market study by Ernst & prefer large financial institutions Young (based on data on 456 businesses and 433 Personal relationship/other 1% 4% individuals in Bosaso, Hargeisa, and Mogadishu) 14% suggests that the gap between the supply of Offer range of products 9% and demand for fi nance by both businesses and Licensed by CBS 10% 14% individuals is about $2 billion. If Somalia’s fi nancing 13% gap were met, domesti c credit to private sector in Offers mobile/Internet channels 10% Somalia would surpass that of Kenya and be just Easy access to branch/agent 16% 30% three quarters with the average for Sub-Saharan Large institution with history of 41% Africa (Figure 2.5). operating in region 36% Percent of respondents citing factors as most important in their choice of financial institution Individuals Businesses Source: Ernst & Young 2018. August 2 0 1 8 | Edition No. 3 19 Special Focus Figure 2.5: Domestic credit to the private sector is lower in assessment approaches to serve the needs of Somalia than in other countries in Sub-Saharan Africa economically active low-income individuals Domestic credit to private sector (% of GDP) 53.2 and businesses on a sustainable basis. Modern 45.6 techniques rely on computing power and Potential for growth 34.5 alternative sources of transacti on data (including 31.7 32.9 mobile phone use patt erns, bill payments, and 21.2 remitt les of ance receipts) to build credit risk profi 12 14.3 15.6 individuals and businesses. 7.5 2.5 Regulation of mobile money should be phased in, in a way that ensures a ia da da a a ia m ing ua ia le g (If bi an ny p an ib ct al an an d) ga e) fi n So l) co d m fi l in lia Ke m w the stability of the system (A om nz in clu Ug Rw Za ts Na an ma Ta Bo gh Ex S c hi A ( SS Source: Estimated 2017 nominal GDP of $7.4 billion is from IMF (2018). Supply of and demand for finance are from Ernst & Young Regulation and stable institutions are key to (2018). Comparative country data are from World Development increasing resilience and competitiveness and Indicators (World Bank 2017c). reducing both actual and perceived risks. Bett er This financing gap can be explained mainly by regulati on would allow for more innovati ve lack of innovative, accessible, and affordable viti acti cularly with mobile money services. es, parti products (Ernst & young 2018). Both individuals and businesses sti ll rely on informal traditi onal Somalia needs a framework that will help it networks, including business connecti ons, family, avert a potential financial sector crisis and and friends, to raise fi nance. Evidence from countries protect consumers. The roles and responsibiliti es with innovati on-led economies suggests that a fi ne of the various actors that are part of the mobile balance needs to be achieved between advancing money system need to be clarifi ed to ensure the regulati on and innovati on6. Too much regulati on accountability, transparency, and integrity of the can hamper innovati on, but too litt le provides a nancial sector. Introducti fi on of a mobile money fragile and unstable environment for competi on ti regulatory regime should aim to manage fi nancial and innovati on. Achieving a sustainable increase in stability risks; encourage innovati on; and bolster the nancial deepening while strengthening fi fi nancial contributi on of mobile money to inclusive growth, system regulati on and supervision remains a goal resilience, and poverty reducti on. of Somalia’s fi nancial sector development agenda. According to Ernst & Young (2018), about two-thirds Somalia’s mobile money services need to be of businesses depend on friends or family to cover adequately regulated before serving as a critical nancial needs. Most fi fi nd the terms and conditi ons enabler for innovation and anchor of financial of fi nancial insti ons unfavorable. More than half tuti sector development. Under the Financial of businesses that applied but were unsuccessful Insti ons Law of 2012, CBS is responsible for tuti in securing funds from a fi nancial insti on cited tuti licensing and supervising only banking and money lack of collateral as a key reason. Because they transfer business; it has no jurisdicti on over other lack accurate informati on with which to assess nancial services. This law could be revised to also fi customer risk profi les, fi nancial insti tuti ons tend to address the management of risks posed by diff erent overcollateralize loans, leaving Somalis to search for types of fi nancial services, products and other other ways to meet fi nancial needs. business arrangements related to the provision of modern fi nancial services, including opportuniti es There is a significant opportunity for financial for driving fi nancial inclusion in marginalized service providers to use modern credit risk segments of the populati on. 20 S om a l i a Eco n om i c Update • 2018 Special Focus Mobile money services that are recognized and mechanisms. Regulation could then address the regulated provide legitimacy and consumer requirement for clear, consistent, and effective protection, as well as opportunities for financial reporting and disclosures from providers. The inclusion. Experimental evidence from Senegal phasing-in approach of these key regulatory suggests that people directed to regulated agent principles is explained further in Table 2.2 banking options are much more likely to increase the number of deposits and withdrawals than are Figure 2.6: Regulation of mobile money should be introduced in four phases people directed to traditional bank branches7. These results suggest opportunities for bringing unbanked people into the formal financial system through this alternative mode of banking. Phase 1: Phase 2: Phase 3: Phase 4: Ring-fence Strengthen Strengthen Strengthen Regulation of mobile money services should consumer funds and service delivery via consumer protections, provider reporting ensure that mobile greater innovation including data privacy arrangements and adhere to two main principles: proportionality and money platforms are & stronger agent and platform for disclosures effectiveness. A well-balanced approach addresses in operation networks complaints the trade-offs between protecting consumers and fostering access. It is designed in a way that considers the limits of supervisory capacity and leverages other market monitoring tools that can Source: Dias and McKee 2010. help ensure regulatory compliance8. Providers of services should also face business-related Regulation of mobile money is likely to increase incentives to adhere to regulation. stability, level the playing field, and boost the system’s usefulness for more advanced financial For Somalia, a phased-in approach is suggested technology applications. It requires solid for the regulation of mobile money services. This foundations and institutional capacity from the approach is adapted to ease the transition from regulatory authorities. In 47 of 89 global markets a market that has not been previously supervised in which mobile money services are available, and regulated. Regulation of mobile money services regulation allows both banks and nonbanks to should be phased in, in order to avoid the “cliff- provide mobile money services in a sustainable way9. edge” in the transition to regulation (Table 2.2 and Pakistan’s regulatory framework for agency banking Figure 2.6). The top priority must be to safeguard and microfinance banks permits mobile network consumer funds and ensure continued and operators to offer mobile money services and be undisrupted service delivery. The second priority integrated into the broader financial system should be to strengthen service delivery via greater (Box 2.2). A prerequisite is well-established innovation, including stronger agent networks, central banking operations and already regulated internal controls, and holding providers responsible financial institutions (commercial banks and for agents. Once the protection of consumer funds microfinance institutions). Mobile money is and service delivery are guaranteed, it will be regulated like branchless banking, in which important to strengthen consumer protections, mobile money institutions were required to including data privacy and protection, and create partner with microfinance institutions to deliver platforms for complaints and access to redress mobile money services. August 2 0 1 8 | Edition No. 3 21 Special Focus Table 2.2: Phased-in approach to regulation of mobile money Phase Regulatory options Recommended Actions 1: Ring-fence Create safeguards for • Create basic regulation with simple and clear rules, to consumer funds, consumer funds. ensure liquidity and ownership of funds collected against and ensure that electronic value issued. mobile money • Define initial minimum capital requirements and ongoing platforms are in capital requirements for providers. operation. • Define permissible activities and restrictions (for example, deposit taking, on-lending of deposits). Ensure the safety and • Define and test technology and security arrangements (for reliability of services. example, regulation relating to system interoperability with other payments systems in the country). • Monitor emerging issues to decide when and what type of regulatory action is necessary. 2: Strengthen Reduce opportunities • Hold providers liable for agents’ regulatory compliance. service delivery for agent fraud • Review providers’ internal controls and processes to make via greater and other harmful sure that appropriate security policies—including business innovations and conduct. continuity plan, sound accounting procedures, and effective stronger agent audit function—are in place. networks. Allow product • Review new products and business models in a “regulatory experimentation and sandbox,” permitting innovators to test their products testing of business or business models without complying with all legal models. requirements. • Work with the financial service provider to create regulation around the product before it is released or scaled up. Hold providers liable • Focus provider liability on agent actions related to delivery for agents regulatory of branchless banking services. compliance • Require notification of contractual agreements and plans for oversight of agents/outsourcers. 3: Strengthen Protect private • Hold providers responsible for compliance with data privacy consumer data/ consumer and bank secrecy regulations, even when using agents. protections, information. including platform for Ensure that • Ensure that relevant information (for example, terms complaints and consumers have and conditions; customer service agreement, including a access to redress access to redress description of services; information on charges, transaction mechanisms. and complaint records, and confidentiality) is disclosed to customers. procedures. 4: Strengthen Ensure clear and • Require notification to the regulatory authorities of any reporting effective disclosure. changes (for example, material changes to the business/ arrangements shareholders). and disclosures. • Require that fees and price disclosures be transparent and easy to access. 22 S om a l i a Eco n om i c Update • 2018 Special Focus Box 2.2: Regulating mobile money services in Pakistan In Pakistan only regulated financial institutions (commercial banks and microfinance banks) are eligible to be licensed by the State Bank of Pakistan (SBP) to offer branchless banking services or mobile money services. Financial institutions with branchless banking licenses are subject to all aspects of oversight by SBP, including registering individual mobile money account holders and ensuring compliance with know-your-customer regulation. Pakistan’s mobile money market is open to entry by both conventional banks and mobile money operators working in association with microfinance institutions. To comply with branchless banking regulations, three mobile network operators have taken up ownership of and controlling interests in three microfinance banks. They provide a banking platform for the mobile money services of their parent mobile network operators in compliance with central bank regulations. This structure allows the SBP to supervise and regulate the provision of branchless banking services in Pakistan. Source: Fuchs, Musuku, and Symington 2016. A phased-in approach to regulating mobile money limit cooperation with global entities for funding would strengthen compliance as new policies and or investments. Providers express the need for systems are implemented. In Somalia this approach consultation and participation in regulatory design would involve several foundational activities, processes: greater efforts need to be made to including implementation of systems to support the reach out to market players, to increase buy-in and strengthening of the operational capacity of the CBS compliance with an evolving regulatory system. (Box 2.3) and, in parallel, improvements to the legal and regulatory environment. Balancing the regulatory objectives of ensuring the stability of the system and increasing financial Experience from other countries suggests that three inclusion best practices need to be adopted when developing The development path of mobile money services regulation: in Kenya can serve as a useful example for Somalia. Kenya’s financial sector was hampered by missing • Spend enough time planning with markets and institutions. Box 2.4 describes how stakeholders and on consultations, in order the Central Bank of Kenya introduced regulation to to adopt a strategic approach. promote mobile money services without hampering • Ensure that regulation is supportive of innovative ideas. sustainable business models and inclusion. • Build in mechanisms for a regulatory Regulation of mobile financial services in Kenya sandbox approach to promoting greater was successful partly because it adopted the innovation. regulatory sandbox approach. In this approach, the regulator allows innovators to test their products or Financial service providers in Somalia have business models without following some or all legal expressed the need for more and better regulation. requirements, and then works in partnership with Financial services providers view better regulation the financial service provider to create regulation as a path to greater profitability: a lack of regulation around the product before it is released in the hinders the expansion of financial services and market or scaled up. The Bank of Sierra Leone has gaps in the licensing and regulation of the sector also used a regulatory sandbox (Box 2.5). August 2 0 1 8 | Edition No. 3 23 Special Focus Box 2.3: Strengthening institutional capacity at the Central Bank of Somalia The CBS is at the center of regulatory policy creation, supervision, and enforcement for Somalia’s financial services sector. Several foundational investments and activities are needed to modernize payment systems, including investments in key functions at the central bank to strengthening stakeholder consultation and engagement. As part of the financial sector reform agenda, the World Bank supported activities to improve the legal and regulatory environment, institutional capacity, and market infrastructure needed to improve institutional effectiveness of the central bank and facilitate efficient financial intermediation. Several layers of foundational investments were made, in sequence: • The first layer involved implementation of a core banking and accounting system. It focused on strengthening the organizational capacity of the CBS to deliver banking services to government and banks. Support was provided to reorganize and create in-house expertise in banking operations, accounting, and information and communications technology (ICT). Once the core banking system is stabilized, plans are to extend this functionality to CBS regional branches, initially in Jubaland, as well as to the State Bank of Puntland. • The second layer created an interbank payment, clearing, and settlement system. It focused on modernizing Somalia’s payments system, including through an Automated Transfer System (ATS) and Switch. This layer followed the first one because CBS will participate in the payment system and needs strong internal systems, processes, and procedures to do so. Sections 5(d) and (e) and Section 45 of the Central Bank of Somalia Law, which address payment and clearing and settlement systems, provide an opportunity for the CBS to formulate and implement payment systems–related regulations • Parallel to making investments in technology platforms, the Bank also provided support for legal and regulatory diagnostics to identify gaps and weaknesses in the legal architecture related to provision of financial services in Somalia. Initial findings from the diagnostic study were disseminated at a roundtable consultative forum attended by representatives of the CBS, the Ministry of Finance, the World Bank, and financial service providers. The study identified short-term interventions that are needed to close regulatory gaps while long-term improvements are being made to the Financial Institutions Law and other missing pieces of legislation (such as laws on digital transactions, payment systems, insurance, movable collateral registry, and many other issues) are developed. The idea is to gradually build the rulebook as the financial system develops and the foundational capacity of public institutions grows. Somalia’s mobile money sector has grown in the comes at a high cost in Somalia. The current absence of regulatory clarity. The challenge is to process of opening up a mobile money account remove the cliff-edge and secure financial stability generally involves providing one’s name, mother’s while also encouraging innovation and competition name, date and place of birth, residence, and some in the market. The Philippines has been successful form of photo ID (such as a passport or driver’s in doing so (Box 2.6) license). In lieu of such identification, a letter Collaborating to meet know-your-customer from a local clan elder, politician, or well-known requirements businessperson is required to confirm proof of Complying with accepted practice on customer identity. In many cases, information with which to due diligence requirements is necessary, but it verify identities and assess the risk of crime is often 24 S om a l i a Eco n om i c Update • 2018 Special Focus Box 2.4: Kenya’s “test and learn” approach to regulation of mobile money To encourage sustainable growth of the financial sector, the Central Bank of Kenya (CBK) took a regulatory approach that included lowering barriers to entry, allowing space for innovation, strengthening regulatory capabilities, and supporting the development of a complete financial infrastructure. The approach has led to the growing prominence of financial inclusion as an important complement to financial stability. The CBK worked in partnership with the Kenyan government, market players, and development partners. It adopted a pragmatic approach to the mobile money transfer services offered by Safaricom through M-PESA, offering a no-objection letter that allowed the company to innovate and pilot test services outside the confines of strict regulation. Through this process, the CBK identified risk factors and ensured their mitigation before the service was launched. This approach allowed it to bring more participants into the formal financial sector and to develop a supporting financial infrastructure (such as credit reference institutions and agents). Kenya’s experience suggestions four lessons for regulators: • A “test and learn” approach allows regulation to follow innovation while ensuring sufficient safeguards. • Innovators need space to showcase their products early. • Tools such as the Deposit Protection Fund and risk-based supervision protect consumers while strengthening banks and deposit-taking microfinance institutions. Partnerships between regulators and financial service providers are key to establishing such mechanisms. • Regulation needs to evolve as financial institutions develop new products and expand into new markets. This requires the creation of regional supervisory networks. Source: Ndungu 2012. unavailable, and the process entails additional untraceable world of cash. However, the costs of time and costs for the financial service providers. compliance can be reduced by pooling resources and Paradoxically, efforts to comply with global digitizing processes through know-your-customer requirements make it more difficult for financial utilities. Examples of collaborative approaches to service providers to reach underserved populations, customer due diligence are shown in Box 2.7. and may even increase the risk of transacting in an Box 2.5: Lessons from Sierra Leone’s regulatory sandbox Sierra Leone has one of the lowest financial inclusion rates in the world. It is not an obvious place to find experimentation with new regulatory approaches to financial technology. Despite the low rates of financial inclusion and other challenges, the Bank of Sierra Leone dedicated resources and governor-level supervision to a pilot regulatory initiative with the following features: • The program is linked to the national financial inclusion strategy and financial inclusion objectives. All new projects must explicitly link their business models to financial inclusion objectives. • The Bank of Sierra Leone used the FinTech Challenge and engagement with the Sierra Leone FinTech Association to confirm market demand for a regulatory sandbox. • The Office of the Governor is directly involved, and a dedicated cross-functional team is dedicated to all sandbox-related activities, from market outreach to participant selection and supervision. • The program requires review and reauthorization after the initial one-year pilot term. Source: Massally and Schan 2018. August 2 0 1 8 | Edition No. 3 25 Special Focus Box 2.6: Regulation as a driver of innovation in the Philippines More than a third of municipalities in the Philippines operate without a banking office. But mobile phones have an 80 percent penetration rate, with most customers active users. The central bank saw this as an opportunity to enact regulation that has opened the opportunity for telecommunication companies to compete with banks to deliver mobile money services through a dedicated subsidiary. The competitive environment has increased the variety of services available and lowered the prices of sending or receiving remittances. The central bank set up a dedicated unit that specializes in new technologies, staying close to innovators for better oversight as well as quick adaptation of regulation. Regulations have allowed banks to perform know-your-customer verification through third-parties. They have liberalized identification requirements, allowing certification from local chieftains. One of the outcomes is that BanKo, the first mobile bank in the Philippines, allows people to open full service bank accounts through local agents, such as local convenience (sari-sari) stores and pharmacies. BanKo began operations in January 2012; only eight months later it had opened 200,000 mobile money accounts. Large segments of the population can be reached, as regulators work closely with the mainstream financial systems to deliver services. Source: Thomas 2012. Somalia faces barriers to adopting know-your- encourage such innovative approaches to achieving customer utilities model or blockchain technology, customer due diligence compliance. A concern which are helping other countries identify is the lack of infrastructure to collect and protect customers (Box 2.7). In countries with more customer information. Financial service providers developed financial institutions, country-level could collaborate with the authorities to define regulations often hinder the ability of financial identification infrastructure requirements. There institutions to share information. This is not the are incentives to share the risk and cost of such case for Somalia where regulation is simply under a system, which would result in cost-effective developed or missing, and there isn’t enough provision of shared ID and know-your-customer information about whether it would hinder or verification services. Box 2.7: Collaborating to perform customer due diligence and identity verification In the know-your-customer utilities model, commercial providers store customer identity data in a single repository for use by multiple financial service providers. By pooling resources, reducing duplicative efforts, and digitizing processes, this model reduces the time required for identity checks and verification. An example is India’s Aadhaar ID system, which provides a unique biometric identifier. When the identity of a potential customer is verified, the account opening form is automatically filled with the client’s Aadhaar- registered biographical data. The fact that the authority vouches for the data means that financial service providers can identify and verify customers by simply checking the Aadhaar database. The private sector is pioneering new technologies to address challenging ID issues, such as identifying displaced persons. Blockchain startups such as Taqanu and EverID are creating digital identity “containers” that allow an individual to manage his or her own data. They could make information on refugee status, vaccinations, and other important indicators available in one digital location that is continuously updated and accessible globally, potentially facilitating access to both social and financial services. Source: Lyman and de Koker 2018. 26 S om a l i a Eco n om i c Update • 2018 Special Focus Innovating beyond payments social connecti ons and person-to-person payments in many countries, including Somalia, nonbanks orms, followed by the use of alternati platf ve data have driven gains in financial inclusion, filling the for credit scoring, which is of increasing interest to gap left by banks, which have little interest in providers (Figure 2.7). Table 2.3 provides examples low-income customers. Mobile network operators of digital innovations for financial inclusion that typically are not licensed to off er credit, savings, or are being tested in the region11. insurance services, however. As a result, they are not in a positi on to innovate beyond payments. Figure 2.7: Main digital attributes leveraged in digital innovations for financial inclusion Improved UI/UX The growth of the mobile money ecosystem Location based 6% Social 7% Interactions/P2P provides opportunities to expand the base of 29% digital financial products and attract new Blockchain for personal data investors. There is potenti al to innovate beyond storage 7% basic payment systems. Somalia’s neighbors off er examples of the what the future of mobile-led Real-time Interactions/ innovati nancial inclusion can look like. ons for fi behavioral nudges 16% Digital innovations for financial inclusion are Virtual Alternative data marketplace trails for scoring linked to well-developed mobile money markets. 17% 18% A 2017 competi on led by the Consultati ti ve Group Source: Vidal 2017. to Assist the Poor (CGAP) invited fi rms to submit proposals for using digital fi nance to increase 2.6 Conclusion and recommendations nancial inclusion. The largest number of proposals fi mobile money has become central to the people came from Kenya, which has a mature mobile money and economy of Somalia. It is one of the main ecosystem that enables innovati ons to leverage on instruments used by both individuals transacti digital payments platf orms. Other African countries and businesses. with developed money markets (and large numbers of proposal submissions) include Ghana, Nigeria, Weak regulation combined with a lack of capacity Tanzania and Uganda10. for oversight stands in the way of ensuring continued and undisrupted service delivery. About half the innovations proposed sought to It also prevents the growth of more innovati ve develop retail financial products for low-income digital fi nance services. The complete absence people; the other half focused on tailoring of consumer protecti on for mobile money products for specific sectors, including small and service users disproporti ects the most onately aff medium-size enterprises, farmers, health, energy, vulnerable segments of the populati on (including education, and housing. The most popular products women and low-income people), who are oft en proposed were credit soluti ons (access to credit to fi nancially inexperienced. meet fi nancing gaps, address fi nancial shocks, or increase future income through investments) and given the mass adoption of mobile money payment soluti ons as a building block for other services in Somalia, the macroeconomic effects digital fi nancial services, such as credit, savings, of a possible disruption of mobile money and insurance. The main digital att ributes the platforms cannot be underestimated. Disrupti on in innovati ve soluti ons sought to leverage included service delivery could make it diffi cult for Somalis to August 2 0 1 8 | Edition No. 3 27 Special Focus Table 2.3: Digital innovations for financial inclusion being tested in Africa Country Organization Idea • Start-up provides educational videos and quizzes for microentrepreneurs Ghana InvestED and tests the predictive power of data on courses taken and quiz results for credit scoring by multinational financial institutions. • Company is testing the ability of satellite images and GPS to assess farmers’ Kenya Apollo loan repayment capacity and cashflow timing, with aim to increase cost- effectiveness of lending to smallholders. • Social enterprise is partnering with Juhudi Kilimo (a multinational financial institution) to test the effectiveness of credit underwriting based only on Kenya BioLite the psychometric scoring tool of the Entrepreneurial Finance Lab. The aim is to help rural populations in Kenya without lending histories or formal income finance necessities. • Company is partnering with Sterling Bank to test the usefulness of social Nigeria Social Lender reputation and social network guarantors in informing lending decisions for low-income customers. • Company is testing a digital tontine that incorporates a credit-scoring system to offer access to small loans and other financial services. Will Senegal MaTontine partner with two regional multinational financial institutions that will offer loans and other financial products to tontine members, and Orange Money, which will handle all payments transactions. • Company plans to introduce a mobile wallet app that works with mobile money systems in Tanzania and can run on USSD without a data connection. Tanzania Hover Aim is to evaluate how improved interface affects customers’ behavior and use of mobile money. • Company is testing an online supply chain financing platform through which small businesses can receive financing against approved purchase orders or Uganda Patasente invoices. Investors earn returns by guaranteeing or lending to small and growing enterprises. Source: Vidal 2017. purchase goods and services and lead to contraction Investments in better regulation will be effective in the money supply because of the inability to only if they are tied to capacity development at access funds held in mobile money wallets. the CBS, particularly the capacity to determine the financial health of mobile money service providers A phased-in approach towards regulating mobile and perform risk-based supervision. The results money would mitigate the risks associated with from experimenting with a regulatory sandbox regulation. It would provide time for new policies approach will be important in setting the foundation and systems to be implemented and compliance for more sophisticated innovations that expand the strengthened. It would encourage greater base of digital financial products and attract new innovation, as mobile money service providers investors in Somalia. implement better platforms and systems. 28 S om a l i a Eco n om i c Update • 2018 Section endnotes 1 IMF (International Money Fund). 2017. 2016 IMF Somalia Country Report 17/61. Washington, DC. 2 Watkins, K., and M. Quattri. 2014. Lost in intermediation: How Excessive Charges Undermine the Benefits of Remittances for Africa. Overseas Development Institute, London. 3 World Bank. 2017a. Mobile Money Ecosystem in Somalia: Household Survey and Market Analysis. Washington, DC. 4 ———. 2018b. World Bank Global Findex Report 2017. Development Research Group, Washington, DC. 5 ———. 2017b. Mobile Money in Somali Ecosystem Mapping: Stakeholder Mapping Report. Washington, DC. 6 Cirera, X., and W. Maloney. 2017. The Innovation Paradox: Developing Country Capabilities and the Unrealized Promise of Technological Catch-Up. Washington, DC: World Bank. 7 Buri, S., Cull, R., Giné, X., Harten, S., and Soren Heitmann. 2018. Banking with Agents: Experimental Evidence from Senegal. World Bank, Development Research Group, Washington, DC. 8 Waldron, D., and A.M. Swinderen. 2018. “Remote Lockouts: The Dark Side of Pay-as-You-Go Solar?” CGAP Blog Post, May 9. Consultative Group to Assist the Poor, Washington, DC. http://www.cgap.org/blog/remote-lockouts-dark-side-pay-you-go-solar. 9 Scharwatt, C. and others. 2014. 2014 State of the Industry: Mobile Financial Services for the Unbanked. GSMA, London. 10 Waldron, D., and A.M. Swinderen. 2018. “Remote Lockouts: The Dark Side of Pay-as-You-Go Solar?” CGAP Blog Post, May 9. Consultative Group to Assist the Poor, Washington, DC. http://www.cgap.org/blog/remote-lockouts-dark-side-pay-you-go-solar. 11 Vidal, M. 2017. Mapping Africa’s Latest Innovations in Digital Finance. CGAP Blog Post, September 13, Consultative Group to Assist the Poor, Washington, DC. http://www.cgap.org/blog/mapping-africa%E2%80%99s-latest-innovations-digital-finance AppendiCES Appendices AppendiCES: Regional Revenue and Expenditure Performance Regional Revenue Performance Federal Member States (FMS) are increasing their revenue collection (Figure A.1). Between 2015 and 2015, revenues rose by 28 percent (from $47 million to $60 million) in Puntland and by 167 percent in Jubaland (from $4.9 million to $13.3 million). Grants are the main source of revenues in South West State and Galmudug. Figure A.1: Government revenues in most Federal Member States have increased a. Government revenues in Puntland b. Domestic revenue sources in Puntland 70.0 68.5 60.3 60.0 52.9 Millions of dollars 50.0 18% 10% 40.0 25% 9% 9% 94% 12% 21% 30.0 92% 16% 20.0 91% 59% 56% 52% 10.0 - 2015 2016 2017 2015 2016 2017 Domestic Grants Trade taxes Transfers Other taxes Tax revenue Taxes on goods & services Income & corporate taxes c. Government revenues in Jubaland d. Domestic revenue sources in Jubaland 20.0 120 100 15.0 millions of dollars 3.8 80 19% 19% 15% 19% 10.0 60 40 2.0 13.3 5.0 0.7 74% 67% 59% 62% 20 1.1 4.9 5.0 2.0 0.0 0 2014 (6 Months) 2015 2016 2017 2014 (6 Months) 2015 2016 2017 Trade taxes Taxes on goods & services Income & corporate taxes Domestic Grants Other Taxes Non-Tax Revenue e. Total Revenue in SWS f. Total Revenue in Galmadug 8.0 6.0 7.0 5.0 6.0 7.6 4.0 5.0 US$ Million 4.9 US$ Million 4.0 5.2 3.0 4.6 3.0 4.0 2.0 2.9 2.0 2.4 2.3 1.0 2.5 2.4 1.0 2.3 1.7 0.8 1.4 1.1 0.0 0.4 0.0 Budget Actual Budget Actual Budget Actual Budget Actual 2016 2017 2016 2017 Domestic Grants Domestic Grants Source: Ministries of finance of Federal Member States. 32 S om a l i a Eco n om i c Update • 2018 Appendices As in the FGS, trade taxes, mainly generated from ports, drive domestic revenues in the FMS. States with no ports collect minimal revenue and are highly dependent on grants. In all of the FMS, revenue forecasts are unrealistic. The consolidated domestic revenue of the FGS and the FMS reached $217 million in 2017, equivalent to 3 percent of GDP (Figure A.2). The FGS accounted for 66 percent, Puntland 27 percent, Jubaland 6 percent, and South West and Galmudug together 0.8 percent of all revenue. Across Somalia challenges underlying low domestic revenue collection include the narrow tax base, the absence of necessary legal and regulatory frameworks, poor collection and administration capacity, and the absence of a fiscal agreement FGS and FMSs. Figure A.2: The consolidated domestic revenues of the Federal Government of Somalia and Federal Member States rose between 2015 and 2017, absolutely and as a share of GDP 250 3.5 3.0 0.2 15.2 200 2.5 0.1 0.1 0.9 4.9 6.9 60 million of dollars 150 57 Percent of GDP 2.0 0.7 0.8 47 1.5 100 143 2.1 1.0 114 113 1.7 1.7 50 0.5 0 - 2015 2016 2017 2015 2016 2017 FGS Puntland Others FGS Puntland Others Source: Ministries of finance of the Federal Government of Somalia and Federal Member States. Regional Expenditure Performance Wages and salaries and use of goods and services account for almost all expenditures by FMS; there is no capital spending (Figure A.3). Puntland’s spending expanded by 7.8 percent between 2015 and 2017, from $63.8 million to $68.7 million. Just 79 percent of the budget was executed in 2017. Expenditure was mainly on wages and salaries and use of goods and services. In Jubaland spending almost tripled between 2015 and 2017. In 2017, 58 percent of it went to the wage bill and 40 percent to the purchase of goods and services. Wages and salaries and goods and services accounted for all expenditure in South West State and Galmudug. August 2 0 1 8 | Edition No. 3 33 Appendices Figure A.3: Expenditure trends in the Federal Member States Total expenditure in Puntland Expenditure composition in Puntland 100.0 100 86.6 7 80 80.0 32 18 70.1 67.9 Millions of dollars 63.8 60 60.0 Percent 60.0 7 26 40 14 40.0 20 37 40 20.0 0 2015 2017Q1- Q3 Wages & Salaries Use of Goods & Services - Actual Budget Actual Budget Actual Transfers Other expenses Grants Social benefits 2015 2016 2017 Capital Contingency a. Actual Expenditure in Jubaland b. Expenditure in SWS 120 7.6 100 Millions of dollars 80 23 11 40 5.2 Percent 22 60 3.7 6.8 40 76 2.3 70 62 58 4.6 20 1.7 2.1 0 2014 (6 Months) 2015 2016 2017 Budget Actual Budget Actual 2016 2017 Wages & Salaries Use of goods & services Source: Ministries of Finance of Federal Member States. 34 S om a l i a Eco n om i c Update • 2018 Appendices GDP in Somalia, 2013–16 (millions of dollars) GDP in current prices GDP in constant prices (2012 = 100) Item 2013 2014 2015 2016 2013 2014 2015 2016 GDP (at market prices) 6,481 6,562 6,659 6,762 6,481 6,509 6,765 7,061 Consumption expenditure 8,545 8,940 9,093 9,287 8,545 8,828 9,086 9,386 Household + NPISH expenditure 8,273 8,621 8,773 8,926 8,273 8,513 8,766 9,021 Government expenditure 272 319 320 361 272 315 320 365 Gross capital formation 555 582 566 639 555 584 582 694 Net exports of goods & services –2,618 –2,959 –3,000 –3,164 –2,618 –2,904 –2,904 –3,018 Exports of goods and services 943 945 1,038 1,020 943 932 1,021 996 Imports of goods and services 3,561 3,904 4,038 4,184 3,561 3,835 3,925 4,014 Source: World Bank and IMF estimates, 2018. External Sector 2013 2014 2015 2016 2017 Item Preliminary Estimate Current account balance -3.4 -5.2 -4.7 -6.3 -6.6 Trade balance -40.4 -45.1 -45.0 -46.8 -55.2 Exports of goods and services 14.5 14.4 15.6 15.1 11.5 Imports of goods and services -54.9 -59.5 -60.6 -61.9 -66.7 Current transfers (net) 37.5 40.3 40.8 40.9 48.2 Private (net), including remittances 20.1 20.1 19.5 19.8 21.9 Official (including direct budget support) 17.4 20.3 21.2 21.2 26.3 Capital account and financial account 3.4 5.2 4.7 6.3 7.4 Of which foreign direct investment 3.5 4 4.5 4.9 5.3 Other capital flows (net) –2.4 –1.1 –2.0 –0.8 –0.3 Overall balance - - - - - Source: World Bank and IMF estimates, 2018. August 2 0 1 8 | Edition No. 3 35 36 Exchange Rate (Somali Shillings per US$) Year/Month 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan 31,765.00 31,557.69 30,522.22 22,207.41 20,334.62 19,674.04 22,285.20 22,687.69 23,994.07 23,566.11 Feb 28,123.96 30,527.08 29,953.13 24,600.00 17,569.57 18,570.83 22,196.46 22,736.38 21,525.83 23,546.67 28,942.59 30,183.33 30,311.11 22,843.27 16,216.00 19,189.81 22,211.11 22,751.00 21,197.12 23,306.92 S om a l i a Eco n om i c Update • 2018 Mar Apr 31,210.58 30,912.00 31,739.00 22,268.00 17,746.15 20,455.00 22,231.54 22,940.42 23,436.92 23,405.03 May 31,809.62 31,737.04 33,025.93 22,267.59 18,334.62 20,767.31 22,264.62 23,016.67 23,621.67 23,581.00 Jun 32,880.77 32,983.65 33,593.27 22,334.00 19,207.69 20,775.00 22,211.73 22,993.08 23,245.00 23,581.00 Jul 33,431.73 32,129.81 31,446.15 22,199.07 19,370.37 21,086.54 22,263.00 23,036.58 23,258.70 24,417.96 Aug 32,447.22 30,202.41 30,396.30 22,261.54 19,720.19 20,814.00 22,272.59 23,043.33 23,197.41 - Sep 32,121.35 30,196.73 30,228.00 22,386.54 20,183.65 20,470.19 22,269.04 22,990.40 23,202.60 - Oct 32,540.38 31,701.54 28,196.30 22,275.93 21,246.30 20,234.62 22,284.04 23,057.41 23,365.37 - Nov 31,776.92 31,796.15 25,153.85 22,344.00 21,032.00 20,466.15 22,275.40 23,527.69 23,600.38 - Dec 31,817.59 31,312.50 25,062.50 22,207.41 20,444.44 20,267.96 22,286.30 23,960.77 23,538.85 - Year Average 31,572.31 31,269.99 29,968.98 22,516.23 19,283.80 20,230.95 22,254.25 23,061.79 23,098.66 13,783.72 Source: Central Bank of Somalia Appendices Appendices FGS Fiscal Outturn, Million US$ 2012 2013 2014 2015 2016 2017 1. TOTAL REVENUE 35.1 117.4 145.3 141.2 168.0 246.5 (A) DOMESTIC REVENUE 30.2 75.8 84.3 114.3 112.7 142.6 Tax Revenue 25.3 65.1 73.8 82.4 88.6 112.0 Income and corporate taxes 0.7 1.1 1.9 2.4 3.4 Taxes on international trade 24.0 58.7 64.3 71.1 76.3 96.4 Other domestic indirect taxes 1.6 4.8 4.8 2.9 5.3 Other taxes 1.3 4.0 3.6 4.5 7.0 6.9 Domestic Loan and Grants 0.0 6.6 - - - - Non-Tax Revenue 4.1 10.5 31.9 24.1 30.6 (B) DONOR FUNDING 4.9 41.7 61.0 26.9 55.3 103.9 Bilateral 4.9 41.7 59.03 2.87 31.3 61.8 Multilateral 0 1.93 24 24.0 42.0 EXPENDITURE 35.1 117.4 151.1 135.4 170.4 243.7 (A) RECURRENT EXPENDITURE 35.1 117.4 150.9 133.1 165.1 237.3 Compensation of employees 13.5 51.9 77.2 55.4 79.3 128.9 Use of goods and services 18.9 54.5 57.6 60.0 70.2 82.1 Grants 2.7 7.5 10.1 13.8 9.4 22.4 Contingency 0.0 3.5 3.8 2.6 2.1 4.0 Repayment of arrears and advances 0.0 0.0 2.2 1.3 4.1 (B) CAPITAL EXPENDITURE 0.0 0.0 0.2 2.3 5.3 6.3 Capital 0.0 0.0 0.2 2.3 5.3 6.3 Source: Ministry of Finance, FGS. August 2 0 1 8 | Edition No. 3 37 Appendices Puntland Fiscal Outturn, Million US$ 2015 2016 2017 Total Revenue 52.9 60.3 68.5 Tax Revenue 48.1 56.6 55.0 Income and corporate taxes 1.6 2.7 3.0 Other taxes 5.8 11.8 1.2 Taxes on goods & services 12.1 10.2 7.8 Trade taxes 28.5 31.9 31.2 Other revenue - - 0.1 Transfers - - 11.6 Non-tax revenue - - 5.2 Grants 4.9 3.7 8.4 Total Expenditure 63.8 70.1 67.9 Operations 63.8 70.1 65.6 Wages & Salaries 23.8 31.3 29.8 Use of Goods & Services 8.8 32.5 17.3 Transfers 4.5 6.1 11.7 Other expenses 20.2 0.3 6.0 Social benefits - - - Contingency 6.5 - 0.9 Grants - - - Capital - - 2.3 Source: Ministry of Finance, Puntland. 38 S om a l i a Eco n om i c Update • 2018 Appendices Jubbaland Fiscal Outturn, Million US$ 2014 2015 2016 2017 (6 months) Total Revenue 3.1 5.6 7.0 17.1 Taxes 2.0 4.7 4.7 12.5 Taxes on International Trade & Transactions 1.5 2.9 3.1 8.9 Taxes on goods and services 0.4 0.9 0.9 2.1 Taxes on Payroll and Workforce - - - 0.2 Total Taxes on Income, Profits & Capital Gains - 0.4 0.5 1.0 Property Income 0.1 0.2 - 0.0 Other Taxes 0.1 0.3 0.2 0.3 Other revenue 0.0 0.2 0.2 0.8 Sale of Goods & Services 0.0 0.2 - - Fines, penalties and forfeits - 0.0 0.0 0.0 Rental income - - 0.2 0.0 Administrative Fees - - 0.1 0.7 Grants 1.1 0.7 2.0 3.8 Other General Government Units 1.1 0.0 0.5 0.0 International Organizations 0.0 0.3 1.1 2.0 Foreign governments - 0.4 - 0.2 Grants from FGS - - 0.4 1.5 Total Expenditure 2.9 5.8 6.8 17.0 Operations 2.8 5.4 6.4 17.0 Wages & Salaries 2.0 3.6 5.1 9.7 Use of goods and services 0.7 1.3 0.7 6.8 Social Benefits 0.1 0.1 0.2 - Conflict Resolution Expenses - 0.4 0.3 0.1 State Formation - - - 0.2 Contingency - - - 0.2 Other Expenses - - 0.4 - Grants To Other General Government Units 0.0 0.1 0.0 0.1 Grants from FGS - - - - Capital Expenditure 0.1 0.3 - - - - - - Deficit/Surplus 0.2 (0.2) 0.2 0.0 Source: Ministry of Finance, Jubbaland. August 2 0 1 8 | Edition No. 3 39 Appendices South West State Fiscal Outturn, Million US$ 2016 2017 Total Revenue 2.3 4.0 Tax Revenue 0.8 1.4 Tax on Goods & Services 0.7 0.9 Trade Taxes - 0.4 Taxes on income, profits, & capital gains - 0.1 Tax on Payroll & workforce - 0.0 Other Taxes 0.1 0.0 Non-Tax Revenue 0.0 0.0 Grants 1.4 2.7 Expenditure Total Expenditure 2.3 3.7 Compensation of employees 1.7 2.1 Use of goods & Services 0.6 1.6 Grants - - Source: Ministry of Finance, South West State. Galmudug Fiscal Outturn, Million US$ 2016 2017 Total Revenue 2.9 2.4 Tax revenue 1.1 0.4 Tax on payroll & workforce - - Tax on goods and services - 0.3 Trade taxes 1.1 0.1 Other taxes - - Grants 1.9 2.0 Current Grants From I international 1.1 0.3 Organizations Grants from Federal Government of 0.7 1.7 Somalia Total Expenditure 2.9 1.1 Recurrent expenditure 2.9 1.1 Compensation of employees 1.5 0.9 Use of goods & Services 1.1 0.0 State Formation 0.3 0.1 Grants - - Source: Ministry of Finance, Galmudug. 40 S om a l i a Eco n om i c Update • 2018 References Buri, S., Cull, R., Giné, X., Harten, S., and Soren Heitmann. 2018. Banking with Agents: Experimental Evidence from Senegal. World Bank, Development Research Group, Washington, DC. Cirera, X., and W. Maloney. 2017. The Innovation Paradox: Developing Country Capabilities and the Unrealized Promise of Technological Catch-Up. Washington, DC: World Bank. Dias, D., and K. McKee. 2010. Protecting Branchless Banking Consumers: Policy Objectives and Regulatory Options. CGAP Focus Note 64. Consultative Group to Assist the Poor, Washington, DC. Ernst & Young. 2018. Expanding the Circles of Trust: Unleashing the Power of Financial Intermediation and Global Connectedness for Somalia. Fuchs, M., T. Musuku, and D. Symington. 2016. Mobile Money Taxation: Policy Issues and Considerations for Pakistan and Tanzania. World Bank, Washington, DC and Oxford Policy Management, Oxford. Gelb, A., and A. Diofasi. 2016. “ID for Development: Opportunities and Challenges for Africa.” Africa Policy Review. World, and FAO (Food and Agriculture Organization). 2018. Rebuilding Resilient and Sustainable Agriculture in Somalia. Washington, DC. IMF (International Money Fund). 2017. 2016 IMF Somalia Country Report 17/61. Washington, DC. IMF (International Money Fund). 2018. IMF Somalia Country Report 18/55. Washington, DC. Lyman, T., and L. de Koker. 2018. KYC Utilities and Beyond: Solutions for an AML/CFT Paradox?. CGAP Blog Post, March 1. Consultative Group to Assist the Poor, Washington, DC. http://www.cgap.org/blog/kyc- utilities-and-beyond-solutions-amlcft-paradox. Massally, D., and D. Schan. 2018. What Can We Learn from Sierra Leone’s New Regulatory Sandbox?. CGAP Blog Post, May 15. Consultative Group to Assist the Poor, Washington, DC. http://www.cgap.org/blog/ what-can-we-learn-sierra-leone’s-new-regulatory-sandbox. World Bank. 2017a. Mobile Money Ecosystem in Somalia: Household Survey and Market Analysis. Washington, DC. Ndungu, N. 2012. Balancing Financial Inclusion and Stability. CGAP Blog Post, February 9. Consultative Group to Assist the Poor, Washington, DC. http://www.cgap.org/blog/balancing-financial-inclusion-and-stability. Thomas, J. 2012. Regulation Spurs Innovation in the Philippines. CGAP Blog Post, November 5. Consultative Group to Assist the Poor, Washington, DC. http://www.cgap.org/blog/regulation-spurs- innovation-philippines. Scharwatt, C. and others. 2014. 2014 State of the Industry: Mobile Financial Services for the Unbanked. GSMA, London. Vidal, M. 2017. Mapping Africa’s Latest Innovations in Digital Finance. CGAP Blog Post, September 13, Consultative Group to Assist the Poor, Washington, DC. http://www.cgap.org/blog/mapping- africa%E2%80%99s-latest-innovations-digital-finance Waldron, D., and A.M. Swinderen. 2018. “Remote Lockouts: The Dark Side of Pay-as-You-Go Solar?” CGAP Blog Post, May 9. Consultative Group to Assist the Poor, Washington, DC. http://www.cgap.org/blog/remote- lockouts-dark-side-pay-you-go-solar. Watkins, K., and M. Quattri. 2014. Lost in intermediation: How Excessive Charges Undermine the Benefits of Remittances for Africa. Overseas Development Institute, London. World, and FAO (Food and Agriculture Organization). 2018. Rebuilding Resilient and Sustainable Agriculture in Somalia. Washington, DC. August 2 0 1 8 | Edition No. 3 41 World Bank. 2017a. Mobile Money Ecosystem in Somalia: Household Survey and Market Analysis. Washington, DC. World Bank. 2014. Financial Inclusion Database. Washington, DC. http://datatopics.worldbank.org/ financialinclusion/country/somalia. World Bank, and IFC (International Finance Corporation). 2017. Doing Business in Somalia 2017. Washington, DC. World Bank and Others. 2018. Somalia Drought Impact & Needs Assessment (DINA). Washington DC. ———. 2018b. World Bank Global Findex Report 2017. Development Research Group, Washington, DC. ———. 2017b. Mobile Money in Somali Ecosystem Mapping: Stakeholder Mapping Report. Washington, DC. ———. 2015. World Bank Global Findex Report 2014. Development Research Group, Washington, DC. 42 S om a l i a Eco n om i c Update • 2018 Rapid Growth in Mobile Money: Stability or Vulnerability? Somalia’s economy has grown modestly in recent years, and it remains vulnerable to recurrent shocks. Between 2013 and 2017, real annual GDP growth averaged 2.5 percent. Growth occurred despite adverse weather conditions that severely reduced agricultural output in late 2016 and early 2017. Weather-related shocks have led to land degradation, low agricultural productivity, livestock mortality, and forced displacement, which have affected poor communities and depleted their ability to cope. For Somalia to enhance and sustain economic growth and escape chronic poverty, it must increase its resilience to shocks. The growth recovery is set to continue beyond 2018, lifted by gains from ongoing reforms as well as improved security. Rising domestic demand, remittances, and donor inflows and consolidation of peace and security are expected to drive growth in 2019–20. Achieving higher growth will require acceleration of structural reforms, particularly in three areas: fiscal policy and public financial management, provision of basic services (to promote human development and inclusion), and improved resilience to weather shocks particularly in the agriculture sector. Mobile money is an essential and widespread part of Somalia’s economic eco-system. Almost three-quarters of the population aged 16 and above use mobile money on a regular basis. It is now the main transaction instrument used by both individuals and businesses across the country: presenting an opportunity to increase access to finance, spur inclusive growth, and promote resilient communities. However, with increasing dependence on mobile money as a medium of exchange comes increased vulnerabilities. If Somalia is to ensure mobile money contributes positively to economic recovery, smart regulation will be needed to address the risk and vulnerabilities of the system and to promote competition and innovation. World Bank Group SOMALIA ECONOMIC UPDATE Delta Center Menengai Road, Upper Hill Join the conversation: P. O. Box 30577 – 00100 Twitter Nairobi, Kenya @mpfsomalia Telephone: +254 20 2936000 Website: www.worldbank.org/somalia Find out more on: #SomaliaEconomicUpdate Photo credits: Warsame J. Gure and Hassan Hirsi/World Bank