May 18, 2012- The Kernel - As Somaliland celebrates its 21st birthday, Africa editor Monty Munford reports on the nation’s mobile payment revolution.
Today is the 21st birthday of self-proclaimed African republic Somaliland, which was born after an ill-fated union with Somalia that was compounded by the collapse of that country’s political system in 1991 and the overthrow of despised dictator Siad Barre.
Somaliland was previously a UK protectorate known as British Somaliland, which in 1960 became the first African country to transfer power from the military to civilians after independence, until it cleaved itself to its bigger neighbour, Somalia. After years of tribal tensions, a savage civil war broke out, the Somalis were finally ousted and Somaliland retreated to its pre-independence border.
The country remains unrecognised by the rest of the world, and the land of 3.5 million people is dependent on its diaspora for its budget. But the country is peaceful, there is a reasonably free press, a free market economy and two years ago, an election saw the incumbent president hand over power without many guns being fired.
Such isolation can bring problems. Earlier this week, a military court in Hargesia, the country’s capital, sentenced 17 people to death and handed life sentences to five minors for attacking a military base, barely 24 hours after the attack took place.
Tribal tensions are obviously still a factor for Somaliland, but the world may be watching and listening at last. In a recent map of Africa published by The Economist‘s Intelligence Unit, the country was described as a “flawed democracy”. It was also one of the first times that Somaliland has appeared as a separate entity on a map of Africa.
Its continuing efforts to contain the neighbouring Somali piracy problem have also impressed the global community. The Berbera prison on the country’s Gulf of Aden coast are full of pirates that the Somaliland military have arrested on land, not sea.
There are also moves to establish the country’s first central bank, which will enable foreign commercial banks to enter Somaliland by 2013. There are no ATMs in the country and credit cards are regarded as ridiculous by local people – almost as ridiculous as its unrecognised currency.
Spending a day in Hargesia explains this. Kids walk around with wheelbarrows full of Somaliland shillings as money-changers sit surrounded by mounds of mouldy banknotes. The price of two cups of sweet tea means walking around with a carrier-bag of money. It’s like being transported back in time to the Weimar Republic.
UK company De La Rue, which produces banknotes for more than 150 countries and is preparing for the return of the Greek drachma, has done similar currency preparatory work for Somaliland. By the sheer number of banknotes in the capital, this is a very lucrative business indeed.
Strangely enough, one of the biggest adherents for Somaliland independence comes from the Welsh. There is a large Somaliland community there and members of the Somaliland government were invited to the opening of the Welsh Parliament in 2008, a mischievous invitation from another country that would also like to be recognised as independent.
While the Welsh connection is odd, it is innovation in Somaliand’s mobile and tech sectors that is equally bizarre. Necessity, as ever, is the mother of invention and Somaliland’s exclusion from the rest of the world only proves Shakespeare’s oft-used maxim.
The country’s thrown-together-by-necessity system of money transfer posts from its diaspora and a surging mobile banking industry means the country’s mobile sector is buoyant. Dahabshiil is an African version of Western Union that is extraordinarily efficient. It has 24,000 agents and branches in 144 countries and enables Somalilanders to withdraw US dollars within five minutes of funds being deposited.
The country is also the cheapest place in Africa to make and receive telephone calls. It has six operators for a country of little more than 3.5 million people, and fierce competition between these operators means prices are kept low.
Around 18 months ago, when it launched Somtel, Dahabshiil joined Telesom, Telcom, Africa Online, Nationlink and Soltelco as the country’s sixth carrier, and it hopes to meld nearly two decades of money-transferring with the mobile banking capabilities that are available to Somalilanders.
The sophistication of the country’s mobile industry contrasts wildly with the aforesaid scenes of Somaliland Shilling piled up in Hargesia. As mobile banking spreads across Africa and the Horn of Africa, there remains the tantalising possibility that one day Somaliland will dispense with cash altogether.
The results thus far have been impressive. Somaliland’s dominant money-transfer system Zaad has picked up more than 300,000 users since its launch three years ago through the Telesom network.
Single customers are limited to transfers of $500 while accredited merchants can move up to $2,000. Most service businesses use the system and Telesom pays all of its employees using Zaad.
More bizarrely, peddlers of the local narcotic qat even accept payment through Zaan. While the vision of London cocaine dealers accepting payment through Barclays’ mobile banking service Pingit is a delicious one, this is one area where the UK is not expected to follow.
But the relative ignorance of Somaliland and its proximity to Somalia’s anarchy remains. Zaad is different to ZAAD, another mobile banking service in Somalia that the UN has investigated for allegedly providing fundraising for the Al-Shabaab terrorist group.
The challenges of the past 21 years remain for Somaliland, but with the continuing profile of the Somali piracy problem reflecting the country’s efforts in combating the problem, there is hope it will obtain the recognised sovereignty to which it aspires.
If a mobile sector can flourish under such captive conditions, there is a very good chance that an entrepreneurial sector can emerge. Its more benign neighbour to the south, Ethiopia, is currently the second-fastest growing economy.
Furthermore, the recent $100 million Ethiopia-only fund that was launched this month by US company Schulze Global Investments and is supported by the UK’s CDC, only underlines how interested the investment community is in the Horn of Africa.
In the interim, it’s time to wheel out the birthday cake and raise a glass to Somaliland’s coming of age and its 21st birthday. Unfortunately, though, it’s impossible to buy alchohol in Somaliland so it will have to be done at a distance. Nothing’s perfect.