Somaliland Central Bank Deepens Poverty of the Poor

I have been working for some time to stop the contract with De La Rue involving the printing of 380 billion Somaliland Shillings.

First, I contacted anyone that I thought could do something about it. However, when I exhausted that venue and couldn’t lead me a solution, I posted my concerns in my social media spaces.

Following my exposure, the Somaliland Central Bank started to speed up the contract and money printing. This led the Sahamiye Foundation to send the below open letter to De La Rue.

The letter sheds light on the magnitude of the economic collapse that can be expected of such action for the country, which will particularly affect the low-income earners.

Since no one is competing for the contract, the price quoted by the company is exorbitant. In Tanzania, contracts for money printing are transparent and competitive among the companies involved in this type of business, and De La Rue has tripled its price in one of the biddings which caused them to lose the contract.

It is worth noting, as article 35 of the Central Bank Act (Act No. 54/2012), the design and appearance of the new 10,000 shillings note must be submitted to the House of Representatives for approval. At the time of introducing the 5,000 shillings bill, it was brought before the House of Representatives. After they discussed and approved it, then it became the country’s “Legal Tender”.

The current secret contract introducing the new bill of 10,000 shillings is bypassing and in violation of this legal legislative process and even Central Bank is denying that it is being printed.

Finally, it is clear that this company is robbing the nation. Companies that print money are privately owned and independent of governments. Therefore, there is no reason to award this contract to this company which has been known for corruption and bad reputation.

SAHAMIYE FOUNDATION
5 October 2023
De La Rue House,
Jays Close, Basingstoke, Hampshire, RG22 4BS

Re: Urgent appeal to reconsider the contract in relation to printing of SL Shilling
Dear Mr. Clive Vacher,

I write to you to raise significant concerns regarding the contract between the Central Bank of Somaliland and De La Rue, involving the printing of 380 billion SL shillings. This contract poses serious economic, ethical and legal issues, and risks plunging millions of children and adults into deeper poverty. Those from low-income and disadvantaged groups of society will be hardest hit, further entrenching the socio-economic divide that inhibits progress and development.

I therefore call on you to take a principled stand. I urge you to cancel the contract and return the $9.6 million that the Central Bank of Somaliland sent you to fund the transaction.

The concerns I have about this contract are:

1. Economic Repercussions: The 380 billion Somaliland shillings you plan to print and ship to Somaliland would double the local currency in circulation and could potentially destabilize Somaliland’s already fragile economy. Somaliland’s economy is largely dollarized.

However, while affluent groups and those receiving international remittances transact in dollars, low-income groups—including nomads, farmers, civil servants, and small traders—primarily earn in Somaliland shillings. Increasing the local currency in circulation disproportionately affects these demographics, devaluing their savings and acting as a concealed tax on the most vulnerable. The highly unusual decision to print money, especially at a time when the country is preparing for presidential elections, is predicted to cause the value of the Somaliland shilling to drop from 8,750 to over 20,000 per dollar.

2. Pricing out the Poorest: Since the introduction of the Somaliland shilling in the mid-1990s, excessive and reckless money printing has caused the Somaliland shilling’s value to plummet from 50 to 8,759 Somaliland shillings per US dollar. While these transactions proved highly profitable for De La Rue, they impoverished millions in Somaliland. This rapid deterioration of the Somaliland shilling’s value contributed to the de facto dollarization of the economy. The local currency became so devalued that it required a wheelbarrow to carry the equivalent of $100.

Before the launch of mobile money services, the primary role of the local currency was to provide small change, required because there was a shortage of small dollar notes and coins. The digitalization of money has reduced the need for physical cash, making it convenient to transact in small dollar amounts. The mobile money accounts in dollars helped the poor to keep some of their money in dollars to hedge against the risks associated with the local currency.

However, in the wake of the last money printing in 2017, when the currency lost 50% of its value, the government mandated mobile money operators to offer Somaliland shilling accounts. They also imposed a rule forcing all transactions under $100 to be conducted in the local currency. This restriction robbed the poorer segments of the population of the opportunity to save in dollars, trapping them in a relentless cycle of devaluation. While affluent groups have devised strategies to bypass the $100 limit to avoid transacting in the local currency, it’s the voiceless majority that will bear the brunt of this insidious tax, which will disproportionately affect the poorest.

3. Improper Contract Rationale: The plan to print 380 billion SL shillings will exacerbate the existing currency oversupply, and is therefore, in effect, pointless and of no benefit to the people of Somaliland. Given that most of the currency is held in mobile money accounts in a predominantly cashless economy, nearly all physical notes are stored at the Central Bank. The primary reason for this contract appears, then, to be rooted in corruption and De La Rue’s desire for profit.

4. Questionable Procurement Process: De La Rue was awarded this contract through a process that bypassed the standard procurement rules and regulations. There was no competitive bidding to ensure value for money, nor was there approval from the parliament for the introduction of the new 10,000 legal tender as required by law. This behavior appears consistent with De La Rue’s involvement in corruption scandals and investigations by the Serious Fraud Office in the past and is disappointing. If the reckless printing process continues unchecked, it could push millions more into poverty.

This is particularly alarming considering existing vulnerabilities caused by local events, such as the Hargeisa market fire and global crises like the Covid pandemic and the Ukraine war. The number of food-insecure individuals could more than double because of the combined effect. Moreover, many children would be forced out of school as dollar-based fees become unaffordable for their families. In light of the above concerns, and the broader implications for Somaliland’s economic and social fabric, I appeal to you to cancel the contract with the Central Bank of Somaliland and return the $9.6 million intended to fund the printing. By doing so, De La Rue will publicly demonstrate responsible corporate citizenship, align with the principles of ethical business conduct and avoid the responsibility for harming the welfare of millions of people.

Yours sincerely,
Ismail Ahmed
Founder and Director, Sahamiye Foundation