The Somaliland government needs to encourage private banks, insurance companies and others to lend money to grow the economy, which is over-dependent on taxation.
At present the Central Bank collects taxes from Berbera, ports and airports, fines from law infringements, driving licences, passports and the like. Some of that money “leaks” but this gap could be plugged if the government invested in sound financial infrastructure and developed a cadre of people to run it. We need to follow other countries and give individuals a tax number, which would at the same time encourage people to register and have an identity card.
At present our taxation system is embryonic and our systems of recording data are weak. Upgrading this infrastructure should be a priority of the Minister of Finance to streamline tax revenue for the many projects the government intends to carry out. It would also strengthen the hand of the Central Bank, which would know in advance from the tax number system how much it will collect.
But a singular weakness of our economy, as opposed to others that we would like to compete with, is the shortage of private capital in our financial systems. There are limited loans and savings facilities in the market and there is a shortage of the main instruments of the Islamic banking system, Murabaha and Mudaraba.
Dahabshiil is the main supplier of formal financial services, offering remittances, checking and savings, debit cards and overdraft services and Islamic banking principles.
But for our economy to prosper, we need more individuals to deposit funds and save so that these funds can be lent to the private sector, state sector and individuals who want to borrow money to start or maintain or expand an enterprise. All of these would underpin economic growth.
But to even think about that we need to address the communications gap between the public and the financial sector. Banks need to communicate what they can offer and people need to understand how banking works and what their commitments are. This would create a competitive financial marketplace, something that we do not have at present.
This means investing in the training of staff and customer relations employees and our Central Bank needs to be involved because this is a long-term project and the communications gap needs bridging for it to succeed.
The public needs educating too on
- Understanding its own financial status, cash flow, savings and likely expenditure
- Buying insurance to protect against risk – such as drought
- Calculating and filing tax returns so that both the individual and the state can plan
- Savings and investments – making money grow for the individual and others
- Retirement planning – reaching a golden age with golden possibilities through savings
This would mark a major shift in the way the country functions economically, but it is the way of the future and Somaliland lags far behind most of its neighbours.
Somaliland Bankers Association