THE EFFECT OF REMITTANCE SUSPENSION ON SOMALI ECONOMY IN MOGADISHU-SOMALIA

Abdirahman Mo&#39;allim Ali

Somalia is one of the remittance-dependent countries in the world; it also faces a unique set of challenges in its effort to maintain remittance inflows. This study examined the effect of remittance suspension on Somali economy. The Somali Remittance Sector referred to as Hawala or Money Services Businesses, targets immigrant communities in Worldwide. It allows for the transfer of funds from the Somali Diaspora, and facilitates trade between Somalia and the rest of the world. The remittance system has been operating in Somalia since the oil boom in the Gulf in 1970s, and Somalis went to the Gulf States as migrant laborers. The study adopted descriptive and causal research design to give consideration to the research questions the information was obtained from primary sources using questionnaires as research instrument. The study targeted a population of 300 in Mogadishu. This study was conducted through survey design, using questionnaire as instrument of the research to collect data from 171 respondents and answered completely. The data was analyzed using descriptive statistics through SPSS software. The most of the respondents strongly agreed that the role remittance in Somalia is very important for all Somalis. The study also showed that majority of the respondents agreed that the relationship of remittance suspension and Somali economy generally negative and damage both the macro and micro level. The study revealed that in the absence of governance and banking sector, the Somali remittance firms are the only available channels for Somalis to transfer money. The study recommends that establishing an international advisory board overseeing the Central Bank’s financial dealings; Functioning Central Bank of Somalia is very important with rooting out corruption in public institutions; Passing and implementing a conventional banking act and anti-money laundering regulations; Establishing a registration and oversight system for international money transfers and Risk Guarantee Mechanisms, such as insurance to cover sudden changes in money transfer restrictions, loss of property, breaches of contract, etc. Finally, researchers found direct relation between the effects of remittance suspension and Somali economy.

THE EFFECT OF REMITTANCE SUSPENSION ON SOMALI ECONOMY IN MOGADISHU-SOMALIA By ABDIRAHMAN MO’ALIM ALI MOHAMUD MOHAMUD MO’ALLIM ABDULLAHI ISMAIL FARAH MOHAMED FARDOWSA OMAR BARRE IFRAH ADAM ABDI A thesis Presented to the Faculty of Arts and Social Science Somali International University, Mogadishu –Somalia. In Partial Fulfillment of the Requirements for the Degree Bachelor of Politics and International Relations DECEMBER, 2015 DECLARATION A We declare that this Thesis entitled “the effect of remittance suspension on Somali economy” is the result of our own research except as cited in the references. The thesis has not been accepted for any degree and is not concurrently submitted in candidate of any other degree. Names: Mahamuud Mo’allim Abdullahi Signature: _______________ Names: Abdirahman Mo’allim Ali Mohamud Signature: _______________ Names: Ismail Farah Mohamed Signature: _______________ Names: Fardowsa Omar Barre Signature: _______________ Names: Ifrah Adam Abdi Signature: _______________ APPROVED “I hereby declare that I have read this thesis and my opinion this thesis is sufficient in terms of scope and quality for the award of the degree of Bachelor of Politics and International Relations. Supervisor: Abdifatah Hussein Mohamud Signature: __________________ Date: ____ /____ /_____ Dedication This thesis is dedicated to all our parents, who taught us that the best kind of knowledge to have is that which is learned for its own sake, that even the largest task can be accomplished if it is done one step at a time. We dedicated this thesis to all our sisters, brother and relatives who supported us to complete this dissertation and encouraged us to bear in all difficulty situations that we faced in any step of our studies. We would like to dedicate this dissertation to our Supervisor, Mr Abdifatah Hussein Mohamud. There is no doubt in our mind that without his continued support and counsel we could not have completed this process. Acknowledgement It is great pleasure to thank the almighty Allah who enabled us to complete this dissertation. Research projects rely to a very significant extent on the good will and interest of outside participants who give their time, perspectives and experiences to the exercise. This research report is not a single effort of us because many people have contributed directly and indirectly. First and foremost, we would like to take this opportunity to express our special thanks to our supervisor, Mr Abdifatah Hussein Mohamud for his guidance and advice throughout the preparation of this project. Secondly we wish to express our gratitude (appreciation) to dedicate special thanks to our class, for their ideas and valuable advice in guiding us throughout the long process of this project completion. Thank you for spending your busy schedule to help and give us ideas in completing this project. Our utmost and genuine appreciation to our beloved parents, brothers and our dearest siblings (brothers or sisters), for their prayers, unconditional love, kindness support, constant encouragement and motivation, sharing our grieves and problems in completing this piece of research. We would also like to express our indebted gratefulness and thanks to our colleague and friends for sharing their constructive ideas, encouragement, assistance and helping us with materials. Last but not least, thanks so much to all who have contributed directly or indirectly in their different ways and contributions which have made this piece of work successful. Thanks goes to the panel members and supervisors for highest top level of participation for their help in providing approval with a working guidelines and knowledge to editing process, additional gratitude set out to our faculty for their extreme efforts and role towards sharing teaching and ideas in the preparation of this thesis paper. TABLE OF CONTENTS Declaration A {Error calculating value!: Bookmark "_Toc401922325" was not found in this document.}1 Approval II Dedication III Acknowledgement IV Table of Contents V{Error calculating value!: Bookmark "_Toc401922329" was not found in this document.} List of acronyms and abbrrviations VIII List of Figures LX List of Tables X Abstract XII CHAPTER ONE INTRODUCTION 1.1 Introduction 1 1.2 Background to the study 1 1.3 Problem Statement 3 1.4 Purpose of the study 4 1.5 Research objectives 4 1.5.1 General objective 4 1.5.2 Specific objectives 4 1.6 Research questions 4 1.7 Research hypothesis 5 1.8 Significance of the study 5 1.9 Scope of the study 5 1.10 Operational definition 6 CHAPTER TWO LITERATURE REVIEW 2.1 Introduction 7 2.2 Role of Somali remittannce 7 2.2.1 Different faces and types of remittance 8 2.2.1.1 Faces of the remittances 8 2.2.1.2 Types of remittance in Somalia 9 2.2.2 Povery and remittance 10 2.2.3 Human capital and remittance 12 2.3 Somali economy 13 2.4 Relationship between remittance and economy 16 2.5 Conceptual framework of study 18 CHAPTER THREE METHODOLOGY 3.1 Introduction 19 3.2 Research design 19 3.3 Target population 19 3.3.1 Sample procedure and sample size 20 3.3.2 Sampling method 20 3.4 Data collection methods 21 3.5 Data analysis and interpretation 21 3.6 Research instruments 21 3.7 Validity and reliability of the study 22 3.8 Ethical considerations 22 3.9 Limitation of the Study 23 CHAPTER FOUR PRESENTATION, ANALYSIS AND INTERPRETATION OF RESULTS 4.1 Introduction 24 4.2 Demographic data 24 CHAPTER FIVE FINDINGS, CONLUSIONS AND RECOMMENDATIONS 5.1 Introduction 37 5.2 Discussion of findings 37 5.3 Conclusions 38 5.4 Recommendations 39 References 40 APPENDCES Appendix I Questionnaire 45 LIST OF ACRONYMS AND ABBREVIATIONS ADESO African Development Resolution ASPAMPI Associate Policy Analyst Migration Policy Institute DFID Department of International Development ERSSE Effect of Remittance Suspension on Somali Economy FATF Financial Action Task Force FDI Foreign Direct Investment FSNAU Food Security and Nutrition Analysis Unit GDP Gross Domestic Product GNI Gross National Income HABLPI Horn of Africa Bulletin Life and Peace Institute HBS Humanitarian Bulletin Somalia IFAD International Fund for Agricultural Development IMF International Monetary Funds MPI Migration Policy Institute MSB’s Money Services Businesses ODA Official Development Aid PPP Purchasing Power Parity SCPD Somaliland Centre for Peace and Development SPSS Statistical Package for Social Science UN United Nations UNCTD United Nations Conference on Trade and Development LIST OF FIGURES Figure 1.1 Coceptual Framework of the study 18 Figure 1.2 Sampling Method 20 List of Tables Table 4.2.1 Classification of Respondents by Gender. 24 Table 4.2.2 Classification of Respondents by Age Group 25 Table 4.2.3 Classification of the Respondents according to Marital Status 25 Table 4.2.4 Classification of the Respondents according to Educational level 26 Table 4.2.5 Classification of the Respondents according to their work experience 26 Table 4.2.6 Remittance promotes trade between Somalia and the rest of the worlds. 27 Table 4.2.7 The remittance is the only way the hard money entering the country after foreign direct investment 28 Table 4.2.8 The remittance support efforts at the municipal or regional levels contributing infrastructure project 28 Table 4.2.9 The remittance plays a central role in the livelihoods and welfare 29 Table 4.2.10 The remittances provide a vital lifeline to poor families in home country 29 Table 4.2.11 Result of remittance suspension may lead severe food security crisis 30 Table 4.2.12 The remittances generally have positive impact on human capital (education & health). 31 Table 4.2.13 the remittance inflows have positive impact on poverty reduction. 31 Table 4.2.14 the remittance increase per capita income and household consumption 32 Table 4.2.15 Remittance creates employment and remitted money on local communities 32 Table 4.2.16 The remittances have positive impacts on economies 33 Table 4.2.17 The remittance suspension has direct effect on Somali economy. 33 Table 4.2.18 The remittances have been sent for investment in new business to supporting entrepreneurs 34 Table 4.2.19 Macroeconomic of Somali population is based on the remittance inflows. 34 Table 4.2.20 The remittance companies are a source of income & employment in Somalia 35 Table 4.2.21 Reilibility Statistics 35 Table 4.2.22 Correlations 36 ABSTRACT Somalia is one of the remittance-dependent countries in the world; it also faces a unique set of challenges in its effort to maintain remittance inflows. This study examined the effect of remittance suspension on Somali economy. The Somali Remittance Sector referred to as Hawala or Money Services Businesses, targets immigrant communities in Worldwide. It allows for the transfer of funds from the Somali Diaspora, and facilitates trade between Somalia and the rest of the world. The remittance system has been operating in Somalia since the oil boom in the Gulf in 1970s, and Somalis went to the Gulf States as migrant laborers. The study adopted descriptive and causal research design to give consideration to the research questions the information was obtained from primary sources using questionnaires as research instrument. The study targeted a population of 300 in Mogadishu. This study was conducted through survey design, using questionnaire as instrument of the research to collect data from 171 respondents and answered completely. The data was analyzed using descriptive statistics through SPSS software. The most of the respondents strongly agreed that the role remittance in Somalia is very important for all Somalis. The study also showed that majority of the respondents agreed that the relationship of remittance suspension and Somali economy generally negative and damage both the macro and micro level. The study revealed that in the absence of governance and banking sector, the Somali remittance firms are the only available channels for Somalis to transfer money. The study recommends that establishing an international advisory board overseeing the Central Bank’s financial dealings; Functioning Central Bank of Somalia is very important with rooting out corruption in public institutions; Passing and implementing a conventional banking act and anti-money laundering regulations; Establishing a registration and oversight system for international money transfers and Risk Guarantee Mechanisms, such as insurance to cover sudden changes in money transfer restrictions, loss of property, breaches of contract, etc. Finally, researchers found direct relation between the effects of remittance suspension and Somali economy. CHAPTER ONE 1.1 INTRODUCTION The studies will examine the effect of remittance suspension on Somali economy. This chapter will provides the basic grounds for conducting the study of remittance including background related to the study, problem statement, purpose of the research, research objectives, research questions, hypothesis, significance, and finally the scope of the study. 1.2 BACKGROUND OF THE STUDY The system of remittance is a well-established practice in the world. The alternative remittance system or Money Services Businesses (MSB’s), or financial channels or Hawala was developed in India, beginning in 1960s; skilled migration from India to the developed countries of the North is recorded and picking up as brain drain (the migration of educated people from less economically advanced areas to more economically advanced areas). This migration was first seen as brain drain when the Nobel Prize of 1968 in medicine brought global recognition to gifted Indian scientists Har Gobind Khorana who had migrated to the United States and naturalized as an American citizen around that time, with the recent 21st century exodus of the IT workers (Binod Khadria, 2006). India receives more in remittances than any other country in the world, before the introduction of Western banking practices, and is now a major remittance system used around the world (Sandhu, 1998). It has becomes the second largest source of external funding after foreign direct investment (FDI) and ahead of official development aid (ODA). It is also clear that the suspension of remittances due to the global economic crisis will dramatically affect and involved many sides. However, the real sector of the economy will be affected, increasing the vulnerability of small enterprises and the agriculture sector, and, as a result, unemployment will increase, the national currency may devalue, budget revenue will decrease as well as the purchasing power of the population. Most international migrants send between $100 and $1,000 per transaction (Bimal Ghosh, 2006). Remittances to African countries are less well researched but remittances are an important source of finance and foreign exchange for many African households and nations. In fact, as observed by Gammeltoft (2002) a number of developing countries rely much more on remittances than an official aid. Developing countries received $80 billion in migrants’ remittances in 2002. Officially recorded remittance flows are heavily underreported for Africa. Even at currently recorded levels, remittances are an important source of income and capital for African households and nations; actual effects are greater than we can currently document due to data limitations. The remittances are inherently linked to migration. Whether for economic or other reasons, migrants from developing countries leave their homes to improve their own livelihood and opportunities as well as to support the family back home. The prime or the most important motivator for migration has been and remains economic, but colonial history and the increasing ease of travel have profoundly shaped its patterns (Rosemary, 2008). The remittance system has been operating in Somalia since the oil boom in the Gulf in 1970s, where Somalis went to the Gulf States as migrant laborers. After the state collapsed in 1990 the absence of governance and banking sector, the Somali remittance firms are the only available channels for Somalis to transfer money (Ken Menkhaus, 2001). On September 11 tragedy on the Somali Hawala system and how it has led to the closure of some firms. In late 2001, the United States alleged that Al-Barakaat (the largest Somali remittance firm) was a terror-supporting financial network. (Buri M. Hamza, 2006). In 2013 Britain’s Barclays Bank cut off Somalia’s remittance by withdrawing banking services from more than 250 money-transfer companies, Barclays Bank risks severing an essential lifeline for millions of people in Somalia who depend on remittances from relatives in the UK. (Hannah Gibson, 2014). On Feb. 6, 2015, U.S. Banks stopped money transfers to Somalia because of strict regulations set by the Office of the Comptroller of the Currency over concerns of money laundering and funding for terrorist organizations (U.S Bank, 2015). There is no consensus on the definition of “remittances”. This lack of consensus on the definition of remittances makes it difficult to estimate the total value of remittances transferred to a particular country or region. Remittance means the money sent by migrant workers to their relatives and communities back home. Remittances are defined as cross-border, person-to-person payments of relatively low value (IFAD, 2005). According to the IMF (2010) defined the current private transfers from migrant workers who are considered residents of the host country to recipients in the workers’ country of origin. Remittances are the sum of workers’ remittances, compensation of employees, and migrants’ transfers (World Bank, 2011). Remittance Personal transfer is all current transfers in cash or in kind made, or Received by resident households to or from other non-resident households. (Alessandra Alfieri and Ivo Havinga, 2006). Economics studies of how societies use scarce resources “Economics is a study of mankind in the ordinary business of life, i.e., economic aspect of human life. Economics studies both individual and social actions aimed at promoting economic welfare of people” (Alfred, 1890). Economics is the science which studies human behavior as a relationship between given ends and scare means which have alternative uses (Lionel Robbins, 1932). The working definition of this study is the one which IFAD, (2005) developed and says Remittances are defined as cross-border, person-to-person payments of relatively low value. Since the outbreak of the civil war in 1990s, Somali become stateless and lack of central bank, remittance becomes the only available financial channels for Somalis (Samuel Munzele, 2006). As mentioned above remittance means the money sent by migrant workers to their relatives and communities back home. In the worldwide economy the remittances represent one of the major international flows of financial resources (Yaseen, 2012). Remittances from the Somali Diaspora act as a lifeline for many families and an estimated 40 per cent of the population depends on them for basic needs (HBS, 2015). Remittance firms faces many challenges, particularly issues related to the some organization or financial institutions which describe remittance as illegal and the negative media reports. The researcher teams investigate how remittance suspension effects on Somali economy. PROBLEM STATEMENT When civil war occurs in Somalia the fighting has destroyed much of the country’s infrastructure and there is no capable government that manages Somali economy. The generosity of the Somali Diaspora played a vital role in helping Somali families survive. As everyone knows most of Somali families depend on remittance and involved any side of their lives such as human capital and food. Remittances from the Diaspora estimated between $1.2 and 1.6 billion a year, which is roughly 50% of Somalia’s gross national income; 40% of the population relies on them for survival (Horn of Africa Bulletin Life and Peace Institute, 2015). Remittance services have developed throughout the country, handling up to $1.6 billion in remittances annually (CIA Report, 2014). Unfortunately, when U.S banks closed the accounts of several Somali-American remittances then Kenya has suspended Somali remittance firms, some organizations suggested, remittances suspension have damage and cause food crises and instability to the Somali community. “Remittances are the lifeblood and survival mechanism for many, many Somalis so from a humanitarian perspective it is clearly worrying if there is a complete stop” (Nicholas Kay, Aid groups Oxfam International and African Development Solutions, 2015). A sector with this huge impact requires an effective solution, therefore, the researcher decided to investigate the effect remittance suspension on Somali economy. 1.4 PURPOSE OF THE STUDY The purpose of this study was to investigate the effect of remittance suspension on Somali economy RESEARCH OBJECTIVES The objectives of a research project summarize what is to be achieved by the study. 1.5.1 General Objective The General Objective of the study was to examine the effect of remittance suspension on Somali economy 1.5.2 Specific Objectives To determine the role of remittances in Somalia To identify the relationship of remittance suspension and Somali economy. 1.6 RESEARCH QUESTIONS The research questions that were used in this study are the following: What is the role of remittance in Somalia? What is the relationship between remittance suspension and Somali economy? 1.7 RESEARCH HYPOTHESIS The hypothesis indicates the expected outcomes of the investigation, so the researchers had a preconception about that the consequences for the effect of remittance suspension on Somali economy. It believed that remittance suspension tool discourages Somali economy, human capital and increases poverty. The researcher’s prediction of the outcome is the expected relationship between the study variable, so alternative directional hypothesis was accepted. On the other hand, it is assumed that there are no government policies and guidelines which can balance the aspects of the effect of remittance suspension. Therefore, the research tries to prove the hypotheses by investigating them. 1.8 SIGNIFICANCE OF THE STUDY The importance of this study based on the effect of remittance suspension on Somali economy. This study will help Somali government to improve regulation of the financial institutions and central bank of Somalia. Also, this will help remittance companies to come out with appropriate policy guidelines that aim at an improved to maintain remittance inflows. Finally, the study will form a basis for researchers, academics and students for further researches by contributing dependable data about remittance literature. 1.9 SCOPE OF THE STUDY This study aims to examine the effect of remittance suspension on Somali economy. The scope has four dimensions: theoretical, time, geography, and content scope as the following: The geographical scope This study will be carried out in the capital city of Somalia. In addition the accessibility of data, easy manageable and less time consuming were some reasons why limits of the study in Mogadishu. Theoretical scope This study aims to explore the effect of remittance suspension on Somali economy. Cross sectional study utilizes questionnaire method to collect and analyzed the data from respondents. Content scope The study will concentrated on the effect remittance suspension on Somali economy. Time scope This study will be covered in a period of 2015. So, this time may provide adequate information to the research objectives under investigation. 1.10 OPERATIONAL DEFINITION Remittance is the transfers of funds or cross-border payments from migrants to relatives, person-to-person or friends in their country of origin. According to Dilip and Sanket (2006) fundamentally, remittances are personal flows from migrants to their friends and families. Economic is the state of a country or region in terms of the production and consumption of goods and services and the supply of money. According to Carrie (2007), economics is the social science that studies the choices that individuals, businesses, governments and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices. Migrants defined as persons who left their country of birth or citizenship for at least a year (Michael et al, 2009). Poverty is often defined as the lack of access to necessities. The definition evolves over time from the only focus on lack of a standard dollar amount necessary for basic needs such as food, shelter, and medical care to the denial of access to basic and comprehensive economic, social, and political needs and rights (Richard A. Clarke, 2008). Human capital is defined “the skills the labor force possesses and is regarded as a resource or asset”. The term human capital economists often use for education, health, and other human capacities that can raise productivity when increased. Investments of people (e.g., education, training, and health) are increasing an individual’s productivity (Claudia Goldin, 2014). CHAPTER TWO LITERATURE REVIEW 2.1 INTRODUCTION This study reviews the empirical literature on the relationship between remittances suspension and Somali economy. The chapter will examine Somali remittance, faces of remittance and types of remittance in Somalia, poverty and remittance, human capital and remittance, Somali economy, relationship between remittance and economy, as well as conceptual framework. This chapter will investigate the significance of Somali company’s money transfer that researchers and scholars were deeply look it. 2.2 ROLE OF SOMALI REMITTANCE The study will not take into account remittances flowing through informal channels, such as those hand carried by migrants on visits home. It recognizing and taking into account dimensions of remittances, particularly the social and political meanings across from of abroad remittances to local money transfer companies. Considering it the entire transfer from sender to receiver as well as the most popular businesses for international money transfers are the money transfer companies because they are non-bank financial institutions and it very excellence a system of trust, also have potential benefits include reduced banking costs and interest-paying savings accounts (Luin Goldring, 2002). The livelihood of the Somali people depends very much on the money sent from abroad. Since 1991, the economy has suffered from droughts and the devastating civil war. The absence of a monetary control is stoking inflation hurting the poor and endangering private sector growth (Samuel Munzele, 2006). In 2004, the G8 put remittances on its agenda, and together with the World Bank and IMF, along with a number of donors, these groups and organizations are focusing on their development potential. Moreover, informal remittance transfer systems have been receiving negative attention, as governments attempt to comply with the regulations imposed by Financial Action Task Force (FATF) to prevent money laundering and terrorist financing (Dr Randolph Kent e al, 2004). The West is believed to be the most significant source of remittances since the labor market tightened in the Gulf and the refugee crisis occurred in the 1990s. Somalian refugees in neighboring countries are more likely receive (from elsewhere in the Diaspora) than send remittances, or to send much smaller amounts (Horst 2003). Most of the available information is on money transfer, on which this report concentrates, but remittances in-kind are also important, particularly via the export of vehicles to Somalia for sale or rental by family members (Deloitte et al, 2005). Remittance has expanded and it the same as to a lifeline service on which the livelihood of millions of Somalis depends. After their proliferation across the world in the mid-20th century, national income statistics have come to be used in a wide range of government, business and academic settings. On the other hand, it promoted investment and reconstruction schools and hospitals, and played an important role in strengthening peace and reconciliation in the country, Thus remittances play a central role in the livelihoods and welfare, including education, of many families in Mogadishu. Around half the recipients surveyed lived in households with no other source of income apart from remittances, the rest had some other source of income, from employment, a business, or other assets. Nearly two thirds of recipients surveyed said that remittances were used for education (FSNAU 2013). According to the UN estimates released in August 2009, the number of global migrants was 195 million in 2005 - which is 2.5 times greater than the 75 million recorded in 1960 - and their number was projected to grow by 9.6 percent to nearly 214 million by 2010. Despite the growth in volume, however, migration across borders remains an exception. The share of international migrants among the entire world population has been small, ranging from 2.5 percent in 1960 to a projected 3.1 percent in 2010 (Michael et al, 2009). 2.2.1 Different Faces and Types of Remittance Some scholars have categorized faces and types of the remittance. 2.2.1.1 Faces of the remittances These can be classified into four faces; Family remittances, community remittances, migrant worker remittances and social worker remittances. Family Remittances: It refers to remittances that are sent by individual immigrants working in the foreign locations to their family, relatives or friends in their home country. These remittances are sent every month and they assist the families of the migrants to survive. These remittances also help the poor families to fight against the poverty. The family remittances are regarded as the major form of remittances across the world where millions of workers are working hard in distant land away from their home for earning their livelihood (Belouga, 2015) Community Remittances: It refers to the remittance that is sent by individual immigrants generally and also includes the remittance sent by various hometown associations to organizations and communities in their home country. This money has been used for the developmental activities of communities such as in building infrastructure, church, parks, and roads. It also offers health care to the poor. The community remittances are also used for offering health benefits, education; and employment to big communities who need these facilities in the home countries (Belouga, 2015) Migrant Worker Remittances: These remittances refer to the cash transfers done by migrant workers for sending the money to the families, friends and relatives back home. The migrant worker remittances make up a large chunk of money inflows into home country by the people who have migrated to foreign locations in the search of money, job or education. Social Remittances: These remittances basically assist the traditions and culture of one race or community, to socialize with the cultures and traditions of another community. Social Remittances help in the bonding of people and do not have money associated with them (Belouga, 2015) . 2.2.1.2 Types of remittance in Somalia These can be categorized into four types; hand delivery of remittances, trade-based remittance systems, hawala & the role of technology, and remittance companies. Hand Delivery Of Remittances; The feasibility of hand delivery depends on the ability of the migrant to make a return visit, or to arrange for a trusted individual to deliver the money. The growth in air transport, particularly in Somaliland, has made all the main towns quickly accessible for trade and individual visits (Ahmed, 2000). However, anecdotal evidence suggests that people avoid taking their own or others’ remittances by hand, for fear of robbery or increased airport security since September 11th (Deloitte et al, 2005). Trade-Based Remittance Systems; Gulf migrants have long financed the purchases of import–export traders, who used earnings from import sales in Somalia to pay remittances to families in local currency, often charging no commission (Ahmed 2000; Menkhaus 2001). Strong links between traders and their clan members in Somalia and abroad reinforced this practice (Gundel, 2003). Hawala and the Role of Technology; Hawilaad is a system of value transfer common. In this model, the migrant gives money to an agent who instructs a second agent to pay the money to the recipient. The second agent pays out on trust that the first agent will settle the debt at a later point (trust often based on family, clan or established business connections). The development of international telecommunications has facilitated the expansion of these informal financial networks. Many people refer to Somali remittance systems as hawilaad, but there has been no attempt to explore precisely the historical and operational similarities, or indeed interfaces, with hawala networks operating in other locations. Some suggest that this system only began or became significant in the 1980s, after Franco Valuta (FV system, allowing traders to import goods duty-free if purchased with their own sources of foreign exchange) was banned (Gundel 2003). Remittance Companies; This type today is the most commonly used remittance system. This description by the UK manager of Dahabshiil is typical: “Somalis who want to send money go to our agents (we work just like the Western Union) and give the money to these agents and these agents pass that information to us and then we remit these funds to Somalia to the destination country, which is mainly Somalia. That is how it works, by getting orders from agents and sending those orders to places where the recipients are” (House of Commons Select Committee on International Development 2004). 2.2.2 Poverty and Remittance Recorded remittances sent home by migrants from developing countries reached $240 billion in 2007, up from $221 billion in 2006 and more than double the level in 2002. The true size of remittances, including unrecorded flows through formal and informal channels, is believed to be even larger. Remittances have reduced poverty in Sub-Saharan Africa and Latin America, although with heterogeneous effects across countries (Dilip and Sanket, 2006). The remittances have been recognized as an important driver of the economy of most developing countries. It plays vital roles in poverty reduction, income redistribution and economic development, especially in rural areas ( Jamiu, 2013). Remittances provide a vital lifeline to poor families in home countries. Funds remitted are used primarily for daily subsistence, but they are also used for loan repayment and investments, and in some instances, collective remittances are used for development projects (Richard A. Clarke, 2008). The general pattern is that money is sent from developed to developing states, but often flows go from neighboring states or even within a state. Typically they are received in urban rather than rural areas, though the spill-over from the urban often reaches rural relatives. In general, these flows are more stable than other types of capital flows, and in times of crisis at home, they tend to increase (Dr Randolph Kent e al 2004). Naturally, each international migrant leaves several family members behind, and supports them with a steady flow of remittances, means that remittances alleviate poverty; however, their macroeconomic impacts are not well understood. This possibility is suggested by the fact that remittances are essentially unrestricted, private financial flows that could finance investment as well as consumption. In other words, certain aspects of remittances appear, at least on the surface, to be similar to FDI and other private international capital flows, and they may therefore have similar effects on economic growth (UNCTD, 2012). Most researchers working on poverty in developing countries contexts have justified with the money metric measures, which defined poverty as lack of a certain standardized minimum amount of money essential to purchase basic needs at standard prices. Measuring poverty in terms of GDP or purchasing power parity (PPP) does not fully capture the phenomenon of poverty. A broader definition treats it as multidimensional, including low income, low levels of education and health, vulnerability to (income loss, natural disaster, crime and violence, education curtailment), and powerlessness (feeling discrimination, lacking income earning possibilities, mistreatment by the state institution, and lacking status under the law) among the many aspects of well-being (Chetwynd et al. 2003). April 8, 2015 Kenya has suspended Somali remittance firms following the massacre at a Garissa university. According to HBS (2015), up to 70 per cent of remittances received are used to buy food. On 7 April, the Kenyan Government revoked the licenses of 13 money remittance providers based in Nairobi in the wake of the 2 April terrorist attack in Garissa, which claimed the lives of at least 148 people. Remittances from the Somali Diaspora act as a lifeline for many families and an estimated 40 per cent of the population depends on them for basic needs such as food and medicine. It has been estimated that US$1.2-1.3 billion is sent to Somalia from around the world every year, more than the annual humanitarian aid, development aid and foreign direct investment combined. As there is no functioning banking system in Somalia, money transfer organizations are the only regulated way to send money to Somalia. In recent years, as a result of stricter regulatory frameworks and as an effort to curb terrorism, banks have started to close the accounts of money transfer organizations, including in the UK, US and Australia. The latest Kenya’s announcement closure on money transfer services could add further stress to the humanitarian situation. 15 non-govern-mental organizations working in Somalia stressed the importance of remittances and advocated to avoid a disruption of remittances. Aid organizations underline that Somali families are losing their only formal, transparent and regulated channel through which to send and receive money. Aid agencies working in Somalia also risk losing their only means of transferring money to sustain their daily humanitarian and development operations. Also they use the money transfer services to pay salaries, contractors, rent, and to deliver aid activities. Two of the companies used by UN agencies have had their license revoked, but the full impact is yet to be determined as funds are also transferred via other countries. 2.2.3 Human Capital and Remittance Human capital is a more fundamental factor which may include skills, health of workers and education as well as physical capital. Illiteracy or low literacy is a passport to poverty. The literacy and primary school enrolment levels in Somalia are among the worst in the world, the links between education and the motivations and determinants of remittances ( Marc S. Ryan, 2005). Remittance money has very important for Somali life’s differences in across country and also supported the building of primary and secondary schools and the funding of universities. Theoretical studies show that a higher probability of migration is associated with a higher level of human capital accumulation in the origin country (Stark, 2004). The majority of previous research on migration and human capital investment at the household level has analyzed the relationship between remittances and child outcomes in the origin country, particularly the trade-off between schooling and child labor (Yang, 2008). On the other hand, teachers notice that when such students do not pay their fees, and it is usually because the remittances have not arrived. In public schools, teachers keep a close eye on this as the wages of staff may depend in part on parental contributions. From a microeconomic perspective, an increasing number of studies show that studies, there is increasing recognition of the rather positive impact remittances have on investments as well as an almost universal recognition of their positive impact on poverty reduction, at the very least among recipient households (Dovelyn, 2006). Some studies suggest that by sending remittances, migrants repay their families for their education and upbringing (Poirines, 1997). Administrators at the many Universities in Mogadishu also noticed that of the high percent of tuition fees paid on time, most came from students who were supported by relatives in the Diaspora and that sometimes students drop out because the remittances that their family receives have decreased or stopped, perhaps because their relative abroad lost a job or got married and had children. Although teachers consulted in public and private primary, secondary and tertiary institutions were unanimous that remittances played a part in the household livelihoods and education of some of their students, the proportion of students affected varies depending on the type of institution. Only the rich students who are depending on remittance from the abroad can go to private schools. Also if you have a large family, it is not possible to go to private school. Private schools are able to attract the well-trained teachers with higher wages, are better resourced and have more modest class sizes than public schools. Regular remittance income is more common among families of students in higher cost education at private and tertiary (education at a college, university etc) institutions (Samuel Munzele, 2006). 2.3 SOMALI ECONOMY Worldwide migration pressures are expected to rise with growing demographic and economic differences between developed and developing countries. About three percent of the world’s population – more than the combined populations of Nigeria and South Africa – has moved from their countries of origin to live and work elsewhere. The increase in migration since the 1990s, and the growing importance of remittances as a source of development financing is pressuring policy makers to consider how best to make use of these human and financial flows. This study reviews evidence on how migrants contribute to the economic development of their countries of origin. In addition to describing the state of knowledge regarding flows of people and migrant remittances worldwide, it focuses on the current literature dealing with the development impact of transfers of money, knowledge, and skills by migrants back to their home countries. The UN World Economic Survey, 2004 reviews global trends in the stock of international migrants by major region for the period 1960-2000. These estimates are based on census data for 210 countries. The data for 156 of them relate to the number of foreign-born persons. For a further 54, the data available refer to the number of foreigners (John Page and Sonia Plaza, 2005). According to United Nations Conference on Trade and Development (2012) Workers’ Remittances - transfers from international migrants to family members in their country of origin - represent one of the largest sources of financial flows to developing countries. In 2010, over $325 billion of workers’ remittances were expected to be transferred worldwide through official channels, and it is likely that billions more were transferred through unofficial ones. During the most recent 10-year period, remittance flows amounted on average to about one third of export earnings, more than twice private capital flows, almost 10 times official capital flows, and more than 12 times official transfers. Remittances have even recently become as large as foreign direct investment (FDI) flows to developing countries. According to the HABLPI report (2015) Remittances from the Diaspora amount to between $1.2 and 1.6 billion a year, which is roughly 50% of Somalia’s gross national income; 40% of the population relies on them for survival. “The bulk of money sent is used by families to cover basic household expenses - food, clothing, education, and medical care. Contributions are also made to pay for family emergencies or weddings, to community development efforts, to make investments, to promote political projects, and to settle clan disputes”. According to, Dr. Hadliye Minister of Foreign Affairs and Investment Promotion Federal Republic of Somalia (2015), the economy is rebounding with thousands of Somali-Americans returning and making significant investments. The foundation for Somalia’s recent economic and security gains are the members of its Diaspora, who work multiple jobs and send home whatever they can to support their loved ones. These remittances are also the lifeline of the Somali people. They account for more than Somalia receives in humanitarian and development assistance and FDI combined, and nearly half of our people depend on them to meet their most basic needs like food, shelter, healthcare and school fees. The amount of remittances from the US alone runs in hundreds of millions of dollars, a significant portion of Somalia’s GDP. Some studies show that many Somalis are facing severe food security crisis because recent remittance suspensions. According to the United Nations report (2015), 731,000 people face acute food security crisis in Somalia, whilst 2.16m remain in stress situation, and there are 218,000 malnourished children under age 5. Every time a bank closes, the media asks, ‘What’s the impact? Degan Ali, the executive director of the NGO Adeso says, who believes the potential impact of the closure of the remittances industry in Somalia “would be devastating…The last famine is estimated to have killed 265,000 people. Triple that number would not be able to access basic needs if the remittance flows stop.” George Monbiot calls the US Office of the Comptroller of the Currency as “the world’s most powerful terrorist recruiting sergeant.” Despite the lack of effective national governance, Somalia maintains an informal economy largely based on livestock, remittance/money transfer companies, and telecommunications (CIA World Factbook, 2012). The economic growth has yet to expand with the absence of a formal banking sector, money transfer/remittance services have developed throughout the country, handling up to $1.6 billion in remittances annually, although international concerns over the money transfers into Somalia currently threatens these services (CIA Report, 2014). According to British Chambers of Commerce report, (2007) the private sector grew, particularly in the service sector. Unlike the pre-civil war period when most services and the industrial sector were government-run, there has been substantial, albeit unmeasured, private investment in commercial activities; this has been largely financed by the Somali Diaspora, and includes trade and marketing, money transfer services, transportation, communications, fishery equipment, airlines, telecommunications, education, health, construction and hotels. Remittances have direct impacts on economies, poverty reduction, reducing of foreign exchange shortages and productive investments, also have positive indirect effects International migrant remittances are a very important source of capital for developing Somali economy. They are less important than FDI, even better than by far official development assistance and capital market flows. Moreover, remittances are a very stable source of capital. With a significant improvement in local security, Somali expatriates began returning to the country for investment opportunities. Coupled with modest foreign investment, the inflows of funds have helped the Somali shilling increase considerably in value. By 2014, the currency had appreciated by against the U.S. dollar over the previous. But unfortunately, owing to a lack of confidence in the local currency, the US dollar is widely accepted as a medium of exchange alongside the Somali shilling. 2.4 RELATIONSHIP BETWEEN REMITTANCE AND ECONOMY The remittance has been a significant contributor to family income and investment, with poverty reduction. In times of economic depressions and external shocks, it has been extremely important to the Somali economy (Samuel Munzele, 2006). At the macro-economic level, the relationship between economic growth and remittance receipts has come under renewed scrutiny. Although the empirical evidence on the impact of remittances on economic growth appears to be mixed, it is nonetheless recognized that, since remittance flows are used either to increase consumption or investment, they have the potential to become important tool for economic development (Ratha, 2007). More recently, it has been noted that “a significant portion of remittance flows are used to service debt, and increase foreign exchange reserves” (Das and Serieux, 2010). The relative importance of remittances to receiving economies is strongly correlated with the development status of the country. Low-income developing countries are more dependent on remittances, while high income developing economies are less dependent. Money sent home by family members abroad is the lifeblood of the Somali country’s economy. Remittances offer some important advantages from the point of macroeconomic management in poorer countries. Remittances tend to be relatively stable, so that the resulting real exchange rate level may be sustainable (IMF 2005). Remittances can also serve as an important support for a country’s creditworthiness and improve access to international capital markets (World Bank 2003). One question that still remains is the sustainability of remittances over time. Recent studies have indicated that the long term flow of remittances depends on various factors such as the anticipated flow of migration, whether the migrants come alone or with their family, and how this changes over time (Solimano 2004). According to Nicholas Kay report (2015), warned that thwarting payments sent home by immigrants abroad will cut off a lifeline for Somali families and the biggest driver of economic activity in the impoverished and war-torn country. “They are the lifeblood and survival mechanism for many, many Somalis, so from a humanitarian perspective it is clearly worrying if there is a complete stop in remittances,” Kay, the U.N. Special Representative for Somalia, Aid groups Oxfam International and Adeso estimate that Somali expatriates send home between $1.3 billion a year, 40 per cent of the Somali population depends on. Recent studies have pointed to remittances’ generally positive impact on human capital formation, investments, poverty, and macro-economic stability. Although some issues remain highly contested, foremost of which are remittances’ effect or lack thereof on growth, inequality, exchange rate, and inflation, by and large, the tone of the economic literature on remittances (SPAMPI, 2006). Studies on remittances in Somaliland show that increasingly remittances are also used to fund new organizations and development projects (Hansen, 2003). Remittances have strong positive impacts on the currency of Somali Shilling and which in is expected to reinforce or emphasizing domestic macroeconomics. Although remittances as foreign savings allow Somalia, a country without access to international capital markets, to consume outside its production frontier, these inflows might also draw resources from tradable to non-tradable sector, worsening the welfare of families that do not benefit from remittances. In theory, remittances can counteract the positive effects of both macro economy and micro economy of the country. While remittance play an important role in the Somali Economy, but they cannot become a source of long-term sustainable growth. In the medium term, if there is an improvement in the political and security situation, it is expected that part of former remittance will turn into domestically-sourced investment as Somalis start returning home. In the longer term, regulations need to be put in place to promote investment, which is a crucial precondition for long-term growth (Samuel Munzele, 2006). 2.5 CONCEPTUAL FRAMEWORK OF THE STUDY The study follows a framework or outline to present the courses of action of the preferred approach through the ideas displayed in the research. This is the researcher’s idea of how the specific problem of the study has to be explored. Under this frame work, efforts are charged to show the relationship between independent and dependent variables in the atmosphere of intervening variables. The study has an independent variable which is the Somali remittance, the intervention which is the consequences and dependent variable that is the Somali economy being affected. Figure 1.1: Shows dependent and independent variables and intervention of the concept. The framework hypothesizes that the existence of the relationship between the effect of remittance suspension and Somali economy may be influenced by poverty and human capital. CHAPTER THREE METHODOLOGY 3.1 Introduction This chapter presents detailed explanation of the research methodology. this includes research design, target population, sample procedure and sample size, sampling method or sampling technique, data collection methods, data analysis and interpretation, research instruments, validity and reliability, ethical considerations and limitation of the study. 3.2 Research Design Research purpose and research questions are the suggested starting points to develop a research design because they provide important evidence about the substance that a researcher is aiming to evaluate. Three common research approaches, qualitative, quantitative and mixed methods (Mixed method or multi-method is a methodology that involves collecting, analyzing, and integrating quantitative and qualitative research in a single study) along with the various research designs commonly used when conducting research within the framework of each approach (Creswell, 2002). The study adopted descriptive and causal research to give consideration to the research questions, specifically cross-sectional survey using the quantitative methods of data collection regarding the effect of remittance suspension on Somali economy. This design is selected for this study because it is effective, less cost and easily accessible for collecting information from the target population. 3.3 Target Population The target population of the study will be 300 of Mogadishu population include managers of remittance, workers of transfer companies, Somalia ministry of finance, central bank of Somalia and Commercial banks. 3.3.1 Sample Procedure and Sample Size The sample procedure of the study was calculated by using Slovene’s formula which is: n = n = N / (1 + Ne^2) = 300/ (1+300*0.05^2) =171 n = number of sample size N = target population e = acceptance of errors (0.05)2. The study used as a sample size of 171. The study finds this sample size representative enough to give a true reflection of the subject under study. 3.3.2 Sampling Method The study used the purposive sampling technique in selecting the sample. The study uses this sampling technique because of the nature and work of the study population. Effectively, this allows the researcher to choose or select the respondents that are relevant to the area of study. Figure 1.2 Sampling method No Sample category Population Sample size 1 Managers of Remittance Companies 60 35 2 Employees of Remittance Companies 60 34 3 Central Bank 60 34 4 Commercial Banks 60 34 5 Ministry of finance 60 34 Total 300 171 3.4 Data collection methods The collection of data falls in to two categories: primary and secondary as widely recognized in quantitative researches. Primary data sources are first-hand information collected through methods such as observation, interviewing, mailing and questionnaires (Krishnaswami, 2002). This study will use questionnaire as main tool for collection data, which used in quantitative research, and this technique have been adopted in collecting primary data. The questionnaire may be defined as technique of data collection in which each person is asked to respond to the same set of questions in predetermined order. The selection of this tool was lead by the nature of data to be collected, time available and the objectives of the study. The overall aims of study to investigate the effect of remittance suspension on Somali economy. 3.5 Data analysis and interpretation The researcher will analyze the data through the descriptive type of quantitative. Statistical Package for Social Science (SPSS) 16.0 software will be use for the interpretation of the findings. The study will take the following steps to analyze and interpret the responses gathered from the questionnaire: Summarized the responses Analyzed and interpret the responses Produced a bar chart or a table 3.6 Research Instruments This study will use questionnaires instrument as a tool for collecting data from respondents because it was suitable instrument to get the required information. The questionnaire is the best tool to use that effectively utilizes the limited time of the researcher and respondent, and the information needed can be easily described in writing. 3.7 Validity and Reliability Validity and reliability are two important characteristics of behavioral measure. Reliability is a concept used for testing or evaluating quantitative research, the idea is most often used in all kinds of research (Nahid Golafshani, 2003). Reliability is a fundamental property every measuring instrument should have. So before distributing questionnaires the researcher team has done test-retest method with experts. The questionnaire was given to 10 people and after two weeks the questionnaire had given to the same people. Validity refers to the extent to which data collection method accurately measures what it was intended to measure (Saunders et al, 2000). Validity is the most important criterion to bear in mind when researcher is choosing a test. Very simply, validity is the level to which a test measures what it is supposed to measure. In order to ensure that the tools to be used are valid, the researcher carried out a pretest of the questionnaire on few respondents. Cronbach Alpha will employ to test the internal consistency of measurement while factor analysis will use to validate the measurements of the study. The data analysis through descriptive statistics using mean and stand deviation for central tendency of variables, correlation coefficient for relationships of variables also will use factor analysis and Cronabach’s alpha for goodness of Measurements to achieve validity and reliability coefficients of at least 0.7. If Cronbach's alpha above 0.7 Acceptable if Cronbach's alpha below 0.7 poor or invalid. 3.8 Ethical considerations The research teams will strictly followed the ethical principles related to the general research guidelines and considered about all the ethical issues throughout research procedure. The data which the researchers collected from the respondents will keep confidential and will use for the purpose of fulfillment of the requirement for the award of the Bachelor of Politics and International Relations the respondents will inform the content of the research and its aims because the researchers whose subjects are people or animals must consider the conduct of their study and give attention to the ethical issues associated with carrying out the research. 3.9 Limitation of the Study During this study researchers had faced more limitations, some of these limitations include: The geographical scope, therefore study was limited only in Mogadishu. Time conflict between researches and continues education in the university also other requirements such as attendance, assignments and presentations that must be get ready. Inadequate facilities, the researcher doesn’t get the appropriate facilities to run the operation, such as the articles, journals, magazines and books that needed to be purchased online and the researcher could not afford for some reasons. CHAPTER FOUR PRESENTATION, ANALYSIS AND INTERPRETATION OF RESULTS 4.1 INTRODUCTION This chapter presents the data analysis and Discussions of the study findings and it will mainly focus on the Demographic data of the respondents in terms of Gender, Age, marital status, education and occupation under the general questions. The presentation, interpretation and analysis of the data collected were in accordance with the main purpose of the study the “the effect of remittance suspension on Somali economy”. The presentation and analysis of data will be based on research objectives and questions. The study design was cross sectional survey using the quantitative methods data was collected through questionnaires. Data collected questionnaire and was analyzed using descriptive statistics through special software called Statistical Package for Social Science. 4.2. DEMOGRAPHIC DATA This study was conducted in South-Central Somalia particularly in Mogadishu; the data was collected from 171 respondents. This section was presented the demographic information of the respondents by beginning with the gender of the respondents, their Ages, marital status, level of education and occupation. Table 4.2.1 Classification of Respondents by Gender Indicator Frequency Percent Male 135 78.9 Female 36 21.1 Total 171 100.0 Source: Primary data The above shows that 78.9% of the respondents were Male while 21.1% were female. This obviously shows that the most participants of the research were male. Table 4.2.2 Classification of Respondents by Age Group Indicator Frequency Percent Less than 30 72 42.1 30-40 69 40.4 41-50 18 10.5 51-60 9 5.3 More than 60 3 1.8 Total 171 100.0 The above shows that the age of the majority 42.1% of total respondents aged less than 30 years, while 40.4% of the respondents aged between 30-40 years and 10.5% of the respondents aged between 41-50 years, 5.3% of the respondents between 51-60 while 1.8% aged over 60 years. Table 4.2.3 Classification of the Respondents according to Marital Status Indicator Frequency Percent Single 67 39.2 Married 104 60.8 Total 171 100.0 The above indicates that respondents were asked about their marital status, 60.8% of the respondents were married, while 39.2% were single. Table 4.2.4 Classification of the Respondents according to Educational level Indicator Frequency Percent Secondary 22 12.9 Diploma 47 27.5 Bachelor 40 23.4 Master 59 34.5 Others 2 1.2 Missing 1 .6 Total 171 100.0 The above reveals that the educational levels of respondents were different. Majority of them were Master degree at 34.5%, 27.5% of total were Diploma, and 23.4% were Bachelors, 12.9% were Secondary, were Others 1.2% while .6% were Missing. Table 4.2.5 Classification of the Respondents according to their work experience Indicator Frequency Percent 1 Year 19 11.1 2 Years 45 26.3 4 Years 30 17.5 5 Years 12 7.0 More than 5 years 65 38.0 Total 171 100.0 As above explains that the work experiences of the respondents were different. Majority of them have more than 5 years of experience 38.0%, 26.3% of were 2 years of experience, 17.5% were 4 years of experience, 11.1% were 1 year of experience and 7.0% were 5 years. Table 4.2.6 Remittance promotes trade between Somalia and the rest of the worlds Indicator Frequency Percent Strongly Disagree 9 5.2 Disagree 22 13 Neutral 24 14.0 Agree 85 49.7 Strongly Agree 31 18.1 Total 171 100.0 As the above table indicates, a proportion of 49.7% of the respondents strongly agreed, 18.1% were strongly agree, 14.0% Neutral that Remittance promotes trade between Somalia and the rest of the worlds. On the other hand, 13.0% of the respondents disagree, while 5.2% of the respondents strongly disagreed. Table 4.2.7 the remittance is the only way the hard money entering the country after foreign direct investment Indicator Frequency Percent Strongly Disagree 4 2.3 Disagree 15 8.8 Neutral 26 15.2 Agree 75 43.9 Strongly Agree 51 29.8 Total 171 100.0 As the above table indicates, 43.9% of the respondents agree that the remittance is the only way the hard money entering the country after foreign direct investment , 29.8% were strongly agree, 15.2% Neutral, 8.8% of the respondents disagree, while 2.3% of the respondents strongly disagreed. Table 4.2.8 the remittance support efforts at the municipal or regional levels contributing infrastructure project Indicator Frequency Percent Strongly Disagree 7 4.1 Disagree 14 8.2 Neutral 35 20.5 Agree 73 42.7 Strongly agree 42 24.6 Total 171 100.0 The above table shows that respondents were asked that the remittance support efforts at the municipal or state levels contributing infrastructure project 42.7% of the respondents agree, 24.6% were strongly agree, 20.5% Neutral, 8.2% of the respondents disagree, while 4.1% of the respondents strongly disagreed. Table 4.2.9 the remittance plays a central role in the livelihoods and welfare Indicator Frequency Percent Strongly disagree 3 1.8 Neutral 12 7.0 Agree 77 45.0 Strongly agree 79 46.2 Total 171 100.0 The above table shows that respondents were asked that the remittance plays a central role in the livelihoods and welfare 46.2% of the respondents strongly agree, 45.0% were agree, 7.0% neutral, while 1.8% of the respondents strongly disagreed. Table 4.2.10 the remittances provide a vital lifeline to poor families in home country Indicator Frequency Percent Disagree 8 4.7 Neutral 9 5.3 Agree 75 43.9 Strongly agree 79 46.2 Total 171 100.0 The above table shows that respondents were asked that the remittances provide a vital lifeline to poor families in home country 43.9% of the respondents agree, 46.2% were strongly agree, 5.3% Neutral, While 4.7% of the respondents disagree, Table 4.2.11 Result of remittance suspension may lead severe food security crisis Indicator Frequency Percent Strongly disagree 4 2.3 Disagree 10 5.8 Neutral 12 7.0 Agree 55 32.2 Strongly agree 90 53.0 Total 171 100.0 The above table shows that respondents were asked that the Result of remittance suspension may lead severe food security crisis 53.0% of the respondents strongly agree, 32.2% were agree, 7.0% Neutral, 5.8% of the respondents disagree, while 2.3% of the respondents strongly disagreed. Table 4.2.12 the remittances generally have positive impact on human capital (education & health) Indicator Frequency Percent Strongly Disagree 5 2.9 Disagree 7 4.1 Neutral 10 5.8 Agree 65 38.0 Strongly agree 84 49.1 Total 171 100.0 The above table shows that respondents were asked that the remittances generally have positive impact on human capital (education & health), 49.1% of the respondents strongly agree, 38.0% were agree, 5.8% Neutral, 4.1% of the respondents disagree, while 2.9% of the respondents strongly disagreed. Table 4.2.13 the remittance inflows have positive impact on poverty reduction Indicator Frequency Percent Strongly disagree 10 5.8 Disagree 22 13.0 Neutral 12 7.0 Agree 65 38.0 Strongly agree 62 36.2 Total 171 100.0 The above table shows that respondents were asked that the remittance inflows have positive impact on poverty reduction, 36.2% of the respondents strongly agree, 38.0% were agree, 7.0% Neutral, 13.0% of the respondents disagree, while 5.8% of the respondents strongly disagreed. Table 4.2.14 the remittance increase per capita income and household consumption Indicator Frequency Percent Strongly disagree 3 1.8 Disagree 2 1.2 Neutral 11 6.4 Agree 69 40.4 Strongly agree 86 50.3 Total 171 100.0 The above table shows that respondents were asked that the remittance increase per capita income and household consumption, 50.3% of the respondents strongly agree, 40.4% were agree with the question, 6.4% Neutral, 1.2% of the respondents disagree, while 1.8% of the respondents strongly disagreed. Table 4.2.15 the remittance creates employment and remitted money on local communities Indicator Frequency Percent Strongly disagree 2 1.2 Disagree 5 2.9 Neutral 10 5.8 Agree 77 45.0 Strongly Agree 77 45.0 Total 171 100.0 The above table shows that respondents were asked that the remittance creates employment and remitted money on local communities, 45.0% of the respondents strongly agree, 45.0% were agree with the question, 5.8% Neutral, 2.9% of the respondents disagree, while 1.2% of the respondents strongly disagreed. Table 4.2.16 the remittances have positive impacts on economies Indicator Frequency Percent Strongly Disagree 1 .6 Disagree 2 1.2 Neutral 14 8.2 Agree 105 61.4 Strongly Agree 49 28.7 Total 171 100.0 The above table shows that respondents were asked that the remittances have positive impacts on economies, 28.7% of the respondents strongly agree, 61.4% were agree with the question, 8.2% Neutral, 1.2% of the respondents disagree, while .6% of the respondents strongly disagreed. Table 4.2.17 the remittance suspension has direct effect on Somali economy Indicator Frequency Percent Strongly disagree 3 1.8 Disagree 2 1.2 Neutral 18 10.5 Agree 92 53.8 Strongly agree 56 32.7 Total 171 100.0 The above table shows that respondents were asked that the remittance suspension has direct effect on Somali economy, 32.7% of the respondents strongly agree, 53.8% were agree with the question, 10.5% Neutral, 1.2% of the respondents disagree, while 1.8% of the respondents strongly disagreed. Table 4.2.18 the remittances have been sent for investment in new business to supporting entrepreneurs Indicator Frequency Percent Strongly disagree 3 1.8 Disagree 7 4.1 Neutral 25 14.6 Agree 95 55.6 Strongly Agree 41 24.0 Total 171 100.0 The above table shows that respondents were asked that the remittances have been sent for investment in new business to supporting entrepreneurs, 24.0% of the respondents strongly agree, 55.6% were agree with the question, 14.6% Neutral, 4.1% of the respondents disagree, while 1.8% of the respondents strongly disagreed. Table 4.2.19 Macroeconomic of Somali population is based on the remittance inflows Indicator Frequency Percent Strongly disagree 10 5.8 Disagree 9 5.3 Neutral 22 12.9 Agree 76 44.4 Strongly Agree 54 31.6 Total 171 100.0 The above table shows that respondents were asked that the Macroeconomic of Somali population is based on the remittance inflows , 31.6% of the respondents strongly agree, 44.4% were agree with the question, 12.9% Neutral, 5.3% of the respondents disagree, while 5.8% of the respondents strongly disagreed. Table 4.2.20 the remittance companies are a source of income & employment in Somalia Indicator Frequency Percent Strongly Disagree 21 12.3 Disagree 15 8.8 Neutral 45 26.3 Agree 53 31.0 Strongly Agree 37 21.6 Total 171 100.0 The above table shows that respondents were asked that the remittance companies are a source of income & employment in Somalia, 21.6% of the respondents strongly agree, 31.0% were agree with the question, 26.3% Neutral, 8.8% of the respondents disagree, while 12.3% of the respondents strongly disagreed. Table 4.2.21 Reliability Statistics N % Cases Valid 168 98.2 Excludeda 3 1.8 Total 171 100.0 a. Listwise deletion based on all variables in the procedure. Cronbach's Alpha Cronbach's Alpha Based on Standardized Items N of Items .715 .744 14 Table 4.2.22 Correlations Remittance Economic Remittance Pearson Correlation 1 .234* Sig. (2-tailed) .002 N 168 168 Economic Pearson Correlation .234* 1 Sig. (2-tailed) .002 N 168 171 *. Correlation is significant at the 0.01 level (2-tailed). The above table from the correlation can be seen clearly that there is a significant relationship between remittance and Somali economy. It is clear from this analysis that remittances play an important role in growing Somali economy that make high ratio of contribution in both macro and micro levels and basic household food security and livelihoods. CHAPTER FIVE FINDINGS, CONLUSIONS AND RECOMMENDATIONS 5.1 INTRODUCTION Chapter five provides the summary of findings. This has been arrived at using the two study objectives. In this chapter the conclusion is also provided. The recommendations also followed the two study objectives. . 5.2 DISCUSSION OF THE FINDINGS The study focused on the effect of remittance suspension on Somali economy. This chapter summarizes and discusses the results of analysis in chapter four. It highlights objectives of the study and the finding of each objective from the respondents and interpreting it to the researcher’s view and to the context of previous researches (literature). According to gender, great numbers of respondent were male, while the most of the respondents strongly agreed that the role remittance in Somalia is vital to all Somalis. The findings show that remittance is providing an essential lifeline to all Somali households. People depend on remittance support for their most basic needs, including food, healthcare and education. Also the findings reveal that remittance is positive dynamic to alleviate poverty. Recent studies have indicated that the role remittances have direct impacts on economies, poverty reduction and are associated with human capital which fundamental factor human being include skills, health of workers and education as well as physical capital. Remittances provide a vital lifeline to poor families in home countries (Richard A. Clarke, 2008). The study also showed that majority of the respondents agreed that the relationship of remittance suspension and Somali economy confirm that Somali economy dependence on remittance inflows and their suspension generally harm both the macro and micro level damage both the macro and micro level. Remittance is a crucial component of the Somali economy; these findings acknowledged remittances in filling crucial gaps in economy recovery, especially in post conflict when there are not enough sources of income to provide for the population. This empirical literature pointed the relationship between economic and remittance. Since remittance flows are used either to increase consumption or investment, they have the potential to become important tool for economic development (Ratha, 2007). The findings generally revealed that there is a significant relationship between the remittance suspension and Somali economy. The researcher’s prediction of the outcome was the expected relationship between the study variables as a result the investigator accepted hypothesis of the research. 5.3 Conclusions The purpose of this study was to examine the effect of remittance suspension on Somali economy. The main objective of this study was: to determine the role of remittances on Somali families and to how identify the relationship between of remittance suspension and Somali economy. As a result the empirical literature pointed that remittance became important tool for economic development and money sent from the Diaspora saved lives daily. If that transfer to the war-ravaged people is disrupted, the survivals of millions of people endangered. On the other hand, the remittance has promoted investment and reconstruction, created employment, enabled the construction of schools and hospitals, and played an important role in strengthening peace and reconciliation everywhere in the country. The absence of a functional Central Bank in Somalia is a critical issue that needs to be addressed as matter of urgency. A functioning central bank is needed to execute monetary policy, act as a financial agent of the government, and support financial sector development that will enable longer-term investments and private sector led growth and development. In the longer run, a central bank will also be important to enabling Somalia to take the necessary steps to access international financial markets by settling arrears with creditors and then building a track record of public financial management over time that would warrant eventual debt relief. This study was conducted through survey design, using questionnaire as instrument of the research to collect data from 171 respondents and answered completely. Data gathered was analyzed with descriptive statistics using SPSS 16.0. The most of the respondents strongly agreed according to the role remittance in Somalia that showed that Somali remittance is very important for all Somalis. The study also showed that majority of the respondents agreed according to the relationship of remittance suspension and Somali economy that proved Somali economy heavy reliance on remittance inflows and their suspension generally damage both the macro and micro level. 5.4 Recommendations According to the results of this study, the researcher argued that remittance has a great impact on Somali economy. So for the future researchers and those interested in the field will be given. The researcher suggests include the following: Establishing an international advisory board overseeing the Central Bank’s financial dealings; Functioning Central Bank of Somalia is very important with rooting out corruption in public institutions; Passing and implementing a conventional banking act and anti-money laundering regulations; Establishing a registration and oversight system for international money transfers; Risk Guarantee Mechanisms, such as insurance to cover sudden changes in money transfer restrictions, loss of property, breaches of contract, etc. REFERENCES Alessandra Alfieri and Ivo Having (2006) Issue Paper: Definition of Remittances United Nations, Department of Economic and Social affairs Statistics division February 2006 Anna Lindley (2007), Remittances in Fragile Settings: a Somali Case Study All Africa Global Media (2015), Government of Ethiopia. All rights reserved. Distributed by (allAfrica.com). Dr. Abdusalam Omer, Somalia's Foreign Minister's Concern Over Closure of Remittances to Somalia Alfred Marshall (1890), Principles of Economics; Definition, Nature and Scope of Divisions Economics Buri M. Hamza (2006), A report on the somali remittance sector in canada. Nathanson Centre for the Study of Organized Crime and Corruption Osgoode Hall Law School York University April, 2006. Binod Khadria (2006), India: Skilled Migration To Developed Countries, Labour Migration To The Gulf. Jawaharlal Nehru University, New Delhi, and Asia Research Institute and the Department of Economics National University of Singapore Bimal Ghosh (2006) Migrants’ Remittances and Development: Myths, Rhetoric And Realities Carroll, L. C. (2007), Alternative Remittance Systems distinguishing sub-systems of Ethnic Money Laundering in INTERPOL Member Countries on the Asian Continent. Interpol, 2007. Chene, M. (2008), Hawala Remittance System and Money Laundering. U4 Expert Answer, Anti-Corruption Resource Centre, Norway, 2008 Chetwynd, E, Chetwynd, F. and Spector, B. (2003), Corruption and Poverty: A Review of Recent Literature. Final Report. Washington, DC: Management Systems International. Claudia Goldin (2014) Human Capital, Department of Economics Harvard University and National Bureau of Economic Research Carrie Williams (2007) Research Methods; Journal of Business & Economic Research – March 2007 Grand Canyon University. Clarke (2008) ANNALS of the American Academy of Political and Social Science Volume 618 July 2008, Published by: Sage publications Creswell, J. (2003) Research Design: Qualitative, Quantitative and Mixed Methods Approaches. Thousand Oaks, CA: Sage. Diede Sterenborg (2012) Remittances and the transnational relationship of Somalis, Master Thesis, 15/08/12 D. WADE HANDS (2008) Effective Tension in Robbins’ Economic Methodology, University of Puget Sound Final version received 25 June 2008. Deloitte & Touche and Anna Lindley (2005) A part of the report on Informal Remittance Systems in Africa, Caribbean and Pacific (ACP) countries (Ref: RO2CS008). University of Oxford 15 January 2005 Dr Randolph Kent and Dr Karin von Hippel, with Mark Bradbury (2004) Social Facilitation, Development and the Diaspora: Support for Sustainable Health Services in Somalia November 2004 Dovelyn Rannveig Agunias (2006) Remittances and development trends, impacts, and Policy options Daily Monitoring Report (2015) U.N. Envoy to Somalia warns against cutting off remittances. Amisom Daily Monitoring Report. February 6, 2015 - Source: Foreign Policy – 662 Words. http://somaliamediamonitoring.org/ february-6-2015- daily-monitoring-report/ Dilip Ratha and Sanket Mohapatra (2006), Increasing the Macroeconomic Impact of Remittances on Development. Development Prospects Group, The World Bank, Washington D.C. 20433, November 26, 2007 Gabi G. Afram (2012), The Remittance Market in India Opportunities, Challenges, and Policy Options International Bank for Reconstruction and Development / International Development Association or The World Bank 1818 H Street NW. Washington DC 2043. Hannah Gibson (2010), Somali remittances: 10 things you need to know. Policy Researcher, Africa Research Institute 27 Jan 2014 Hamda Yusuf , Ifrah F. Ahmed and Zahra Mohamed, Cutting off remittances could jeopardize the country’s rebuilding efforts and lead to humanitarian crisis. February 27, 2015 Hein de Haas (2007) Remittances, Migration and Social Development: A Conceptual Review of the Literature Social Policy and Development Programme October 2007, United Nations Research Institute for Social Development Humanitarian Bulletin Somalia Issued on 24 April 2015 Hadeel S. Yaseen. (2012), The Positive and Negative Impact of Remittances on Economic Growth in MENA Countries. The Journal of International Management Studies. 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Entries (RSS) and Comments (RSS). http://www.remittance.in/types-of-remittances.html René Houle (2008), Remittance behaviours among recent immigrants in Canada, February 6, 2008. Rosemary Vargas-Lundius (2008) International migration, remittances and rural development Saunders, M., Lewis, P. and Thornhill, A. (2000) Research methods for business students. 2nd edition. Harlow: Pearson Education. Samuel Munzele Maimbo (2006) Remittances and Economic Development in Somalia. Paper No. 38 / November 2006 The International Bank for Reconstruction and Development/The World Bank, (2011) Migration and Remittances Factbook 2011 Second edition The International Fund for Agricultural Development (IFAD) Sending Money Home: European flows and markets June 2015. UNCTD (2012) Maximizing the Development Impact of Remittances Tim Ambler Francis Chittenden Senior Fellow, Professor, London Business School Manchester Business School (2009) Worlds apart: The EU and British Regulatory systems Published by the British Chambers of Commerce May 2009 US Bank (2015) Your Deposit Account Agreement & General Terms & Conditions Electronic Transfers Funds Availability Safe Deposit Box Lease Agreement U.S. Bank Consumer Reserve Line Agreement U.S. Bank Business Reserve Line Agreement Effective June 15th, 2015 Wellesley College (2013) Economics 101 Principles of Microeconomics, Fall 2013 APPENDICES APPENDIX I QUESTIONNAIRE THE EFFECT OF REMITTANCE SUSPENSION ON SOMALI ECONOMY Dear sir/madam Please tick (√) where appropriate in the blank space The questionnaire is designed to collect information on “The Effect of Remittance Suspension on Somali Economy” in accordance with the requirement for the degree of Bachelor of Politics and International Relation at Somali International University (SIU) (2015 – 2016). Complete by putting a tick in the appropriate section. All information you give shall be treated in the strictest confidence. Your inputs and insights are greatly acknowledged in anticipation. Demographic Information SECTION A: Respondent profile 1. Gender Male Female 2. Age less than 30 30-40 41 – 50 51 – 60 More than 60 3. Marital status Single Married 4. Educational Level Secondary certificate Diploma Bachelor Master other __________________________ 5. Work Experiences 1 year 2 years 4 years 5 years more than 5 years These questionnaires in the table are based on the following five-point scale: Represents strongly disagree (SD) Represents disagree (D) Represents neutral (N) Represents agree (A) Represents strongly agree (SA) SECTION B: NO Somali Remittance SD (1) D (2) N (3) A (4) SA (5) 1 Remittance promotes trade between Somalia and the rest of the worlds 2 The remittance is the only way the hard money entering the country after foreign direct investment 3 The remittance support efforts at the municipal or state levels contributing infrastructure projects 4 The remittance plays a central role in the livelihoods and welfare. 5 The remittances provide a vital lifeline to poor families in home. 6 Result of remittance suspension may lead severe food security crisis 7 The remittances generally have positive impact on human capital (education and health). 8 The remittance inflows have positive impact on poverty reduction 9 The remittance increase per capita income and household consumption. 10 The remittance creates employment and remitted money on local communities. Somali Economy SD (1) D (2) N (3) A (4) SA (5) 11 The remittances have positive impacts on economies 12 The remittance suspension has direct effect on Somali economy 13 The remittances have been sent for investment in new business to supporting entrepreneurs. 14 Macroeconomic of Somali population is based on the remittance inflows. 15 The remittance companies are a source of income & employment in Somalia Thanks for your valuable contribution. 1 1 ECONOMY (Dependent Variable) Discourage small businesses Damage macroeconomic INTERVENING VARIABLES Destroying Somali economy Discouraging human capital And poverty will increase REMITTANCE (Independent Variable)

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