Nov. 29 (Bloomberg) -- Asha Ali Mohamed has seen few benefits from the Somali shilling’s 33 percent surge against the dollar this year as the Horn of Africa nation starts to recover from two decades of civil war.
The shilling’s advance has made it the best performer among 177 currencies tracked by Bloomberg this year, and while signs of a business revival in the capital Mogadishu are fanning the appreciation, there’s another less encouraging reason for the gains: no new official bank notes have been printed since 1990.
For Mohamed, a 40-year-old mother of two, that means the foreign cash she receives from relatives in London buys less local currency every time she goes to the money changers.
“We’re increasingly dependent on dollars from abroad, and the same dollar fetches fewer shillings,” Ali Mohamed said while buying rice and flour in Mogadishu’s Bakara market. “I don’t know how to utilize the meager resources I have. It’s catastrophic.”
Twenty-two years after the ouster of dictator Mohamed Siad Barre, the capital is one of the few places stable enough to do business in Somalia, where bombings and suicide attacks remain a daily threat. Troops regained control of Mogadishu in 2011 and the port of Kismayo last year, and Somalis living abroad have sent at least $1.2 billion a year back to the northeast African country, the United Nations said in June.
The shilling traded at 1,200.9 per dollar today, the strongest level since at least June 1993, when Bloomberg began compiling the data. Its advance this year is more than three times the 9 percent gain of the Seychelles rupee, and almost five times that of the Icelandic krona.
While the rate that ordinary Somalis can get on the black market is far higher, it has tumbled to about 21,000 shillings for a dollar, from 33,000 two years ago, according to traders in Bakara this week. The market is close to where a U.S. Black Hawk helicopter crashed in 1993, as depicted in the 2001 Sony Pictures Entertainment Inc. movie Black Hawk Down.
The jump in the shilling “is a clear sign” of economic improvement, Abdinur Guled, who trades currencies in the center of the market surrounded by boxes of bank notes, said in an interview on Nov. 25. “This is a credit to the Somalis.”
Lawmakers elected Hassan Sheikh Mohamoud as president in September 2012, the 16th attempt since 1991 to form a central administration. The new government sees economic development as a way of asserting authority over the nation’s 10.2 million people. Somalia’s gross domestic product grew 3.5 percent to 4 percent in the first half of 2013, central bank data show, compared with a global average of 2.2 percent last year.
Efforts by the military to rein in the al-Qaeda-linked al-Shabaab group have helped attract regular flights by Turkish Airlines and pushed the government to urge Exxon Mobil Corp. and Royal Dutch Shell Plc to return to the country.
“Somalia is finding its feet economically and that’s mainly down to the influx of international aid and growing political will with international stakeholders,” James Warwick, an analyst at Maplecroft, a Bath, England-based risk advisory company, said by phone on Nov. 14.
Bashir Isse Ali has been named as interim governor of the Central Bank of Somalia, according to a statement yesterday. Former Governor Yussur Abrar resigned Oct. 30 after 1 1/2 months in the post.
The central bank will look at introducing a new currency, it said in its five-year strategy document in August, without giving details. As the country split into regional fiefdoms in the 1990s, warlords printed their own shillings and put them into circulation, causing spikes in inflation, the bank said.
Calls to the central bank’s Mogadishu office seeking comment went unanswered this week.
“The government has limited, or no, monetary policy,” Ahmed Ali, an Africa analyst at the Overseas Development Institute, which researches emerging countries, said by phone from London on Nov. 21. “The central bank doesn’t have the capacity to print money and pursue an expansionary monetary policy.”
Dollars also come into the country through international organizations that set up in Mogadishu following the removal of al-Shabaab, Ali said.
Somalis who get money from abroad usually receive $60 to $150 a month, Ali said. These remittances have become essential to locals like Ali Mohamed, who need them to swap into a currency whose largest denomination is 1,000 shillings, or 83 U.S. cents. They mainly use local currency for food and consumer goods and dollars for bigger purchases such as cars and rent.
“A year ago, my expenditure was very low compared to now,” Mohamud Farah Ali, a porter at the Bakara market, said on Nov. 25 as he lugged a sack of sugar. The father of four receives money from relatives in Finland. “Because the dollar, which is the lifeline of the Somali economy, has fallen suddenly to much lower levels, that has paralyzed families.”
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