The Horn Of Africa States: The Business Of Money, Politics And Power – OpEd
Money is generally defined as anything that is accepted by people as a means of payment for obligations or receive for services and/or goods sold. They say that in Romania, in the 1980s, people used Kent cigarettes as a means of payment for goods and services and so, therefore, money is just what people accept as a means of payment. It could be rocks and just simply tissue paper. We should perhaps start the business of money as to what money does or is used for.
For one it is a unit of account and for second it is a medium of exchange. However, it does also another job. It is a store of value and at the end of the day, it is what makes people live, unless they are so primitive, and inhabit in forests, deserts or isolated places, and live off the lands gathering fruits or hunting animals. They do not have to exchange anything for anything. But that is not possible today!!!
In the modern world, money does the same job as it was doing in the very beginning when it was first invented in the dawn of history. But it also buys favors and influences now. In the past, money was usually a precious item like silver and gold but since these commodities have limited quantities, modern governments have come up with what is known as fiat-money, a government issued currency that is not backed by a valuable physical commodity like gold and silver but by a government and hence stability. One must note, after all, that it is a unit of account and goods and services are priced in money, and now politicians and the favors and influences of the political elite in the horn of Africa States, are also bought and sold like commodities and/or services.
In the Horn of Africa States, money is under the control of the governments, like any other region, except Somalia. Currencies are issued through the Central banks of Ethiopia, Eritrea and Djibouti. In Somalia, it is printed by anyone who can and has the means to do so. But it is strange, all Somalis accept those counterfeit currencies and if one wants to get rich quickly, one could arrange with an Indian printing house or even buy a machine to print the notes at home. Yet the people accept it, as a currency and as a means of payment, going back to original concept of money as a means of either paying for obligations or receiving for services and goods sold and being accepted as such. No wonder many Somalis are rich. They are the printers of those counterfeit currencies, which they eventually exchange for actual US Dollars or other currencies. Some of the regions of the country print their own currencies and force it on the populations, which have no choice but to accept them. It is mostly those counterfeit currencies that is used to buy and sell the favors and influences of the political elite in the country.
The role of the Central bank in Somalia is limited to only being a treasury box for the government. It does not issue the Somali currency and it does not control the money supply nor does it control inflation. It is simply a safe box for the government to keep its small tax collections and receive the handouts from NGOs and other governments and multilateral institutions and from which it meets its expenditures such as staff salaries and the other expenses of government institutions. Throughout the past two to three years the Central Bank of Somalia was discussing and making announcements that it would issue a new currency in 2024 and would hence forth control the money supply of the country. All these appear to be wishful dreams for the country in its entirety is not under the control of the government. Somaliland is a breakaway region, which owns and prints its own currency which is, perhaps, better controlled and managed by its own Central Bank of Somaliland. Puntland prints its own versions of the Somali currency and perhaps other regions do the same as well.
The new step of joining the EAC (November 24, 2023) adds a new dimension to Somalia’s dilemmas for, indeed, the EAC is planning to have a monetary union in 2024. Why would there be a need to issue a new Somali Shilling as a currency? The currency could be an EAC or EAF Shilling or perhaps a different name in its entirety.
The Djibouti currency, the Djibouti Franc, is perhaps the strongest currency in the region for it is pegged to the United States Dollar since 1949. Its exchange rate is stable, and investments therein preserve the value of the investment made in the country, in addition to the accumulated profits that the investment was originally seeking. But most Somali investments and, indeed, Ethiopian investments run to the East African market, as it is one of the most corrupt markets in the region, where stolen funds from governments in the region are welcomed and enjoyed.
The Ethiopian Birr is a controlled currency and financial freedom in the country is limited as it was always. It is how the large masses of the population are controlled – keeping them poor and destitute. No foreign and financial institutions are allowed into the country and the exchange controls make it tough and difficult. Lately, the Federal Government of Ethiopia, was announcing that it would liberalize the economy, and indeed, the Government has been trying to sell off a portion of Ethio Telecom. But that privatization remains incomplete. Safaricom of Kenya became the first telecom company to enter the Ethiopian market, which is estimated at some 70 million subscribers and still growing. The Banking system remains truly Ethiopian and foreign banks still find it difficult to enter the market.
Earlier this month, the only foreign owned financial company in the country, Ethio Lease, pulled out of Ethiopia due to foreign exchange constraints. Ethio Lease is a subsidiary of the New York-based African Asset Finance Company. This is a blow to Ethiopia, no doubt. The company obtained a license to operate in the country in 2019 and started to operate in 2020.
No wonder, the economy, although it is one of the largest in Africa and certainly the largest in the Horn of Africa States region and even in East Africa, remains stunted, which has nothing to do with access to seas, as claimed by the authorities of the country. Both Moody’s and Fitch downgraded the Birr with Moody’s putting Ethiopia’s foreign currency rating by a notch lower from ‘Caa3’ from ‘Caa2’, in September 2023. They cited a likelihood of default on foreign currency-denominated private sector debt. Fitch Ratings also downgraded Ethiopia’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) ‘CCC-‘ to ‘CC’ and affirmed the Long-Term Local-Currency IDR (LTLC) at ‘CCC-‘. Note that Fitch does not typically assign outlooks to Sovereigns with a rating of ‘CCC+’ or below (Read Fitch Ratings and Moody’s News).
Eritrea is a whole different game and is closed to all. The Nakfa exchange rate is fixed by the government, and it is the currency of payments in the country, although the United States Dollar is widely used as a secondary currency as well. The Government of Eritrea resists floating the currency. Overall, Eritrea’s economy is small, underdeveloped, and in short, there is very little information thereon.
The region’s business of money is tied to its political maneuverings. It is often, as Alex de Waal, a commentator on the region reveals, like a marketplace, where the buying and selling of favors and influence are the main products and services of the region. It is often shaded and covered by this blind allegiance to the clan or ethnic base, which at the end of the day does not benefit much from the elite that use their groupings. This political horse-trading in the Horn of Africa States region does not take place in a vacuum but through the funding and financing of powerful foreign hands. It is how money pours into the region only to keep those who serve those hands in power.
The normal business of money in Somalia, which is just the medium of exchange follows patterns different from those of any other country in the world. As we noted earlier, money includes counterfeit money, which is legally accepted as means of payment, as a unit of account and hence as a store of value. Only Djibouti maintains a reasonable money policy while Ethiopia manages strictly the money business, thus limiting the potential of the country. Very little can be said about money and business, thereof, in Eritrea.
