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Published On: Sat, Jan 28th, 2017

Somaliland: What Are the real causes of inflation?

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The current Administration says ‘that cause of inflation is electronic transfer money known in Somaliland ZAAD or e-DAHAB, but what are really causes of inflation?

The cause of inflation is a sustained increase in the price level. The main causes of inflation are either excess aggregate demand (economic growth too fast) or cost push factors (supply side factor). There are at least seven items that can cause inflation and they are following:

1- Demand pull inflation:  Demand pull inflation is increase need for limited supply of goods and services, wanting to cause consumer prices to increase. This factor is the most factor that cause inflation in Somaliland simply because Somaliland the current regime does not bather to regulate incoming products from abroad.

2- Cost Push Inflation:  Cost push inflation is inflation in which increased production costs or increased import product prices. In Somaliland import products prices increase continuously which cause inflation.

3- Raw Material Prices: if import raw material prices is increased, it causes inflation specially oil products and other needed material.

4- Profit Push Inflation:  When companies rise the prices of their products, the rose prices cause inflation. In Somaliland companies continuously rise the prices of their products and Somaliland the current regime does not bather to regulate.

5- Decline Productivity:  If less production occurs and allow costs to rise, this invariable leads to inflation. Somaliland, the main production is livestock and livestock export is postponed therefore this causes inflation.

6- Higher Taxes: Somaliland current administration continuously increase all taxes that it collects from tax payers since it became to the power. Also the majority of taxes increased. The current regime increased taxes twice or triple what used to collect the previous administration.

7- Printing More Money:  It is notorious for Somaliland current regime to print new money. Somaliland current administration has been printing new money since it became to power and this causes the main inflation that has been occurring in Somaliland since it became to power.

Now do you find the above items and item indicates that the electronic transfer money causes inflation. If it yes then the electronic transfer money causes inflation. If it no then the electronic transfer money does not cause inflation. In reality the above items not included that the electronic transfer money causes inflation. In conclusion we can say that the  motive of the decision of the Somaliland administration toward ZAAD SERVICES and E-DAHAB is obviously political and it wants to get rid of ZAAD SERVICES and E-DAHAB. In my opinion the electronic transfer money is a device that enables people to conduct business when they are far from each other. Simply, it is a convenience way for doing a business. Instead the administration to give rewards to these companies, it is sad the regime to intend to get rid of these companies. Remember Somaliland people need so badly these services.

By: Professor. Kayse Ali Geedi

Hargeysa, Somaliland.

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  1. Abdullahi Yusuf says:

    Really you have already taken the main factors that couses inflation.but the question is,Why somaliland administration needs to get rid off services of zaad and e-dahab?

  2. Abdirahman Mahamud Haji says:

    I cannot agree less with the professor,the underlying factors still remains unanswered.As you have highlighted all the proponents factors of inflation which is normal in any economy,but it’s all relayed to price.First and foremost points (1),(2) & (4),are uncontrolled types of inflation since they are purely gauged on demand-supplier power,not forgetting that the market here is more of monopolistic and oligopolistic.Items (3) & (5) are purely out of question either, with too much dependency on import and finished goods, this is heightened by rather money inflation as given to product inflation though they are correlated as the end product is consumed by final consumers.Now again when it comes to reliance of sole foreign income generation in livestock in relation to too much importation this raises to unfavourable balance of trade and payment which causes price inflation.Items a(6) &(7), may have a lesser implication in inflation from Somaliland perspectives,Somaliland has among the most friendly tax bracket in Eastern Africa if not the best.When it comes to printing a lot of money, its a role that a governmet ought to initiate as a monitory factor to inflation, which emanates from too much demand for Somaliland shilling to address increase dollar demand for importation. In short all the underlying factors that cause inflation in Somaliland is caused by too much reliance on importation period. As in regard to Zaad & E-dahab,am also intrigued by its subtle operation in income generation. As it stand it does not saturate inflation but rather as a monetary measure, as you put it rather controls the money in circulation, so there is no way it is increasing inflation.

  3. Omer Ismail says:

    Why there is mention of the $2 million daily remittance payment to Ethiopia for the Khat importation?

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