A financial lifeline against an economic drain

February 6, 2005

Khat, pronounced ''cat'' or ''jat,'' is a natural stimulant from the Catha edulis plant, a large flowering shrub that grows in north eastern Africa and the southern Arabian Peninsula. Cultivated for centuries, the plant is used primarily in Ethiopia, Somalia, Kenya and Yemen.

Fresh khat leaves are glossy brown and contain a psychoactive ingredient chemically similar to amphetamine. The drug has two active ingredients: cathinone and cathine. Both are found in the shrub as it grows, but cathinone is converted to cathine as the leaves dry and mature.

Chewing khat produces a mild euphoria that is less potent than cocaine or amphetamine. Users report feelings of bliss, clarity of thought and energy, though some people report no effect at all. Chronic users might become aggressive or paranoid.

It is estimated that Somalis usually spend about $300,000 a day on Kenyan khat. This trade looks wonderful on the surface. But dig a little deeper and you'll find this rosy business has an ugly underbelly – khat bleeds dry the limited hard currency available inside Somalia supplied by Somalis living abroad thorough remittance companies (hawalas).

Financial remittances, which offer a crucial financial lifeline, have changed a lot in the last three decades. Remittances were estimated to be worth $ 370 million annually in the 1980s. However, payments sent by Somali immigrants back to their home country have soared after the civil war broke out in Somalia. According to some reports, about $1 billion was transferred in 2003. This is undoubtedly the largest foreign currency infusion into the economy, although the size of the average remittance transfer is minuscule - $50 to $300 - in the world of international finance.

After the collapse of the Somali economy, remittances from the large Somali Diaspora managed to enable the Somalis to survive on their own and to enjoy higher levels of food security and access to private social service than would otherwise be the case. “Preserving the flow of money is crucial to averting a humanitarian crisis in Somalia, where poverty and unemployment are rampant," said Andrea Tamagnini, UNDP Somalia Country Director.

Moreover, remittance companies do not only handle money transfer but they offer a unique platform, which allows a modern economy to operate within a failed state. Ahmed Mohamed, a support consultant for the Somali Financial Services Association, said, “The remittance companies are the only functional financial institutions in Somalia. As such, they are catalyst in every major financial transaction including remitting funds, facilitating trade, financing investments, and acting as quasi-banks with regards to savings and checking accounts.”

Unfortunately, khat depletes the hard currency available insides Somalia and regularly creates the domino effect of humanitarian and financial crises. According to the BBC, It is estimated that millions of Somali khat consumers spend a total of $300,000 a day to support their addiction, which is even more than the total amount that the Somali immigrants send to their country to survive. There is no taxation on khat, which could be earmarked for social programs since there is no viable government that maintains the rule of the law and has power over its borders.

Furthermore, khat breeds a social ill and is an economic drain. A report, Experience in the control of khat-chewing in Somalia states that, “the economic problems associated with khat-chewing include the spread of corruption, the theft of public and private property to support the habit, damage to people and to property caused by accidents that occur under the euphoric state induced by the use of the drug, and the loss of many working hours among civil servants and private employees.”

Khat does the opposite of remittance companies. It eliminates growth and multiplies unemployment; and it also increases insecurity, which in turn dispirits internal and external investments. Khat removes the hard currency that Somalia needs desperately which could create the opportunity to invest and grow. If there is no growth, high unemployment is inevitable. In addition to that, khat makes those, who are fortunate enough to have jobs inside Somali, lazy. Eng Rukia Osman Mahmoud, an anti-khat activist, said “Our men have become lazy over the years because of the widespread trade that forces them to just sit and enjoy the product.” Like the illicit cocaine trade in America and Europe, the criminal control of the khat trade in Somalia fuels violence, which discourages investments.

Banning khat inside Somalia to save the country from its abuse and associated problems is not currently a viable option as there is no effective government that can enforce the banning order, but there should be international co-operation in the efforts to control it.