June 2017

Safia Ahmed Ali

Inflation Effects on Hargeisa’s Low Income Families

High-Quality Research Support (HQRS) Programme

Abstract

This study aims to investigate the inflation effect on Somaliland’s low income families. Six

years of statistics reports from the CPI have been studied and analysed in order to calculate

the inflation rate. Further, 10 households from poor villages in Hargeisa have been

interviewed to understand the effect of inflation on low income families and how they cope

with it. The study found that inflation in Hargeisa is unsustainable having risen in all of the

last six years excluding 2013 where it declined -2%. All the prices have risen but in particular

the food prices are higher than the other items. For instance, according to the Somaliland

National planning 2016 CPI report in 2016 the food price increase hit 16.6%, while the non-

food items reached 12.6%. Further, the exchange rate rose up to 26% during 2016 to April

2017. Moreover, the study found that the inflation effected Hargeisa low income families in

the areas of food and education. The low income families reduced either the quality or the

quantity of their food in order to cope with inflation. Poor families also removed their

children from schools as they were not able to pay the fees.

Table of contents

ABSTRACT .................................................................................................................................................... 1

TABLE OF CONTENTS ............................................................................................................................... 2

LIST OF FIGURES ............................................................................................................................................... 3

LIST OF TABLES ................................................................................................................................................ 3

INTRODUCTION .......................................................................................................................................... 4

BACKGROUND OF THE STUDY ........................................................................................................................... 4 PROBLEM STATEMENT ...................................................................................................................................... 6 RESEARCH QUESTIONS ..................................................................................................................................... 6 OVERALL AIM AND SPECIFIC OBJECTIVES ....................................................................................................... 7 SIGNIFICANCE OF THE STUDY ........................................................................................................................... 7 SCOPE AND LIMITATION OF THE STUDY ........................................................................................................... 7

LITERATURE REVIEW .............................................................................................................................. 8

RESEARCH METHODOLOGY ................................................................................................................. 10

FINDINGS AND DISCUSSION .................................................................................................................. 11

CONCLUSION ............................................................................................................................................. 18

BIBLIOGRAPHY ............................................................................................................................................... 20

List of figures Figure 1 Overall Inflation rate (2014 -2016) ........................................................................... 12

Figure 2 2014 to 2016 Inflation rate of food and non-food items ........................................... 13

Figure 3 CPI of six years (2008 -2010) and (2013 -2015) ....................................................... 14

Figure 4 CPI of Food Items in 2017 (Jan - May) ..................................................................... 15

Figure 5 CPI of Food and Non-food Items (Jan - May) 2017 ................................................ 15

List of Tables Table 1 Food and Non-food items CPI from Jan -May 2017 .. Error! Bookmark not defined.

Introduction

Background of the Study

Hargeisa is the capital city of Somaliland, the self-declared state that re-asserted from

Somalia and announced its independence on 18 May 1991. “Somaliland is about 20 percent

of the land mass of the Somalia Republic and at some 137, 600 square kilometers is roughly

the size of England and Wales” (Bardbury, 2008). After three years of Somaliland re-

assentation, in 1994 the Somaliland government printed its own currency which is comprised

of 1 Somaliland shilling coin and 5, 10, 20, 100, 500 Somaliland shilling Banknotes. In

addition to the wars that Somaliland experienced with the British colonial regime and the

regime of Said Bare, other different civil wars exploded among SNM, and between

Somaliland’s newly born government and its own clans after the re-assertion. These different

wars resulted in a massive destruction of Somaliland’s economic and education

infrastructures, while many sectors are led by private companies.

Hargeisa experienced inflation specifically for the last six years, excluding 2013, where both

the prices and exchange rate fluctuation rose for the last two years. For example February

ending year 2016 the prices of food rose 14.7 percent (Ministry of Planning, 2016). Further,

the exchange rate rose from 7700 to 9500 Somaliland shilling per 1 US Dollar from July

2016 to June 2017 (commerce of chamber, 2016, 2017). Foreign currencies, particularly US

Dollars, are normally used in the country. People can use US dollars for every transaction

including the smallest transactions such as a bottle of water and this has implications for

inflation.

Inflation is a rise of prices for goods, services, wages, and currency exchange in a certain

period of time (Mankiw, 2015). Some researchers have found that inflation hurts the poor,

more than the rich; for instance Kahn (Kahn, 1984) studied the effects of inflation on the poor

in South Africa and determined that the inflation hurts the poor most.

Hyun (Hyun, 2013) conducted a regional study in the Philippines and found that inflation,

particularly the price rise of food items, adversely affects the poor most. Naz (Naz, et al.,

2011) examined economic and psychological impacts of inflation and price hikes on poor

families in Malakand District, collecting data from 280 categorised respondents and they

concluded that inflation has a vast impact on the poor socially, economically and

psychologically. They stated that the inflation has economically and socially tortured the

poor. They suggested that the increase of prices does not affect only their productivity and

output, but also that it leads them to crimes and increases the crime rate. Furthermore the

study highlighted that inflation also affects the poor psychologically by depressing them, and

this leads to violence and aggression.

Easterly and Fischer (Easterly & Fischer, 2000) argue that the rich can protect themselves or

benefit from the effect of inflation better than the poor. The rich have better access to

financial instruments which helps protect them from inflation effects better than the poor.

Poor are more likely to have larger share of their money in cash. Also the poor may depend

on state-determined income more than the rich, which is not influenced by inflation,

consequently, inflation will reduce their real income. Therefore, they found supporting

evidence for their argument that inflation hurts the poor more than the rich.

Though this study aims to examine the effect of inflation on low income families inflation

also increases the poverty rate, and impacts economic growth. The researchers found that

there is a positive relationship between inflation and poverty. Accordingly, the poverty rate

increment has its impact on economic growth. Datt, Gaurav and Martin (Datt, Gaurav &

Martin Ravallion, 1996) studied 1957-1991 collective state data to investigate the causes of

poverty and found that higher rates of inflation results in higher poverty rates. Blank (Blank,

1991) argued that reducing the poverty rate put off economic growth. He found that there is a

positive relationship between the poverty rates and inflation. Blinder and Blank (Blinder &

Blank, 1985) found that there is a positive relationship between inflation and poverty while

inflation leads to higher poverty rates. South Sudan experienced inflation which resulted from

several factors: government expenditure rapidly increased as the government growth rate was

estimated at above 30% while the large government budget was estimated to increase more

than 50% from the 2011 budget to fiscal year of 2012, which led the government to print

more banknotes. This influenced the exchange rate which rose against US dollar, and the

value of the South Sudanese pound decreased. Demand and supply were also another factor

that led to inflation. On the demand side, more than 200,000 people returned to the country,

while the supply side decreased due to the internal and external trade barriers. The monthly

price surveys of goods categories conducted by the National Bureau of Statistics regarding

the food prices inflation in 2011 found that there was a high inflation of food and service

prices across all categories. This inflation typically hurt the poor most due to the higher share

of food in the poor’s consumption commodity basket (World Bank, 2012).

It is undeniable that Somaliland’s inflation may also affect the economy of the country and

the poverty rate. The comparison of the GDPs to study the impact of inflation on the GDP is

not possible in the case of Somaliland because there is only one GDP estimate available,

which was conducted by World Bank in 2012. Yet it is likely to have a negative impact as

Somaliland has the fourth lowest GDP in the world. According to the 2012 figure,

Somaliland’s GDP estimation is 1.4 Billion US dollars with per capita GDP estimated at

$347. The poverty rate in urban areas is estimated at 29% and 38% in the rural areas in

Somaliland; this study also found that there is a high level of inequality in Somaliland (World

Bank, 2014).

Problem statement

Somaliland’s community succeeded in building a peaceful state, but the government of

Somaliland has not yet succeeded in curing and controlling inflation, which has occurred in

the country as whole and in Hargeisa particularly. This is due to the lack or, weakness of, the

government’s role in many economic sectors including the banking system. The government

of Somaliland failed to cure and control inflation which may increase the poverty rates.

Furthermore, inflation might be damaging the economic growth of the country as well. The

role of the government in public services including the banking system is either non-existent

or very weak which has its implications for inflation. The World Bank has released articles

about Somaliland’s poverty, and Somaliland’s websites have published non-academic articles

about the causes of Somaliland inflation, however there have been no academic study issued

that considers the consequences of inflation for low-income families in any region of

Somaliland.

Research Questions

Main Research Questions

What are the effects of inflation on Hargeisa’s low-income families?

How does inflation effect the low-income families?

Specific Research Questions

How are the inflated prices of food effecting low-income families’ daily life?

What are the consequences of exchange rate fluctuation for low-income families’

earnings?

How does currency depreciation effect low-income families’ income?

How do low income families deal with the inflation impact on their everyday life?

Overall aim and specific objectives

General Research objective:

The overall aim of this research is to discover the impact of inflation on Hargeisa’s

low income families

Specific Research Objectives:

To assess the impact of inflation on Hargeisa’s low-income families

To explain how low-income families feel inflation’s impact by describing how they

deal with inflation.

Significance of the study

This study provides comprehensive detail about the effect of inflation on Hargeisa’s low

income families. The study explains how low-income families are the most vulnerable to

inflation, which can increase the poverty rate and impact the economic growth of the country.

Hargeisa’s community has lived with inflation for the last couple of years, where the price of

goods were not sustained and frequently have been increasing, including through money

exchange fluctuation. The result of this study is an improved understanding of the effect of

inflation on Hargeisa’s low income families, and how they deal with it.

Scope and Limitation of the study

This study was conducted in Daami and Mohamed Mooge villages where the poorest

communities in Hargeisa live. A representative sample were interviewed in their houses.

These two villages have been chosen because they are the resident villages for the poor

families in Hargeisa.

This study has several limitations as does any other study, but some of those limitations

might have a tangible impact on the results of the study. This study aims to discover the

impact of inflation on Hargeisa’s low income families, to investigate whether the poor

community are the victims. It is necessary to examine the income of the low income families,

however this and similar information is very sensitive in the Somaliland context. Some of the

participant’s avoided responding to such specific questions by giving uncertain responses. In

addition, the household heads of such families are rarely present in their residential area,

which affected the gender balance. As mostly the males were out either chewing or working

this made it difficult to interview them.

Literature review

In the economy, the rate of inflation is the general change of overall prices in the economy

per unit over a period (Flemming, 1976). Although economists do not agree all the inflation

causes there are some key causes which most of them do agree on: rapid growth in the money

supply which is based on The Quantity Theory of Money. This theory states that there is a

positive relationship between inflation and the money supply without increasing the output,

particularly in the long term. In other words, if the money supply increases without increasing

the output this will induce inflation in the long term. “This can be measured by the Fischer's

Equation, MV=PT, where M = quantity of money in circulation, V = velocity of money or the

turnover of money, P = general price level and T= total number of transactions of goods and

services during the year” (Skousen, 2007). “Continuing inflation occurs when the rate of

growth of money supply consistently exceeds the growth rate of output” (Ball, 1993).

Inflation can be measured by the inflation rate. The Inflation rate is the percentage change in

the general price index, usually the Consumer Price Index. “Inflation is the growth in the

overall level of prices in an economy. The inflation rate can be measured by the Consumer

Price Index (CPI) which is 𝑖 (𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛) = 𝑃2 −𝑃1

𝑃1∗ 100” (Mateer & Coppock, 2014).

The economy’s overall price level can be viewed in two ways: number one, as the price of

goods and services, such as the amount of money that the consumer should pay to get a

specific item(s) or service. Number two as the value of the money, because if prices rise more

money will be paid to get the same item that the consumers paid less for before, which means

that the value of the money has decreased (Mankiw, 2015).

In Zimbabwe, hyperinflation occurred for different reasons. One of the core causes of

inflation was money supply - printing more money (Munangagwa, 2009). However,

Zimbabwe’s community complained about the huge amount of money that they needed to

carry when purchasing a simple item, like bread. Zimbabwe’s government printed new

banknotes by adding more zeros several times to solve the existing inflation. This made the

problem worse. Therefore, hyperinflation increased until the Zimbabwean nation deserted

their currency and the government officially authorized foreign currency transactions

(International Monetary Fund, 2007) and (International Monetary Fund, 2009). In 2012 the

Somaliland government printed new currency for 5000 and 1000 Somaliland shillings. This

caused public concern as the community expected that this would result in inflation

immediately. After a couple of months when the inflation did not occur it was no longer a

public concern. However, there has been inflation over the following four years, with the

exchange rate rising from 6500 to 9500 Somaliland Shilling per 1 US dollar during 2015 to

2017. The economists agree that the money supply takes time to influence the economy, and

it would influence it in the longer term.

Further, inflation leads to poverty and affects economic development. Many studies have

confirmed that inflation has a significant impact on poverty levels. These studies indicated

that inflation is one of the macroeconomic fluctuation indicators. Inflation is an important

element which has an important effect on poverty increment. For instance, (Ivanic & Martin,

2008) investigated nine developing countries across the world and proved that inflation

generally has a negative impact on poverty. They found that price rises increase the poverty

rate. (Wodon, et al., 2008) also assessed 12 Sub-Sahara African countries to study the impact

of inflation on poverty. They found that food price rises increase poverty. (Conforti, et al.,

2009) studied the impact of and policy responses to a commodity price boom in Malawi, and

found that the price rise had a substantial impact on poverty increments.

In Hargeisa, the population is increasing rapidly. According to a CIA 2015 estimation,

Hargeisa’s population was 760,000. According to the world population review of 2017,

Hargeisa’s population is 1.2 Million (World Population review, 2017). It is obvious that

Hargeisa’s population increased vastly. However, Somaliland pastoralists are moving to the

cities including the capital city Hargeisa. The majority of those who are moving from the

rural areas are mostly very poor. As they are neither educated nor skilled this makes them the

most vulnerable victims of inflation. In 2003, Bradbury interviewed the poet Mohamed

Hadrawi; Hadrawi said, “In the last five years our development were much less than we

expected. The first reason is economic. Somaliland livestock is the backbone of Somaliland

development. But Somaliland people are leaving the rural, particularly the young people. The

pastoralist youth interested urban way of life, and come to the urban with no skills, no

employment opportunities, this made the urban towns look like refugee camps, and hindered

the economy progress” (Bardbury, 2008).

Though inflation has its impact on the economy, inflation hurts the low income families more

than anybody else. Research which has been conducted in thirty eight countries on 31869

households shows that the poor are more likely than the rich to state inflation as a top

national concern (Easterly & Fischer, 2001). (Varian, 2005) states that “Economic policy

often uses tools that effect a consumer's budget constraint, such as taxes. For example, if the

government imposes a quantity tax, this means that the consumer has to pay a certain amount

to the government for each unit of the goods he purchases. From the viewpoint of the

consumer the tax is just like a higher price.” Accelerating inflation also reduces real wages

and increases poverty. This effect dominated Latin America between 1977 and 1989.

(Cardnso, 1992) claimed that there is a negative impact of inflation on wages. The real wage

amount remains the same, but since the prices rise the value of the money decreases.

Therefore, the consumer spends more to get the same item that he/she used to buy for less

before.

Research Methodology

“Research methodology is a way to systematically solve the research problem. It

may be understood as a science of studying how research is done scientifically. In

it, we study the various steps that are generally adopted by a researcher in studying

his research problem along with the logic behind them.” (C.R. Kothari, 2004).

Mixed methods are used in this study: both qualitative and quantitative methods and

secondary and primary data. “Qualitative researchers tend to collect data in the field at the

site where participants experience the issue or problem under study. They do not bring

individuals into a lab (a contrived situation), nor do they typically send out instruments for

individuals to complete. This up-close information gathered by actually talking directly to

people and seeing them behave and act within their context is a major characteristic of

qualitative research. In the natural setting, the researchers have face-to-face interaction, often

over time” (Creswell, 2013).

This paper aims to study how inflation effects low income family emphasising their

experience of inflation and how they cope with. Therefore, both qualitative and qualitative

methods were used. Quantitative secondary data from the Somaliland Chamber of Commerce

was used to analyze inflation rates including exchange rates using the CPI (Consumer Price

Index) equation.

Qualitative multi stage sampling is used in this paper, of both a purposive and random design.

A purposive design was used where two of the poorest villages in Hargeisa were selected:

(Daami and Mohamed Mooge) at which point five randomly selected households were

interviewed in each village. (McNamara, 1999) argues that interviews are an important tool

used to represent the story behind the interviewees’ experiences. Interviews will be used as a

qualitative data collection method to study the involvement and the effect of inflation on low

income families in the selected sample population. (McNamara, 1999) argues that the are an

important tool used to represent the story behind the interviewees’ experiences. The selected

villages were visited in order to conduct the interviews in a place that the interviewees’ feel

safe and comfortable.

“Qualitative approaches are flexible, meaning they explore attitudes, behavior and experience

through such methods as interviews and focus groups. They attempt to get an in-depth

opinion from participants, and one advantage is that contact between participants lasts longer

and fewer people are involved” (DTDigital, 2012). Hence, although this study uses mixed

methods, qualitative data is prioritized while the quantitative secondary data is used to

support the qualitative results of the study as context, in terms of the inflation and exchange

rates, needed to be understood.

Findings and discussion

This study aims to explore the effect of inflation on low income families in Hargeisa. The

researcher conducted 10 face-to-face interviews with interviewees from two of the poorest

villages in Hargeisa; Daami and Mohamed Mooge. In addition, the researcher analyzed

quantitative secondary data published by the Somaliland Ministry of Planning and Chamber

of Commerce in order to analyze inflation and to illustrate extensively the inflation and

exchange rates with numeric data. As poverty is a sensitive subject, the real names of the

interviewees are not used in this report.

This paper investigated Somaliland’s Consumer Price Index over the last six years in order to

calculate the inflation rate and to find out whether there is inflation or not before the question

of an inflation effect on Hargeisa’s low income families was pursued. This study found that

though the prices were not sustainable mostly they were rising over the last six years (from

2012 – 2017: the current year) with exception of 2013 where it declined up to -2. Overall the

prices rose particularly sharply from 2014 to 2016. According to Somaliland’s Ministry of

Planning the “CPI started in January 2013 to January 2016 indicates that the All Items annual

inflation rate at 14.2%, 16.6% for Food and 12.6% for Non-Food.” According to the Ministry

of Planning’s February 2016 report, 45 Groups of CPI have been weighted for the period of

2013 to January 2016 for a period of three years and they stated that the highest CPI group

was the Food and Non-Alcoholic Beverages group with a weight of 42 % (Ministry of

Planning, 2016)

Figure 1 Overall inflation rate (2014 -2016) Source: Somaliland Ministry of Planning

The chart shows that prices were rising from 2014 but the highest rates occurred in 2016 and

2015 while the food prices hit 17% and 15% respectively, while it dropped down but it rose

up again up to 16.7 % in May 2017.

0

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2014 2015 2016 2017

All Items Inflation rates (2014 -2016)

Figure 2 2014 to 2016 inflation rate of food and non-food items Source: Somaliland Ministry of Planning

It is obvious that the CPI rose, but the highest rise occurred in 2015 especially for food items

while the prices of non-food items including luxury items rose less than the other items like

beverages and tobacco. This means that the necessary items that poor and rich need rose; the

poor cannot cut food from their life. Then this forced them to reduce either the quantity or the

quality of their food. This paper found that the majority of the poor families either reduced

the quantity of the food that they use or they opted for less quality items to cope with the

higher prices of the food.

Amel stated that due to inflation she has changed the type of food that she uses. Whilst she

used to use meat in her everyday cooking now she just buys meat biweekly and she already

stopped using fresh milk in her house. She continued, saying “Three dollars were sufficiently

enough to buy a commodity of basket which is enough whole the day for my family.

Meanwhile, thought that three dollars are more than before when I exchange to the

Somaliland shillings but it is not enough even to bring similar quality food that I was able to

buy before.” 1

The below chart indicates the CPI of the last three years of the last two administrations

(2008-2010; Riyale term) and the last three years of the current government from (2013 to

2015).

1 Interview with Amani, 27 July 2017

-5

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2014 2015 2016 2017

2014 -2016 Inflation rates

Food Non - Food

Figure 3 CPI of six years (2008 -2010) and (2013 -2015) Source: Ministry of Planning

The above chart shows that the prices are increasing continuously as the necessary items such

as food and energy/water prices are higher than for other items.

Abdifatah, a 34-year-old father of three children, said “receiving my income in Somaliland

shilling while I have to pay the bills in USD made me and my family victims of the inflation.

I decreased the dry food 50% while I used 50k of each Flour, rice, sugar, and now I Just buy

25 Kg each one of them. This was not enough to survive, so we also stopped purchasing

meat, and I have not eat meat for the last eight months; he continued saying, though my

income amount is same in Somaliland shilling but it decreased almost 30 %. Due to the

exchange rate after I exchange since I need USD to pay some bills.” 2

Sahra, a 51 year old mother, said “though I don’t know much about how this inflation

effected in our income for not being the financial source of the house, but I can assure that it

has affected my daily life through the items that I purchase everything price rose and I

receive a similar amount for the bill since 2014. 3

Prices hiked up higher during 2016 - 2017 as indicated in the below chart which is based on

statistics reports available from the Somaliland Ministry of Planning. It is noticeable that

2 Interview with Abdifatah 23rd July 2017

3 Interview with Sahra 25th July 2017

0

50

100

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2008 2009 2010 2013 2014 2015

Food (Energy / Fuel and Water) Fruits and vegtables

(House rent) (Beverages and Tobacco)

prices rose faster than before as food items were increasing priced higher than the non-food

items.

Figure 4 CPI of Food Items in 2017 (Jan - May) Source: Ministry of Planning

Description Jan-17 Feb-17

March

2017 Apr-17

May-

17 Inflation rate

Food 141.65 143.3 144.98 146.7 153.2 8.1 %

Non food 127.66 127.77 128.82 130.59 132.68 3.9 %

Table 1 Food and Non-food items CPI from Jan -May 2017 Source: Somaliland Ministry of Planning 2017

134

136

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J A N - 1 7 F E B - 1 7 M A R H C 2 0 1 7 A P R - 1 7 M A Y - 1 7

CPI OF FOOD ITEMS

Figure 5 CPI of Food and Non-food Items (Jan - May) 2017 Source: Ministry of Planning

During the first five months of this year (2017) the prices rose and the inflation rate hit 8.1%

for food items and 3.9% for non-food items (Ministry of Planning statistics report: Monthly

CPI, 2017). This has effected the low income families who cannot buy good quality food due

to inflation. This makes them vulnerable to deficiency diseases. Amel, a mother of two

children, and Sahara, a mother of five children, expressed that the inflation effected their

daily life. They both said that they do not eat meat or fresh milk and they cut this from their

food due to inflation. Amel said “instead I used to bought a cup of milk for 6000 Somaliland

shilling I have to pay now 9000 Somaliland shilling in the cheapest place while it costs 15000

and above for other more expensive places”. The participant expressed that the inflation

effected the quality of their food. This may make them more at risk from dying more easily

from simple diseases like diarrhoea since their nutrition is very weak.

The participants stated that inflation could threaten the security of the country. Abdirisak

said, “this affected me and my family but it also could effect the security of the country.

Many families drop their children from the schools when they could not cover the fee this

increases or will create gangs group because those young males when they have nothing to do

then they will use to rob and rape the girls”. 4 While Milgo, a mother of seven children said,

“My husband is a soldier his salary is 600000 Somaliland shilling and we used to pay that

amount the house rent and my oldest son school fee. While what I receive from my small

4 Interview with Ahmed 28 July 2017

0

20

40

60

80

100

120

140

160

180

Jan-17 Feb-17 Marhc 2017 Apr-17 May-17

Food Non food

shop and the some financial support from our relatives covered our other expenses. Now our

family do not support as before; On the other hand, my husband’s salary cannot cover the

school fee and the house rent together. He decided to leave from his job, but we are still

planning what else he will do. Therefore, I do believe that this inflation is not effecting us

only as poor group of the community but it effects also the security of the country.”5

According to the Somaliland Chamber of Commerce reports the exchange rate of USD in

Hargeisa was 7500 Somaliland shilling per I USD in 2016 while it is 9500 April 2017. This

means that the exchange rate was hiked 26% during this period (Somaliland Chamber of

Commerce yearly reports 2016, 2017).

Participants argued that receiving their income in Somaliland shilling made them the group

most affected by inflation. Ahmed Haybe, 30 year old father with two children, said “I have

been helping and supporting my family particularly my divorced sister for the last two years,

but from 2016 I could not continue that contribution. Though my income is the same I am not

able to avoid my own family’s expenses. I receive my income in Somaliland shilling and

before anything else, this is the main fact that make me a victim of this inflation. For

instance, we (I and my own family) rented a house of two rooms for an amount of 80 USD

per month and this does not changed for the last three years. However, I used to pay 600000

Somaliland shilling to exchange to USD and get the $80 but now I have to pay 880000

Somaliland shilling to get the same mount. Everything changed due to exchange price like

the school fee, electricity bill, and so on 6

The rate of inflation has affected low income families in Hargeisa. The core reasons that

make them victims or more vulnerable are: number one, that the low income families receive

their income in Somaliland shillings which decreases whenever the exchange rate decreases.

Furthermore, since many transactions are based in USD like house rents, school fees and so

on this forces them to exchange the money. Secondly, the inflation is higher for the necessary

items like food more than for other items, therefore, the inflation that occurs in Hargeisa

effects the low income families the most. The inflation effects the low income families

businesses, mostly the low income families do business in meat and small shops. Hence,

when the inflation occurs the demand for these items decrease where the poor themselves

5 Interview with Milgo, 29th July

6 Interview with Hybe, 29st July 2017

decreases the demand of such items by decreasing their consumption. For instance, Shamis, a

54 year businessperson and mother, said “Though I feel that I and my family are better

comparing to the neighboring houses since I do not use in USD in any of my transactions

excluding the house rent and the electricity bill while I receive this amount from the abroad.

This is not mean in any way that this inflation has not affected me because I make a business

in the livestock of meat market and the number of transactions that I used to make last year

reduced extremely”. She continued, saying that butchers sell less meat per day so they buy

less livestock in return and this is because the prices rose and the people who are able to buy

meat become fewer.7

Inflation has also effected low income families’ education. Sulekha indicated that she

dropped her children from the private school to the public one: “Though I know that the

private schools are better but since I cannot pay the fee I decided to let them to the public

schools just to keep them away from the street”. She added that this did affect her only as

some of neighbors also had to withdraw their children from schools and did not let them go to

any school stating that staying at the house is better than sending them anywere. 8

This study demonstrates that Hargeisa’s inflation hurts the low income families whether in

their daily life or their even their education. Though this paper concentrated on the effect of

inflation on low income families, the participants expressed that the inflation is also a threat

to their security. Furthermore, economists agree that high rates of inflation are harmful more

generally to the economic growth of the country. Although there have been no studies

specifically investigating this in Somaliland, it will definitely be the outcome if inflation

continues to climb.

Conclusion

Inflation has had an extreme effect on low income families, whether it is impacting their

commodity basket, education or even their moral. One of the core things that make them

more vulnerable is that the price of food items and the exchange rate have risen. Since most

of the poor families in Hargeisa receive their income in Somaliland shillings, while many

transactions take place in USD (including but not limited school fees and electricity bills)

7 Interview with Shamis, 29th July 2017

8 Interview with Sulekha, 29th July 2017

both inflation and exchange rate fluctuation effects them. Further this can lead poverty;

though there is no poverty estimation study with the exception of one by the World Bank

carried out in 2014, the participants expressed that their situation had worsened due to the

inflation rates. Therefore, low income families who have been effected by the inflation have

removed their children from the schools since they could not pay school fees while others

have sent them to lower quality and cheaper schools that they can pay for.

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