Tuesday, February 07, 2012
In May 2009, Mr Abdikani Abukar took a decision that changed his life forever.
After receiving a share of his inheritance following the death of his father, he combined it with his savings and invested $15,000 (about Sh1.3 million) in a real estate development project in the heart of Eastleigh.
Once the mall was complete, he was told, he would get Sh40,000 every month for a period of 20 years as a share of the profit from the investment.
A few months later, construction halted and the management at the site explained to Mr Abukar that due to swelling construction costs, they were unable to continue building the mall.
Investors were asked to add more capital to the project.
“I demanded back my money immediately,” Mr Abukar says. “I knew something wrong was going on.”
With no written contracts drawn to agree on the structure of payments and the nature of investments, many Somali businesses have thrived on an economic model that heavily relies on trust.
Tightly-knit clan-based co-operatives have over the years pooled resources to fuel the rise of Somali capitalism.
From Minnesota to Melbourne, diaspora remittances to distant relatives have also been at the centre of the buzz of activity that has shaped Somali businesses, starting with shopping centres in Eastleigh to gold shops in Dubai.
The economic formula draws a comparison with the nomadic ways of doing business, where one would entrust his clansmen with his livestock and other possessions and request them to sell it on his behalf.
This trust is what also created an informal money transfer system, the Hawala, after the greatly undervalued Somali currency in the 1980s made it unattractive to remit earnings through official channels.
As a result, informal bankers, who could be trusted because of clan and religious ties, enhanced the rise of the Hawala system.
“It was only natural that this extended to modern commerce where the community put together sizeable resources in a quasi-trust structure entrusted on certain individuals to further the community’s commercial interests, such as in real estate and transportation,” Mr Zaki Sheikh, a financial consultant, says.
The advantage, Mr Zaki adds, is that this informal structure is very efficient in identifying a need in the market, after which businesspeople respond in good time without being encumbered by formality and corporate red-tape.
However, that nomadic economic model, which has lasted for decades, is now crumbling, and businesspeople in the community have been openly questioning its sustainability.
This complex, flexible yet astonishingly pertinacious way of doing business, many note, is not in their best interest.
Wealth, once equated with cattle and camels, has now been replaced by millions of dollars traded by hand or hawala, with no contract or formal agreement to fall back on when disputes arise.
“There is too much blind reliance and trust in the community,” Mr Abdullahi Mohamed Ali, a businessman who is also a member of the Eastleigh Business District Association, says.
“This belief that I trust somebody just because I know him and will give him money is completely wrong. The consequences are always deep and hurting.”
For Mr Abdikani Abukar, what followed was a story that reads more like a dramatic play infused with a Shakespearean-style betrayal, in which trusted businessmen turn against their partners.
After asking for his money back, the directors told him that he should wait for a few months to get it. Losing patience and exasperated, Mr Abdikani waged a battle to get his money back.
“It was daylight robbery,” he says furiously.
“There was nothing I could do. They simply refused to pay me back.” Two and a half years later, he says, they have been able to pay him only $10,000 out of the $15,000 advanced.
“They only paid up when I threatened to bring in a lawyer, and after my family intervened.”
A rising infatuation with fast returns has also engulfed the Somali business community over the years, with profits skyrocketing as a result of increasing demand for goods and services.
Business agents, masquerading as mediators, receive money from distant relatives with the sole directive that they multiply the money while giving them monthly allowances.
Mr Mohamed Mahdi, an elderly businessman, lost $6,000 (about Sh500,000) to a businesswoman who said that she would invest it in gold retail and petroleum businesses.
His sister, Mrs Amina Mahdi, parted with $5,000 (over Sh400,000) to the same trader.
“She was a relative and was known in the community,” said Mrs Mahdi.
“She said she would give us $100 for every $1,000 that we gave her.” In the end, the elderly man lost money that he had been saving for a long time in order to go for the Hajj — a once in a lifetime fulfilment for every Muslim.
“There is nothing at hand now,” she says, adding that she lost everything. “And it is not only us; it is a lot of people all over Eastleigh.”
The problem is so severe that even when clients confront the traders who scammed them, there is nothing much that can be done.
With no paper work, no records and no witnesses, it is all lost before the two parties start negotiating a solution out of the problem.
Mr Abdullahi Omar, a timber trader, says that he lost Sh150,000 to one of his clients.
The two never signed any contract or exchanged receipts. Mr Omar had delivered a truckload of timber to the client’s premises, with the client requesting to pay later. When Mr Omar asked for his money later, the client insisted that he had paid him.
With nowhere to turn, clan elders intervened and solved the problem by asking the client to swear by the name of God that he had paid the money, after which Mr Omar relinquished any thought of getting the cash.
“It is called sharing the losses,” Mr Omar said. “Once he swears, it is over.”
The most interesting phenomenon to watch is the rise of Somali scholars as astute businessmen who double as fatwa-touting imams and are fully engaged in market activities.
Since they are trusted members of the society, they are involved in persuading businesspeople and the larger community to pool resources for investment in specified deals.
Some of them even go on Somali satellite television stations and “bless” certain projects, persuading tens of thousands that it is the best real estate development or business enterprise to invest in.
“There are definitely cases of businessmen masquerading as clerics who go around and use religion for their own purpose,” Mr Abdirizak Hassan, deputy managing director of Al-Bushra Properties, a real estate development company, said.
“Most of it, however, is a smear campaign that is being touted by competitors. It has no base at all. Actually, if you combine the Somali culture and the Islamic traditions in the community, you will have a very trustworthy system,” he said.
Al-Bushra Properties managing director Mohamed Ibrahim Shakul is a well-respected businessman and scholar in the Somali community.
“There needs to be a clear distinction between being a scholar and being a business guru,” said Mr Sheikh Badru Jafar, Sharia Audit manager at First Community Bank.
“If they need to blend, then it should be for the interest of all stakeholders and the general public.”
Over-reliance on satellite television stations by Somalis in the diaspora is also proving to be a weakness.
Analysts contend that most Somalis are out of touch with the reality back in Africa and continue to base their investment decisions on advertisements they see in the media.
“People in the diaspora invest in enterprises that they have no idea about,” says Mr Ali, who has been involved in solving swindle cases.
“They send money as soon as they see an advert on television. They never send an agent or come to see the situation for themselves. That shouldn’t be the case. You can’t just trust somebody you see on television and send him money.”
Is all lost for the Somali economy? With the rising dissolution of the trust and ethics that built the quick-paced businesses, some in the community believe that this has pushed businesspeople to draw up contracts and move towards formal structures.
This, Mr Zaki Sheikh believes, enhances “transparency of business operations to various stakeholders, but it also gives confidence to the shareholders that their investment is in safe hands.”
Mr Dahir Ahmed, a director of Eastleigh Business District Association, and a clan elder who has solved several cases involving rip-offs between investors and businesspeople, says that all is not lost for the business community.
“First, the business community tries to solve any problem. If it fails, then the clans get involved. If all doesn’t go well, the law takes over. You have to resort to the law,” he says.
Mr Hassan, who has seen real estate development and Somali businesses in Eastleigh mushroom over the past 15 years, says that in the end business interests override any other impediment.
He says the flexibility that has shaped Somali enterprise will find a better way to push it forward.
“There are definitely fault lines,” Mr Hassan said. “But I believe there is a bigger and better tomorrow.”
Source: Daily Nation