WHAT SHOCKS ARE HOUSEHOLDS VULNERABLE TO?
Apart from the seasonal changes noted above, households are vulnerable to a
number of potential shocks. Civil strife and insecurity are obvious
potential shocks, given the history of Hargeisa, and this has the potential
to affect all households in all wealth groups. However, due to the political
progress that has been made in recent years, this shock is not currently
regarded as likely, at least in the short to medium term. Exchange rate
depreciations that lead to increased shilling costs of imported food and
non-food items are a particular problem for poor households, if their wages
and profits do not keep pace with the changes. In the two-week period after
this assessment was conducted, the exchange rate rose from SlSh 6,700 per US
dollar to SlSh 7,300 per US dollar.
Any changes that negatively affect the major sectors in the urban economy
will result in a general slowdown of trade and market activities and will
affect many households throughout the wealth spectrum. Examples include:
-- restrictions on trade with Ethiopia and other countries that cannot be
circumvented (the current livestock ban is one example),
-- restrictions on or a reduction in remittances from abroad (due to
increased financial regulation), and
-- decline in the construction sector (which could be the result of a
decline in remittances or because of the periodic bans imposed by the
Households in both the formal and informal sectors, and in all wealth
groups, are vulnerable to the illness or death of (or divorce from) the main
income earner, and this can result in a major drop in standard of living.
One mechanism that households employ to cope with negative shocks is to
reduce expenditure, or to switch expenditure to cheaper goods, which is
obviously easier for wealthier households. Even poor households in Hargeisa
have some room to squeeze their non-essential purchases, but it is
questionable whether very poor households have. A second mechanism is to
seek additional income by sending additional household members out to work,
by working longer hours or more days per week, or by seeking additional
gifts from relatives and friends both locally and abroad. A third mechanism
is to reduce the number of household members dependent on the main earners.
One or more household members might migrate to other areas or even to other
countries, or be sent to live with or work for better off relatives.