One of the interesting effects of Kenya’s incursion into Somalia to combat al Shabaab forces appears to be a significant reduction in the illicit flow of money across the border. A report of the Kenya National Bureau of Statistics for the quarter ended June 30th indicates that “unexplained foreign exchange flows” have dropped to their lowest level for some time. The disturbance in such unexplained cash flows seems to have been caused by Kenya’s military action.
It has for some time been argued that much of the money that Somalis have been splashing round in Nairobi has been coming from the proceeds of piracy in Somalia. The amount of unexplained cash, some $2 billion, seems too high to come from piracy alone, but it does seem credible that some of the money may have come from piracy. In any event, the money has caused inflated property prices in Nairobi, and this has had an effect on the economy as a whole.
Excess money invested in property has led to higher property prices, which has led to higher rental prices and higher costs of living for Kenyans. If the Kenyan military intervention in Somalia has indeed had a long-term effect of cutting illicit money networks, then perhaps a fall in property prices and associated cost of living prices can now be expected. However, illicit money networks have a way of re-establishing themselves.