Professional Documents
Culture Documents
HARGEISA
CHAPTER ONE:
1.1 Introduction
1.1 .1Background
In economics inflation means, a rise in general level of prices of goods and service in an
economy over a period of time. When the general price level rises, each unit of currency buys
fewer goods and services. Thus, inflation results in loss of value of money. Another popular
way of looking at inflation is too much money chasing too few goods. The last definition
attributes the cause of inflation to monetary growth relative to the output availability of goods
and service in the economy.
Inflation is when the prices of most goods and services continue to creep upward. When this
happens, your standard of living falls. That's because each dollar buys less, so you have to
spend more to get the same goods and services. If inflation is mild, it can actually spur further
economic growth. If prices rise slowly and gradually, it can encourage people to buy now and
avoid future price increases. This increases demand, driving further economic growth. In this
way, a healthy economy can usually sustain a 2% inflation rate.
Inflation has changed the character of certain types of markets, encouraging standardized
products and limiting the marketing of highly specialized products. The public rates the
problem of inflation compared to other social problems and how this rating responds to the
actual state of the economy. Inflation brings to the measurement of the earnings of
corporations; they conclude that correction of the distortion actually raises corporate earnings.
Low-income housing is a resource provided for individuals and families needing help to
find reasonably priced housing that is safe, clean and comfortable. Low-income housing units
are located in a variety of areas, and some of the aid programs subsidize housing costs for any
home the recipients choose. Applying for low-income people is a fairly straight-forward
process after identifying a suitable area and housing development.
Page
Page
Hargeisa is the largest city and also it is the capital city of Somaliland where most transactions
happen. Any effect of the economy almost will reach everyone of the society whether poor or
rich so when inflation occurs. Its burden is felt on the market and on the community which
makes them lose their purchasing power.
More over Hargeisa has been hit by inflation and high food prices that have especially hurt
the livelihood of the predominantly local inhabitants and pastoralist population. This thesis
research identifies the effects of inflation on the local low households income, and how it
affects the livelihood of community in Hargeisa.
1.1.3 Purpose of the study
The purpose of the study is to collect and analyze information about the effect of inflation on
poor people in Hargeisa by considering its impact on their household income and its affect
there daily live expenditure
The general objective of this research is to investigate the effect of inflation on poor people in
Hargeisa.
Page
This study will be carried out the selected poor people in Hargeisa, where the sample data
will be collect the researcher will expect to get full information ,the effect of inflation on poor
people income in Hargeisa. Finally, the scope of this research will be mainly the capital city of
Somaliland (Hargeisa). Somaliland(Hargeisa) and its districts to measure and to investigate
the effects of inflation on the society especially the poor people according to its effects on
income, employment, saving and investment.
This chapter presents the research methodology. It describes and justifies the methods and
processes that will be used in order to collect data that are used in answering the research
questions .The chapter is presented under the following sections namely: research design,
target population, sample size, and sampling technique, research instrument that is used in
data collection research procedure, validity and reliability, and data analysis.
1.2.2 Research design
The researcher will collect his/her analysis of data from some selected poor families in
Somaliland especially in Hargeisa. The researcher will use quantitative descriptive research
Page
The research will carry out 20 questionnaires all together, which will be divided into two
respondent groups. The first grouped will the high incomes people and low income people to
know their difference according to the effects of inflation.
Thus the research will choose 20 persons as sample of the survey. Therefore non-probability
sampling method suits best and that why the researcher chose this method. To be more
specific the researcher used snow-bowling type of non-probability sampling. The research
variabled is categorical, especially nominal variable because they lack order. This kind of
survey sampling, snow-bowling, will be conducted by asking the respondents how inflation
affected their lives as hole.
1.2.4 Sampling procedure
Data analysis is designed to be mainly statistical based on questionnaires relevant to the topic.
The collection questionnaires help the researcher to analyze very well the data that collected
from different poor families. Farther more there will be conclusion and recommendation
about finishing and solution the problem that was, and recommending what the researcher
sees the solution.
1.2.5 Research instruments
When data is gathered it must be transformed to quantitative analysis. In the case of survey,
the raw observation is typically in the form of questionnaire with boxes checked.
The questionnaire will consist of close ended questions or fixed choice was chosen as my
primary type of several reasons, fixed choice questions get easy to make the respondents
quick decisions and easy answers.
They will help as a researcher to code the information easily for the analysis.
Page
This study will be used quantitative descriptive research that will conduct in primary data on
the collection of numerical mathematics in order to explain and predict these phenomena of
interest; data analysis is designed to statistical based on questionnaires relevant to the topic.
This method allowed researcher to get back all the questionnaires. The researcher must
explain any misunderstood questions on the pimple to get representative sample with less
error.
1.2.7 Ethical considerations
The researcher will provide the respondents with the necessary information as regards the
main purpose of the research, expected duration and procedures to be followed, and be in
position to keep privacy and not disclosure the confidentiality of respondents and researchers
responsibility.
1.2.8 Limitation of the study
Everything needs effort and preparation this means every step you take will have difficulties
and obstacles.
During the period of writing this research had faced many obstacles some of those obstacles
will be;
Shortage of time, in reality the research is not a simple task; it needs a sufficient
amount of time it will be limit factor so that it will hardly to cover the entire topic
Page
Finally the obstacles that will meet during preparation of this research paper will
lack of reference books or earlier researches that will made to this topic, among
their activities
The first chapter contains an introductory narration which helps the reader to get a
comprehensive view of how paper is structures, the topic it addresses and pertinent
information containing in it. So this section will also highlight the following specific points,
background of the topic, statement of research problem, objectives of research, scope of the
research, significance of research, and the purpose of the study.
This part of the research also deals with the design that the research will have, methods of
conducting the research project include the method of data.
Collection, limitation and main obstacles of the study, and finally will have study from the
subject of the internal the effect of inflation on poor people in Hargeisa.
Page
Chapter two
2. Literature review
2.1 MEANING OF INFLATION
Meaning of inflation is clearly indicated different meaning. The word ((inflation" is most
emphatically no exception. therefore, have to consider alternative definitions.
Instead of a rise in the price level, inflation is often defined as an expansion in the monetary
circulation; more precisely, as an increase in the quantity of money times the velocity of
circulation of money, MV for short. To define it in terms of an increase in the quantity of
money, of M alone, would not be quite correct because it would overlook the possibility that
an increase in expenditures and prices might be due to an increase in Velocity alone. It is,
however, safe to say that there has never been a case in monetary history anywhere of a
prolonged and violent inflation without a sharp rise in the quantity of money. V is subject to
slow secular changes (as a rule in a downward direction) and to mild cyclical fluctuations
(usually upward during business cycle upswings and downward during business cycle
downswings). But large, rapid (though temporary) increases in V occur only during periods of
Page
Somaliland has been hit by inflation and high food prices that have
especially hurt the livelihoods of the predominantly pastoralist population
unit a few months ago, Safia Jibril was able to feed, clothe and educate her
nine children thanks to the $100 that her husbands brother in the
Diaspora sent every month.
Like many Somalilanders, Safia family has been hit by inflation and high
food prices that have especially hurt the livelihoods of the predominantly
pastoralist population and created general food shortage.
According to local traders, a sack of rice used to cost $28 two years ago,
but this has increased to above $52. The situation has been aggravated by
the fact that Somaliland imports virtually all its food. We can no longer
buy anything from the market because the price of foodstuffs has
increased said Fatumo Ahmed, a mother of five children who used to
provide for her family by selling tomatoes in the town. Source: Dr. Ismail
Ibrahim (2003).
Page
There are three causes of inflation. The first cause is called demand-pull inflation. This
occurs when demand for a good or service rises, but supply stays the same. Buyers become
willing to pay more to satisfy their demand. Demand-pull inflation can be accompanied
by irrational exuberance.
2.3.2: Cost-push inflation
The second cause is cost-push inflation. It starts when the supply of goods or services is
restricted for some reason, while demand stays the same. When the supply of labour is not
enough to meet demand, it can create wage inflation. In the past, inflation in prices generally
led to wage inflation, so that companies could retain good workers. However, competition
from technological alternatives (such as robotics) and lower-income countries means that
wages haven't kept up with prices. Higher prices combined with stagnant wages means your
standard of living has decreased. It's another reason for income inequality in the U.S.
Page
The third cause is overexpansion of the money supply plays a large role in inflationary
pressure as well. Monetarist economists believe that if the government does not control the
money supply adequately, it may actually grow at a rate faster than that of the potential output
in the economy, or real GDP. The belief is that this will drive up prices and hence, inflation.
Low interest rates correspond with high levels of money supply and allow for more
investment in big business and new ideas which eventually leads to unsustainable levels of
inflation as cheap money is available.
Inflation can artificially be created through a circular increase in wage earners demands and
then the subsequent increase in producer costs which will drive up the prices of their goods
and services. This will then translate back into higher prices for the wage earners or
consumers. As demands go higher from each side, inflation will continue to rise. Source:
http://afrik.news (2010)
Page
Page
Is a measure of the price of all the goods and services included in Gross
Domestic Product (GDP). The US Commerce Department publishes a
deflator series for US GDP, defined as its nominal GDP measure divided by
its real GDP measure. Kiley, Michael J. (2008)(PDF). Estimating the
common trend rate of inflation for consumer prices and excluding food and
energy prices
Page
1) Hoarding (people will try to get rid of cash before it is devalued, by hoarding food and
other commodities creating shortages of the hoarded objects).
Page
Page
generally
grounded
in
monetarism,
future
expectations
and
Page
that
have
been
created
over
time
source:
Page
Another issue associated with classical political economy is the anticlassical hypothesis of money, or "backing theory". The backing theory
argues that the assets and liabilities of the issuing agency determine the
value of money. Unlike the Quantity Theory of classical political economy,
the backing theory argues that issuing authorities can issue money
Page
Today the primary tool for controlling inflation is monetary policy. Most
central banks are tasked with keeping the federal funds lending rate at a
low level; normally to a target rate around 2% to 3% per annum, and
within a targeted low inflation range, somewhere from about 2% to 6% per
annum. A low positive inflation is usually targeted, as deflationary
conditions are seen as dangerous for the health of the economy.
There are a number of methods that have been suggested to control
inflation. Central banks such as the U.S. Federal Reserve can affect
inflation to a significant extent through setting interest rates and through
other operations. High interest rates and slow growth of the money supply
are the traditional ways through which central banks fight or prevent
inflation, though they have different approaches. For instance, some follow
a symmetrical inflation target while others only control inflation when it
rises above a target, whether express or implied.
Monetarists emphasize keeping the growth rate of money steady, and
using monetary policy to control inflation (increasing interest rates,
slowing the rise in the money supply). Keynesians emphasize reducing
aggregate demand during economic expansions and increasing demand
during recessions to keep inflation stable. Control of aggregate demand
can be achieved using both monetary and fiscal policies Largesse, Paul
(2000). New York: Columbia University press (2001).
Page
Page
Brazil,
and
Chile)."Workingpapers"(PDF).
http://www.econ.ucla.edu/workingpapers/wp830.pdf.
2.13.4: Gold standard
Under a gold standard, paper notes are convertible into pre-set, fixed
quantities of gold.
The gold standard is a monetary system in which a region's common
media of exchange are paper notes that are normally freely convertible
into pre-set, fixed quantities of gold. The standard specifies how the gold
backing would be implemented, including the amount of specie per
currency unit. The currency itself has no innate value, but is accepted by
traders because it can be redeemed for the equivalent specie. A U.S. silver
certificate, for example, could be redeemed for an actual piece of silver.
The gold standard was partially abandoned via the international adoption
of the Bretton Woods System. Under this system all other major currencies
were tied at fixed rates to the dollar, which itself was tied to gold at the
rate of $35 per ounce. The Bretton Woods system broke down in 1971,
causing most countries to switch to fiat money money backed only by
the laws of the country.
Page
some
believe
contributed
to
the
Another method attempted in the past has been wage and price controls
("incomes policies"). Wage and price controls have been successful in
wartime environments in combination with rationing. However, their use in
other contexts is far more mixed. Notable failures of their use include the
1972 imposition of wage and price controls by Richard Nixon. More
examples that are successful include the Prices and Incomes Accord in
Australia and the Wassenaar Agreement in the Netherlands.
In general wage and price controls are regarded as a temporary and
exceptional measure, only effective when coupled with policies designed
to reduce the underlying causes of inflation during the wage and price
control regime, for example, winning the war being fought. They often
have perverse effects, due to the distorted signals they send to the
market. Artificially low prices often cause rationing and shortages and
discourage future investment, resulting in yet further shortages. The usual
economic analysis is that any product or service that is under-priced is
over consumed. For example, if the official price of bread is too low, there
will be too little bread at official prices, al ong too unemployment little
investment in bread making by the market to satisfy future needs, thereby
Page
CHAPTER THREE
3. ANALYSIS AND FINDING
In this chapter the researcher discovered the finding of this research paper
for the effects of inflation on low income families in HARGEISA. In addition
to this it also explored about how to improve the standard of living of low
income community in that area. Moreover, it was undertaken to explain
the reasons for inflation and determined the ways to control it.
Page
Frequency
Valid
male
female
Total
Percent
Valid Percent
Cumulative Percent
14
70.0
70.0
70.0
30.0
30.0
100.0
20
100.0
100.0
30%
male
female
70%
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
15 to 20
5.0
5.0
5.0
21 to 25
45.0
45.0
50.0
26 to 30
40.0
40.0
90.0
30 above
10.0
10.0
100.0
20
100.0
100.0
Total
Page
15-20.
10%
5%
15 to 20
45%
40%
21 to 25
26 to 30
30 above
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
Below primary
5.0
5.0
5.0
secondary
5.0
5.0
10.0
university
18
90.0
90.0
100.0
Total
20
100.0
100.0
This study shows that 90% of the respondents reply that their education level were in
university level and 5% of the respondents were in secondary school while 5% of the
respondents were below primary. This indicates that the highest portion of the respondents
were in university while the primary level is none.
Page
5%
5%
Below primary
secondary
university
90%
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
1 to 3
16
80.0
80.0
80.0
4 to 6
10.0
10.0
90.0
7 to 9
5.0
5.0
95.0
none
5.0
5.0
100.0
Total
20
100.0
100.0
This Figure illustrate that 80% of the respondents have 1-3 persons in their family employed,
10% of the respondents have 4-6 persons in their family employed, 5% of the respondents
have 7-9 persons in their family employed and 5% of the respondents have none in their
family employed. This survey shows that the majority of households in Hargeisa have 1-3
persons in their family employed.
Page
16
14
12
10
16
8
6
4
2
0
1 to 3
4 to 6
7 to 9
none
Cumulative
Frequency
Valid
Percent
Valid Percent
Percent
$50 to $150
15.0
15.0
15.0
$200 to $300
12
60.0
60.0
75.0
$300 to $500
25.0
25.0
100.0
20
100.0
100.0
Total
This study shows that 60% of the respondents their income are between $200$300, 25% of the respondents in their income is between $300-$500 and 15% of
the respondents their income are between $50-$150. This survey tells that the
most of the respondents of income were $200-$300.
Page
12
10
8
12
6
4
5
3
2
0
$50 to $150
$200 to $300
$300 to $500
Table 3.6 do you have any other source income in addition to your salary
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
yes
40.0
40.0
40.0
no
12
60.0
60.0
100.0
Total
20
100.0
100.0
The survey states that 60% of the respondents answered that they dont get
other source income in additional salaries, 40% of the respondents answered that
they get other source income in additional salaries.
40%
60%
yes
no
Page
Cumulative
Frequency
Valid
Percent
Valid Percent
Percent
16
80.0
80.0
80.0
15.0
15.0
95.0
no change
5.0
5.0
100.0
20
100.0
100.0
Total
According this figure , the survey shows that 80% of the respondents
replied that the inflation affect the income caused less purchasing power ,
15% of the respondents replied that the inflation affected the income
caused increasing purchasing power and 5% of the respondents replied
the inflation did not affect income.
5%
15%
less purchasing power
increasing purchasing
power
no change
80%
Page
Cumulative
Frequency
Valid
Percent
Valid Percent
Percent
one time
20.0
20.0
20.0
two time
15.0
15.0
35.0
11
55.0
55.0
90.0
10.0
10.0
100.0
20
100.0
100.0
three times
more than three times
Total
According this figure the survey that was carried out shows that 55% of
the respondents replied that the average meals per day when inflation
occur is three times, 20% of the respondents replied that the average
meals per day is one time when inflation existed, 15% of the respondents
replied that the average meal per day is two times and 10% of the
respondents replies that the average meal per day is more than three
times when inflation exist. So this indicates the highest respondents
replies that average meals are three times.
10%
20%
one time
two time
15%
55%
three times
more then three times
Page
Table 3.9 when inflation happens where do you get assistant and
additional income
Frequency
Valid
government
Percent
Valid Percent
Cumulative Percent
5.0
5.0
5.0
family
17
85.0
85.0
90.0
friends
5.0
5.0
95.0
others
5.0
5.0
100.0
20
100.0
100.0
Total
According to this figure shows that 85% the respondents said when
inflation happened they get assistants and additional income their
families, 5% the respondents said when inflation happens they get
assistance from the government, 5% get from friends while 5% get from
other sources.
18
16
14
12
10
17
8
6
4
2
0
1
government
1
family
friends
1
others
Page
Cumulative
Frequency
Valid
financial problem
Percent
Valid Percent
Percent
14
70.0
70.0
70.0
social problem
15.0
15.0
85.0
stress
15.0
15.0
100.0
Total
20
100.0
100.0
The survey shows that 70% of the respondents answered the greatest
impact of inflation in their life was financial problem, 15% of the
respondents answered the greatest impact of the inflation was social
problem and 15% of the respondents answered the inflation caused stress.
14
12
10
8
6
4
2
0
14
3
financial problem
social problem
3
stress
Page
Frequency
Valid
reduce
Percent
Valid Percent
Cumulative Percent
18
90.0
90.0
90.0
increase
5.0
5.0
95.0
no change
5.0
5.0
100.0
20
100.0
100.0
Total
This study in this figure 90% the respondents replied that the inflation reduced their sales, 5%
of the respondents replied that inflation increased their sales and 5% of the respondents
replied that inflation has not affected their sales.
5% 5%
reduce
increase
no change
90%
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
little role
25.0
25.0
25.0
not at all
15
75.0
75.0
100.0
Total
20
100.0
100.0
Page
25%
little role
no at all
75%
Table 3.12 Do you think that unstable exchange rate have an effect on
the increasing food prices
Frequency
Valid
yes
20
Percent
100.0
Valid Percent
Cumulative Percent
100.0
100.0
This survey shows that 100% of the respondents said the exchange rate
have affected on the increasing the food prices on Hargeisa.
yes
100%
Page
Cumulative
Frequency
Valid
Percent
Valid Percent
Percent
yes
11
55.0
55.0
55.0
no
45.0
45.0
100.0
20
100.0
100.0
Total
According this figure 55% of the respondents replied that during last five years increased their
income, 45% of the respondents replied their incomes are not increased during last five years.
yes
no
45%
55%
Table 3.15 did rising prices food affect you and your family
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
yes
19
95.0
95.0
95.0
no
5.0
5.0
100.0
20
100.0
100.0
Total
According this figure shows that 95% of the respondents said the inflation affected the rising
of food and 5% of the respondents said that inflation is not affected the rising food price.
Page
no
19
yes
10
12
14
16
18
20
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
yes
10
50.0
50.0
50.0
no
10
50.0
50.0
100.0
Total
20
100.0
100.0
This survey in this figure shows that 50% of the respondents do save some portion of their
and that is why the investment is low because the half of people does not save and 50% of the
respondents do not save some portion o their income.
Page
no; 50%
yes; 50%
Table 3.17 when there is inflation the demand and consumption of the
household decreases
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
agree
35.0
35.0
35.0
disagree
5.0
5.0
40.0
10
50.0
50.0
90.0
10.0
10.0
100.0
20
100.0
100.0
strongly agree
strongly disagree
Total
According this figure shows that 50% of the respondents strong agree with
the researcher the inflation decrease the demand and consumption of the
house hold, 35% of the respondents agree that inflation decreased the
demand and consumption of the household, 10% of the respondents
strongly disagreed that the inflation is caused to decreased the demand
and consumption of the house hold and 5% of the respondents disagreed
that the inflation caused to decrease the demand and consumption of the
household. This indicated the majority of the respondents the inflation
decreased the demand and consumption of the household.
Page
10
9
8
7
6
5
4
3
2
1
0
10
7
2
1
agree
disagree
strongly agree
strongly disagree
Table 3.18 Year after year the prices of the necessary goods consumed
in Somaliland were increase, so who is responsible to this price
increase
Frequency
Valid
our business
Percent
Valid Percent
Cumulative Percent
15
75.0
75.0
75.0
10.0
10.0
85.0
international problem
15.0
15.0
100.0
20
100.0
100.0
Total
According this figure shows that 75% of the respondents said our business are responsible
increasing of necessary goods consumed in Somaliland, 10% of the respondents said the
ministry commerce are responsible increasing of necessary goods consumed in Somaliland
and 15% of the respondents said it is international problem. This research indicated that our
business responsible the inflation.
Page
15%
10%
our business
the ministry commerce
75%
international problem
Frequency
Valid
durable
Percent
Valid Percent
Cumulative Percent
14
70.0
70.0
70.0
None durable
25.0
25.0
95.0
service
5.0
5.0
100.0
20
100.0
100.0
Total
According this figure 70% of the respondents replied durable goods affected inflation, 25% of
the respondents replied none durable goods affected the inflation and 5% of the respondents
replied service affected the inflation. The majority of respondents said durable goods affected
the inflation.
5%
non durable
25%
service
70%
Page
Chapter four
4. Conclusion and recommendation
4.1 conclusions
In this chapter, the researcher highlights some topics and areas of future
research and key findings of work. The goal of this research was to study the
effects of inflation on poor people income in Hargeisa city according to their
incomes and their living standard.
The general problem of inflation has affected the different parts of the
society, including businesses, producers, consumers and many other
aspects of the life, but the problem has enormously affected households
who are vulnerable to any kind of inflation since their economic conditions
are very low.
The analysis of data demonstrated that almost 60% of the respondents
incomes are between $200 and $300, which shows the majority of the
population are trapped on poverty and apart from their low incomes,
inflation is present whereby sack of sugar costs up to $200 today and the
pricing are increasing day by day which makes their situation even worst.
Inflation decreases their purchasing power and as a result, the demand
and consumption of the households will decrease, the survey shows that
80% of the respondents replied that the inflation affect the income caused
less purchasing power this can create the markets to be failure since there
is no demand, supplies will also decrease.
As we explained in the analysis section we stated income and saving are
both negatively affected by inflation, although 50% of the respondents do
save, but yet inflation decrease the purchasing power of the community
and they have to reduce their saving, which implies that even if their
Page
5.2 Recommendation:
After, a data analysis the researcher was able to accomplish the purpose
of this study: therefore, the following recommendations are suggested by
the study.
The living standard of Somaliland households is very low, so the
government should aware the prices of the necessary goods
consumed in Somaliland to satisfy the needs of the households.
Our businessmen should not focus on only their profit, but they
should be very kind to their society and decrease the prices of the
Page
and
Page