Mobile money, (dis)empowerment and state reconstruction in Somalia's conflicted digital economy

Abstract

Mobile money has developed as an indigenous digital innovation in a Somali setting characterized by state weakness and scarcity of local physical currency. On one level, this article presents experiences of this financial technology (and ‘cashlessness’) from perspectives of marginalized people displaced by conflict and ecological shocks. However, we also analyse these everyday experiences in the context of rapid urbanization, connecting them to the role of the Somali telecoms sector within a wider political economy of conflict and internationalized statebuilding. Leveraging its power as an intermediary transactions platform, the telecoms sector has assumed various state-like functions. This demonstrates how diverse forms of virtual sovereignty may emerge beyond globally dominant centres of technology production. Although humanitarian mobile money aid infrastructure is being positioned by donors to evolve into digitized social protection systems that will empower Somalia's fragile state, this imagined transition is underpinned by a commercial telecoms sector that continues to consolidate its power in the wider economy by capitalizing on the circulation of digital financial flows. Greater policy attention therefore needs to be paid to the capacity of this sector to create conditions that may constrain the (re)construction of state authority vis-à-vis future monetary policy, the conflict economy and (international) governance of recurrent humanitarian crises.

Since the collapse of its central government in 1991, Somalia has been without a state that exercises power over the entirety of the country. While an internationally backed Federal Government of Somalia (FGS) has been reasserting itself in Mogadishu since 2012, various other authorities exist across a highly fragmented political space. These include the breakaway de facto independent Republic of Somaliland, the autonomous (though non-secessionist) Puntland administration and other ‘federal member states’ with varying connections to the FGS, which struggles to project power beyond the capital. In the absence of a national political settlement, state (re)building remains a local and international objective, alongside institutional capacity-building in those urban political centres that are accessible to donors. Al-Shabaab's militant Islamist governance and insurgency continues, while climate crisis-linked environmental shocks¹ necessitate significant humanitarian engagement. Relatedly, forced displacement and rural–urban migration are driving rapid city growth.

Nonetheless, and as Iazzolino and Musa have recently outlined in this journal, Somalia has also long been home to a distinctively indigenous (albeit transnational) telecommunications sector; it was one of the first places in the world where locally developed mobile money emerged.² Arguably, such digital transformations have occurred not in spite of, but because of, conditions of instability.³ Here, the lack of government institutions with the capacity or legitimacy to print cash (along with citizens' security concerns) stimulated the local development of technologies and markets for mobile money. Such innovations are rightly celebrated and belie the notion that conflict-affected states in the global South are merely passive recipients of externally developed digital platforms, rather than centres of technology development in their own right.

Successive FGS administrations have failed to print new Somali shilling banknotes⁴ and the physical degradation of existing currency has led to dwindling circulation. Consequently, mobile money has emerged as virtual currency, especially in urban centres. The international donor community now relies on mobile money systems for the delivery of humanitarian aid to displaced populations.⁵ Moreover, as the Somali state slowly re-establishes itself—buoyed by recent international debt relief⁶—an envisioned transition is being promoted from emergency humanitarian digital aid towards sustained social welfare payments, building on the existing infrastructure of biometric registrations and mobile money micro-transfers. International donors explicitly link the development of these digital social registries and mobile money payments to the reconstruction of state capacity and legitimacy.

The large-scale shift to digital currency draws our attention to the significance of this transformation for both marginalized groups (often the focus of international humanitarian programming) and the political economy of internationalized state (capacity-)building in Somalia. We highlight the ambiguous impacts of digital financial innovations on displaced urban-dwellers in Somalia, and the power now wielded by the companies facilitating such systems within a broader conflict economy that is itself a factor in ongoing displacement-linked urbanization.

Wider research on digital finance and mobile money has largely focused on consumer protection concerns, inequalities in digital access or widening power imbalances between state/corporate actors and citizens who use financial services.⁷ Analysis of the implications of digital capitalism for (international) state sovereignty has been mostly limited to western contexts, focusing on the immense infrastructural power that has been amassed by ‘big tech’. Kelton et al. argue that companies like Google, Meta and Amazon now ‘possess virtual sovereignty through their commercial development of and control over critical software and hardware, and the consequent effects on human behaviour’.⁸ Analysis of the potential state effects of digital infrastructure in contexts affected by acute state fragility, ongoing state reconstruction efforts and armed conflict is starting to emerge.⁹ There is a need here, we argue, to connect the wider literature on inequalities of digital access and widening power imbalances to macro dynamics of internationalized state reconstruction and institutional capacity-building. As Brinkman et al. emphasize, the significance of burgeoning telecoms sectors cannot solely be conceptualized through micro-analyses of the impacts of mobile connectivity ‘on’ specific populations.¹⁰ Instead, multiscalar approaches shed light on how the everyday use of technology links marginalized populations to wider power networks that are shaping trajectories of envisioned state reconstruction.

In this article, we address three interlinked questions. First, although the practical benefits of mobile money for vulnerable populations (such as internally displaced people) are widely touted in the development/humanitarian sector, how do such technologies relate to socio-economic inequalities in a setting where mobile money is often the only option for financial transactions? Second, what role does the commercial mobile money sector play within Somalia's complex political economy of ongoing international humanitarian engagement, conflict- and climate crisis-linked displacement, and rapid urbanization? Third, how does the development of digital finance technologies by the Somali telecoms sector (bypassing the former role of the state in printing cash and setting monetary policy) affect logics and forms of sovereignty and internationalized state reconstruction in Somalia?

We synthesize answers to these questions from our different research experiences in Somalia. The article draws on 1) the first-named author's involvement in a project on urbanization and a dataset of approximately 150 interviews with displaced people in three cities in Somalia, conducted between 2018 and 2022;¹¹ 2) fieldwork by the second-named author in 2021–2022, involving interviews with 110 informants from Somali telecoms companies and government ministries on the taxation of that sector;¹² and 3) policy-orientated analyses of governance, public service and state reconstruction undertaken across this period through a Somali think tank led by the third-named author.¹³

The article first establishes a theoretical framework that brings together notions of ‘virtual sovereignty’ with theories of post-colonial African statehood, and draws on nascent scholarship on the growing significance of the telecom-finance sector for modalities of governance in comparable contexts. Next, we review literature on commerce and state contestation/reconstruction in the Somali Horn of Africa to explain the rise of mobile money and a distinctive indigenous telecoms sector. We then present micro-level implications of mobile money for the everyday lives and economic activities of some of the most marginalized people in Somali cities. Although experiences recounted by people living in urban internally displaced peoples' (IDP) camps confirm some of the celebratory accounts of the convenience and utility of mobile money for vulnerable populations, they also show how remote payments can reinforce power imbalances for a precarious workforce and how everyday compulsions to use mobile money (in the absence of physical cash) can be experienced as disempowering. Through analysis of emerging plans for transforming digital humanitarian emergency aid payments into state-administered social protection payment systems, we then show how commercial telecoms sector infrastructure is being embedded within processes of state (capacity-)building in Somalia. This has implications for the type of sovereignty that can be exercised by a re-emerging state. For example, while the telecommunications sector's maintenance of mobile money infrastructure is vital to Somalia's economy, it may disincentivize the state's long-promised re-engagement with monetary policy. State reconstruction is further constrained by the government's continued conflict with Al-Shabaab, an actor that is also contesting and leveraging mobile money infrastructure for its own competing insurgency and governance project. While it is case-specific, we contend that this multiscalar analysis of conflicted governance and the digital economy in Somalia is relevant to global discussions around the recently emerging multilateral and donor-driven conception of ‘digital public infrastructure’, within which digital payments are envisioned to be a core component of service delivery for marginalized populations.¹⁴

Digital finance, virtual sovereignty and state fragility

We argue below that the private telecommunications sector in Somalia has come to exercise a form of virtual sovereignty through its centrality as an intermediary platform for myriad transactions, and has even assumed ‘non-virtual’ state-like functions. Focused on western contexts, Srnicek has also emphasized the importance of intermediary positioning for ‘platform capitalist’ companies as they leverage the data flows they enable and control for market dominance.¹⁵ In relation to state governance, Kelton et al. look at some of the same ‘big tech’ companies to theorize the ‘virtual sovereignty’ that has evolved in the United States, arguing that ‘private internet capital in the United States opens new vistas in virtual spaces for the exercise by digital platforms of the infrastructural power more usually exercised by the sovereign state’.¹⁶ The infrastructure of these Silicon Valley tech companies is understood in terms of human–computer interfaces, sensors, mobile networks, internet gateways, subsea cables and satellite systems, as well as geospatial value, resource and supply chains. While not all these layers of ‘the stack’ are obviously salient to our analysis of commercial digital influence in Somalia, we concentrate on a technology that did not take off in the West—mobile money—but which developed in east Africa through local mobile networks and which enables particular forms of infrastructural power.

Drawing from others, Kelton et al. define infrastructural power partly in terms of ‘the capacity to permeate society, and extract and deploy resources with social consent and legitimacy’.¹⁷ Given the ubiquity of mobile money, as well as the celebratory nature of many accounts of the digital dynamism of Somalia's private sector, the type of extraction we analyse in the article corresponds broadly with this definition. Kelton et al. note that ‘the exercise of infrastructural power by the digital platforms does not necessarily mean a commensurate decline in state capacity’.¹⁸ Although this may be true in advanced (post-)industrial economies, what about contexts where digital transformations have occurred in the absence of state capacity? This is where concepts of virtual, infrastructural and platform power may be put into conversation with the literature on African post-colonial statehood that has otherwise emphasized the plurality of actors that affect and underpin characteristically weak ‘twilight institutions’.¹⁹ Important in such a theorization of fragmented, fluid and often contradictory state logics have been ‘traditional’ authorities, religious associations, non-governmental organizations, private security forces and workers in large informal economies.²⁰ Such analyses of hybrid governance have rarely theorized the private business sector, or telecoms companies and their associated infrastructure, for state-making. Donovan's analysis of digitized social grants in South Africa is an exception here, albeit one focused on an African country with a relatively high level of historical state capacity. Here, he points to the emergence of a liminal zone ‘between the “state” (where the norm and rights of citizenship rule) and “the market” (where citizens become consumers)’ such that the state evolved into a service-deliverer that is heavily reliant on private firms.²¹

Elsewhere, research on information and communications technology (ICT) in settings of ‘limited statehood’ tends to focus on the utility of these developments for populations—for instance, to mobilize, and to gather/share data in order to push for greater state accountability and responsiveness to citizens' needs.²² In a different context, and considering the corporate social responsibility (CSR) of commercial actors, Azizi and Jamali demonstrate how limited statehood in Afghanistan has provided space for powerful telecoms companies to ‘play a pivotal role in business–society relations’.²³ While Somalia and Afghanistan share many superficial similarities—experience of Islamist governance and insurgency, contested international state (capacity-)building— Azizi and Jamali's account illustrates how a granular and context-specific approach is necessary to understand the particular opportunities and constraints in operation for companies wishing to expand their (market) position in society. Nonetheless, their account also shows how particular telecoms sector practices and technologies are being spread globally by corporate and development actors—for instance, the explicit emulation in Afghanistan of mobile money systems that originated in east Africa. Although Somalia may constitute a distinctive case-study (and a paradigmatic example of prolonged state fragility), the intersection of local developments of digital innovation alongside internationalized efforts at state reconstruction is potentially instructive for analysing different forms of ‘virtual sovereignty’ across other conflict-affected settings.

Here, it is necessary to understand how commercial actors may be reshaping the modalities of states themselves—for example, in maintaining and regulating a digital finance system in contexts where governments have effectively abandoned monetary policy. To contend with the potential ‘state effects’ of digital financial infrastructures, we use Hagmann and Stepputat's framework for understanding state-making in the Somali Horn of Africa.²⁴ Drawing on Tilly, they emphasize that “stateness” and state-like authority are generated through the facilitation and circulation of commodities, including financial commodities. Effective statebuilding, they argue, involves balancing the circulation and the capture of commodity flows.²⁵ This is because a host of supportive structures is needed to facilitate trade (economic systems, legal infrastructure, judicial systems, public administration, security infrastructure, and so on) and the capture of rents from commodity flows, including the development of fiscal and accounting tools.²⁶ Various entities, including formal state institutions and non-state groups, can perform the task of managing the circulation of goods and capturing sufficient rents.²⁷ In this sense, and as Migdal and Schlichte, and Bierschenk and de Sardan, have cautioned, there is a distinction between the ‘idea’ or concept of state authority and the materiality and performance of statehood.²⁸ Thus, if the circulation of mobile money is facilitated largely by private enterprises, then such groups come to exercise in the region what Iazzolino and Stremlau have described as ‘functional sovereignty’,²⁹ taking on state functions of regulatory dispute resolution and rent extraction.

In subsequent sections we apply and develop this framing in (south-central) Somalia. However, in mapping the entities and processes involved in the circulation of commodity flows (and their attendant state effects) we move back and forth between micro and macro perspectives on the political economy of telecommunications in a conflict setting. We consider how technologically mediated governance relations are interlinked with international humanitarian and state (capacity-)building programmes, as well as with ongoing armed conflict, displacement and associated forms of inequality and marginalization. The following section begins this analysis by providing contextual background to state collapse and reconstruction in Somalia, along with the contemporaneous rise of mobile money and regional forms of digital capitalism.

Statehood, mobile money and the rise of the telecoms sector in Somalia

The Somali state collapsed in 1991 as an outcome of armed resistance against the 21-year dictatorship of Siad Barre. Somalia subsequently spiralled into a devastating period of factional violence and humanitarian catastrophe. Consolidated political authority across the whole territory was never re-established. In the north-west, the Republic of Somaliland declared its independence in 1991, while the autonomous state of Puntland came into existence in 1998. Islamist forms of governance emerged in south-central regions in the 2000s and Somalia became a prominent theatre of the global ‘war on terror’. From the 1990s, an ‘economy without [a] state’³⁰ developed, particularly in the south-central regions. There were no authorities in the capital to print new local banknotes and the US dollar became the de facto currency for significant transactions. State monetary policy was absent, as were formalized arrangements for business taxation. The picture was different in the north. In Puntland, an embryonic administration attempted to print Somali shillings, but this coincided with large-scale counterfeiting that devalued the currency further and reduced trust in physical local currency.³¹ Somaliland—having declared full independence—eschewed the Somali shilling and instead printed its own currency, the Somaliland shilling, overseen by its own central bank. While the circulation of this new currency was relatively successful, it has been plagued by inflation and the US dollar has retained its role as the primary currency for larger transactions.

While some sections of the business class were deeply affected by the war, the absence of regulatory controls and the inflow of international aid allowed some—including the telecoms sector—to re-establish activity. Demands for basic means of communication amid conditions of instability resulted in the rapid diffusion of mobile phone technologies.³² From the start, the indigenous Somali telecoms sector was tightly intertwined with financial services, as many of the major companies sprang out of the remittance industry³³—the diaspora-based hawala networks that enable large-scale private financial inflows, sustaining livelihoods and local economies across the Somali territories.³⁴ A highly competitive telecoms market in Somalia enabled rapid growth and low prices for consumers. This situation has become consolidated over the past decade. Today, there are four main players across the divided territories—Telesom and Somtel, dominant in Somaliland; Golis in Puntland; and Hormuud in south-central Somalia. While Somtel is owned by Dahabshiil (a prominent hawala company), Hormuud, Telesom and Golis are part of the eponymous HTG Telecom Group. The indigenous development of digital finance—through mobile money—has been a crucial factor in establishing these telecoms companies' central position in the wider economy.

It was Telesom (part of the HTG Group) in Somaliland that first successfully launched a mobile money system on its network in 2009.³⁵ Telesom's introduction of a ‘mobile money wallet’ allowed users to go beyond previous practices of transferring airtime and enabled the depositing of cash into mobile accounts.³⁶ Known as ZAAD, this was one of the first developments of mobile money globally; it swiftly followed the launch of Kenya's M-Pesa service (the product of a collaboration between the Kenyan operator Safaricom, the international telecommunications provider Vodafone and UK development assistance).³⁷ ZAAD was arguably an even more indigenous innovation, emerging from a dynamic local telecoms sector with little state or international support. In order to accelerate its adoption, ZAAD services were free to use for any Telesom subscriber. Unlike M-Pesa, ZAAD has never charged transaction fees on transfers between individuals. This practice was emulated in the subsequent development of Golis's and Hormuud's own mobile money systems (respectively, Sahal and EVC Plus).

In Somalia, mobile money has tended to be denominated in US dollars owing to the devaluation and the diminished circulation of (physical) local currency.³⁸ Unpredictable security conditions have also contributed to the widespread uptake of mobile money. The use of PIN numbers to access mobile money accounts offers protection for users; many people feel more secure carrying money on their phone, as opposed to hard cash. Technological barriers to use are relatively low. The systems are based on SMS (short messaging service) technologies that require only a basic mobile handset (not necessarily a smartphone) and a network connection (not necessarily mobile data). An increasing proportion of Somalis use mobile money services for almost all economic activity: shopping, receipt of wages, and humanitarian support and transfers within social networks.³⁹ Beggars often hold signs showing their mobile numbers, as passers-by are unlikely to have banknotes. According to a 2017 report for the World Bank, mobile money had superseded the use of physical cash in Somalia, with over 70 per cent of adult Somalis using mobile money services regularly.⁴⁰

Nonetheless, prior to this the Somali shilling had remained a relatively stable unit of exchange for some segments of the population, even in the absence of state institutions or national monetary policy.⁴¹ Little has highlighted a divide between the rural use of Somali shillings (particularly in the livestock trade) and urban monetary trends where mobile money is either dominant or the only viable option for transactions. While Little's previous research also showed use of Somali shillings among the urban poor (for whom US dollars are often inaccessible), our more recent accounts from marginalized, displaced populations in cities indicate increasingly limited access to physical shillings among these groups.⁴² Little contends that the FGS's repeated promises since 2016 to print new currency are ‘a token offering to international pressure [rather] than a real commitment’⁴³ and it remains to be seen whether current currency printing pledges by President Hassan Sheikh Mohamud's government will come to fruition.⁴⁴

Although there are some signs that the state is attempting to a play a more assertive role in regulating mobile money and banking—developments that we review in the final section—the telecoms sector has emerged as a dominant economic actor in Somalia. By 2014 the ICT sector was already contributing 11 per cent to the country's GDP and Hormuud is now the largest single commercial employer.⁴⁵ Mobile money use has been central to this, with approximately 155 million transactions (with a value of US$2.7 billion) being recorded monthly in 2018.⁴⁶ Telecoms operators and finance companies, such as banks and remittance agencies, continue to engage in close partnerships. By the late 2000s the telecoms firms had expanded into a wide variety of markets ‘often unrelated to their core business [including commercial agriculture], cars, electricity, hotels, construction and property’.⁴⁷ For example, the HTG Group has become the majority shareholder in Salaam Bank, Al Buruuj Construction and Banadir Electricity Company.⁴⁸

It is critical to interrogate just how central telecommunications companies have become to facilitating the circulation of financial flows and capturing associated rents, as these dynamics shed light on related state effects. However, to gain a fuller appreciation of macro-level governance trends, it is necessary to also capture how infrastructures of mobile money are embedded in the micro-level political economy of conflict-related displacement and urbanization in Somalia, where aforementioned sectors (such as real estate) are booming, and where mobile money is central to humanitarian programming. Here, mobile money both intersects with and reinforces existing asymmetries of power and resources among displaced in-migrants to rapidly growing cities.

Everyday mobile money use by marginalized populations in rapidly growing cities

The perspectives on mobile money use described below derive from interviews undertaken with displaced people who have moved to Somali cities, which have been described as being among the fastest growing in the world.⁴⁹ Our research has, elsewhere, characterized these populations as active agents of city-making, highlighting their roles within growing urban labour markets, particularly in the construction, domestic services and small-scale retail sectors.⁵⁰ Usually displaced from rural areas by combinations of conflict, ecological and economic shocks, new arrivals in cities seldom hail from clan groups that are politically or economically dominant there. Living in precarious encampments in and around those cities, they are vulnerable to frequent evictions (part of nascent gentrification processes of booming real estate markets⁵¹), physical security threats and exploitative labour relations.

Amid this precarity, mobile phones allow people to connect with existing contacts in cities and to exchange resources within family groups.⁵² Phones also facilitate contact with informal camp managers. Often referred to as ‘gatekeepers’, these are figures we characterize elsewhere as petty humanitarian entrepreneurs who cultivate patron/client relations with displaced in-migrants.⁵³ Given their subordinate socio-economic position in cities, displaced people also rely on financial and material aid from neighbours, family members and acquaintances. Mobile phones enable this contact and the direct receipt of assistance from a distance. Micro-transfers across city space are important for those who lack access to any savings. Interviewees spoke of situations where spouses were late home from work (being caught up in frequent security-related road-blocks in Mogadishu) but could still send them money to buy rations for their children's dinner.⁵⁴ Transfers across greater distances enabled people to organize their arrival and access to shelter in urban camps: for example, to tell family members to sell assets like livestock back home and send the proceeds to support them in the city. Others emphasized the security benefits of carrying money on the phone along insecure migration/displacement routes and the ability to re-access their accounts even if phones were stolen.

Lacking formal bank accounts, people often use mobile money for family finances as well as informal group schemes. Mobiles are also key to the displaced workforce's navigation of cities and the hunt for jobs. Many women offer domestic labour (particularly laundry services) by walking the streets, giving out their mobile numbers to connect with regular clients. Some interviewees said that this was their primary reason for buying a phone. These devices are also essential for receiving payments because there is generally ‘not much [paper] cash circulating’.⁵⁵ Mobile money allows for ad hoc assistance to be provided by casual employers and is the primary means by which aid is received from humanitarian organizations, as we discuss below.

Although these interviewee accounts highlight the utility of mobile money—resonating with dominant techno-optimistic narratives from humanitarian, development and commercial actors—there is a wider range of technologically mediated interactions that complicates this picture. Not all interviewee accounts were focused on convenience and empowerment. Multiple narratives instead emphasized social inequalities, for instance between different groups of camp dwellers, displaced employees and ‘host community’ employers, and between donors and ‘beneficiaries’. Female domestic workers spoke about occasions when employers had pledged to transfer payment by mobile money but had then failed to do so. With more hard currency circulating, it would be unlikely that women would leave workplaces without getting their wages first. Mobile money gives employers the possibility of deferred payment. Workers could, in theory, also demand to receive that mobile money payment before leaving, but their subordinate social position (as displaced people, overwhelmingly hailing from marginalized clans/racialized groups) makes this difficult. Living in gated compounds in a city neighbourhood, employers are often physically detached from the camps where workers live. Displaced people's reliance on intermediaries, their difficulties in leveraging social networks in the city and a lack of enforced labour laws all reinforce their vulnerability. While most interviewees spoke of their familiarity with mobile money, many mentioned the help they required from others, often related to weak literacy skills (particularly prevalent among older people). Although mutual aid is an important characteristic of camp life, difficulties in sending money or checking balances reduces people's ability for financial autonomy and raises the prospect of abuse.

The cost of maintaining a mobile phone has become an essential part of people's living expenses. Many interviewees could only top up their phone airtime on an irregular basis. Most displaced people live in makeshift huts that are not directly connected to electricity. Although phone charging costs at kiosks are low, this is not necessarily a minor consideration for people who live in extremely precarious economic circumstances. In short, not everyone can always afford to spend money in order to be able to spend (mobile) money.

In this context of ongoing displacement and rapid city growth, humanitarian organizations have been relying on the network infrastructure of telecoms companies to distribute digital cash transfers to displaced urban dwellers.⁵⁶ Mobile payments to biometrically registered individuals are often described as being more secure and discreet, giving recipients (and particularly women) greater spending autonomy.⁵⁷ Informal urban camps are managed by the aforementioned ‘gatekeepers’, who access vacant land through their connections with groups who control these plots. The political economy of camp management involves the redistribution of aid that is intended for IDPs. Camps are set up by humanitarian entrepreneurs who attract displaced settlers with offers of free rent and assistance to establish basic shelters. In return, residents give a proportion of the aid that these camps attract from international aid actors and their local partners. These resources are further distributed as rents by gatekeepers to landowners and others in the ‘host community’. Often gatekeepers are quite candid about the share of aid that they receive from camp dwellers and how this is redistributed.⁵⁸ Crucially, mobile money payments do not insulate receivers from the obligation to give a share of aid to gatekeepers. The wider community is aware of the timing and scale of aid distribution, and beneficiaries remain obliged to transfer a portion of the financial aid to these humanitarian entrepreneurs through their phones.

Beyond the specific affordances of mobile money within the micro-level political economy of displacement and aid in Somalia, some informants spoke about a broader sense of disempowerment that can manifest in their necessity to engage in economic activity through the mobile phone. A labourer living in a resettlement area for displaced people in Bosaso highlighted how making payments in smaller denominations has been made more difficult with the rise of mobile money transactions. This also relates to Little's point that mobile money has reinforced the division between different spheres of currency: a dollarized circuit in cities and a Somali shilling sphere in rural and poor urban areas:⁵⁹

I use [mobile money] but cash was much better for us. Because we used to give 1,000 Somali shillings cash to a child to go buy what he wants. But now, for the children at home, if I have one dollar or 50 cents [on my phone]. I have to buy candies for them and give them to them when they run to us … He used to buy whatever he likes—biscuits, ice-cream, whatever, with the 1,000 Somali shillings we gave them. So this is a problem! [Laughs] The cash was much better for us.⁶⁰

If children do not have mobile phones, then in the absence of cash, they cannot use money. This is true for anyone who does not have access to these devices and infrastructure. While many interviewees emphasized the important benefits of mobile money innovation, in the absence of a state that is able and willing to support physical cash, the compulsion to engage with finance through private digital infrastructure intersects with wider socio-economic inequalities. This pronounced economic stratification is imbricated within the broader political economy of internationalized humanitarian governance, state (capacity-)building and ongoing conflict, to which we now turn.

State effects of mobile money in conflict: humanitarian, federal and opposition governance

Over the past decade, and because of its centrality to the wider economy, the commercial digital infrastructure of mobile money has become embedded within the financial architecture of the nascent Somali state. Mobile money is increasingly used for the payment of government salaries, the payment of taxes and the payment of humanitarian cash transfers. These digital transformations have been actively supported by international donors who have been engaged in state (capacity-)building efforts. As the following sections outline, when considered in the light of private sector power, weak state capacity and the continued threat of Al-Shabaab's parallel governance, the emerging state effects of mobile money are highly significant but at the same time largely under-theorized. These dynamics require greater attention from all actors involved in state reconstruction efforts in Somalia, because it is far from guaranteed that increased state capacity will emerge in a setting where the private telecoms sector has come to exercise a level of infrastructural power that amounts to a distinct form of virtual sovereignty.

Since 2019 the World Bank has been undertaking a major project to reorientate emergency humanitarian cash transfers (described in the previous section) towards a broader social protection system. The US$65 million Shock Responsive Safety Net for Human Capital Project, known as Baxnaano (Somali for ‘restoration’), has consolidated a register of 200,000 eligible, low-income female recipients for quarterly payments of US$60 and health messaging relating to nutrition. The project reaches people in districts across all of Somalia's regions and originally had a focus on rural areas, as opposed to urban hubs of displacement and aid delivery.⁶¹ However, rural conflict and the continued inaccessibility of areas controlled by Al-Shabaab have limited the project's geographical scope, and urban camps remain important distribution sites. Recipients register biometric details (fingerprints) to receive a payment card for use at ‘point-of-sale’ machines to access the money. Although payments were initially intended to be made either in physical cash or to phones, the COVID-19 pandemic placed limitations on physical contact and gathering, shifting the scheme entirely towards mobile money and the use of verified phone numbers for identification.⁶² As in many other global settings, the pandemic accelerated existing trends towards the digitization of everyday transactions.

State (capacity-)building is an explicit donor objective of the Baxnaano project. The FGS's Ministry of Labour and Social Affairs is the primary institutional locus of the initiative, and the World Bank (and other international humanitarian partners) have expressed their desire to build the government's capacity to take over the project as a sustainable social welfare system. Objectives include the development and endorsement by the FGS of a national cash transfer programme targeting methodology and an operational manual for a countrywide social registry.⁶³ Since the project's inception, Somalia has endured both COVID-19 and protracted, destabilizing (indirect)⁶⁴ elections. The war with Al-Shabaab continues, and although the African Union Transitional Mission in Somalia (ATMIS) was supposed to hand over full security responsibilities to Somali government forces before 2025, a rebranded AU force (AUSSOM) has been mandated to continue this support. The Federal Government has yet to take over management of Baxnaano and the data of a national social registry. Nonetheless, communications around Baxnaano have consistently emphasized the importance of recipients (and wider communities) perceiving this aid as coming from the Somali state, rather than international agencies.⁶⁵ This is seen as vital in a setting where the internationally recognized government has been unable to provide services to its full population and where its sovereignty is challenged by an Islamist opposition.

In project documentation—where international donors' emphasis on facilitating the work of state actors and raising their profile is obvious—the role of the telecoms sector is less clear. In south-central Somalia, Hormuud maintains the network infrastructure that underpins the system. The company has financial interests in the sale of hardware such as SIM cards, and has in the past generated revenue from registration fees charged to humanitarian agencies for the registration of recipients within cash aid systems.⁶⁶ It is therefore striking that, in the 2021 Baxnaano Stakeholder Engagement Plan, telecoms companies are absent from the lists of institutional or community stakeholders, nor are they even listed under ‘other interested parties’.⁶⁷ Recalling Star's observation that infrastructure often remains invisible until it breaks,⁶⁸ the techno-commercial hardware of mobile networks here is so ubiquitous as to merge into the institutional background, even where such companies play such central and diverse roles. Of course, breaks do occur, and are often related to the conflict: for instance, when the Kenyan air force bombs Hormuud telecoms masts in areas controlled by Al-Shabaab, or where ATMIS forces instruct a mobile provider to switch off its network during operations in specific locations.⁶⁹

While international donors link the development of digital social registries and mobile money payments to the reconstruction of government capacity and legitimacy, it is the political economy of the underlying private, commercial infrastructure that may have the most important ‘state effects’ in this setting. As discussed in our theoretical framing, Hagmann and Stepputat emphasize how state-like authority is generated through enabling commodity circulation, while effective statebuilding involves a balanced approach on the part of governing actors towards capturing rents associated with this circulation.⁷⁰ In the context of Somalia's mobile money circulation, and contrary to claims by the state and the telecoms sector itself,⁷¹ commercial actors appear to be exercising greater functional sovereignty over such flows. While the FGS is ideationally conceived and is ascribed the key tasks of economic governance of mobile money, the balance of power remains firmly tilted towards the telecoms companies.

Despite the FGS's adoption of mobile money regulations in 2019, very few rules have been introduced to enable oversight of the companies operating in this sphere—or of their activities—and the telecoms companies retain control over the circulation and governance of mobile money.⁷² Specifically, apart from introducing a licensing framework, existing legislation does not include sufficient provisions to limit anticompetitive practices and temper the considerable influence of a few key actors. Owing to its extensive telecoms infrastructure in south-central Somalia, HTG/Hormuud has leveraged its significant market share to dominate the mobile money market. Given the interconnected nature of the mobile money, banking and remittances sectors, Hormuud is also able to consolidate its monopoly position in related markets. The links between Hormuud's mobile money platform (EVC Plus), its banking arm (Salaam Bank) and its remittances business (Taaj Hawala) have contributed to the growth of these interests and the company's dominance in these sectors.⁷³ Limited interoperability between mobile platforms has also created ‘lock-on effects’ and crowded out competition. For instance, Hormuud's Salaam Bank customers cannot currently use the mobile money platforms of other providers. Consequently, and as a senior banking representative in Mogadishu put it, ‘to be in the mobile money business, every bank needs to have a remittance company and to create a telecoms company to get customers, everyone is in the business of creating their own ecosystem’.⁷⁴

Further, the lack of taxation or consumer insurance provision has allowed companies in the sector to accumulate and capture rents flowing from the circulation of mobile money. Neither the National Communications Law of 2017 nor the 2019 mobile money regulations have introduced taxes on mobile transactions in Somalia. Moreover, since 63 per cent of mobile money users do not immediately withdraw or transfer all funds from their account once a transfer is received, but rather transfer the money over time for different uses, telecoms operators have had access to an ever-expanding pool of money.⁷⁵ During the first decade of the sector's rapid expansion, mobile money was unregulated and operators were not required to maintain 100 per cent of their e-money liabilities in liquid assets.⁷⁶ Although regulation on the part of Somalia's central bank in 2019 and GSMA⁷⁷ certification in 2022 have required parity between electronic and cash reserves, and have in theory introduced some consumer protections, the availability of such a ‘float’ of cash for more than a decade has allowed the telecommunications companies to cement their position in the wider economy through investment in other businesses. According to a senior official in the ministry of planning, investment and economic development:

If Hormuud was doing telecommunication, it was also in banking, energy and agriculture. Hormuud was just taking over the whole country because there was no regulation restricting them from going into other sectors. For example, it was difficult for small companies to break into a sector like energy … because they could not compete with Hormuud.⁷⁸

Importantly, telecoms operators have not only strategically invested in sectors directly linked to their value chains, but—as noted above—have also expanded into unrelated industries such as commercial agricultural land acquisition, construction and real estate, taking advantage of economies of scale and reaping significant profits.

The experiences of the marginalized populations discussed in the previous section relate to these economic processes. The commercialization of cash-crop agriculture is ongoing despite (or even because of) conflict in fertile south-central regions, and is one of the factors that is driving rural–urban displacement as subsistence farming becomes more difficult.⁷⁹ Furthermore, once displaced populations arrive in cities they play a significant role in the construction sector labour force. They also clear land for encampments that can later be exploited for further real estate development by hitherto absentee owners, and subsequently suffer cycles of eviction that are part of these nascent processes of gentrification.⁸⁰ While Hormuud invests heavily in the associated construction industry and real estate markets, it also undertakes CSR activities that touch the lives of a growing urban underclass of rural in-migrants. It periodically undertakes high-profile distributions of drought and famine aid, and even provides certain state-like services, such as launching Mogadishu's first firefighting force.⁸¹

A final crucial factor contributing to the functional (and virtual) sovereignty of the sector relates to the complexity of the governance environment. Telecoms companies have strategically leveraged their role within conflict and state reconstruction processes by engaging with all parties. The business networks from which the dominant companies emerged have long had connections to different iterations of Islamist governance that have been attempted in Somalia,⁸² and the firms have been able to expand their network across territories controlled by different and competing governance actors. Also operating across these boundaries is Al-Shabaab's far-reaching business extortion/taxation system. Mobile money has been central to these practices and remote payments (often solicited through threatening text messages) allow the group to collect resources and exert influence in urban centres nominally under FGS control. The FGS has recently attempted to increase scrutiny of Al-Shabaab-related transactions on mobile networks, and in 2023/24 closed a number of bank and mobile money accounts believed to be affiliated with the group.⁸³ Furthermore, in January 2024, National Intelligence and Security Agency forces raided Hormuud offices in Mogadishu in a controversial attempt to retrieve user data, ostensibly for counter-terrorism purposes. Whether the scale of this scrutiny and account closures will affect Al-Shabaab's considerable revenue generation is unclear, especially in an environment where monitoring of ‘Know Your Customer’ regulations is limited.⁸⁴ Recent and past Al-Shabaab attacks on Hormuud have also occurred, although it is an open debate as to whether these relate to disputes over taxes that Al-Shabaab may be demanding, or the activities of individuals associated with the company whom Al Shabaab believes are collaborating with FGS/international security agencies.⁸⁵

There are emerging reports that Al-Shabaab may be responding to digital scrutiny by limiting mobile money access in areas it directly controls⁸⁶ and encouraging cash payments of taxes it demands, although these would presumably be in US dollars to enable international laundering. In terms of local currency, Al-Shabaab's resilient military capabilities and fluid presence in south-central Somalia will remain a major impediment to the introduction of new banknotes, assuming that the FGS actually tries to fulfil this commitment. Al-Shabaab would almost certainly reject the cash, as a symbol of FGS sovereignty, and block its import and circulation. The difficulties facing the state in undertaking monetary policy through cash printing are emblematic of wider challenges in the extension of its institutional capacity. In this setting, telecoms companies such as Hormuud will continue to manage mobile money as the digital default for financial transactions in Somalia. While Hormuud undoubtedly faces significant operating challenges—being caught in between the conflict between Al Shabaab and the FGS and periodically being targeted by either side—it maintains its monopoly position in southern Somalia's telecoms market.

Overall, consideration of the wider political economy of mobile money within the internationally backed state (capacity-)building project in Somalia highlights how critical components of financial infrastructure and monetary policy remain beyond the effective control of formal but weak state institutions. Instead, the telecoms sector wields a significant influence and exercises functional sovereignty over the circulation and capture of mobile money flows. The promotion of mobile money infrastructure alone is unlikely to strengthen formal state institutions. Furthermore, the considerably greater power to capture mobile money flows also reinforced the asymmetric position of the sector vis-à-vis the state. For example, during a crucial period of market expansion and consolidation, total expenditure under the FGS budget for 2017 was US$267.5 million, equivalent to only around one fifth of the mobile money float at that time (estimated then at US$1.2 billion).⁸⁷ Thus, it is not only that there are limited (constructive) state effects for the internationally backed government from the privatization of mobile money flow, but the current arrangements may be simultaneously weakening the capacity of formal state institutions, especially when also considering the significance of mobile money for non-state armed opposition actors such as Al-Shabaab.

Conclusion

The infrastructure and business models of mobile money are central to the political economy of internationalized conflict and state (capacity-)building in Somalia: not simply because telecoms companies are now so powerful, nor because mobile money is important for the commodity flows and business networks that shape multiple governance projects across a fragmented country. Mobile money, we have argued, also conditions modalities of humanitarian governance and associated statebuilding objectives that are imagined to rely on the development of data-based social registries. However, telecoms companies are effectively setting monetary policy beyond the state and perform state-like functions, while remaining insulated from signficant tax burdens and systematically enforced regulation. At the other end of the power spectrum, mobile money's usurpation of cash may reinforce micro-level socio-economic inequalities while also helping sustain the precarious financial existence of the urban poor. This is an underclass, growing in the context of rapid urbanization, itself driven by rural conflict dynamics within which the aforementioned commercial, political and humanitarian governance actors are imbricated.

As the lifeworlds of Somalia's most marginalized and most powerful groups are linked through commercial mobile infrastructure, the role of user data in terms of state, humanitarian and corporate governance is an area that requires further research. Somalia's data protection regulation is embryonic, and telecoms companies have largely developed their own protocols for data management in the prior absence of state capacity.⁸⁸ Considering power imbalances between donors and aid recipients, the use of biometric registration for mobile money systems raises important questions about data security and rights in the contested political context.⁸⁹ In Afghanistan, the Taliban's acquisition of significant quantities of biometric data from western donor-supported systems highlighted the dangers of not being able to guarantee the security of sensitive material in a setting where an armed opposition has the potential to infiltrate, or even usurp, state institutions.⁹⁰

The case-study presented here also speaks to a broader disquiet about the digitization of aid that is being expressed by commentators who see these technologies as ultimately enhancing the power of external donors and commercial actors over marginalized populations.⁹¹ Arguably, the trajectory of the financial technology (fintech) sector leads to intensified forms of monitoring and control, even through emerging innovations such as blockchains, which were initially conceived as a means to circumvent the power of (state-based) financial intermediaries. Given the wider difficulties that limit the expansion of state capacity in Somalia, in the short term it is unlikely that state authorities will leverage digital technologies to render populations more legible as registered citizens, digital taxpayers or social welfare recipients. Regional forms of commercial ‘surveillance capitalism’⁹² are perhaps more likely to emerge first, although it remains unclear if or how companies here may capitalize on their access to the huge socio-economic (transaction) data flows that move through their mobile money infrastructure. Up until now, Hormuud's market power has been translated into investment in broader sectors of the tangible economy. Although we have outlined the development of a distinctive form of African digital capitalism, further research is necessary to determine whether companies like Hormuud will leverage their centrality to the wider economy to emerge as a type of ‘platform capitalist’⁹³ actor whose business model is based around the value of the (big) data flows they facilitate and control.

Ultimately, our article has shown how global commercial, developmental and humanitarian drives for digital payments intersect with indigenous innovation in mobile money and may be making it even less likely that ‘fragile’ states will prioritize physical currency. An even bigger question thus follows: if monetary policy—a historical preserve of government authority—can drop off the agenda of a ‘fragile’ state, then what does this mean for state reconstruction more generally, particularly in settings such as Somalia? The example of Somaliland shows that dynamic mobile money innovation can exist alongside the printing of physical cash, although there the de facto independent state also had a symbolic nationalist interest in developing a new currency. In Somalia, despite repeated pledges, it remains unclear whether authorities in Mogadishu have the will or capacity to replace disappearing physical cash. Does this disappearance matter? We have argued that it does—especially when considering the frequently overlooked power of telecoms companies vis-à-vis humanitarian and state power holders, marginalized beneficiaries/citizens, and the nexus of conflict-driven urbanization within which these actors are all interconnected.

Footnotes

Author notes