How Somalia’s Economy Works Without a Strong State: My New Paper in Plain English

I have some news to share. My research article, “Beyond the state: structure, function, and governance of Somalia’s informal economy,” was published on 11 November 2026 in Cogent Economics & Finance, a peer-reviewed journal. Anyone can read it for free.

But journal articles are written for other researchers. Most people don’t have time for thirty-odd references and technical terms. So here is the same story in plain English: what I looked at, what I found, and what I am suggesting.

The puzzle

Since 1991, Somalia has had a weak central government, and in some places no government at all. By every textbook, an economy in that condition should have collapsed. It did not.

Money still moves across borders. Livestock still reaches the ports. Disputes still get settled and agreements still get honored. Families still eat. So who is doing the work that a government normally does?

My answer is that a set of informal institutions, built by Somalis, has been doing those jobs for more than thirty years. It has its own rules, its own trust and its own ways of enforcing them. It is not a leftover from the old state, and it is not a temporary patch. I argue that it is a lasting system of its own.

What I did

I did not collect new survey data. I read thirty recent studies from economics, political science, anthropology, conflict research and development practice, most of them published between 2018 and 2026. Then I asked a simple question: when you put them side by side, what do they tell us together that none of them can tell us alone? I sorted what I found into four areas of everyday life.

1. Money: hawala and mobile money

When the state banking system collapsed in 1991, hawala, the trust-based money transfer networks, became the way money moved in and out of the country. They still are. Remittances are estimated at roughly a quarter of the whole economy, about two billion dollars a year, and studies estimate they support between 40 and 55 percent of households. Much of that money never shows up in official statistics.

Mobile money, through services like EVC-Plus and Zaad, is now part of daily life. The studies I read link it to better access to financial services for households, and one survey of 138 firms linked EVC-Plus use to better sales for small and medium businesses. It works alongside hawala. It has not replaced it.

2. Trade: livestock and khat

Livestock is the heart of Somalia’s exports. It is estimated to make up about 40 percent of the economy and more than half of export earnings. Yet most of the trade across the Ethiopia, Somalia and Kenya corridors moves through unofficial channels: an estimated 70 percent of cattle, 30 percent of camels, and up to 99 percent of sheep and goats.

Khat follows the same pattern. One study estimates that about 12,000 bags reach Mogadishu from Kenya every day, and that the trade finds new routes when authorities try to restrict or tax it. These corridors are not a side activity. They are central to the national economy.

3. Governance: xeer and shadow taxation

Where courts and tax offices are weak or contested, two other informal systems step in. The first is xeer, the customary law of Somali clans. It works as a political constitution, a penal code built on compensation (including diya), and a code of social conduct. It governs land, livestock ownership and obligations between clans, so it quietly supports much of the trade and finance described above.

The second is uncomfortable to write about. In areas it influences, al-Shabaab runs a parallel tax system. One study of more than 800 tax receipts from 2015 to 2021 found a structured set of charges on transit, goods, farm produce and livestock, enforced through checkpoints and the threat of violence, and worth an estimated 100 million dollars a year. Several sources report that some business owners in Mogadishu find it more predictable than the formal system, even while recognizing that compliance is forced. I mention this not to praise it. I mention it because it shows how much people and businesses value predictability from any authority.

4. Women in the informal economy

Women carry a large share of this economy. Estimates suggest they are about 70 percent of informal-sector participants and about 60 percent of business owners. These are rough national figures, but the direction is clear. Yet women-led businesses reportedly receive less than 10 percent of the value of loans to small businesses. A survey of 156 women entrepreneurs in Mogadishu found that access to finance mattered more for their success than their education or their management skills.

The big idea: one system, two jobs

When I read all four areas together, one pattern stood out. The same informal channels that keep families fed also feed armed groups.

Hawala delivers money to families quickly and with little paperwork, and that same speed and discretion are what raise worries about money reaching armed actors. The livestock corridors that sustain herders are also the routes where checkpoints tax the trade. The same xeer authority that settles a dispute can be used by community leaders, and by armed groups, to raise revenue and win legitimacy. Most studies look at only one side, the lifeline or the extraction, as if they were two different systems. Very often they are one system doing both jobs at once.

Why does this matter? Look at 2013. Barclays, the last major UK bank still serving Somali money-transfer companies, moved to close those accounts over fears about terrorism financing. That put the money flowing to families at risk, while the informal channels that armed groups could use were still there. A court order delayed the closure, but the episode shows how a well-meant intervention can hurt the people it is meant to protect without stopping the people it is aimed at.

What we still do not know

My review also shows what is missing. I found five gaps.

We cannot measure this economy well. Somalia’s statistics are weak, so even the share of the economy that comes from remittances is estimated across a range of twenty percentage points. Every number in this post is an estimate, and so are the numbers in the article.

The pieces are studied separately. Hawala, xeer and shadow taxation are researched by different people who rarely read each other, even though some studies show they overlap.

We do not know where mobile money leads. It might help people and firms move into the formal economy. It might make staying informal more comfortable. Or it might hand more power to the telecom companies. No study has followed the same firms over time to find out.

Women’s lack of credit is well documented, but almost nobody has tested a solution.

And the lifeline and the extraction are almost never studied together, which is the problem I described above.

One more warning. The evidence of resilience comes mostly from Somaliland, and the evidence of armed extraction comes mostly from south-central Somalia. A plan built for one place may not fit the other.

What I am suggesting

My suggestions are mostly about getting better evidence before making big moves. There are three.

First, follow mobile money users over several years. Track the same businesses and see whether they register, pay taxes or build a credit history, and whether digital records could help women traders qualify for loans. That last idea is a hypothesis worth testing, not a proven fix.

Second, draw one map of the whole system. Put hawala transactions, xeer dispute records and tax data into a single picture, including the trust that links them. Then we can see where reform would strengthen the state, and where it would break something people rely on.

Third, collect data close to the ground, by transaction or by checkpoint, so that we can tell the difference between a payment that feeds a family and one that feeds a war.

The practical message for anyone designing policy is simple. Before you formalize, regulate or replace, find out what the informal system is already doing. Remittances alone are about a quarter of the economy, and livestock makes up most of the exports. A reform that ignores that could damage the very things keeping people alive.

What this does not say

This is not an argument that informal systems are good enough, or that Somalia does not need a strong state. It is closer to the opposite. Building a state that works means understanding what has been working in its place.

I should also be honest about the limits. This is a review of thirty studies, not new fieldwork. I screened the sources myself, without a second reviewer. And the numbers are estimates.

Read the full article

The full article is free to read and download here:

https://doi.org/10.1080/23322039.2026.2749230

Citation: Durre, M. R. (2026). Beyond the state: structure, function, and governance of Somalia’s informal economy. Cogent Economics & Finance, 14(1), 2749230.

If you work in policy, teach, study, or run a business, I would like to hear where this matches your experience and where it does not. You can write to me through the contact page.