In markets in Mogadishu, traders renew their business licenses using their mobile phones. Also, sales tax is deducted from transactions made using mobile money. Very little cash changes hands.
In Somalia, this is what day-to-day economic activity looks like – at least in its urban areas. Three mobile money providers dominate – Hormuud’s EVC Plus in South-Central Somalia, Sahal in Puntland and Zaad in Somaliland. Together, they process over 155 million transactions every month worth roughly US$2.7 billion. No arm of the Somali state reaches as many people as often. That reach is the opportunity, and it belongs to the country’s private entrepreneurs.
Domestic revenue has risen from around US$300 million in 2022 to more than US$400 million in 2025. The first gains have come from a step up in customs revenue from the Mogadishu port and a handful of large companies in key sectors like telecom. The next phase of revenue growth will depend on smaller businesses and households that have to be won over.
The state in Somalia may not be collecting enough taxes, but Somalis are not under-taxed. They are, for the most part, unable to depend on the state for basic services. In that void, Al-Shabaab runs it’s own tax regime. The group reportedly raised between US$144 million and US$163 million a year between 2019 and 2023. They did that through an efficient system of checkpoints on the main trade and supply routes and payment demands made by phone.
Competition between states compounds the problem and leads to price distortions. A metric ton of rice attracts taxes of US$26 in Mogadishu, US$22 in Bosaso and US$17 in Kismayo. So traders in Baidoa import through Bosaso, over 1500 km away, rather than the Mogadishu port, which is considerably closer, under 250 km.
Revenue is one of the main arenas where Somalia’s wider political contest is conducted. The Federal Government of Somalia cannot solve this by unilaterally asserting its authority. When Somalia was formed as a federation in 2012, the states were intentionally granted autonomy in certain policy spheres in return for their joining – fiscal autonomy was key among them. The provisional constitution of 2012 recognised that in a polarised fragmented society, a federal structure was the best way for the nation to hold.
Somalia’s current federal architecture is therefore a key instrument, and it needs to be seen as such rather than as an obstacle. Somalia’s customs automation programme, SOMCAS, is a case in point of limited success. Officials reached a political bargain: Jubaland agreed to join the harmonised tariffs system only after securing contractual guarantees that federal officials would not have visibility of commercially sensitive data on its traders. Integration was bought by conceding something real. The key lesson here is that authority over a system comes from the terms on which it is used rather than from owning it.
The 2023 Baidoa Agreement – which did not factor in the federal bargain – assigned customs, excise and natural resource revenues exclusively to the federal government, and remains unimplemented to this day, because it asked Puntland and Jubaland to surrender revenue they already collect and offered them nothing in return. In 2024, the FGS began collecting sales tax on mobile money through a system interfaced with private operators, which moved each payment into a government account as it was made. In a negotiated settlement in a federal system, the same mechanism could split a shared tax at the point of payment, with the federal and state shares landing separately and instantly. Revenue-sharing settlements that take place in real time are an entirely different proposition from a revenue-sharing arrangement that one party has to trust another to honour later.
For Somalia’s partners, this points towards where support should be directed, and the bargain it should push towards. What turns a transaction into a fiscal-social contract is the legal basis for each tax the government imposes – whether direct or indirect, the terms that specify who has access to what data, the reconciliation capacity to know what was collected, a route for a taxpayer to challenge an assessment and be answered, and finally, to provide a transparent account of how revenues thus being collected are used. It also means backing processes where bargains are made between Mogadishu and the states.
Suvojit Chattopadhyay
Head of Africa
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The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Adam Smith International.
