3 - Islamic versus Clan Networks: Labor Remittances, Hawwala Banking, and the Predatory State in Somalia

Summary

In Somalia the boom in labor remittances inflows fueled a different type of informal economy. More specifically, while the oil boom period reduced the Somali state’s ability to regulate the economy as in Egypt and Sudan, the consequences of this development differed. In Somalia informal financial networks facilitated a thriving commercial sector comprised of firms oriented around clan families. It was not religious or class affiliations, but rather ethnic mobilization and conflict that became the most salient. This difference was due to two factors: the dearth of formally organized institutions (i.e., official banks, and publicly registered enterprises); and the fact that President Siad Barre pitted one clan against another in his search for legitimacy and financed a patronage system excluding clans and constituencies that opposed his rule. Thus, with the expansion of the parallel economy, the politics of ethnicity and personalistic networks quickly eclipsed the power of the state.