Telecom Firms Thrive in Somalia

Courtesy of The Wall Street Journal, an interesting report on the success of telecommunications companies in Somalia, in spite of ongoing strife and violence.  As the article notes:

“…Banks barely existed in this war-torn African nation a decade ago. Now, Somali residents can bank over their mobile phones.

The rapid evolution of technology in Somalia—and people’s access to it—comes as several telecommunications companies here jockey for customers amid the absence of any government-regulated phone or Internet access. The competition to supply phone service has stoked the nascent revival of Somalia’s shattered economy, and it shows that some complex businesses can thrive even in one of Africa’s least developed markets.

Backed by expertise from China, Korea and Europe—and funded from their own pockets—Somali telecom entrepreneurs are providing inexpensive mobile-phone services. Users can conduct money transfers via mobile phones and gain Internet access, both wireless functions that aren’t widely available in many other parts of Africa.

The success of Somalia’s telecom sector isn’t all that unusual for a war-shattered economy, experts say. In countries with shaky economic foundations, such as Afghanistan and the Democratic Republic of Congo, telecommunications companies have stepped in to provide missing infrastructure.

In these environments, “the first ones who put in electricity generators in rural areas are the telecom operators,” says Svet Tintchev, a World Bank expert on the telecom industry in developing countries. “In a way, their leverage goes beyond pure telecom service.”

In Somalia, the telecom companies haven’t competed only for customers. They have also cooperated with each other to maintain their networks and set prices to ensure that competition doesn’t become too cutthroat.

One of the largest, Hormuud Telecom Inc., has sales of about $40 million a year, substantial in a country where an estimated 70% of the population lives on less than $2 a day. Hormuud declined to disclose its profit.

Hormuud’s chief executive, Ahmed Mohamed Yusuf, started his business selling bread, spaghetti, sweets and other groceries. He later opened a popular supermarket.

But like his competitors, Mr. Yusuf saw huge gaps in the telecom sector. “Everyone wants to get in touch with his brother or sister, whether inside or outside the country, to hear the latest news” amid rising violence, says the 50-year-old CEO.

In 2002, he pooled money with friends and launched Hormuud, a cellphone and land-line telecommunications company. It would later expand to include a bank and a mobile money-transfer service, which Somalis now use to avoid being robbed in this cash-based economy.

The World Bank’s Mr. Tintchev says the sector has become among the country’s biggest revenue generators, and the service it provides has helped revive the economy. “They became the economic enablers in Somalia,” he says.

Four main telecommunications companies now operate in the country.

The first private telecommunications company to open in Somalia was Telecom Somalia in 1994, a Hormuud rival that offers a range of wireless services. NationLnk Telecom also offers land-line and mobile services, but it hasn’t expanded into more advanced services, such as Internet access. Despite their rivalry, the three companies signed an interconnectivity deal in 2005 that allows them to set prices and expand their network access. The cheapest mobile-phone service provider, called Somafone Telecommunications Service Co., is a tiny upstart that operates outside the alliance.

The investment in telecom businesses is one of the clearest signs that Somalia’s economy has continued to grow amid the ruins of war. Few reliable figures exist for the overall economy. The United Nations estimates that in 2007 the East African nation’s economy expanded 2.7%. Per-capita GDP, at $291 a year, remains among the lowest on the poverty-stricken continent.

Since its last strong federal government fell in 1991, Somalia has been beset by warring clans and militias. The 1991 violence destroyed every phone line in the country, according to a World Bank assessment, forcing people to communicate by military radios, if at all.

To navigate Somalia’s tangled web of clan alliances, Hormuud sells shares to all interested parties. In this way, the connection to Hormuud cuts across the country’s warring groups, leading Somalis from nearly every clan to feel vested in the company, says Mr. Yusuf, who often surfs satellite news channels in his Mogadishu office.

Operating in Somalia remains hazardous. Mr. Yusuf says he is reluctant to invest in the very latest technology because Hormuud’s land lines, painstakingly laid down, have been blasted by mortars in the past two years during heightened violence.

Last year, a mortar shell crashed into the gate of the company’s headquarters in the main Bakara market in Mogadishu, killing one employee and wounding another. Asked who might have fired the mortar or whether he thinks it was meant to hit the company, Mr. Yusuf shrugs, indicating there are simply too many explosions to tell them apart.

In some Somali villages, Hormuud no longer offers service because all the people have fled the militant groups. The most formidable force in Mogadishu is al Shabaab, a violent group linked to Al Qaeda that has banned beards, school bells and tractors because, it says, they violate Islamic law.

Al Shabaab has also punished telecom operators, threatening employees who sell scratch cards for cellphone use and demanding “taxes” from any companies that operate in their territory.

But Hormuud has also profited in this war economy. Calls—and revenue—go up when fighting erupts and people need a way to get in touch with friends and relatives. In militant-controlled areas, young men and women are banned from socializing, so they tend to stay home and send text messages to each other instead. The militants use Hormuud’s service too, relying on the company’s mobile-phone network to coordinate attacks and call for reinforcements.

The new Somali government, installed last year, has begun to try to tax the lucrative telecom businesses. Government officials grumble that some companies aren’t contributing their share, but Mr. Yusuf says that businessmen like him will pay whoever happens to be in power.”

This entry was posted on Wednesday, May 12th, 2010 at 6:18 am and is filed under Somalia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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