How Ethiopia, Somalia, and Djibouti Are Quietly Rewiring Digital Power in the Horn of Africa
Africa’s digital story is often told through familiar reference points. Kenya’s M-PESA offers a clean case study of mobile money at scale, while Nigeria’s fintech unicorns dominate conversations about venture-backed growth. But beyond these well-worn narratives, a more complex transformation is unfolding in the Horn of Africa.
Ethiopia, Somalia, and Djibouti are building digital systems under conditions that would typically be considered hostile to innovation. Conflict, political fragility, and structural constraints define these economies. Yet each country has developed a functioning digital ecosystem by following a path shaped not by best practice, but by necessity. Together, they challenge assumptions about where digital markets can emerge and how power and growth may spread across East Africa.
Ethiopia’s Digital Push Caught Between Control and Competition
Ethiopia’s digital ambitions are anchored in Digital Ethiopia 2025, a national strategy designed to modernise the economy through connectivity, identity systems, and financial inclusion. In practice, however, the country’s progress reflects a tension between liberalisation goals and the gravitational pull of state control.
Internet penetration climbed to 19 per cent by early 2025, a modest figure given Ethiopia’s population size. More important than headline adoption numbers are the structural layers now being put in place. The partial opening of the telecoms sector was meant to introduce competition, but the market remains uneven.
Since entering in 2021, Safaricom Ethiopia has invested $2.27 billion, yet a 2025 World Bank assessment shows how regulatory design has tilted the field. Without open-access infrastructure rules, Safaricom has been forced to self-build roughly 60 per cent of its network sites. Meanwhile, Ethio Telecom continues to use revenue from its dominant voice business to subsidise data pricing.
The result is a ceiling on data tariffs of around 4.5 GB per dollar, a level that strains the unit economics of private operators. Even so, mobile connections reached 85.4 million by early 2025, forming the technical foundation for a digital economy projected to contribute $10 billion to GDP by 2028.
The most consequential development may lie outside telecoms altogether. Fayda, Ethiopia’s biometric digital ID system, is becoming the authentication layer for the country’s digital public infrastructure. By mid-2025, more than 12 million people had registered, and the system had been integrated across 12 federal institutions.
Financial services are scaling alongside identity. Ethio Telecom’s mobile money platform, telebirr, reported 72 million users by mid-2025. Yet the ecosystem remains fragmented, with limited interoperability and regulatory uncertainty. Ethiopia’s challenge is no longer whether it can build digital scale, but whether it can introduce enough competitive depth to sustain innovation without state dominance flattening the market.
Somalia’s Private-Sector Digital Economy in a Weak State
Somalia presents a different model altogether. With the collapse of central banking in 1991, the country developed one of Africa’s most advanced mobile money systems in the absence of a functioning state. What began as improvisation has matured into a digital economy that processes roughly 650 million transactions each year.
These flows, valued at about $8 billion, account for an estimated 36 per cent of GDP. In urban areas, 83 per cent of adults rely on mobile wallets for daily transactions, from utility payments to street purchases. Cash plays a diminishing role.
This system was not the result of policy design. It emerged as a survival response. With no formal banking sector, telecom operators such as Hormuud and Telesom stepped in to move the $2 billion in annual diaspora remittances that sustain household incomes. Over time, these networks became the de facto financial system.
By early 2025, the Somali state began its first serious attempt to formalise this privately run ecosystem. The Central Bank of Somalia launched the Somalia Instant Payment System, introducing a national QR standard known as SOMQR. The aim was to create interoperability between siloed mobile wallets and an emerging banking sector.
Connectivity has followed a similar pattern of private-sector leapfrogging. In April 2025, Somalia’s National Communications Authority granted Starlink an operating licence in one of Africa’s fastest regulatory approvals. Satellite internet has extended high-speed access into rural areas where fibre networks are either unsafe or economically unviable.
This progress exists alongside persistent insecurity. Telecom towers are frequently targeted by al-Shabaab, even as the group exploits the same digital infrastructure for fundraising and propaganda. Somalia’s digital economy demonstrates how markets can function in regulatory voids. The next test is whether formal institutions can impose oversight without slowing a system that has evolved at market speed.
Djibouti’s Infrastructure-First Digital Strategy
Djibouti’s digital story is rooted in geography. Long known as a maritime gateway, the country has repositioned itself as a digital transit hub at the intersection of the Red Sea and the Indian Ocean. Despite a population of just one million, Djibouti hosts landing points for 12 major submarine cables, including the 2Africa system spanning 45,000 kilometres.
This concentration of infrastructure has pushed domestic internet penetration to 65 per cent, the highest in the Horn of Africa. It has also enabled the emergence of carrier-neutral facilities such as the Djibouti Data Centre and the Wingu Group technology park, positioning the country as a Tier 3 connectivity hub.
Djibouti’s economic strategy now centres on exporting connectivity rather than services alone. It serves as Ethiopia’s primary digital gateway and is leading the Horizon Project, a terrestrial fibre corridor linking Addis Ababa and Khartoum. This backbone underpins a broader integration effort aligned with the African Continental Free Trade Area.
World Bank support for the Digital Foundations Project signals international confidence in this shift. Domestically, the government has rolled out 95 operational e-government services as part of a push to move beyond port revenues into a services-led economy.
Yet structural risks remain. Electricity costs hover around 23 cents per kilowatt-hour, a rate that could undermine the country’s appeal to energy-intensive data centre operators as competition emerges elsewhere in the region. While a comprehensive digital code introduced in late 2025 aims to streamline regulation, the gap between advanced infrastructure and local digital skills remains wide.
Djibouti’s Vision 2035 hinges on reducing business costs enough to evolve from a transit node into an active centre of regional digital trade.
Read More: Ethiopia’s Era of Ultra-Cheap Mobile Data Meets Economic Reality
Three Models, One Emerging Digital Corridor
Taken together, Ethiopia, Somalia, and Djibouti illustrate three distinct approaches to digital transformation. Ethiopia is pursuing state-coordinated modernisation through controlled liberalisation. Somalia demonstrates how private-sector innovation can flourish in the absence of governance. Djibouti is leveraging geographic advantage to build infrastructure-led influence.
Despite these differences, convergence is underway. Cross-border fibre networks, regional payment interoperability, and shared challenges around affordability, skills, and regulation point toward the emergence of a Horn of Africa digital corridor.
Rather than mirroring the continent’s dominant tech narratives, this corridor may redefine them, showing that digital power can emerge not only from scale and capital but also from adaptation under pressure.
