Global attention has remained fixed on Kenya’s M-PESA and Nigeria’s fintech unicorns because they offer clean stories of scale. Yet, a quieter story has unfolded in the Horn of Africa. Ethiopia, Somalia, and Djibouti, all operating under severe structural and political strains, have developed digital systems within conflict-affected economies, each taking a distinct route shaped by local constraints. 

Their progress challenges long-held assumptions about where digital markets can take root and signals a change in how economic activity may spread across East Africa.

Three Horn of Africa states are building digital systems under pressure and in ways that cut against Africa’s familiar tech narrative. Ethiopia, Somalia, and Djibouti demonstrate that scale, trust, and connectivity can emerge from state control, private improvisation, or pure infrastructure build-out, with consequences for how growth and power are distributed across East Africa.

Ethiopia’s state-led ambition meets market reality

Ethiopia’s attempt to modernise its economy through digitisation is currently caught between the Digital Ethiopia 2025 strategy and the realities of a state-led legacy. 

While data suggests a nation in transition, the friction between the state incumbent and new market entrants reveals a liberalisation process stalling under its own weight. Internet penetration, though rising to 19% by early 2025, remains a modest metric for a country of this scale; the more consequential shifts are occurring in the structural layers of connectivity and digital identity.

The end of Ethio Telecom’s monopoly was intended to bring more players into the market, yet the playing field remains structurally tilted. Since its 2021 entry, Safaricom Ethiopia has deployed $2.27 billion in capital, but a 2025 World Bank assessment highlights significant handicaps. For instance, Safaricom has been forced to self-build 60% of its sites due to the lack of an open-access infrastructure regime. At the same time, the state-owned incumbent leverages its scale to cross-subsidise data through voice revenue. 

This keeps tariffs at a maximum of 4.5 GB per $1, a price point that challenges the unit economics of private competitors. Despite these headwinds, mobile connections reached 85.4 million in early 2025, providing the technical floor for a digital economy projected to contribute $10 billion to GDP by 2028.

While telecom captures headlines, the most significant shift is the rollout of Fayda, a biometric ID system serving as the authentication layer for Ethiopia’s Digital Public Infrastructure. By mid-2025, registrations surpassed 12 million, with the system already integrated across 12 federal institutions. 

A surge in mobile finance complements this digital backbone. Ethio Telecom’s mobile money product, telebirr, recorded 72 million customers by mid-2025. However, the ecosystem remains fragmented. The success of Ethiopia’s digital dividend now depends on regulatory clarity, specifically, cost-based interconnection and the decoupling of state infrastructure from the state operator. Without these reforms, the nation risks developing a digital economy that is large in scale but lacks competitive depth.

Somalia is exploring private innovation in the state’s absence

Somalia is a nation with a historically bypassed state that manages one of Africa’s most sophisticated digital economies. In the vacuum left by the collapse of central banking in 1991, private telecommunications firms have effectively filled the void, building a mobile money infrastructure that now processes approximately 650 million transactions annually. 

Worth an estimated $8 billion, these digital flows represent 36% of the country’s GDP. In a nation wherer 83% of adults of urban dwellers transact via mobile wallets for everything from utility bills to street food, cash is rarely used. 

This digital surge was a survival mechanism rather than a policy choice. Without a functioning commercial banking sector, telecom operators like Hormuud and Somaliland-based Telesom stepped in to facilitate the $2 billion in annual diaspora remittances that sustain the economy. 

By early 2025, this fragmented private ecosystem began its first major formalisation. The Central Bank of Somalia launched the Somalia Instant Payment System (SIPS), introducing a national QR code standard (SOMQR) to bridge the divide between isolated mobile wallets and the emerging banking sector. This technical interoperability is the government’s first credible attempt to assert regulatory oversight over a financial landscape it has long merely observed.

Connectivity is following a similar path of private-sector leapfrogging. In April 2025, Somalia’s National Communications Authority granted Starlink an operational licence in one of the continent’s fastest regulatory approvals. 

Satellite internet has extended high-speed coverage into remote rural territories that traditional ISPs could not safely reach by bypassing terrestrial infrastructure that is often targeted or “taxed” by militant groups like al-Shabaab.

While al-Shabaab, a militant group, frequently bombs telecom towers, it simultaneously exploits the same digital rails for its own financial flows and propaganda. Somalia’s digital success reflects a resilient private sector capable of operating in a regulatory void; however, the transition to a state-managed system will test whether formal institutions can keep pace with the market’s velocity.

Djibouti is a small nation with strategic infrastructure

Djibouti has pivoted from its traditional role as a maritime outpost to position itself as the digital switchboard for East Africa. The city-state, home to one million residents, has secured landing points for 12 major submarine cables, including the 45,000-kilometre 2Africa system, by leveraging its strategic location at the junction of the Red Sea and the Indian Ocean. 

This density of infrastructure has driven domestic internet penetration to 65%, the highest in the region, while establishing the country as a Tier 3 carrier-neutral hub through facilities such as the Djibouti Data Centre and the recently inaugurated Wingu Group technology park.

The country’s economic strategy now focuses on leveraging this subsea connectivity to gain regional influence. Djibouti serves as the primary gateway for landlocked Ethiopia and is spearheading the Horizon Project to link Khartoum and Addis Ababa via a high-capacity terrestrial corridor. 

This digital backbone is the centrepiece of a Horn of Africa integration initiative intended to align five neighbouring economies with the African Continental Free Trade Area. Recent World Bank backing for the Digital Foundations Project underscores this shift to move the local economy beyond port fees toward a diversified services sector that currently powers 95 operational e-government services.

Despite its dominance in regional transit, Djibouti faces internal structural headwinds that threaten its long-term competitiveness. Electricity costs remain a significant burden at 23 cents per kilowatt-hour, a price point that could deter power-hungry data centre operations as regional competitors emerge. 

While the government introduced a comprehensive digital code in late 2025 to streamline business procedures and govern the ecosystem, the gap between sophisticated infrastructure and domestic digital literacy remains wide. The success of Vision 2035 will depend on whether the state can lower the cost of doing business enough to transform its status from a passive transit point into a vibrant centre for regional digital trade.

If anything, these three paths reveal different pathways to digital transformation. Ethiopia pursues state-coordinated modernisation through strategic liberalisation, Somalia demonstrates private-sector-led innovation in governance voids, and Djibouti takes advantage of its geographic positioning for infrastructure-based competitive advantage. 

Yet convergence is emerging. Cross-border fibre links, regional payment interoperability frameworks, and shared challenges around affordability, skills, and regulation suggest a potential Horn of Africa digital corridor that could collectively reposition the region.