How the Charcoal Trade Fuels Terrorism

The Security Council just passed a sweeping expansion of the mandate of the African Union Peacekeeping Mission in Somalia, known as AMISOM. The most headline grabbing part of the resolution is that the Security Council approved sending an additional 5,000 peacekeepers to Somalia, which would raise AMISOM’s cap to over 17,000 peacekeepers.

This boost in troops is required to sustain a military offensive that AMISOM and the Kenyan national military have been waging against al Shabaab. Over the long term, though, perhaps the Council’s most important action today was a ban on the Somali charcoal industry. If properly enforced, this could have real consequences for al Shabaab’s ability to wage insurgency.  The charcoal trade for al Shabaab is like the poppy trade for the Taliban. It is the single most important source of income for al Shabaab.

Last year a UN report offered a very detailed explanation of just how al Shabaab benefits from the export of charcoal. Investigators found that al Shabaab used its control of ports, mainly the large port city of Kismayo, to exact taxes on the export of charcoal and to trade charcoal for sugar, which is smuggles into Kenya.

Al-Shabaab generates millions of dollars of revenues each month through a coordinated trading cycle built upon the export of charcoal, which in turn finances the import of sugar, much of which is subsequently smuggled across as contraband into neighbouring countries, particularly Kenya. Shipping companies deliver sugar to Kismaayo and collect charcoal for the return journeys. Bank accounts in the Gulf States where the profits of this trade are deposited can be used to launder voluntary contributions to Al-Shabaab through fraudulent invoicing, overvaluing of import proceeds and undervaluing of exports.

This trade cycle is dominated by networks of prominent Somali businessmen operating mainly between Somalia and the Gulf Cooperation Council (GCC) countries, notably Dubai in the United Arab Emirates. Al-Shabaab not only attracts their business by imposing lower rates of taxation in Kismaayo than at ports controlled by the Transitional Federal Government but also actively promotes large-scale imports of sugar and exports of charcoal by offering preferential access and tax breaks to Al-Shabaab affiliated businesses.

The annex to to the report offers exquisite details about the complex system of taxation that Al Shabaab has set up around the production and export of charcoal.

Case study: Al-Shabaab taxation at ports

Charcoal traders with privileged relationships with Shabaab are not directly taxed at export, although producers and transporters of charcoal are taxed up until the point of export and smaller traders with no direct business relationship with Al-Shabaab are also taxed at export locations. Similarly, taxes on imports of sugar are not levied on businessmen who enjoy direct privileged relationship with Al-Shabaab, including those businessmen who are part of the sugar-for-charcoal trading cycle, but are levied on smaller opportunistic traders taking. While Al-Shabaab does not directly control this trade, it nevertheless welcomes it as it generates additional revenues for the armed group. Local charcoal producers pay a “production tax” of 2.5%, in return for which they receive production ‘certificates’. The charcoal is transported to port on trucks, whose owners are also required to pay a tax of 2.5% of the estimated value to Al-Shabaab. In addition, if stopped at a checkpoint, truck owners pay a checkpoint fee per truck. Failure to pay taxes can lead to seizure of the consignment and/or imprisonment.

The six main ports for charcoal export in southern Somalia are all controlled by Al-Shabaab: Kismaayo, Baraawe, Marka, Buur Gaabo, Eel Ma, Qudha. The major export points for charcoal are from Kismaayo in Lower Jubba and Baraawe in Lower Shabelle.

From Kismaayo, high-grade charcoal is exported on large vessels, and from Baraawe, low-grade charcoal is exported via barges for transfer into larger vessels anchored offshore. The port of Kismaayo can accommodate vessels up to 180 meters in length with a maximum draft of about 8 meters. It has 2 berths measuring 340 meters and 280 meters respectively and 2 roll-on roll-off (Ro-Ro) ramps. A Kismaayo resident, who declined to be named, told a UN media office that three to four vessels loaded with charcoal left the port every week.

Baraawe has no infrastructure or facilities and accommodates only small boats or barges to transport charcoal to large vessels anchored offshore.  In April 2011, the Group learned that Kismaayo port authorities fixed the charcoal export tax to $1.20 per sack up from $0.90 per sack in February 2011 and $0.50 per sack in December 2010.Baraawe port authorities f ixed the charcoal export tax to $0.60 per sack in April 2011 up from $0.50 per sack in February 2011.

Larger motor vessels can export between 75,000 and 250,000 sacks of charcoal. Thus, in addition to docking fees, each vessel generates US$90,000-$300,000 in Kismaayo or US$45,000-US$150,000off Baraawe. Smaller vessels, such as dhows, can carry between 15,000 and 55,000 sacks of charcoal.Thus, each dhow generates US$18,000-US$66,000 in Kismaayo, or US$9,000-US$33,000 in Baraawe.

The owners of barges that carry the charcoal from Baraawe to offshore vessels pay a tax of 2.5%of the estimated value of their cargo. While smaller boats are charged $0.5 per sack of charcoal. Porters employed for loading and discharging charcoals must also pay 2.5% of their salaries to Al-Shabaab.

The charcoal trade is affected by seasonal factors. Charcoal is more ex pensive during the rainy season, and freight costs are more expensive during the monsoon season. Thus, depending on the season, the C&F (custom and freight) price of charcoal in the UAE or Saudi varies approximately between $5 and $7 per sack. A sack of Somali charcoal sells approximately between $8 and $11 in the UAE and Saudi Arabia.

Some privileged companies are permitted to export charcoal tax free, using green colored sacks reserved exclusively for Al-Shabaab-approved enterprises. These sacks are not available for purchase on the local market, and are usually sourced in Dubai, the UAE.

With regards to sugar and other commodities, large vessels docking in Kismaayo pay a docking fee, and the porters who offload sugar cargoes also contribute 2.5% of their earnings to Al-Shabaab.11. Al-Shabaab’s revenues don’t end at the port. Once cleared, sugar is delivered to local warehouses, and then onwards to border areas and smuggled to Kenya or Ethiopia. Local sugar buyers and transporters must pay 2.5% of the estimated value of their commerce to the local Al-Shabaab authorities and, if stopped at an Al-Shabaab checkpoint, transporters must pay an additional‘checkpoint fee’ per truck.