DUBAI (Reuters) - Al Shabaab emerged as a regional threat funded by millions of dollars from activities ranging from extortion to taxing charcoal exports, but its attack on a Kenyan shopping mall is expected to provoke a counter-terrorism response aimed at crippling the Somali Islamist group's finances.
The money is important to al Shabaab, a group whose aims include the wider imposition of Islamic law but whose ability to attract fighters in one of the poorest countries of the world is based largely on its ability to pay them.
A report by U.N. monitors in July estimated al Shabaab earned more than $25 million a year from illicit exports of charcoal to Gulf Arab states and from taxing the trucking of charcoal to the Somali ports of Kismayu and Barawe.
Other funds come from informal taxes on small businesses in areas of Somalia that al Shabaab controls, and from donations from Somalis overseas, although these transfers are thought to be declining due to a general disenchantment with the increasingly violent group in the diaspora, diplomats say.
A security source in the capital, Mogadishu, said al Shabaab was expert at extorting money from small businesses and at setting up front companies whose income was funneled to the group. Both sorts of company also acted as informers.
"It's the small little shops where you repair your vehicle, or charge your mobile phone," the source said. "It's a myriad of little businesses, who also help them in their surveillance."
"There's no need for heavy-handed daily enforcement because everyone knows the penalties for non-compliance are drastic," he said, referring to the amputation of limbs or execution.
Suspected additional sources of income include militant Islamists overseas and, according to U.N. sanctions monitors, the nearby state of Eritrea.
The monitors said Eritrea was destabilizing Somalia by paying political agents and financing a warlord linked to al Shabaab.
The Eritrean government, accused by its critics of seeking to use Somali territory to undermine Ethiopia, its old enemy, has long denied meddling in Somalia, saying it has no links to al Shabaab's fight against the Somali government.
Al Shabaab has been waging an insurgency since 2007 and formally became part of al Qaeda in 2012. It remains Somalia's most powerful non-government armed group despite being pushed out of Mogadishu by an African Union force in 2011.
Al Shabaab's economic strength is vital to its operations because it can pay its thousands of fighters a monthly salary normally varying between $100 to $300 a month.
That, more than its declared aim of imposing a strict version of Sharia or Islamic law, is the main incentive to join up, Somali researchers say.
Ironically, al Shabaab's income may have benefited from an upturn in the Somali economy that followed the partial restoration of order in Mogadishu over the past two years and a growth in investment amid hopes of an end to years of war.
In the wake of the four-day attack by al Shabaab militants on a Nairobi shopping mall in which at least 72 people were killed, Western counter-terrorism agencies are expected to subject the group's sources of financial support to renewed scrutiny, Somali experts say.
The success of such efforts will depend to a large extent on the choices made by Somalis, in particular the powerful Somali business community in east Africa.
According to Ken Menkhaus, a leading U.S. scholar of al Shabaab, the most formidable weapon against al Shabaab may be the Somalia expatriate business community in Kenya, which has emerged as a force in property and trade in the past 20 years.
DIASPORA FUNDING DWINDLES
Since the collapse of the Somali state in 1991, more than one million Somalis have fled to or through Kenya, and many now have extensive business and real estate investments there.
Fearing a crackdown on Somali firms by a Kenyan government keen to be seen to be doing something, Somali businessmen in Nairobi might now feel compelled to take their own steps against the group, he wrote on the website www.thinkprogress.org.
"Messing with Somali business interests has never advanced the interests of any political actor in Somalia, foreign or local," he said.
It was up to Somalis to "mobilize against Shabaab and take the movement out once and for all by drying up its financial sources, exposing its operatives, and denying the movement any safe space from which to operate."
The alternative, he said, was action by foreign governments, but that would almost certainly impact "innocent Somalis and legitimate Somali businesses in Kenya and around the world, and that is not in anyone's interest except Shabaab's."
Stig Jarle Hansen, a Norwegian expert on the group, told Reuters that what was best known about al Shabaab finances was its system of local taxation in the areas it held, especially the taxation of transport. But verifying this information was difficult and was hampered by hearsay, he said.
In Somalia, a traditional kinship society, research was complicated by the fact that while someone might nominally be in al Shabaab, in reality people were more loyal to their clan elders, he said.
POCKETS OF SYMPATHY
Adam Matan, head of the Anti-Tribalism Movement, an advocacy group that campaigns against the political exploitation of clan identity in Somalia, said al Shabaab fighters told him on his research trips to Somalia that money was a key attraction.
"If you can get a few dollars a month to feed your family, you will take it," said the British-based former Somali refugee, who travels frequently to Somalia, echoing findings in previous Reuters reports about Somali militancy.
Mohamed Aden Hassan, a researcher at Goldsmiths College in London who studies the Somali diaspora, said he believed diaspora funding had all but dried up for al Shabaab in recent years although there were pockets of sympathy "here and there".
Al Shabaab remains in control of most of southern and central Somalia, a U.N. report published in July 2013 said.
According to the report, defectors from al Shabaab said the wage paid to fighters ranged from $100 to $500, "depending upon clan affiliation and seniority".
In September 2012, al-Shabaab fled Kismayu, the main charcoal export outlet to the Gulf, and Kenyan troops in the African Union peacekeeping force took control.
The U.N. Security Council banned the export of charcoal from Somalia in February 2012 to help squeeze al Shabaab's finances.
But shortly after the AU secured the port, Kenyan forces unilaterally lifted the ban, arguing Kismayu's angry charcoal traders could undermine the security of their troops, the U.N. report said. The Kenyan military denied the allegation.
In the months that followed, al Shabaab got back into the trade thanks to ties to local business networks, earning revenues from about a third of the volumes exported.
The charcoal is sold largely to customers in Dubai who sell it on elsewhere in the Gulf, the U.N. report said.
The largest user of the product is Saudi Arabia, according to Farah M. Mohamed, president of the Somali Environment Protection Alliance Network.
He wrote in a June 2013 blog that Saudi Arabia used Somali charcoal primarily for shisha (hookah) pipes, cooking in upscale restaurants and homes, as camping firewood, and as an extra source of heating in the winter.
(Reporting by William Maclean; Editing by Giles Elgood)