In Sudan, a deep economic crisis in the 1990s initially facilitated the consolidation of an Islamist-commercial elite that forged an alliance with a segment of the military and capture the state. Having gained control of the state, the Islamists marginalized rival groups in civil society, while continuing to recruit more jihadist elements among poorer segments of the population. In addition to their control over the economy, Sudanese Islamists also consolidated their rule by taking over the civil service in a systematic fashion. However, with the steep decline in labor remittances as a result of a regional recession, and the loss of access to revenues from oil resulting from the secession of South Sudan, the Islamist authoritarian regime lost the financial basis that underpinned its patronage networks. This chapter explains how the latter gradually resulted in popular protests and the demise of the Islamist authoritarian regime in Sudan.

In Egypt, by the mid-1980s, as a result of a deep economic crisis, thousands of Islamic voluntary associations managed to develop a parallel economy and a parallel welfare system. In some instances, these modes of informal organizations translated into an Islamist-inspired challenge to the state. The rise in political influence of the Islamic Investment Houses dominated by the Muslim Brotherhood aided that organization in its recruitment programs that expanded its membership. Moreover, where radical Islamic groups were able to exploit informal financial networks and procure informal labor contracts for their supporters, particularly in the informal settlements around Cairo, they used these as bases of power and influence. Using private sources to establish social networks in defiance of state regulations, organizations such as the militant Islamic Group (al-jama’at al-Islamiyya) have sought to build, literally, a “state within a state.”

The emergence, and proliferation, of Islamist militant organizations, ranging from the Islamic State of Iraq and Syria (ISIS) and Al-Shabbaab in Somalia, to Boko Haram in Nigeria and other parts of West Africa, has once again demonstrated that political Islam is an important global political issue. It has also highlighted a number of challenging, but increasingly crucial analytical questions: How popular a force is militant Islam, and how is it distinguishable from more conservative and moderate forms of Islamic activism? Does the rise of Islamic militancy across many regions of the Muslim world represent a “clash of civilizations,” or is its emergence a result of locally embedded, but globally linked, economic and social forces? And, finally, given the considerable diversity of socioeconomic formations within Muslim societies when, and under what conditions, do religious rather than ethnic cleavages serve as the most salient source of political identification?

Chapter 7 explains how militant Islamist leaders adapted “traditional” Egyptian rural norms in ways that allowed them both to supplant the political power of local notables, while simultaneously institutionalizing extortion practices and implementing their own brand of “law and order.” Islamic militants exploited the high levels of social and economic uncertainty in Cairo’s informal housing areas. An important reason behind the popularity of radical Islamists among local residents is due to the ways in which their leaders have utilized highly coercive methods to settle local disputes and enforce informal labor contracts for their members, while simultaneously preaching against the ills of conspicuous consumption in their sermons and imposing strict Islamic modes of conduct. The chapter shows how the socio-economic conditions that have served, as a “recruiting ground” for Islamist radicals was made possible as result of economic change at both the international as well as domestic level.

In Sudan the era of the oil boom resulted in a flood in labor remittances that circumvented official financial institutions, thereby undercutting the state’s fiscal and regulatory capacity and fueling the expansion of the informal foreign currency trade. Initially, developments in Sudan paralleled those in Egypt as the boom witnessed the rise of an Islamist-commercial class that formed as a result of its successful monopolization of informal financial markets. However, in contrast to Egypt, by 1989 Sudanese Islamists were able to take over the levers of the state via a military-coup. This development was made possible by Sudan’s weaker state capacity and the extreme weakness of its formal banking system. As a result, the financial power of the Muslim Brotherhood continued to increase in relationship to the state as they continued to profit from participation in the lucrative speculation in black market transactions and advantageous access to import licenses.

In Egypt migrant remittances and the flow of petrodollars in the era of the oil boom provided capitalization of Islamic banks and a host of Islamic investment companies that operated outside the system of state regulation. Such bankers drew on the rapidly growing wealth of those businessmen with long-standing connections in the Gulf, including, most importantly, members and sympathizers with the Muslim Brotherhood (MB). This boom in labor export and remittance flows also helped shape Egyptian national economic functions, out-migration and the burgeoning informal economy afforded the Egyptian state enough “relative autonomy” to allow it to expand the private sector and begin to decentralize the country’s economic system. It enabled the Egyptian state to relax foreign exchange regulations to stimulate a foreign capital influx. However, the unintended consequences of these policies were opening the door for Islamic financial institutions, which helped finance and popularize the middle class-based Islamic movement.

In Somalia the boom in labor remittances inflows fueled a different type of informal economy. More specifically, while the oil boom period reduced the Somali state’s ability to regulate the economy as in Egypt and Sudan, the consequences of this development differed. In Somalia informal financial networks facilitated a thriving commercial sector comprised of firms oriented around clan families. It was not religious or class affiliations, but rather ethnic mobilization and conflict that became the most salient. This difference was due to two factors: the dearth of formally organized institutions (i.e., official banks, and publicly registered enterprises); and the fact that President Siad Barre pitted one clan against another in his search for legitimacy and financed a patronage system excluding clans and constituencies that opposed his rule. Thus, with the expansion of the parallel economy, the politics of ethnicity and personalistic networks quickly eclipsed the power of the state.

Failed states, I argue in the conclusion, do not necessarily afford terrorists a conducive context for recruiting new members. This is due to four challenges that confront terrorist organizations. The first challenge is the lack of government-enforced order in failed states that is needed to provide security against local authorities. Second, is the unreliability of local allies, as in the case of Somalia, where local ties of clan and sect overlap in complicated ways. The third challenge is that the better an area is for training recruits, the more remote and sparsely populated it is, the harder it to meet basic sustenance needs. The fourth problem is the challenge of getting fiscal resources in place. Financial services in the region continue to be weak and Islamic militants have not been able to effectively use the Hawalaat to provide key financial services in weakly governed areas of the Horn of Africa.