The Booty Business
Price Tag for Somali Piracy Surges
International naval operations have failed to curb the rapid growth of piracy, particularly near the Gulf of Aden off the coast of Somalia.
Pirates of yesteryear have been romanticized in literature through books like "Treasure Island" and in films like "Pirates of the Caribbean". But the modern day piracy off the coast of Somalia is no swashbuckling fun and adventure. It is an expensive and dangerous problem that is escalating at an alarming rate.
Piracy cost the international economy up to $8.3 billion last year and "has emerged as a market it its own right," states a new report by political and economic intelligence consulting firm Geopolicity. Already in the first quarter of 2011, Somali pirates have attacked more than 117 ships, killed 7 crew members and held 338 hostages for ransom, the study finds. But international efforts to scupper the problem are failing, and it is predicted that piracy-related costs could more than double in just the next three years.
Now notorious for the frequent boat hijackings, kidnappings and robberies that take place there, the Gulf of Aden off the eastern coast of Somalia has become such a hornet's nest for the shipping industry that many captains choose to steer clear of it entirely -- even if it means adding up to three weeks to their journey. Instead of passing through the gulf on their way to and from the Red Sea and the Suez Canal, many are now taking a much longer route which takes them around the entire African continent and past the Cape of Good Hope at its southern tip.
The ships that do brave the waters off Somalia and other well-known danger zones around the world must pay higher insurance fees and feel compelled to purchase additional security equipment and hire security personnel. Meanwhile, shipping companies are being coerced into paying rapidly increasing ransoms for captured vessels and crews despite these extra precautions. According to One Earth Future (OEF), a non-profit foundation studying piracy, ransom payments increased from an average of $150,000 in 2005 to $5.4 million in 2010. OEF estimates that the total ransom paid to Somali pirates for that year alone was a staggering $238 million.
"Given the supply and demand for piracy services, and the income disparity between pirates and non-pirates, there is plenty of room for expansion," states the study by Geopolicity, published last week.
For many Somalis, piracy is the best career option in the region. The "next-best alternative" to taking to the high seas would earn an average Somali male $14,500 over his entire lifetime, Geopolicity estimates. But ordinary pirates can rake in between $168,630 and $394,200 in just five years. With the global economy continuing to recover and more ships full of valuable goods being sent out to sea, the monetary appeal of piracy will likely prove irresistible for another 200 to 400 young men annually, the report continues.
"Our analysis of the spread of piracy suggests that if this occurs, piracy risks becoming a significant problem across all major Africa, Middle Eastern and Pacific Rim maritime systems," the study adds.
Naval Operations Struggling to Keep Up
Geopolicity developed a model to analyze the economics of piracy called the "Pirate Value Chain," linking pirates, financial backers and sponsors -- but the actual structure of the criminal industry remains hazy.
"Pirates are visible and known, financers are harder to track and sponsors remain invisible," they say.
Meanwhile, the international community is spending some $2 billion each year on naval operations to fight piracy off the coast of Somalia, and another $31 million on the legal prosecution of individual pirates in a number of countries, the OEF reports. But these efforts are also failing.
"Whilst combating piracy in a period of improved global integration would appear to be a simple task, in reality the international community will struggle to deal what this scourge unless global asymmetric law enforcement and information sharing capacities are substantially improved," Geopolicity says.