Forget piracy, Somalia's whole 'global' economy is booming - to Kenya's benefit

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By By Paul Goldsmith

Posted  Monday, May 10   2010 at  00:00

The collapse of the Somali state in 1991 gave rise to the shopping mall phenomenon in Nairobi’s Eastleigh area.

It began sometime in 1994, when refugees staying at Garissa Lodge, the once undistinguished lodging located near the corner of Wood Street and Eastleigh 1st Avenue, began using their rooms as daytime shops.

The two-storied building quickly became the business model for the neighbourhood’s rapidly expanding retail bazaar.
By 1998 there were at least eight other converted-building malls; a second generation of shiny new commercial buildings began sprouting up soon afterwards.

The business model spread to other towns and reproduced itself in neighbouring countries.

Garissa Lodge remains the spatial hub of the expanding commercial juggernaut dominated by Somalis of the diaspora.

The flow of capital into Kenya continues and Somalis have been purchasing urban property in Nairobi and Mombasa at a rate raising alarm in many quarters.

In Mombasa, for example, resentment among the town’s Swahili and Asian Muslims is rising. The spread of open-air stalls centred at Mackinnon market clogged the narrow lanes of Old Town then crossed Kenyatta Avenue.

Somalis have now bought out virtually all the local wholesale and retail shops in Bondeni. Somalis in search of prime urban businesses and property are willing to pay prices that make resistance futile.

The last time I was in Mombasa, friends pointed out a 2.5 acre property between Mwembe Kuku and Kilifi, valued at approximately Ksh30 million ($400,000) before the latest boom, that was recently sold for Ksh215 million ($2.86 million).

Similar reports abound in Nairobi. While the premiums paid rarely approach the 7x multiple of “natural” value in the case above, the phenomenal scale of Somali investment in Kenyan real estate is beginning to transcend conventional economic rationality.

Where does this capital come from? Many Kenyan observers claim the ransoms paid to Somali pirates account for the lion’s share of the cash inflating urban real estate values.

The Somali may be the world’s thickest-skinned entrepreneurs, but neither this trait nor the successes of Somali pirates over the past several years sufficiently explain the mystery of Somali capital.

Knowledge of the pirate business and how its profits are distributed make the pirate hypothesis easy enough to debunk.

Suppliers providing for the pirates’ supplies and the maintenance of the captured crew during the period between capture and ransom are reimbursed off the top.

Local elders and other politicians receive up to 10 per cent of the ransom. Investors involved in the management of maritime intelligence, negotiations, and transfers, in addition to covering fixed costs (vessels and equipment), receive a 30 per cent share. Another 30 per cent is divided among the crew.

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