Piracy driving economic boom in Somalia

The proceeds of piracy have generated broad economic benefits in parts of Somalia, giving local residents and political leaders incentives to allow high-seas hijacking to continue, suggests a new study by a London-based think tank.

“A deep-rooted culture of sharing” leads Somali pirate chiefs to spread ransom payments broadly within their respective clans while discouraging conspicuous personal consumption, says the analysis written by Dr Anja Shortland for the Chatham House research institute.

“It’s not like three people split a million bucks,” pirate leader Abshir Boyah is quoted in the report as saying.

“It’s more like 300.”
Based on a statistical model developed for the study, Dr Shortland estimates that one-third of ransom receipts are converted into Somali shillings, thus benefiting casual labourers and pastoralists in Puntland, the heartland of Somali piracy.

About $21 million of the $70 million paid in ransoms in 2009 is believed to have been invested in local economies, particularly in the regional hubs of Garowe and Bosasso, the study calculates. By comparison, Puntland’s official budget for 2009 totalled $17.6 million.

Cattle prices have risen in tandem with the proceeds of piracy in recent years, Dr Shortland notes as an indication of some ransom money being invested in legitimate economic activities. In addition, “piracy is not driving food price inflation but on the contrary has offset the loss of purchasing power of local wages after the 2007/08 food price shocks,” the report asserts.

Dr Shortland also acknowledges concerns, however, that piracy inflicts economic harm on poor Somalis by fuelling inflation of some goods. It further appears that coastal pirate enclaves such as Eyl and Hobyo have enjoyed few benefits from piracy. Leaders of those villages may therefore feel less inclined to protect pirates and “may be open to a negotiated solution, which offers a more attractive alternative,” the study theorises.

Dr Shortland’s findings are based mainly on examination of satellite imagery. Night time photographs from space show that none of the pirate towns on the Puntland coast generate enough power to be seen on night light maps.

Garowe, on the other hand, which has enjoyed “massive investment” in recent years, produces a light spot larger than a decade ago, the study notes.

Daytime pictures, likewise, reveal that several buildings and walls have been constructed in Garowe and Bosasso during the past decade. Eyl and Hobyo, however, do not look substantially different from space today than they did at the start of the piracy upsurge.
Garowe and Bosasso provide the firepower for pirate operations, with significant numbers of residents of those towns sharing in the booty, Dr Shortland explains.

The piracy-powered boom is apparently continuing despite a sharp drop in the number of successful ship seizures. The presence in the Indian Ocean, Gulf of Aden and Arabian Sea of warships from more than 30 nations is apparently beginning to reduce the rate of hijacking.

Successful Somali pirate attacks fell to 24 last year from 45 in 2010, according to Nato’s count. The total number of attempted ship takeovers remained constant: 129 last year and 132 in 2010.

More difficult conditions for the pirates have led them to try to maximise the returns from each ship they capture, Dr Shortland notes.

“Ransom negotiations now drag on for longer and result in record payments,” she writes. The largest reported payment for a single hijacking was $3 million in 2008 and $9 million in 2010.