The econ blogosphere is heavily linking a new article in Wired about the economics of Somali piracy. In addition to being a slickly produced piece (including an online game where you can dabble in some “Cutthroat Capitalism” yourself), Wired editor Scott Carney managed to get ahold of a Somali pirate and got unusually candid answers about the $$ and cents of their operation & the details often turn out to be incredibly, well, mundane & rationale.
“Ships with African or Indian crews are never profitable.”Far from fashionable excuses that the pirates are avenging illegal offshore fishing or represent some sort of anti-neo-colonial insurgency, the truth of the matter is a pretty basic risk vs. reward calculation –
An ordinary Somali earns about $600 a year, but even the lowliest freebooter can make nearly 17 times that — $10,000 — in a single hijacking. Never mind the risk; it’s less dangerous than living in war-torn Mogadishu.
…How much does it cost to outfit a mission?
An operation with 12 armed men costs a little over $30,000. But you need to execute three or four missions to get lucky once…The financiers are the most important since they organize and plan the big shot operations and are able to pay running cost[s]. Financiers always need to forge deals with traders, land cruiser owners, translators, business people to keep the supplies flowing during operations and manage the logistics. There is a long supply chain involved in every hijacking.
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p>Implication? A sufficiently strong “Coalition of the Willing” could alter the equation and make piracy more expensive and thus less prevalent. Measures like arming the ships or fining ship owners that pay ransoms might cause some short term pain but, they could alter the long term economics of piracy. That of course, takes some international cojones which I’m not exactly holding my breath for.
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p>There are, of course, several desi angles – first, Desi’s are regularly employed as crew for ships within the broader Persian Gulf –
Captain Prabhat Goyal barely noticed when a fishing trawler appeared off his bow. But when it launched two speedboats, he knew he was in trouble. The Stolt Valor, a lumbering tanker carrying a load of phosphoric acid from North Carolina to Mumbai, had a top speed of 15 knots; the pirates closed in at nearly 40. In the time it took Goyal to send a distress call, 12 men with automatic weapons and ladders had already begun climbing aboard. The Valor never had a chance.
Interestingly, Capt Goyal’s value to the pirates apparently had far more to do with his cargo than his person. For other desi crews, the secret to their release wasn’t the home country’s willingness to pay to avoid some short term pain but rather, ability to pay –
How do you pirates decide on what ransom to ask for?
Ships with African or Indian crews are never profitable. We usually release them immediately. If the crew is Western, we’ve hit the jackpot. But if the ship is from Western country or with valuable cargo like oil, weapons or then its like winning a lottery jackpot.
So being a poor country isnt all that bad after all! There are some fringe benefits 😉
Far from fashionable excuses that the pirates are avenging illegal offshore fishing or represent some sort of anti-neo-colonial insurgency, the truth of the matter is a pretty basic risk vs. reward calculation
Vinod the two parts of your statement are not mutually exclusive. Even if you did want to avenge illegal offshore fishing, you would still have to consider the costs and payoffs to the extent you are not bent on committing suicide (you know emotion and rational calculation are not mutually exclusive, as game theorists realize nowadays).Statistically speaking, the larger the number of people who have a grievance, the larger the probability that a subset would act on it (collective action minimizes individual risk for the same reason that merchants pooled their capital in the olden days). Also you are misrepresenting the other argument a little bit. Its not that pirates are motivated solely by revenge, but that their coasts have been over fished by more advanced European trawlers–which they cannot compete with– thus depriving them of their livelihood. Piracy therefore is the only other option left. Just making piracy more costly (either by reducing the payoffs or by making the action itself riskier than it already is) then would address only half the problem.
Protocol, why are you blaming “European trawlers” for overfishing? Those waters are full of fishing ships from Taiwan, China, Korea, etc! Stop the knee-jerk reverse racism all ready!
Read that multi-page spread in Wired as well – very interesting (using some 8-bit art as well).
Have also read that Somalians are seeing more and more foreign, unmarked ships showing up and doing massive toxic dumping off their shores. It is a prime spot since there is no real government or coast guard to stop them. Many suspect they are from Italy which has had major issues with the mafia dumping and burying waste all over their own country, and that this is just the next step for them (the movie Gommora details some of this). There is a sense that some of the pirate activity is a defense against this type of activity.
It’s not personal. It’s business.
Who are these financiers? Besides the share that the pirates who captured people get, who/which organizations get the money? To what use is the ransom money put?
Piracy is the only other option left
The only other option left? Really? Every single ex-fisherman in Somalia had to become a kidnapper and murderer?
Next, on Wired, in exercises in obviousness (aka the Chris Anderson memorial series), “Direction the sun rises in”. The answer will surprise you.
NAAAT.
There has been opposition to arming ships even among ship captains and crew, because even one or a few poorly trained crew might end up being overpowered by the pirates and hence inadvertently become a source of arms to the criminals, in addition to creating a firefight where there might have earlier been a peaceful takeover. A similar argument to the one that claims that it is not entirely clear if arming oneself (with gun/spray etc.) provides superior protection in a mugging.
One solution that will likely work is to run these commercial ships through the dangerous waters in fleets, with a UN or international protection force paid for by some sort of maritime fees. That will ensure that the cargo ships are protected by trained fighters, not just enthusiastic and potentially overmatched amateurs.
The only other option left? Really? Every single ex-fisherman in Somalia had to become a kidnapper and murderer?
read (try to find where i said “every single ex-fisherman”). try to comprehend. also do some research about what is going on in Somalia, like right now. sheesh….sometimes ignorance is irritating…
Sameer:
Most of the financiers are based in Nairobi, Kenya where they spend their days in luxury hotels sipping tea and putting these deals together. The role of Kenya in the piracy business is often not discussed. A lot of that pirate money has been diverted into real estate in Nairobi and Mombasa and prices of houses have been pushed up quite considerably. Kenyans like selling to Somali’s because they are paying for these houses in cash (literally) – bringing it in bags filled with $100 dollar American bills.
I don’t see who the international community will stop this piracy. The coastline is too large/long, Somalia is a mess and Kenya is a very corrupt country where money talks. They’re over one million Somali refugee’s living in Kenya now and as long as they continue to roll in with all that cash and all those guns, they’ll be welcome.
It’s a mini-version of what you had or could have with Afghanistan and Pakistan. They both fed of each other.