Thinking Aloud: The Rise and Fall of Somali Piracy

May 30, 2014 by Darius 

This month’s Atlantic had a great little piece on the economics of Somali piracy.  I found a few of the statistics cited to be pretty remarkable.

  • In 2010, ransom money from piracy contributed an estimated 3.4% of Somalia’s GDP.  By comparison, Apple contributed 0.5% of US GDP that same year.
  • Individual pirates can receive an award of up to $10,000 for bringing their own ladder and weapons on a mission or being the first to board a target ship.
  • Between 2005 and 2012, it is estimated that Somali pirates extracted $376 million in ransoms.
  • An individual pirate sees little of a ransom.  Anywhere from 30-75% of ransoms collected go to high-level land-based investors and is used to finance future hijackings, among other things.  About 10% goes to onshore guards and suppliers of food, water, and prostitutes.  Usually, 5% goes to negotiators and other intermediaries, leaving only 2% for each individual pirate.  But that’s still $50,000, in a country in which per capita GDP in 2011 was $112.
  • In 2007, maritime insurance cost $500 per ship per voyage around the Horn of Africa.  By the end of 2009, the insurance cost for the same ship and same voyage was $150,000.  (The Maersk Alabama, of Captain Phillips fame, was hijacked in April 2009.)
  • An estimated $1.53 billion was spent on extra fuel needed for ships to travel at higher speeds near Somali waters.
  • In 2011, commercial shippers spent $531 million to hire armed guards.  In 2012, they spent $954 million.
  • The number of hijacked ships peaked in 2010 at 50.  Since then, the number has fallen remarkably: in 2011, 31 ships were taken, followed by only 15 in 2012.  In 2013, no ships at all were captured by Somali pirates.

You can find the complete infographic and story at http://www.theatlantic.com/magazine/archive/2014/05/the-pirate-economy/359817/.

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