Pirate Economics, Somali Edition

(Photo: UK Ministry of Defence)

(Photo: UK Ministry of Defence)

An Economist article looks at a new study by the International Criminal Police Organization, United Nations Office on Drugs and Crime and World Bank on the economics of Somali piracy, including pirate earnings:

The authors interviewed current and former pirates, their financial backers, government officials, middlemen and others. They estimate that between $339m and $413m was paid in ransoms off the Somali coast between 2005 and 2012. The average haul was $2.7m. Ordinary pirates usually get $30,000-75,000 each, with a bonus of up to $10,000 for the first man to board a ship and for those bringing their own weapon or ladder.

The article also explores the financing and profit of pirate expeditions, and how ransom money trickles down:

Financing pirate expeditions can be quite cheap by comparison. The most basic ones cost a few hundred dollars, which may be covered by those taking part. Bigger expeditions, involving several vessels, may cost $30,000 and require professional financing, This comes from former police and military officers or civil servants, qat dealers, fishermen and former pirates. They take anywhere between 30% and 75% of the ransom.

A typical operation has three to five investors. Some provide loans or investment advice to other financiers. Some financiers, especially those in the Somali diaspora who have little cash inside Somalia but large deposits abroad, employ what the report describes as “trade-based money-laundering” to send funds to Somalia. This involves finding legitimate Somali importers willing to use a financier’s foreign money to pay for their shipments and reimburse him at home in cash once the goods are sold.

(HT: Marginal Revolution)

Voice of Reason

In my opinion, this article doesn't address the most important and interesting issues at hand:

How do we stop or minimize piracy and is it worth it to do so?

Is it right to allow ransom payments?

Are we better off by paying off the pirates and moving on, or should the governments of the world crack down on "Pirate Enablers?"

Should ships be armed to the teeth? Should we hire private security? Should we just assume the risk when sailing?

I come down on the side of employing the Broken Windows Theory. Have the UN ban all ransom payments to pirates, and capture and punish every pirate caught in the act. They'll get the picture eventually.

I'd like to hear other people's thoughts though.


Whos this "we" you speak off? Shipping companies are private entities. Deal with it.


I do not think the point of this article is to address the issue of piracy. It does not intend to say whether this activity is good or bad, neither does it pretend to attempt solving it. It is a mere investigation of the modus operandi of Somali pirates and the numbers involved, that is what "Freakonomics" is all about.



caleb b

So it must be cheaper to pay the ransom than buying machine guns? What about the economics of the cargo ships? Why don,t they pool their money and hire more protection?

Answer underlying causes

I feel like there is almost always one side (typically the more lurid and therefore most eye-catching) to a story that receives the loudest platform. Piracy is a major current issue in the Horn of Africa, no doubt about it. However, one must ask oneself why has this only recently become so. Somalia didn't have a history of piracy in the past.this has only recently ballooned into a serious problem after years of silently being the victim of over-fishing and becoming a common dumping site for nuclear and other hazardous waste from other countries. Yet these are stories never told. I dont agree with vilifying an entire nation and adopting a "killing 'em all" stance as another commenter posted as being the just and rational things to do. I believe the issues at root need to be addressed and that the bolstering of the Somali coast guard and navy to police their own waters from both pirates and those engaging in illegal activity should be stressed. We need to end these "us" vs "them" paradigms and overgeneralizations of people as evil and barbaric. We need focus our attention to the real culprits, the anomalous few, and not the innocent nation and its populous