The spoils of piracy

Somali pirates are earning as much as 157 times their country's national average wage, making piracy a highly lucrative business in this East African country, a new study has revealed.

A pirate can earn up to $79,000  a year — a stark contrast to the $500 average annual income in Somalia, according to a report titled The Economics of Piracy: Pirate Ransoms and Livelihoods off the Coast of Somalia.

The study, conducted by economic and political intelligence consultancy Geo-policity, highlights the costs of piracy to the global maritime shipping industry and the benefits to the financiers who back the illegal operations.

Somali piracy cost $8.3 billion in 2010 including the ransom payments, insurance premiums, re-routing vessels, naval presence, prosecution of pirates and deaths of hostages and crews. Costs are projected to increase to more than $15 billion by 2015 given the rebound in maritime trade, the geographical expansion of piracy attacks and the use of more sophisticated tactics, the study says.

An emerging industry that benefits pirates, financiers, sponsors, private security and insurance companies, the total income of pirates ranged from $75 million to $238 million last year and this could rise to a whopping $400 million by 2015.

With loot to be claimed on the high seas, there are an estimated 1,500 pirates and their ranks are expected to swell by 200 to 400 new pirates a year. This means another 600 piracy incidents could threaten international waters by 2015. Pirates are part of a long and complex ‘piracy value chain' that includes sponsors, pirates, support crew, labourers, accountants, drug dealers, engineers, arms suppliers, government officials and money transfer operators.

Insurance companies and private security firms have emerged as among the main profiteers in this situation.

"Being a pirate is a very risky business, yet in a fragile state with an ineffective government, financing piracy is relatively risk-free over the longer term," said Peter Brookfield, managing editor of Geopolicity.

"The worst scenario for a financier is that he loses his boat and equipment. The worst scenario for a pirate is death."

Piracy will continue to grow because of the profits it generates for pirates in a fragile state where there are few legal job alternatives — unless the costs of being a pirate begin to outweigh the benefits, the study says.