The economic consequences of Somali piracy in the Mediterranean region

Maritime piracy off the coast of Somalia has become a relevant threat to international trade, especially for the Mediterranean economies. Piracy, as a criminal phenomenon, is due to the lack of safeguard on national coasts, as States resulted unable to keep control of their territories and avoid acts of banditry on the sea. The governments’ weakness, as well as their political instability, are seen as direct causes of the current recrudescence of Somali piracy, which has emerged in the past two decades as a consequence of the fall of the Siad Barre regime. As a result of the breakout of civil war, Somalia has gained all the features of a “failed State”, and that has made the situation more and more insecure.

The attacks on cargo ships sailing throughout the Gulf of Aden have been increasing significantly over the past years due to the considerable technological evolution undergone by the Somali pirate groups. If in 2004 pirates carried out a total of seven unsuccessful attacks. For instance, in 2009 they assailed about 204 ships, which led to 47 kidnappings. From the early 2000s, pirates could count on better organizational structures, increasingly sophisticated weapons and a more efficient transportation system. These technological improvements allowed them to extend the reach of their attacks, managing to achieve 1,200 nautical miles of geographic spread from Somali coasts. Originally pirates used to assault merchant ships while operating fishing boats but, as the business became more lucrative, they invested their resources to develop a more efficient plan of action. The so called “mothership” strategy involves a large ship that functions as a base for a series of speed boats dislocated in the ocean. From 2007 to 2009 Somali piracy increased in intensity, because the attacks became more frequent, but it was in the 2005-2007 period that pirates truly improved their ability to reach targets.

The total damage of Somali piracy for international trade is given by a sum of connected elements. There is not just the cost of ransoms to take into account, but a lot of different additional costs, such as those of long and expensive ransom negotiations, higher risk premia on insurance, defensive measures (security equipment and guards, modification of ships to make them less likely to be hijacked), increased fuel consumption as a consequence of increased travel speed and/or re-routing, increased labor force costs (wages and benefits to pay crews as a result of risk to be taken hostage or killed) and running counter-piracy organizations and military operations.

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Source: The Maritime Executive

“Oceans Beyond Piracy”, an American non-profit organization, releases a yearly report on the total costs of Somali piracy. It has calculated that for 2012 the total damage was in the range of approximately 6 billion US dollars, while in 2013 it was only 3.2 billion. This means, for Jens Madsen, one of the report’s author, that the global cost of Somali piracy for world trade fell by almost half in the 2013, compared with 2012 data. In spite of this positive trend, Somali piracy is not doomed to extinguish in the short term.

According to UN Comtrade database, in the period of highest Somali pirates activity the volume of bilateral trade transiting via the Gulf of Aden fell significantly in comparison with trade through other routes. The magnitude of this decline went from -0.7% to -0.4% in the period 2000-2010, when pirates’ attacks increased by an average of 48.1% per year, causing an annual reduction of 1.9% in trade passing through the Gulf. Between 2006 and 2007, when Somali piracy reached its acme, attacks grew by 134%, and this led to a 5.4% decrease in international trade. It was estimated that from 2000 to 2010 about 1.3 trillion US dollars in trade goods passed through pirate-infested waters per year, therefore the trade loss amounted to approximately 25 billion US dollars per year.

The negative effects of piracy in the Horn of Africa are not the same for each partner interested in trading through the Gulf of Aden. Partners located in close proximity to pirate-infested waters are prone to greater trade losses, if compared to more distant countries. The United Nations analysis shows the reason why partners located in the Indian Ocean that heavily trade with Europe or Mediterranean region registered greater trade losses. More distant partners can easily take more appealing and secure trade routes as substitutes to the Suez Canal, an option denied to the others, thus the impact of Somali piracy seems to be quite limited geographically and the burden of trade costs not equally distributed across countries.

In monetary terms European Union annual losses due to piracy amount to nearly 11 billion US dollars, which correspond to 44% of the global cost of piracy. Within Europe, Germany pays the highest price, with a trade loss of 2.5 billion US dollars per year; the United Kingdom has to bear a burden of 1.7 billion US dollars; France loses 1.3 billion US dollars approximately, while for Italy, Spain and Belgium the cost could range between 700 million and 1 billion US dollars. The estimated costs of Somali piracy do not represent a relevant issue for global affairs, because the most deleterious effects remain concentrated on a block of few countries, many of them located in Mediterranean region.

The main consequence of higher costs of insurance, armed guards and defense measures connected to piracy might be the substitution of trade routes transiting via the Gulf of Aden with others contemplating the circumnavigation of Africa. From an economical point of view, this could lead to an increase in travel prices, and therefore to more expensive goods for European consumers. The reorientation of maritime traffic from Suez could favor Europe’s Northern seaports, to the detriment of Mediterranean economies. It is also true that there is no evidence of a close connection between the rise of Somali piracy and the decrease of trade flows through the Mediterranean sea. In the period 2008-2009, maritime transport has shown alarming signs of vulnerability, but it could have been due to the financial crisis. The costs of circumnavigating Africa depend on dynamic factors, such as the variations in fuel prices, thus, trade routes via Suez would be more suitable when the fuel price is high, despite the cost of piracy. However, should the circumnavigation of Africa become a more practicable option, such a change would specifically damage several European economies, due to around 80% of international trade passing through the Gulf of Aden having a European country as its destination.

Since the nature of Somali piracy has changed in terms of intensity, becoming more and more violent, the international community had taken a number of initiatives to tackle the problem. The most important was the US-proposed Resolution 1851 approved by UN Security Council in 2008. Through this act, Transitional Federal Government of the Republic of Somalia authorized States with vessels deployed in the Gulf of Aden to take action against pirates or armed robbers within Somali territorial waters. After the UN 2008 resolution, three main military missions have been put in place to tackle the piracy issue: NATO Operation Ocean Shield, EUNAVFOR Operation Atlanta and Combined Task Force 151, an international task force led by the United States. Moreover, additional multinational military operations have been deployed from Australia, China, Japan, South Korea, Singapore, Malaysia, India and Russia. These multinational efforts contributed to reduce global piracy by 54% during the first part of 2012, but the effects remained limited to only small group of ships.

Because of increased difficulty in hijacking ships, pirates have developed a different tactic. In recent years they have been trying to maximize the return from each kidnapping by asking for higher ransoms. In this way, ransom negotiations have become longer but also more profitable, because they always end with payments.

Somali piracy is definitely an economical issue, the main profits deriving from captured vessels are invested in hospitals, schools, and social aid for population, in areas of the country where the State is absent. This is the reason why it has become necessary to encourage the nation building process and to invest in African economies to create new business opportunities in order to tackle the problem.


Masters degree in International Studies (University of Naples “L’Orientale”)

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