Economy

Total cost of Somali piracy menace hits $12bn

A Spanish Navy officer leads out a suspected Somali pirate out of a ship in Mombasa. Piracy cost between $7bn and $12bn in 2010 and analysts say it could top $15bn by 2015. Photo/REUTERS
A Spanish Navy officer leads out a suspected Somali pirate out of a ship in Mombasa. Piracy cost between $7bn and $12bn in 2010 and analysts say it could top $15bn by 2015. Photo/REUTERS 

The total cost of piracy in the Indian Ocean in 2010 — almost all of it by Somali pirates — is estimated to be between $7 billion (Sh560 billion) and $12 billion (Sh960 billion), and could top $15 billion by 2015, according to analysts.

This bill includes ransoms, insurance payments, the cost of naval operations, prosecutions and of rerouting ships.

A recent study reported that Somali pirates are earning up to $79,000 a year, 150 times the average annual income in Somalia.

The study by political and economic intelligence consultancy firm, Geopolicity, revealed that the area under the threat of piracy has steadily extended to some 2.5 million square nautical miles off Somalia’s coastline, an increase of one million nautical miles from two years ago.

Another study by anti-piracy organisation, Oceans Beyond Piracy, forecasts piracy could cost $15 billion in the next four years, as more pirates sign up and bigger intervention measures are consequently rolled out.

The Indian Ocean accounts for fully half of the world’s container traffic, and 70 per cent of total global petroleum traffic passes through it.

The gulfs of Aden and Oman are among the world’s major shipping lanes: About 21,000 ships, and 11 per cent of global crude oil traffic, cross the Gulf of Aden every year.

The ports of Mombasa and Dar es Salaam handled a combined cargo of 25 million tonnes in 2008 — not just for Kenya and Tanzania respectively, but also for inland countries such as Uganda, the Democratic Republic of the Congo, Southern Sudan, Rwanda and Burundi.

Together, East Africa’s ports account for approximately a fifth of sub-Saharan Africa’s container traffic, with an average annual growth of 6 per cent since 1995.

The Indian Ocean is particularly significant for the region in terms of communication: A 17,000 km undersea fibre-optic cable connects South Africa, Tanzania, Kenya, Uganda and Mozambique to Europe and Asia.

Incidents of piracy have soared from 276 in 2005 to 445 in 2010. According to the International Maritime Bureau, there were 142 attacks between January and March 2011 – 97 off the coast of Somalia – up from 35 in the same period the previous year and an all-time high.

Pirates managed to seize 18 vessels worldwide, capturing more than 340 hostages in attacks in which seven crew members died and 34 were injured.

Over the past five years, Somali pirates’ ransom demands have increased a staggering thirty-six fold, from an average of $150,000 in 2005 to $5.4 million in 2010.

The largest known ransom payment was for the South Korean oil tanker Samho Dream, for which a record $9.5 million was paid in November 2010.

Somali pirates’ income for 2010 was around $238 million.

Oceans Beyond Piracy estimates that the total excess costs of insurance due to Somali piracy are between $460 million and $3.2 billion per year, which have steadily increased since the Gulf of Aden was classified as a war risk area in May 2008.

The cost of piracy trials and imprisonment in 2010 was around $31 million, and the excess cost of re-routing ships to avoid risk zones is estimated to be between $2.4 billion and $3 billion per year.

This, coupled with the cost of naval forces and protection, puts the total bill at between $7 billion and $12 billion.

The study reports that the continued growth of piracy could see the numbers of pirates, estimated to be at least 1,500, rise by up to 400 every year.

As a result, the costs of piracy could reach more than $15 billion by 2015.

Currently there are three international naval task forces in the region, with numerous national vessels and task forces entering and leaving the region, engaging in counter-piracy operations for various lengths of time.

The primary mission is Combined Task Force 151 (CTF-151), also patrolling are warships from Russia, China and India, among others.