World Bank rules out piracy cash in Kenya property boom

The World Bank and Interpol have ruled out pirate cash inflows as being behind Kenya’s real estate boom, saying Nairobi’s thriving construction sector is primarily driven by money from bank loans and diaspora remittances.

In a new joint report, the World Bank and Interpol however say that piracy money could be fuelling miraa (khat) trade across East Africa.

The World Bank, UN and Interpol report was focused on investigating how the Sh35.1 billion ($413 million) that Somali pirates made between 2005 and 2012 mainly from hijacking ships sailing the Indian Ocean was spent.

The report says that real estate data across East Africa indicates that “the main drivers of the property boom are credit by the banking sector, flows of remittances from the diaspora, and general supply and demand of housing units.”

The report says that all the available data “suggests that this perception of proceeds of piracy fuelling the real estate growth especially in Kenya is an exaggeration.

There is no information to support the perception that proceeds from piracy has been a factor. Such a perception is driven primarily by the media and general public sentiment,” the report says, likening the $413 million piracy cash to “a drop in the ocean compared to the bank credit and remittances (from abroad).”

Bank loans to Kenya’s real estate sector stand at about Sh42 billion ($491 million) per annum, while an estimated Sh170 billion ($2 billion) is remitted every year from the diaspora.

The report also says an estimated Sh196 billion ($2.3 billion) is remitted by Ethiopian diaspora annually, a significant portion of which is invested in the real estate sector.

“Consequently, the ransom payments cannot influence the property prices, as is suggested by many in the public and private sectors,” the report says. “Any discussion of financial flows from piracy activities should take into count that there are many drivers of the exponential growth in the real estate market.”

However, the report does acknowledge that large amounts of piracy loot have probably fuelled the miraa trade between Kenya and Somalia, which it describes as unregulated and unmonitored. Between April 2005 and December 2012, 179 ships were hijacked off the coast of Somalia and the Horn of Africa. Between Sh28.8 billion ($339 million) and $413 million was paid in ransoms to piracy financiers in the United Arab Emirates and Kenya.

The average haul of each piracy attack was Sh230 million ($2.7m), the report says. Ordinary pirates usually get Sh2.6 million ($30,000) to $75,000 each, with a bonus of up to Sh850,000 ($10,000) for the first man to board a ship.

The report which comes at the same time as western naval reports indicating a new resurgence in piracy off the Somali coast, says that up until now, little attention has been paid to tracking and disrupting the financial flows from piracy.

The study by the International Criminal Police Organisation, United Nations Office on Drugs and Crime and World Bank attempts to understand the illicit financial flows from pirate activities off the Horn of Africa. The study focused on: Djibouti, Ethiopia, Kenya, Seychelles, and Somalia.

It concludes by saying that most of the money raised from piracy was re-invested in Somalia and not abroad and that the chief benefactors were “The Money Kingpins”, investors and beneficiaries of the piracy business, who on average, collect from 30 to 50 per cent of total ransom, working individually or as a group. Most pirate financiers “invest into a range of sectors, both legitimate business activities (in order to launder money) and criminal activities,” the report says.

Some of these proceeds are recycled into financing criminal activities, including further piracy acts, human trafficking, including migrant smuggling, and investing in militias and military capacities on land in Somalia.