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Economics of Modern Day Somali Pirates

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The news of the deaths of four Americans brought the Somali pirate issue back to the forefront, where they haven’t been since around April 2009. Nearly two years ago, US Navy snipers shot three pirates and rescued Captain Richard Phillips of the Maersk Alabama. This time, it was a small yacht owned by Jean and Scott Adam, who were sailing the world and handing out Bibles. It’s estimated that Somali pirates currently hold around 29 ships and 660 hostages.

Despite Disney’s attempts to glamorize the Caribbean pirate’s life with Jack Sparrow, being a pirate isn’t a lot of fun but it can make you very rich (relatively). If you’ve ever wondered why there are so many Somali pirates, it’s because the average pirate on the front lines can earn 17 times more in a single job, according to Wired’s article from two years ago. The annual take of an ordinary Somali is around $600 a year, a pirate can take home $10,000 in a single hijacking. What’s even more surprising is that only one in three attempted hijackings are successful and only 0.5% of ships in Somali waters is attacked.

Here’s what I found most entertaining, the split:

  • Financiers – 50%
  • Pirate, Commander, Mothership Crew, Attack Squad – Splits 30%
  • Elders – 10%
  • Security Squad – 10%

The guys doing the hard work split 30%… the bankroll gets 50% of the take. You have to admire capitalism!

The Wired article is fascinating because it goes into much greater detail on every aspect of the business from expenses to the pirate hierarchy to a look at the negotiating process… and it does it with lovely graphics. 🙂

{ 9 comments, please add your thoughts now! }

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9 Responses to “Economics of Modern Day Somali Pirates”

  1. cubiclegeoff says:

    It’s interesting that originally the pirates were fisherman who didn’t want foreigners fishing in their waters. But it turned so lucrative that gangs moved into the trade and now are the majority of the pirates (if not all).

    • Aaron says:

      One wonders, if you take some Somalis at their word that shady fishing and waste dumping operations were the original impetus for the piracy, if the international community didn’t shoot itself in the foot by allowing it to continue.

      But since it’s likely that most of the fishermen and waste dumpers escape altercations with the pirates, it was worthwhile for them to get what they could, and then move on when things became hot. I suppose it’s just part of the way that externalities work to create unintended consequences.

  2. skylog says:

    it is just crazy to me to think that pirates currently hold 29 ships and 660 hostages. just crazy. i understand that a lot of shipping must go through the area, but there is ZERO chance i would be going anywhere near there.

    that said, i like the look at the economics of the situation.

  3. zapeta says:

    Interesting how the ransom is split and how successful the pirates are given the number of ships they attack.

  4. billsnider says:

    The pirates have no choice but to accept 30% since they have neither the finances or the weapons to pull this off. However, one day they will turn on the financiers when they have the tools and expertise.

    Bill snider

  5. Strebkr says:

    Capitalism at its best here. Too bad its just focused at ripping off companies and people moving through the area.

  6. Evan says:

    Whenever I hear of a story of pirates I always think…what the hell are you doing in those waters lol

  7. TJ says:

    What are you sources?

  8. Anonymous says:

    Somali pirates don’t wear eye patches, and instead of swords they have RPGs (rocket-propelled grenades). They use small, fast speedboats to get around and work in crews of 10 or so. Once they find a good target, they launch hooks and rope ladders up to board the ship and overwhelm the crew. They often attack at night.

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