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Economics of Modern Day Somali Pirates

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 [3]. 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 [4], who were sailing the world and handing out Bibles. It’s estimated that Somali pirates currently hold around 29 ships and 660 hostages [5].

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 [6] 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:

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. 🙂