Hostile Takeovers or Good Corporate Governance?

Somali piracy has become a major news item, and most are blaming Somalia’s chronic anarchy. In truth, the pirates have become a highly organized business that originates in the stable civic society of Puntland in the north, not the chaos of the warring south.

le-ponant-mv-faina-sirius-star.jpg
Somali pirates who previously targeted small vessels have grown in sophistication and have now hijacked luxuy liners, container ships, and now supertankers.

Somali piracy has been headline news over the past half year. In April, pirates off the coast of Somalia took control of Le Ponant, a French luxury yacht. In October, the Ukrainian cargo MV Faina was captured, which included in its hold 25 armormed tanks. And earlier this month, a tanker carrying oil up to $100 million in value was hijacked off the coast of Somalia. Shipping “war insurance” — covered previously at CA here — is becoming expensive, as ships such as the Sirius and Le Ponant, previously thought to be beyond the grasp of pirates, are now seen as vulnerable. The range of the Somali pirates is growing as well. Until just last month, ships were thought to be safe if they kept 200 nautical miles from Somalia, but the Sirius Star was 450 nautical miles from the coast when it was hijacked in a lightening 16 minute takeover. Read how another tanker captain avoided capture with S-manuevers and other unpredictable navigation here.

Some analysts write fearful tracts that the pirates have links with terrorists and extremists, that the chaos is a direct result of international neglect of Somalia, and try to link pirates to the islamist insurgency that control much of the south or the recent terrorist bombings in Somaliland. This is nonsense. The origins of Somali piracy are not found in the southern half of the country, where a “transitional government” is dueling the Union of Islamic Courts with the half-hearted assistance of the Ethiopian military. Somali piracy originates in Puntland, a self-declared autonomous region of Somalia at the horn, hailed for years by policymakers as a model of a stable Somali state.

somalia.jpg
Taken from ethanzuckerman.com

Piracy has its origins in the organized communities of the Puntland coast. somali-graph.jpgIn the 1990s, a group of fisherman in settlements there banded together to prevent illegal fishing and the dumping of toxic waste off their shores. This harmless community action inspired many analysts to designate Puntland a model for Somali civil society. When some ships illegally fishing were boarded in attempts to police the region, the reward offered for the boats return was enormous — amounts that were many times the monthly income of entire villages. Piracy took off as an attempt to gain income from this type of civic policing, and slowly grew to what Kaplan called the “innocence” of piracy. It wasn’t long before the pirates became more ambitious, using the fishing boats they captured to hunt larger prey. And with the money that came in, small fishing towns were transformed into pirate havens. As responsible organizers, pirates have invested some of their profits back into the franchise, replacing barely seaworthy rafts with speedboats, AK-47s with modern arms, and GPS tracking systems to boot. The East African Seafarers’ Assistance Programme says there were just 100 Somali pirates in action in 2005, but there are now well over 1,000.

Professor Michael Weinstein, a Somalia expert in the political science department at Purdue University, accurately notes this history of this, but attributes the spike in attacks to a collapse of authority in the Puntland regime, with an administration “honeycombed with officials with links to the pirates.” But through reviewing all the reports on the ground, I see a different story — the piracy gangs are now fabulously wealthy and are enjoying a lifestyle beyond the wildest dreams of many people in East Africa that has given them what any rich businessman in a society enjoys — influence, protection, and power. Check out this report:

‘They live a high-profile life – driving luxury vehicles, using fancy mobiles and laptops, living in big, decorated houses, marrying beautiful women,’ says Dahir Salaad Musse, a businessman in the port town of Bosasso in the semi-autonomous northern region of Puntland… ‘Pirates are the best customers I have because they don’t bother bargaining like the others — they buy expensive shirts, trousers and aftershave,’ says Mohamed Ali Yarow, who owns a menswear store in Garowe. ‘Girls like to date pirates because they give them good money.’ Puntland officials, while trying to play down the popularity of the pirates, also admit that flashing the cash helps the gangs achieve acceptance.

Remarkably, hostages are treated well, with some pirates even setting up special kitchens onshore to cook western meals for their captives. Medical care available on the ship is not withheld to force the hand of parties that would pay a ransom. The Somali pirates are more businessmen that extortionists, and the strategy is paying dividends — according to a report by London-based think tank Chatham House, shipping companies have forked over US$30 million in ransoms to Somali pirates this year. Welcome to growth enterprise in the anarchic societies of the 21st century.

Analysts were right about Puntland’s organization, but they were wrong that Abdullahi Yusuf Ahmed, president of the transitional government and the former leader of Puntland, could spread the discipline of goverment and organization to elsewhere in Somalia. Instead, it’s become the parent of a business model that could be copied in other lawless regions of the world.

About Curzon

Lord George Nathaniel Curzon (1859 - 1925) entered the British House of Commons as a Conservative MP in 1886, where he served as undersecretary of India and Foreign Affairs. He was appointed Viceroy of India at the turn of the 20th century where he delineated the North West Frontier Province, ordered a military expedition to Tibet, and unsuccessfully tried to partition the province of Bengal during his six-year tenure. Curzon served as Leader of the House of Lords in Prime Minister Lloyd George's War Cabinet and became Foreign Secretary in January 1919, where his most famous act was the drawing of the Curzon Line between a new Polish state and Russia. His publications include Russia in Central Asia (1889) and Persia and the Persian Question (1892). In real life, "Curzon" is a US citizen from the East Coast who has been a financial analyst, freelance translator, and university professor; he is currently on assignment in Tokyo.
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25 Responses to Hostile Takeovers or Good Corporate Governance?

  1. Pingback: Another Day to Talk Like a Pirate « The Committee of Public Safety

  2. Ken says:

    Welcome to growth enterprise in the anarchic societies of the 21st century.

    Yet another reason why the UN stabbing the US in the back in Somalia had negative repercussions.

    it’s become the parent of a business model that could be copied in other lawless regions of the world.

    Provided they have access to major shipping lanes. Vermont, for example, will probably miss out.

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  4. von Kaufman-Turkestansky says:

    Ah, but in Vermont you have the Hudson-Richelieu corridor connecting New York to the St. Lawrence northeast of Montreal. One can imagine, once the Anarchy that is coming settles in, the corridor regaining value as a trade route, with gangs forming in places like Burlington to exact tolls as the robber barons on the Rhine once did!

  5. Michael says:

    Good way to upset people: recognize Somaliland in return for using their ports as anti-piracy bases. To avoid another “our SOB vs . . .” scenario, make continued progress on human rights, rule of law and peaceful settlement of their border disputes part of the deal.

  6. Curzon says:

    Ken: I think vKT is right — lanes of transport are everywhere. Any bottleneck by land or sea could be vulnerable to attack. And effective community organization in a relatively unpoliced place to engage in banditry can be very, very profitable.

  7. DZKeith says:

    Отличная статья.Респект автору.

  8. Alfred Russel Wallace says:

    The Economist has a much less detailed analysis, but a somewhat similar overall conclusion. The recent intervention of the Indian Navy seems one bright spot in the gloomy picture. Lets hope the US and others share any surveillance information they have to encourage them… This anarchy is too dangerous to be allowed to fester.

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  10. Pingback: John Mortell’s blog » Blog Archive » Somali Piracy is the Result of Civic Organisation?

  11. jesus reyes says:

    The ATimes has an article http://atimes.com/atimes/South_Asia/JK22Df01.html that, given the piracy at both ends of the route and scrambling of the players for position, posits: “The Indian Ocean is becoming a new theater in the Great Game.”
    The Tamilese are also on the route
    http://www.tamilnation.org/intframe/indian_ocean/index.htm

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  13. George says:

    Pirates are beyond pathetic. That port town where all the locals cater to the pirates should be blown off the face of the earth, and then anyone who opens their mouth about the “civilians” being killed should be executed on live television. The pirates and their entire family should be destroyed. Men, women, children. I find it beyond funny that the pirates continue this behavior. Any number of countries could destroy that entire coastline over breakfast. We should do it, with some liberals strapped to the bombs just to set an example.

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  15. Michael says:

    Or, we could just hand you a gun, George, and put you on the ground near one of the pirate villages. After all, if we can’t count on you to be tough enough, who can we count on?

  16. Bill says:

    There is one site that’s written by a real ship captain. They have done a great job in outlining the problems from the pov of the ship’s bridge:
    http://gcaptain.com/maritime/blog/tag/piracy/

  17. Manni says:

    this is a pretty up to date blog on pirate activity. Mainly clippings from other sites, but a good overview

    http://piratehijack.blogspot.com/

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  20. ntopics says:

    What an amazing story of Puntland village communities controlling ships passing through their nearby waters.
    It sounds like the ships are easy prey if the pirates
    are carrying AK-47 guns. I wonder if ships in those waters
    will ever be protected?

    thanks from tony

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  22. The game will be over soon, as Germany is also sending the Navy now, 1400 soldiers and high-tech ships for the beginning!

    Nice flash-overview of the situation:
    http://de.ibtimes.com/articles/piraten-somalia-entfuehrung-frachter-tanker-bundeswehr-jemen.php

  23. Lexx says:

    Ah, but in Vermont you have the Hudson-Richelieu corridor connecting New York to the St. Lawrence northeast of Montreal. One can imagine, once the Anarchy that is coming settles in, the corridor regaining value as a trade route, with gangs forming in places like Burlington to exact tolls as the robber barons on the Rhine once did!

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