The Rise of Somali Sea Power

I made a rather rash prediction at the end of last year about Somalia’s pirates. I think I got it wrong. They won’t be buying Djibouti any time soon. They have their eyes on Dubai.

This brilliant piece from Reuters explains the emergence of a new type of equity, one that pretty much guarantees a pretty steady return (so long as shipping companies, insurers and British security firms continue to shower wads of cash across the fractured Horn of Africa country, while the UN and aid agencies hand money to warlords, and politicians try to find the place on the map, but that’s another story…)

In Somalia’s main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate. Heavily armed pirates from the lawless Horn of Africa nation have terrorised shipping lanes in the Indian Ocean and strategic Gulf of Aden, which links Europe to Asia through the Red Sea.

The gangs have made tens of millions of dollars from ransoms and a deployment by foreign navies in the area has only appeared to drive the attackers to hunt further from shore. It is a lucrative business that has drawn financiers from the Somali diaspora and other nations — and now the gangs in Haradheere have set up an exchange to manage their investments.

The pirates are the one reason I occasionally feel optimistic about Somalia. The country is filled with a population blessed with a can-do entrepreneurial zeal. Of course much of that is directed in, erm, problematic directions but it just shows that the country does not necessarily have to be a basket case. All that needs to happen is for Somalis to find a way of making money from peace. Then peace has a chance.

While we’re on the subject of a sector run by illiterate goons in an under-regulated economy, let’s enjoy this comparison of piracy and private equity from the Wall Street Journal blogs.

Business model

Piracy: Seize assets; make money by causing distress; demand ransom; “all for one, one for all” partnership model.

Private equity: Seize assets; make money by reducing distress; dividend recap, then sale or IPO; “all for one, one for all” partnership model.

One thought on “The Rise of Somali Sea Power

  1. Hey there! I know this is kinda off topic however I’d figured I’d ask.
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    I look forward to hearing from you! Fantastic blog by the way!

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