‘Failed state’ Somalia grows economy

January 13, 2012, 5:13 AM

As economists and central bankers debate what it will take to kick-start growth around the world, a motley crew of seafarers in the contested East Africa nation of Somalia have quietly been pursuing their own radical form of monetary policy.
Cutlasses and all.
A report published by the British think tank Chatham House notes that “while there is widespread agreement in the academic and naval communities that Somali piracy needs a land-based solution,” the abhorrent activity has actually been beneficial for the Somali economy in a perverse form of quantitative easing.
By studying satellite images taken over the course of the last decade, Dr. Anja Shortland has concluded that at least some of the revenue generated by piracy is having an “effect on deprived coastal communities” and that pirates appear to be investing some of the money to the benefit of local development.
Images of roads, cars, private houses and non-residential buildings show that there has been visible improvement in the infrastructure in small towns and settlements since the flow of funds first picked up in the mid-2000s.
What’s more, “experts on Somalia point to a deep-rooted culture of sharing,” the report says, suggesting that a substantial portion of these proceeds are finding their way into diverse areas of the economy and stimulating growth.
The paper also cites a 2008 study by the United Nations that estimates that 40 per cent of the proceeds of piracy directly funds local employment:

Of this, 30% goes to the pirate crew, and those involved in land-side operations receive 10%. According to the report, a further 10% of revenue is paid in gifts and bribes to the local community, while the remaining 50% is paid to the financiers and sponsors of the pirates, who may be based abroad.

Estimates of piracy ransoms vary widely, and paid amounts are often kept officially secret, but in 2008 the going rate for a single pirate hijack was somewhere between $690,000 and $3 million. In 2010, this figure climbed to about $9 million.
For all of 2009, Shortland estimates that piratical activity added about $70 million to the macro region of Somalia as a whole.
To give some perspective on this figure it ‘s worth noting that the entirety of the official government budget of Puntland, an autonomous region in the north east of Somalia, in 2009 was $17.6  million.
– Kim Hjelmgaard