How the Somali Pirates Affect Global Trade

How did piracy in Somalia start? Why do the pirates do it? What are the effects on global trade?

Piracy off the coast of Somalia has been a serious threat for global trade and security since early 1990 when the foreign vessels started illegally fishing and dumping toxic water that affected the Somali waters; both of these intrusions led to an increased difficulty for the local fishermen in earning a living. The Somali fishermen then acted fast by forming armed groups to stop these actions and to hijack the foreign ships as a new source of income. Most of the local people also supported them as they believed the pirates were defending their own territory and waters from foreign ships, especially their fishing grounds which used to be their land of income.

The lack of a central government, internal political stability and authority are believed as the causes of why piracy in Somalia continues to grow.

The existence of Somali piracy is a major issue of global economy, it is hurting the world more than we realized. Moreover, the piracy slows down the delivery of shipments and affects shipping delivery costs, not only that, Somali pirates also cost the global economy by demanding ransom money from the government of where the ships they are hijacking in come from.

Furthermore, as reported by the World Bank, Somali piracy cost the global economy more than $400 billion USD from 2005 to 2012 with a total of 179 ships hijacked. The piracy has also affected the routes of global trade and the cost of insurance until now. Even though they have attacked hundreds of vessels, not all of them have succeeded, however, they still get benefits and make significant impacts on their local economy, especially the pirate financiers who maintain the network and get the highest part of the ransom money. The low level pirates end up getting only 1% to 2.5% of the payment and receiving even less is the local community who serve the goods, food, services and illegal drugs to the pirates. Some of the ransom money goes down to the Islamic group’s military efforts, out of many organizations trying to combat piracy, only a few still remain active, including independent countries like Australia and China, as well as political and military trans-continental groupings like even though the UN, EU and NATO. Though these organizations have been involved in the attempted suppression of Somali piracy, the problem still looms.

Thus, these piracy activities threaten global economy, but also more specifically, the neighboring East African countries. In order to fight the piracy and recover international trade, the international community needs to help bring focus on building up the political system in East African countries and recreating a functional Somali state.

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTFINANCIALSECTOR/0,,contentMDK:23491862~pagePK:210058~piPK:210062~theSitePK:282885,00.html

http://www.studentpulse.com/articles/579/somali-piracy-causes-and-consequences

http://edition.cnn.com/2013/04/12/business/piracy-economy-world-bank/

http://thediplomat.com/2009/02/the-impact-of-somali-piracy/4/

By : Dewi Mulyasari - 1701345645