Monday, December 7, 2009

Pirate Finance

So it turns out that the Somali pirate industry has developed its own financial sector, improving the allocation of resources and pooling risk. It is possible for a wider cross-section of Somali society to share in the gains-from-seizure enjoyed by this industry, while successful buccapreneurs are rewarded with more access to capital.

The story is told in this piece from the Financial Post. It points out that pirate activity takes place in a region that is effectively autonomous, politically and economically; in fact, there is no other way to make a living in the pirate zone except to hold boats for ransom, especially with the loss of traditional fishing grounds. This means that piracy has had to absorb a broader demographic than just 20 year-old male desperados.

Pirate enterprises are listed on the local stock exchange, and shares trade among investors of modest means. The article doesn’t go into the analytical side of share prices, unfortunately. 72 pirate enterprises are listed, most of them start-ups. (Just as competitive incentives can lead to over-fishing, they can lead to over-piracy.)

The article concludes on this heart-warming note:
Piracy investor Sahra Ibrahim, a 22-year-old divorcee, was lined up with others waiting for her cut of a ransom pay-out after one of the gangs freed a Spanish tuna fishing vessel.

"I am waiting for my share after I contributed a rocket-propelled grenade for the operation," she said, adding that she got the weapon from her ex-husband in alimony.

"I am really happy and lucky. I have made $75,000 in only 38 days since I joined the 'company'."

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