The Business of Piracy in Somalia

Abstract

This paper argues that contrary to conventional wisdom, Somali piracy is likely to increase if Somalia's domestic stability is improved, and that naval counter-piracy efforts had limited and unpredicted effects. To make this argument we analyze the underlying factors driving piracy off the coast of Somalia and examine the effectiveness of the international naval anti-piracy mission. We show that while the navies perform well with respect to their declared aims, they failed to resolve the piracy problem through 2009: pirates were not deterred from attacking ships in the Gulf of Aden and have expanded their operations in the Indian Ocean and the Arabian Sea. Evidence from domestic conditions in Somalia suggests that land-based approaches focusing on rebuilding state capabilities may also backfire as economic development and greater stability aid pirates. We examine the incentives of the various interest groups in the Gulf of Aden and conclude that the key players have an interest in the continuation of the piracy off Somalia, as long as violence does not escalate and ransoms remain at their current modest levels.

Keywords: Piracy, Law enforcement, Informal Economy, Institution Building

JEL Classification: K42, O17, F19