A new report has estimated that the cost of Somalia piracy to global economy in 2011 was between US$6.6 billion and US$6.9 billion.
The report, from Oceans Beyond Piracy, has raised concerns about the cost of Somali piracy both to the shipping industry and to the world economy in general. Approximately 80 percent of all costs are borne by the shipping industry, while governments account for 20 percent of the expenditures associated with countering piracy attacks.
"The report assesses nine different direct cost factors specifically focused on the economic impact of Somali piracy," explained Anna Bowden, the report's author. "Over the past year we have had substantial co-operation from maritime stakeholders which has helped to ensure the figures are as reliable as possible."
The breakdown of the most notable costs includes US$2.7 billion in fuel costs associated with increased speeds of vessels transiting through high-risk areas, US$1.3 billion for military operations, and US$1.1 billion for security equipment and armed guards. Additionally, US$635 million is attributed to insurance, US$486 million to US$680 million is spent on rerouting vessels along the western coast of India, and US$195 million is the estimated cost for increased labour costs and danger pay for seafarers.
The vast majority (99 percent) of the billions spent are attached to recurring costs associated with the protection of vessels – costs which must be repeated each year. This figure is in sharp contrast to the US$38 million spent for prosecution, imprisonment, and building regional and Somali capacity to fight piracy.
Average ransoms increased 25 percent from approximately US$4 million in 2010 to US$5 million in 2011. Although the total cost for ransoms was US$160 million for 2011, money collected by pirates represents a mere 2 percent of the total economic cost. While ransoms provide the incentive for Somali pirates to attack vessels and hold hostages, they represent a disproportionately small cost compared to the nearly US$7 billion spent to thwart these attacks.
"The human cost of piracy cannot be defined in economic terms," added Bowden. "We do note with great concern that there were a significant number of piracy-related deaths, hostages taken, and seafarers subject to traumatic armed attacks in 2011. This happened in spite of the success of armed guards and military action in the later part of the year."
