Calmer Waters

A new World Bank report highlights the cost of piracy around the Horn of Africa, but is the problem fading? Published in The Middle East, 15 December 2013

The waters to the south of the Arabian peninsula have been reassuringly quiet for most of this year. Few piracy attacks have been attempted and, at the time of writing, there had been no successful hijackings since early June. During August and September no attacks were reported at all and it was tempting to think the problem might at last be coming to an end.

Events since then have shown such hopes to be premature however. On 11 October an attack on a crude tanker 230 nautical miles off the coast off Somali was thwarted when the on-board security team fired on the pirates.

The following month, on 5 November, the German frigate FGS Niedersachsen spotted a boat towing a smaller vessel out to sea from the Somali coast. On board were ten men and two ladders of the sort often used to board ships on the high seas. When the German navy approached to take a closer look the ladders were thrown overboard and the vessels headed back to shore.

A day later there was a more serious incident further south, when a Hong Kong-flagged chemical tanker travelling from Saudi Arabia to Mozambique was fired on by five men using automatic weapons. The tanker increased its speed and took evasive manoeuvres and a private security team on board returned fire, forcing the pirates to move away.

Such incidents show the problem has clearly not disappeared but piracy around the Horn of Africa is nonetheless on a sharp downward trend. In the first nine months of this year there were just 10 incidents attributed to Somali pirates according to the International Chamber of Commerce’s International Maritime Bureau (IMB). During the same period last year there were 70 incidents.

Such a reduction is of course very welcome for the shipping industry, but it is also an important development for the Gulf countries that rely so much on sea-borne trade. As Mohamed Al Shamisi, acting CEO of the Abu Dhabi Ports Company, said at an anti-piracy conference in Dubai in September, “Piracy has today reached a five-year low but, in spite of this, piracy remains a serious threat in our waters ... 90 percent of world trade travels by sea and the vast majority travels through the Gulf of Aden and Somali waters.”

The scale of the problem the region has been dealing with was laid bare in the Pirate Trails report published by the World Bank on 1 November. According to the report between $339 million and $413 million was paid in ransoms to release ships and crews seized by pirates off the coast of Somalia and the Horn of Africa between 2005 and 2012. That ransom money has in turn helped to fuel a wider range of activities, including trade in people, weapons and the mildly narcotic khat leaf which is illegal in many countries but widely chewed in Somalia, Yemen and some other nearby places.

Just 0.1 per cent of the ransom proceeds go to the lowly pirates who actually seize the ships. Instead, the report estimates that between 30 and 75 per cent of the money ends up in the hands of specialist financiers who are able to channel it into a mix of legitimate businesses and grey and black market activities. “Piracy is not only a menace to stability and security, but it also has the power to corrupt the regional and international economy,” says Stuart Yikona, a co-author of the report.

The year 2009 was the highpoint in terms of the number of ships ransomed. According to the Pirate Trails report, some 39 ships were released that year after a ransom was paid. But although the number of boats traded for cash may have declined in the following years the amount of money paid out actually rose. Between $57 million and $84 million is thought to have been paid in ransoms in 2009, rising to $70-90 million the year after and $151-156 million in 2011. In 2012 the figure fell sharply, with an estimated $36-40 million paid by ship owners to get their vessels back.

The average ransom paid also dropped in 2012, after five straight years of increases. From around $130,000 per ship in 2006 it steadily rose to just over $5 million in 2011 before falling to $4 million a year later.

Some of this money is spent locally, including investments in further piracy operations, but some is also moved out of Somalia via financial transfers, notably to the UAE, Djibouti and Kenya. For example, the World Bank report cites Belgian authorities investigating the case of the MV Pompei, a hijacked dredging ship. It says they discovered the pirate negotiator had bank accounts in Dubai. Once the ransom was paid the money was thought to have been taken to Djibouti were it was sent on to Dubai from where it could be invested in legitimate or illegitimate ventures in the region or beyond.

This is clearly a sensitive issue for the UAE authorities and one they seem to want to suppress. The report say the role of Dubai-based financial institutions deserves close analysis but its team “was not able to conduct field visits to the UAE in that respect, despite repeated requests to do so”.

But Gulf governments have been willing to tackle the problem in other ways. The Saudi and Iranian navies are among those patrolling the pirated waters, and Bahrain hosts the Combined Task Force 150, one of the main multinational naval groups taking on the pirates. Such naval patrols have been vital in reducing the piracy problem.

“The more [navies] that we have there the better it is,” says Pottengal Mukundan, director of the IMB. “We certainly don’t want to see any naval vessels withdrawing from the area under the illusion that piracy has gone. They have achieved a lot there in terms of holding the line against the pirates. If the navies withdraw then we could very quickly be back to the old days where vessels were being hijacked.”

Despite its apparent reticence in dealing with the Pirate Trails team, Dubai has also played an important role by hosting the UK Marine Trade Operations. This is run by the UK’s Royal Navy and acts as the primary point of contact for merchant vessels travelling through the high risk area, linking them with the naval patrols.

The presence of so many navy ships in the area has undoubtedly been a deterrent to pirates, but tactics adopted by the merchant ships themselves have also been vital. These include the presence of armed security guards as well as using water jets and putting razor wire around the decks where pirates might try to board. There are also now safe areas, known as citadels, in the ships where the crew can gather if their boat has been boarded.

“The first operation by navies was as far back as 2008 and those operations have got better and we’re now seeing the result of their efforts,” says Anthony Rix, a former rear admiral in the Royal Navy and now maritime operations director at Salamanca Risk Management, which supplies armed guards to merchant vessels. “The second factor is that the shipping companies themselves are more aware of the risks and what they themselves can do, making sure the physical security on the ships is better. Factor number three is armed guards.”

All of this costs a lot of money and pushes up the cost of trade. At the Dubai anti-piracy conference in September, Sultan Ahmed bin Sulayem, chairman of the local ports company DP World, said that the direct cost of combating piracy on the high seas was around $6 billion in 2012. The largest single element of that was the use of armed guards which he said cost between $1.15 billion and $1.53 billion.

Those costs are passed on to the shipping company’s customers and, ultimately, to consumers around the world. Shipping companies often now levy a ‘piracy surcharge’ of $200-300 per container for goods passing through risky areas. That is a multiple of the annual earnings of the average Somali though. According to the UN, the per capital gross domestic product of Somalia was just $112 in 2011.

That illustrates one of the underlying truths behind the problem. Ultimately the causes of piracy are not to be found on the seas of the Indian Ocean or the Gulf of Aden, they lie on the Somali mainland where a fragile and often violent state provides few if any prospects for the average person. As long as there are few legitimate ways to earn a living there is always the risk that pirates will once again take to the seas in their mother ships and skiffs.

“Improving the stability and wellbeing of Somalia is also vital to our counter piracy efforts, as we believe that Somalia’s progress towards stability is one of the main ways to ensure that the scourge of piracy is eradicated from that part of the world,” said Sheikh Abdullah bin Zayed al Nahyan, the UAE’s Minister of Foreign Affairs at the Dubai conference.

Even as the dangers of piracy appears to be waning around the Horn of Africa there is more activity on the other side of Africa, in the Gulf of Guinea. There the pirates tend to hijack boats to steal their cargo rather than hold them for ransom For ship-owners it is simply a different sort of headache, but the lessons learned in the seas off Somalia should help them to tackle the issue there too.