Piracy off the Horn of Africa: Shifting incentives to induce behavioural change, Part II

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Part I of this paper provided an overview of the trends that are shaping Somali piracy, outlined piracy’s root causes, and discussed its consequences for both Somalia and the region. It also briefly summarised the responses undertaken by the international community to date. Part II analyses the incentive structure driving the actions of the various players connected with the piracy industry, and proposes recommendations for alternative long-term measures.

Despite the entrenched nature of the Somali piracy phenomenon, the international community has restricted itself to “band-aid solutions,” such as the deployment of multinational naval forces. Although these operations have enjoyed some success in deterring attacks in the Gulf of Aden, they are finite resources with little potential beyond the short-term.(2) In other words, the international community has limited itself to treating the symptoms of piracy, allowing the root causes to fester unchecked.

Yet the eradication of piracy in Somalia necessitates a combination of both targeted and comprehensive measures. The international community’s overall objective should be to shift the incentives that make piracy a rational pursuit, by raising the costs and risks of engagement for both commanders and individual pirates. This is not a hopeless cause. In fact, encouraging trends can already be observed in the work of local entities such as the Somaliland coastguard,(3) and in grass-roots projects seeking to expand Somalia’s capacity for detention and prosecution.(4) Ultimately, however, durable solutions to induce behavioural change are contingent upon the political will of the international community.

 

A question of incentives

As with any business venture, Somali piracy can be understood in purely economic terms.(5) Over the years, business has flourished due to the failure of traditional markets and the lack of economic opportunities on the mainland. In Somalia’s distorted environment, therefore, piracy is a rational enterprise. In order to fully explain the phenomenon, the incentive structure for both pirates and the primary actors in the international shipping industry must be explored. After all, individuals and entities respond to incentives, which are the cornerstone of modern life.(6)

 

Player #1: Individual pirates

The actions and choices of individuals engaging in piracy, and the risks they are willing to take, are shaped by economic incentives. Denied alternative channels to pursue financial gains, Somali pirates should be recognised as utility-maximisers, not simply as misguided criminals. The income of the average Somali stands at US$600 per year. In contrast, the lowest-ranking pirate can earn between US$10,000-15,000 in a single hijacking.(7) This glaring wage discrepancy effectively makes the opportunity cost of not engaging in piracy very high for a young, healthy man. The potential risks that could arise in such a hazardous undertaking are undoubtedly a factor, but are not a major deterrent when considering the insecurity in war-torn Somalia.

Added to the prospect of hefty profits is the low probability of capture. The area of pirate operations is now roughly the size of Western Europe,(8) making pirate ships a needle in an immense aquatic haystack. Moreover, attacked ships only generally receive a 15-20 minute warning of an attack.(9) By the time that warships can respond, it is often too late. In addition, even when the criminal motives of pirate ‘mother ships’ are clear, the use of hostages effectively impedes pre-emptive measures.

Budding pirates would also be encouraged by the fact that, even in the implausible event that they are captured, they are extremely unlikely to be detained and prosecuted. In actuality, about 90% of all pirates captured are freed, often with sufficient provisions, equipment, and assistance to return safely to the mainland.(10) This is not due to a lack of legal instruments: piracy has scarred the collective memory of the international community to such an extent that it is one of only two crimes subject to universal enforcement jurisdiction (the other is slavery).(11) All states are therefore entitled to detain and prosecute pirates, irrespective of the location of the crime or the nationality of the victim.(12) This principle is articulated by the UN Convention on the Law of the Sea (UNCLOS), and is embodied in customary international law. Therefore, the general unwillingness to detain and prosecute pirates is attributable to practical motivations, such as weak domestic legal systems and adverse public opinion.(13)

 

Player #2: Pirate kingpins and local authorities

The incentives of profit and impunity are not restricted to individuals, and help rationalise the actions of kingpins. Ever-higher profits enable commanders to consolidate their positions and escalate operations. They have also mastered the price-setting cycle, establishing a mutually beneficial collusive system. Upon each successful hijacking, the ransom demanded is much higher than previous settlements, thereby creating new trends in the market.(14) Furthermore, even though many pirate kingpins are well-known, they enjoy the protection of local authorities, private militias, and dependent communities.

Local authorities, such as the Government of Puntland, are also major actors. Pirate revenues can be a tempting resource to plug fiscal deficits, or to line the pockets of well-placed individuals. Moreover, commanders have become political authorities in their own right, and can be useful allies. Conversely, ostracising them may entail unbearable risks for fragile governmental entities.

 

Player #3: Local communities

Although piracy has had a major detrimental impact on Somalia’s security and development prospects, this has not necessarily translated into adverse perceptions by local communities. In fact, kingpins have succeeded in creating a disciplined and well-oiled business model. Its primary strength lies in the participation of individual stakeholders, making entire communities dependent upon piracy. Once ships are captured, commanders sub-contract guarding duties to local clan members and purchase food from local restaurants.(15) Kingpins have also established a pirate ‘stock exchange’ in Xarardheere, where any individual can purchase shares in upcoming operations by contributing money or weapons in exchange for future dividends.(16) Percentages are defined in advance, and payments are well enforced. Clan elders also receive 5-10% of ransoms in return for their protection and support.(17) Finally, the escalation of pirate attacks has also produced positive spillover effects for fishermen, by deterring foreign trawlers.(18)

 

Player #4: The shipping industry

Although these drivers help explain the emergence of piracy, they do not account for its perpetuation. For a more complete picture, it is necessary to consider the broader incentives within the international shipping industry. Maritime trade operates upon a basic cost-benefit framework. Despite the risks of Somali piracy, shipping cargo through the Suez Canal (and past the waters off the Horn of Africa) is still the most financially viable option. The alternative, rounding South Africa’s Cape of Good Hope, would lead to much longer journeys and increase overall costs by millions of dollars.(19) Insurers face similar considerations. While the higher incidence of piracy has certainly increased the risk of multimillion-dollar settlements, the actual probability of a ship being hijacked is extremely low. In 2008, only 0.2% of all ships travelling past Somalia were successfully captured.(20)

The recent spike in piracy has led to higher premiums, but these costs are primarily passed on to end-consumers. Interestingly, rising premiums catalysed cooperation between Malaysia, Singapore, and Indonesia to stamp out piracy in the Malacca Straits between 2005-2006.(21) Higher costs effectively tilted the overall incentive structure, mobilising political will to crack down on known safe havens.(22) Unfortunately, a similar resolution is unlikely in Somalia, as regional states that bear the economic brunt of piracy such as Kenya, Tanzania, and the Seychelles do not have the same capacity to safeguard their interests. The imperatives of the shipping industry therefore directly affect the dynamics of Somali piracy. Under the current system, these players can minimise their losses by tolerating piracy rather than by implementing long-term counter-measures.(23)

 

Shifting incentives: Proposed measures

It is common knowledge that piracy cannot be eradicated without robust, long-term solutions. Nonetheless, despite its good intentions, the international community’s response has been depressingly focused upon the short-term. For all of the encouraging developments outlined in Part I (available here), the lion’s share of the funding is still limited to naval operations. Programmes that could go a long way to address the root causes of piracy, such as those funded by the Contact Group on Piracy off the Coast of Somalia (CGPCS), are woefully underfunded and uncoordinated. This state of affairs is caused by the prevailing interpretation of piracy as an exclusively criminal activity, to be punished wherever it arises. Instead, piracy should be understood as a rational enterprise produced by market failure and pervasive insecurity in Somalia. Consequently, before piracy can effectively be tackled, the focus of the international community should be realigned towards the aim of altering the overall incentive structure.

This analysis shift enables the development of a framework for targeted but coordinated measures. Clearly, there are constraints that cannot be overcome, which must be taken into account by any comprehensive counter-piracy policy. For instance, banning ransom payments is not an option, as it would be unacceptable to Western domestic public opinion. On a related note, the traditional anti-piracy response, exemplary violence, would only lead to greater casualties.(24) The lack of capacity of regional states and of local Somali institutions is also a major factor, as it means that the continued engagement of the international community will be crucial in the fight against piracy.

Having said that, the recommendations in this paper target both the ‘head’ and the ‘body’ of piracy, seeking to treat the symptoms as well as the root causes. The three cross-cutting objectives, common to all target groups, seek to alter the cost-benefit calculation driving the growth of the pirate industry, by: a) curtailing the profits of piracy; b) reducing the opportunity cost of not engaging in piracy, through alternative livelihoods; and c) tackling the pervasive culture of impunity.

 

Target group #1: Individuals engaging in piracy

Little can be done at the grass-roots level to reduce the payoffs for individual pirates, as the business model is already entrenched. However, as any good doctor would prescribe, the best cure is always prevention. In this regard, actions that lower the opportunity cost of not engaging in piracy by providing alternative incomes would help shift incentives. Promoting Somalia’s local fishing industry, by creating regional markets for produce, would be a sustainable solution that would maximise one of Somalia’s comparative advantages. Moreover, if young Somalis could adequately provide for themselves and their families through fishing or other activities, fewer would be encouraged to accept the risks and uncertainty tied to piracy. As the campaigns against cocaine in Colombia and poppies in Afghanistan demonstrate, no amount of cracking down can substitute for the provision of alternative livelihoods.

Concomitantly, strengthening efforts to detain, prosecute and imprison individuals suspected of piracy can raise the risks of engagement. Credible juridical frameworks would lower the rate of pirates released and captured, reducing the perception of impunity currently attached to the profession. To this end, the creation and capacity building of regional courts with explicit mandates to try pirates is crucial. This paper does not recommend the formation of a permanent international tribunal, as this would undermine the process of ‘Somalisation’ that is necessary to make the undertaking Somali-owned. Instead, the international community should work through the UN Office on Drugs and Crime (UNODC) and the CGPCS to bolster existing efforts by regional players like Kenya and the Seychelles to remove national legislative obstacles, and to encourage the participation of interested actors like Mauritius. In this connection, greater funding is needed to expand detention facilities and train judges, as these nations lack the sufficient resources.

Such efforts should go hand-in-hand with a strategy to create special anti-piracy courts and prisons in Somaliland and Puntland. According to Lang, the cost of setting up new penitentiaries in Somalia and the region would be US$25 million, compared to the overall yearly cost of piracy, estimated at US$5-7 billion.(25) Given the current situation in Somalia, these measures will take time. In the interim, increased funding to effective groups such as the Somaliland coastguard would yield immediate benefits.

 

Target group #2: Pirate kingpins

The best way to undercut the power-base of pirate commanders is to drastically reduce the profitability of their operations. Since banning ransom payments is unfeasible, the next option is to lower success rates of attacks even further. In this regard, best practices have been effective in some instances. They should become an industry-wide standard for all ships sailing the area, enforced by the International Maritime Organisation (IMO). In addition, although the most influential pirate masterminds and their backers are actually well-known,(26) little has been done to bring them to justice or to curb their activities. Going forward, financial flows between financiers and commanders should be disrupted through targeted sanctions and asset freezes. Sanctions can restrict money laundering, which is essential for repaying investors and funding future undertakings.

Within Somalia, many kingpins are effectively ‘untouchable,’ due to the support of local communities invested in the business model. To alter this status quo, the international community should fund projects to rebuild villages and fishery infrastructure devastated by illegal trawlers and toxic waste.(27) This would help win local trust, and would undercut a major driver for recruitment. Financial incentives could also be extended to local communities in exchange for detaining kingpins or providing damning information. To be effective, this strategy should build upon the growing hostility to piracy in certain parts of the country, triggered by religious principles and harmful consequences such as prostitution and substance abuse.(28) Finally, local authorities should be prompted to impose severe fines for participation in illicit ‘stock exchanges,’ thereby lowering the incentives for grass-roots involvement in piracy.

 

Target group #3: Local authorities

The proposed measures against pirate kingpins would directly influence the stake of local authorities in the piracy industry. For instance, reduced profits would erode the influence of kingpins, emboldening local authorities to yield to international pressure and actively curb piracy.

Overall, the international community should engage with local authorities through a carrots-and-sticks framework. Direct incentives for collaboration could include financial assistance, both in terms of building capacity for indigenous juridical frameworks and police forces, and for general development projects. Clearly, the extent of assistance should depend upon the quality of governance. For example, due to the entrenched ties between the Puntland Government and pirate leaders, continued support should be conditional upon the provision of solid and verifiable evidence of anti-piracy measures implemented. If the relationship between pirates and local authorities endures, the international community should be prepared to extend financial sanctions to political leaders as well.

These recommendations are more likely to be effective in the northern regions: pirate strongholds in south-central Somalia are expected to survive as long as lawlessness endures. However, the potential for setting a powerful example remains, and success in the north could gradually trickle down.

 

Target group #4: Foreign actors

The role of the international community against piracy remains essential, as demonstrated in the previous recommendations. Yet there are further measures that can be undertaken beyond funding to targeted programmes and multinational naval operations. One potential low-hanging fruit is the collection of evidence that could enable prosecutions and provide information on attack methods favoured by pirates. To this end, trained forensic teams and coastguard policemen should be deployed alongside naval missions to improve evidence collection and registration.(29) Moreover, civil-military initiatives, such as partnerships between naval commands and INTERPOL, could distribute evidence more effectively and instruct shippers on how to preserve crime scenes.(30) These actions, coupled with greater information sharing between operations active in the area, would raise the rate of pirates captured and prosecuted, thereby shifting incentives. Finally, if successful, the AU’s (African Union Mission in Somalia, or AMISOM) mission of stabilisation and peacebuilding in south-central Somalia could help undercut the drivers of piracy.

 

Concluding remarks

Unless the international community can succeed in shifting incentives within Somalia, no amount of warships in the Gulf of Aden can liberate the region from the menace of piracy. Combined, the recommendations outlined in this paper provide a framework to induce behavioural change, by tackling both the causes and the symptoms of piracy. These measures are feasible and cost-effective.

Yet, despite the worrying trends of recent years, there continues to be a severe gap in political will among the members of the international community when it comes to implementing sustainable, long-term solutions for Somalia in general, and for piracy in particular. Consequently, even though this paper endeavours to identify constructive practical measures, the scourge of piracy might have to get even worse before coherent responses are implemented.

Fortunately, there are few global security threats that can catalyse international cooperation like piracy. Already, naval operations off the Horn of Africa have required the collaboration of unlikely bedfellows, such as the USA and Iran.(31) The basis for a comprehensive strategy is there, now we must hope that the international community will ultimately recognise the real costs of piracy, and the significance of its protraction for Somalia and the world.

 

NOTES:

This article is republished with permission from Consultancy Africa Intelligence (CAI), a South African-based research and strategy firm with a focus on social, health, political and economic trends and developments in Africa. For more information, see http://www.consultancyafrica.com.



(1) Contact Edoardo Collevecchio through Consultancy Africa Intelligence’s Conflict and Terrorism Unit ( [email protected] This e-mail address is being protected from spambots. You need JavaScript enabled to view it ).
(2) ‘No stopping them’, The Economist, 3 February 2011, http://www.economist.com.
(3) ‘Report of the Monitoring Group on Somalia pursuant to Security Council resolution 1853 (2008) (S/2010/91)’, UN Security Council, 10 March 2010, http://www.reliefweb.int.
(4) ‘Counter Piracy Programme’, UN Office on Drugs and Crime, November 2009, http://www.unodc.org.
(5) Kraska, J., 2010. Freakonomics of maritime piracy. Brown Journal of World Affairs, 16(2), pp. 109-119.
(6) Ibid.
(7) ‘An economic analysis of the Somali pirate business model’, Wired Magazine, 13 July 2009, http://www.wired.com.
(8) ‘No stopping them’, The Economist, 3 February 2011, http://www.economist.com.
(9) ‘An economic analysis of the Somali pirate business model’, Wired Magazine, 13 July 2009, http://www.wired.com.
(10) ‘Report of the Special Adviser to the Secretary-General on legal issues related to piracy off the coast of Somalia (S/2011/30)’, UN Security Council, 25 January 2011, http://www.reliefweb.int.
(11) Damrosch, L., 2001. International law cases and materials. New York: West Group.
(12) ‘6473rd meeting: the situation in Somalia (S/PV.6473)’, UN Security Council, 25 January 2011, http://www.un.org.
(13) Ibid.
(14) ‘An economic analysis of the Somali pirate business model’, Wired Magazine, 13 July 2009, http://www.wired.com.
(15) Ibid.
(16) Ibid.
(17) ‘Report of the Monitoring Group on Somalia pursuant to Security Council resolution 1853 (2008) (S/2010/91)’, UN Security Council, 10 March 2010, http://www.reliefweb.int.
(18) Kraska, J., 2010. Freakonomics of maritime piracy. Brown Journal of World Affairs, 16(2), pp. 109-119.
(19) ‘An economic analysis of the Somali pirate business model’, Wired Magazine, 13 July 2009, http://www.wired.com.
(20) Ibid.
(21) ‘Unstable on land? Also at sea’, The Economist Videographics, 2010, http://audiovideo.economist.com.
(22) Ibid.
(23) Ibid.
(24) Sörenson, K., ‘State failure on the high seas’, FOI Somalia Papers, November 2008, http://www.foi.se.
(25) ‘Report of the Special Adviser to the Secretary-General on legal issues related to piracy off the coast of Somalia (S/2011/30)’, UN Security Council, 25 January 2011, http://www.reliefweb.int.
(26) ‘Report of the Monitoring Group on Somalia pursuant to Security Council resolution 1853 (2008) (S/2010/91)’, UN Security Council, 10 March 2010, http://www.reliefweb.int.
(27) ‘At sea’, The Economist, 3 February 2011, http://www.economist.com.
(28) ‘6473rd meeting: the situation in Somalia (S/PV.6473)’, UN Security Council, 25 January 2011, http://www.un.org.
(29) ‘Report of the Monitoring Group on Somalia pursuant to Security Council resolution 1853 (2008) (S/2010/91)’, UN Security Council, 10 March 2010, http://www.reliefweb.int.
(30) ‘Report of the Secretary-General pursuant to Security Council resolution 1897 (2009) (S/2010/556)’, UN Security Council, 27 October 2010, http://www.un.org.
(31) ‘No stopping them’, The Economist, 3 February 2011, http://www.economist.com.