The Pirates of Pittance?

by John Hood

There’s a new study out from a Colorado think tank that pegs the worldwide cost of piracy at between $7 billion and $12 billion a year. From a report by the Voice of America:

While available data from areas such as West Africa and the Malacca Strait in southeast Asia have been included in the groups accounting, the bulk of the cost of international piracy stems from hijacking committed by Somali pirates.

The Associated Press has reported that at least 28 ships and 660 crewmembers are currently being held in Somalia. 2010 saw a spike in ransom prices, with some ships, including the South Korean Samho Dream being released for a reported $9.5 million ransom.

But according to report author Anna Bowden, ransoms are only one of the many costs created by Somalia’s pirates. “A number of ships will not go through piracy zones right now,” said Bowden.  “They’ll actually reroute around the coast of Africa, via the Cape of Good Hope. Costs there are about $2.4 to $3 billion per year. Other costs are security equipment, insurance premiums and so on. There are also costs to government that we need to remember.  There are costs of naval forces.  There are also costs of prosecution, as well as anti-piracy organizations.”

I think even the upper bound estimate of $12 billion sounds awfully low. Bowden said that weakness in international trade is holding the number down, and that as economic recovery picks up steam and commerce increases, the cost of piracy will rise, too. The study is also an open-source project; perhaps as others around the world participate in data gathering and analysis, the estimates will change.

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