Somali Piracy: Understanding the Criminal Business Model

News — By on October 19, 2011 at 10:34 PM

This is Dr. Alec D Coutroubis’ and George Kiourktsoglou’s  of the University of Greenwich paper which George Kiourktsoglou presented in Malmoe at the World Maritime University. We will soon give you the full analysis of this issue.

This article investigates Somali Piracy not as a mere criminal activity that challenges and eventually breaches the international Law of the Seas, but rather as an elaborate business model, that has far reaching tentacles in (Geo)-Politics, Business, Trade and Shipping.

To begin with and based on Michael E. Porter’s theory of the ‘Competitive Advantage of Nations’, the piracy business model is analysed in terms of its ‘National Determinants’. The latter are the four broad attributes of the Somali Nation that have all along nurtured the environment in which piracy has come to flourish:

  1. Its ‘Factor Conditions’ or ‘Factors of Production’ which refer to human resources (pirates, investors, facilitators/negotiators of ransoms), knowledge resources (sources of information and intelligence on vessels and trade patterns), physical resources (equipment), capital resources (‘Seed Capital’ for the initial support of a piracy mission) etc.;
  2. Its ‘Demand Conditions’ which are directly related to the local clan system’s need for income and continuity, but also the mechanisms through which the local needs and aims resonate in the Piracy Industry;
  3. Its ‘Relating and Supporting Industries’ which actually nurture (the disruptive in some cases) innovation and upgrade featured by the pirates. The most prominent among these industries is the financial one. It provides the venture(s) with the necessary means for the transfer and legalisation of the crime proceeds;
  4. Its ‘Structure and Domestic Rivalry’ or alternatively the context within which a piracy organisation was created and is still managed.

In the next step and always within the above conceptual framework, the analysis moves on to flesh out the features of the phenomenon that have rendered it in the last four to five years so uniquely successful and at the same time so appealing to questionable investors of sorts.
The analysis tries to draw a distinction between ‘Comparative’ and ‘Competitive’ advantages of Somali Piracy. Since Somalia does not feature a ‘Tradition in Piracy-practice’, it is the belief of the authors that the phenomenon has remarkably evolved due mainly to the confluence of certain parameters nurtured (either intentionally or unintentionally) by the Somalis themselves.

Even more, it is claimed within this article that the piracy venture has evolved to a point of no return because it has ceased long ago to be just an opportunistic source of alternative income. Somali Piracy has created its own self sustained evolutionary system, the so called ‘Piracy Diamond’, which cannot be undone merely through the resurrection of mainstream, legitimate business and production. The business venture has intriguingly merged a set of disparate, mainly local (and international in some cases) stakeholders, like kingpins, semi
trained ex-security personnel, money launderers, politicians and others, into a mosaic powered by diverse drivers like geography, international trade, poverty, lawlessness and lack of central political authority. Its mechanism has gone by now ‘supercritical’, which means that even if some of its initial ‘comparative advantages’ were neutralised, it would still keep on its developing course using its self-developed ‘competitive advantages’.  These were created and sustained through a highly localised process that is still developing. The role of the entire nation in this process seems to be as strong as, or stronger than ever.

The main theme of the international discussion around Somali Piracy is that the answer to the puzzle will come ‘from ashore’ through the development of alternative sources of income for the locals. With all due respect to the good-will of the international community, it is the view of the authors that this is a manifestly simplistic argument given that:
a. There are no (and neither will be) available sources of legitimate income except the traditional ones of agriculture, fishing and (to a lesser degree) trade;
b. Even if there were, the income (per capita) generated by these alternative professional activities would pale compared to the cash generated via piracy ransom payments.

Hence, it is the view of the authors that the country is hopelessly condemned to business oblivion.

Although the solution to the problem of piracy surely lies ashore, the authors claim that it will not come in the form of alternative, more legitimate sources of income, but rather through the negation of one (or potentially more) of the determinants that have rendered the scourge sustainable, innovative and eventually successful. This would be the gradual replacement of local rivalries (among politicians, clans and disparate militias) by a nation-(re)building process. Such a process could divert substantial physical and mental effort from illegitimate activities towards a creative virtuous circle. An approach that focuses on humanitarian aid and development could be far less costly than the current support of the Transitional Federal Government (TFG). More interestingly, a ‘Somalia left to itself is in many respects less threatening than a Somalia that is being buffeted by the winds of international ambitions to control the country’. At the same time a progressive degeneration of local rivalries would steal from Piracy (and its ‘Diamond’) its most important determinant(s), the lifeline of indispensable human, financial and technical resources.

On the face of it, Somalia’s history shows very clearly that in the absence of international intervention, the country has been quite ‘inoculated’ (a word used by intelligence operatives) against al-Qaeda and international terrorist organisations of sorts but not against local rivalries. The gist of this study is that unless these national hostilities get reasonably and effectively addressed by the Somalis themselves the high seas piracy off Eastern Africa will keep on festering for a long time to come.

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