Cutthroat Capitalism - Somali Pirates' Rich Returns by Robert Young Pelton

May 16, 2011

Presentation Assignment #1

Business 1110

"Somali Pirates' Rich Returns" by Robert Young Pelton

Cutthroat Capitalism

The Somali Pirates have created an industry that is highly profitable. Although it is very illegal, they make about $150 million a year. In 2005, the average ransom paid was around $150,000. But by the end of last year, it stood at $5.4 million. That means the revenues for the business of piracy more than doubled every year. The 2005 to 2010 percentage increase is a staggering 3,600 percent.

It's also extremely easy for a small time pirate or a silent investor to take the risk. You would just need a relationship with or with someone who has a relationship with one of the big bosses in the pirate industry and they will back up 50% of the expenses. Since it takes an estimated $300,000 to run an operation, you would need only need to put in about $150,000 to make anywhere from $1 to $8 million.

Piracy cost shipping companies $7 to $12 billion a year and the business of Piracy is only growing. It affects not only shipping companies but also us as consumers because we get charged more for their losses.

One of the main reasons why Piracy is growing is because many Somalis find that the pirate life is much more attractive. It is especially easy for the young Somalis to become pirates since there are very few employment options in their country. An average Somali earns about $600 a year, but even the lowest-level pirate can make 17 times that in a single hijacking. Some pirates make $79,000 a year. That's' more than what most North Americans make. The financial incentives are huge and the risks are worth it.

In conclusion, there's no real incentive to stop the business of Piracy because there are so many moneymaking parties involved. The only people who take a hit are the consumers and the fisherman. Most Pirates will say they do this because of the overfishing done by foreign fishing vessels but according to the U.N. Monitoring Group; only 6.5 percent of Somali pirate attacks are aimed at fishing vessels. Piracy is purely fueled by the financial incentives and so are the other business parties involved.