Pirates causing social problems in Somalia

[evkl]

For, primarily, the econ folks, a really interesting article about what pirates in Somalia are doing to the economy/social fabric.

http://www.kens5.com/news/world/78611937.html

BOSSASO, Somalia (AP) — A parcel of land here that sold for $12,000 two years ago now costs more than $20,000. The price of a nice pair of men's shoes has gone up from $20 to $50.

The reason: pirates.

The influx of millions of dollars in ransoms has changed life in this coastal Muslim community, driving prices up and creating a schism between the pirate haves and have-nots. As piracy ramps up again with the end of the monsoon season, the lifestyle of the pirates — big houses, fast cars and easy drugs — is decried by both religious leaders and ordinary villagers.

"The use of drugs such as cannabis and the drinking of alcohol, sex and other obnoxious misconduct are now becoming common within the pirates, causing social problems," said Sheikh Ahmed, a mosque leader in the town of Galkayo. "That is what is worrying us, a lot more than the risk they pose to the foreign ships and crew."

Just last month, pirates were paid a reported $3.3 million to release 36 crew members from a Spanish vessel held hostage for more than six weeks. Pirates stand to make tens of thousands from the payment, money that will pulse through the community in gifs, lan ad ayens o amly fiedsan bsiesme.

The Eurpean Union Naval Force says pirates now hold 11 ships and 264 crew members hostage off the coast of Somalia. There is little doubt that more ransom money is coming.

"There is mad money circulating here, and it affects everybody — directly or indirectly," said Haji Said, a hotel owner.

A lone paved road passes through the middle of Bossaso, and hotels, businesses and new construction line its sides. SUVs and luxury vehicles from Asia ply the road with American, Somali and Indian music blasting from within.

The price of clothes, shoes and cosmetics is climbing, said Anshur Kamil, a businessman. Pirates don't even have to pay upfront. Those holding ships hostage that haven't yet received ransom can buy goods on credit — at elevated prices — and settle up their debts when the ransom money comes in, villagers say.

The pirates pay in dollars and don't bother to haggle, said Khadra Abdullahi, a shop owner in Bossaso, a coastal town on the northern edge of Somalia across the Gulf of Aden from Yemen. "Sometimes they leave change behind, which shows that money is nothing to them."

When villagers think the price of a cosmetic is too high, their reply is "we are not pirates," said Abdullahi.

The closer to the pirate dens one gets, the higher the prices go. In the nearby town of Eyl, a cup of tea costs three times as much as in Bossaso. In Eyl, pirates pay $5 for a shoeshine, compared with 50 cents in Bossaso, said Hashim Salad, a store owner.

Two years ago, a teen named Adani lived on the streets of Bossaso. Now, t nl 1 yar od,heisa irtean onsa ig hus ad are ruk. He says he has taken part in two hijackings that earned him $75,000, and plans to take part in one more high-seas heist.

"When you have nothing people despise you and if they see that you have money you will be respected," said Adani, who gave only one name for fear of reprisals. "This next job will be my last in the piracy trade. I know it's a big risk but I believe in gambling. If I win, I will get married and give up piracy."

Roger Middleton, a piracy expert at the London-based think tank Chatham House, said the average ransom has risen from roughly $1 million last year to $2 million this year. He said pirates have been paid more than $100 million in the last two years, though he stressed that the number was an estimate only, and no one has hard figures.

"I'm sure there's some resentment at the way pirates behave and the lifestyle they lead. It's not a traditional or righteous one," Middleton said.

Middleton also noted that pirate foot soldiers make not millions, but tens of thousands over a year. The big money goes to the bosses, he said, and they are likely to spend it overseas or invest it.

Clerics and village elders say they don't approve of the pirate lifestyle. Teenagers threaten their parents that they will join the pirates if they don't get their way, said a prominent Bossaso elder, Suldan Mohamud Aw-nor.

Marriage has also been affected by pirates with pockets full of cash. Hundreds of cars escort the bride and groom to the reception, where the house is crammed with expensive furniture, and the bride wersexeniv gldjeely,sad hasoAhed te wnr f eauty saon. Thousands of dollars are paid to brides' families as a dowry.

"Pirates do not waste time to woo women, but instead pay them a lot," said Sahro Mohamed. "They did this to several girls I know."

My takeaway from this story is that inequality has negative effects on pricing that disproportionately impact the poor. Thoughts?

 

[Falconwing]

ah great. MORE pirates? That's just going to mean more trouble.

 

[Champion Lance]

"My takeaway from this story is that inequality has negative effects on pricing that disproportionately impact the poor. Thoughts?"

You could say that, but it mightn't necessarily be the most complete conclusion. It's evident enough that a sudden increase in the money supply has resulted in inflation, which is a common problem with fiat currency: the greater the supply, the less the demand.

It's not the inequality itself that is causing problems. If the pirates, say, put away all their winnings into bonds and then the money supply would scarcely be affected at all (though there would be an impact on yields as interest rates necessarily changed to cope).

 

[evkl]

It's not the inequality itself that is causing problems. If the pirates, say, put away all their winnings into bonds and then the money supply would scarcely be affected at all (though there would be an impact on yields as interest rates necessarily changed to cope).

But given that non-cash financial instruments are hard to come by in poor areas in America--nevermind Somalia--isn't de facto any infusion of wealth a cash infusion that causes inflation?

It might not work out on a national scale in a developed country, but I could certainly see this applying to, say, inner-city neighborhoods in America where drug dealers earn disproportionately high incomes.

 

[Champion Lance]

Sure. The story does indicate that the pirates themselves don't really know what to do with their wealth and just see it as a means to an end, rather than an end itself (as those who amass wealth in the developed world might).

The proximate cause of the inflation is the new wealth that has been brought it. I don't know if we can stretch that to say that inequality in general is the distal cause of this sort of misery, if only because it's a sufficient but not necessary relationship.