Jack Sparrow and the Pirate Stock Exchange

In case you missed it 2013 seemed to mark the end of Somali piracy. If you can cast your mind back to 2011, piracy off the coast of Africa seemed to be the next big problem. In fact 2011 marked the peak of Somali piracy with 237 separate attacks. In contrast 2013 saw only 15 Somali pirate attacks, an incredible reduction. Piracy is still out there, around countries like Indonesia and off the coast of some West African nations, but the threat of Somali piracy has largely disappeared.

That’s good for those on the high seas, but it means that we miss an opportunity to see how natural and beneficial capital markets are in distributing wealth and helping economies. And yes you read that sentence right.

In this photo taken Sunday, Sept. 23, 2012, masked Somali pirate Hassan stands near a Taiwanese fishing vessel that washed up on shore after the pirates were paid a ransom and released the crew, in the once-bustling pirate den of Hobyo, Somalia. The empty whisky bottles and overturned, sand-filled skiffs that litter this shoreline are signs that the heyday of Somali piracy may be over - most of the prostitutes are gone, the luxury cars repossessed, and pirates talk more about catching lobsters than seizing cargo ships. (AP Photo/Farah Abdi Warsameh)

In this photo taken Sunday, Sept. 23, 2012, masked Somali pirate Hassan stands near a Taiwanese fishing vessel that washed up on shore after the pirates were paid a ransom and released the crew, in the once-bustling pirate den of Hobyo, Somalia. The empty whisky bottles and overturned, sand-filled skiffs that litter this shoreline are signs that the heyday of Somali piracy may be over – most of the prostitutes are gone, the luxury cars repossessed, and pirates talk more about catching lobsters than seizing cargo ships. (AP Photo/Farah Abdi Warsameh)

The core problem for Somalians is that amongst their many, many problems, there is not enough money in the country. This makes sense for a number of reasons. It is a dangerous place, and people who do have money and live there are unlikely to put money into local businesses or trust a bank. Corruption is rampant and the best way to describe Somalia currently is as a failed state. All this makes it very difficult for the citizens of Somalia to attract foreign investors. As an alternative to traditional business practices, many Somalians took up the cause of high seas piracy and ransomed boats and ships back to their host countries in exchange for money. Whether you realize it or not, in this way Somalia was actually improving their economy (albeit illegally) by providing fresh inflows of foreign capital. But how did the money find its way into the local economy? Through the pirate stock market of course!

That’s right, in 2009 a stock market was set up in the small fishing community of Harardheere with about 70 different…pirate entities(?) that locals could invest in. Giving money to one of these entities helped fund piracy on the high seas and successful raids would be paid out to the investors. There is more information about it in this 2011 article in the Wall Street Journal and I encourage you to have a read of this fascinating account of a naturally occurring stock market, but I think this quote from the article sums up the rather banal and natural benefits that markets provide to economies:

As local security officer Mohamed Adam put it to Reuters, “Piracy-related business has become the main profitable economic activity in our area and as locals we depend on their output.” Mr. Adam claims that the district government gets a cut of every dollar collected by pirates and uses it—naturally—for schools, hospitals and other public infrastructure.

jack-sparrow-running

Since then however the international response to Somalian piracy has been swift and decisive. And while the horn of Africa might be safer for international shipping the reasons behind Somalian piracy remain unresolved. But it is insightful to see that this brief chapter of piracy (outside of the Johnny Depp variety) was actually more nuanced and lends an odd credibility to the needs and benefits of markets for investors and companies, regardless of who they are or what business they are in.

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