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Innovation Blog

Somali Pirates Revisited: Moving Up the Value Chain

By Shlomo Maital

In January, and again in March, I wrote blogs about the Somali pirates who capture ships off the Horn of Africa and hold them for ransom – about how innovation might solve the problem (outsource the naval protection to China? Put sticky goo on the decks of cargo ships?).

This time, I’m revisiting the Somali pirates, to use them as a model for innovators.

Don’t get me wrong.  These pirates are criminals and should be brought to justice.  But the world has greatly underestimated the ingenuity and enterprise of 16-year-old uneducated poor youths, who take rickety small boats hundreds of kilometers to board huge ships and hold them hostage.

Now, there is a new development. According to the Global New York Times [1],  Somali pirates are moving up the value chain.  Once, their mantra was, “we just want the money”.  Typical startup guys.   Now “the pirates are getting more ambitious”.  They are scaling up, reinvesting profits, organizing and moving up the value chain.

Take, for instance, Mohamed Garfanji, a pirate boss.  He organized the hijacking of half a dozen ships, and used the millions of dollars in ransom money, not on high living and women and drugs, but on building a small infantry division, well trained, comprising several hundred men, 80 heavy machine guns and fleet of large trucks with antiaircraft guns.  This is a formidable force. It is now ‘for hire’,   offered to local authorities who need law and order in a country where there has been no real central government since 1991 and no real force to oppose the Shabab, the rabble of Muslim fundamentalists.  (An African Union force, and Ethiopian army contingent, have been ineffective).   Garfanji offers real value creation to his clients.  And he makes his mother proud.

2010 is proving to be a banner year for hijacking, with some 30 ships hijacked already, bringing millions in revenue.  Piracy is definitely a growth industry.  Shipping firms prefer to ignore the problem, and would rather pay ransom than invest in armed guards or other prevention measures.  But the pirates are diversifying.  They are reinvesting their income to hedge their bets, just in case the technologically-advanced world with its $2 b. aircraft carriers each  housing 80  F-18 fighter jets   really does figure out a way to deal with uneducated teenagers armed with Kalachnikovs and tiny motorboats.   So far, the F-18s are losing.

[1] “Jeffrey Gettleman, “In Somali civil war, both sides embrace pirates”.  NYT Sept. 1/2010.


Blog entries written by Prof. Shlomo Maital

Shlomo Maital
September 2010
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