Annual Global Cost of Piracy Measured in Billions

The global cost of piracy, including the cost of piracy off eastern Africa, remains uncertain, with existing assessments providing divergent estimates and conclusions. Studies carried out by RAND Institute and the IMB have estimated piracy costs to range between US$1 and US$16 billion per year, according to the latest UNCTAD report on maritime piracy.

The huge gap between the two exists due to the fact that existing studies differ in terms of their methodology and approach and, therefore, are neither directly comparable, nor provide a definite authoritative assessment of piracy ‐ related costs.

As explained, existing studies tend to primarily focus on calculating first ‐ order costs such as the cost of ransoms, security deterrence equipment and naval forces deployment. The secondary costs of piracy, such as the effects on foreign investment in the affected and neighbouring regions, or on commodity prices appear so far to have benefited from much less attention.

A large scale study in the field was carried out by the One Earth Future (OEF) Foundation as part of its Oceans Beyond Piracy (OBP) project.  The OEF carried out three assessment reports, the results of which were published in 2011, 2012 and 2013, respectively.

The OEF estimates the total cost of piracy off the coast of Somalia at US$7–US$12 billion in 2010; US$6.6–US$6.9 billion in 2011 42 and US$5.7–US$6.1 billion in 2012.

“While over 80 per cent of these costs were estimated to be borne by the shipping industry, 20 per cent were estimated to be borne by governments,” the report reads.

Averaging out all related expenses, the cost per incident was valued at US$82.7 million in 2012 – a total of 189 per cent increase over the US$28.6 million estimated for 2011.

Based on the report, this reflects the 70 per cent drop in the incidence of piracy between 2011 and 2012 and a much smaller drop in the cost (8.2 per cent) of combating piracy during that same time period.

More recently, in 2013, the World Bank has estimated the global economic cost of piracy off the coast of Somalia at US$18 billion, with a margin of error of roughly US$6 billion.

Acting as a hidden tax on world trade, this amount reflects in particular increased trade costs; it does not account for losses to tourism and fisheries, which are addressed separately.

The report notes that in terms of order of magnitude the estimate is in line with other assessments which, however, adopt a different methodology, notably the 2012 OEF/OBP assessment.

According to a preliminary assessment by the OEF, published in 2013, the direct economic impacts on West Africa of piracy in the Gulf of Guinea region are estimated to range between US$740 million and US$950 million in 2012.

[mappress]
UNCTAD, August 21, 2014