Mad Money Rules Mogadishu

Somalia in general, and Mogadishu in particular, have well-earned reputations as being among the most dangerous places on earth. The conflict- and poverty-stricken country, however, is also raking in fortunes for various players – from pirates to security companies. The tempo is set to rise with the discovery of oil off the coastline.

In any given week, one, some or all of the following take place in Mogadishu: an attack in a civilian-populated area aimed at dislodging an adversary’s hold in that area; desperate counterattacks to root out the aggressors; vows from either or all sides to eliminate ‘the violent elements’ in the country; kidnapping of a journalist or a foreign national and, of late, a US drone attack. Consequently, Mogadishu, the capital of Somalia, has had to take the rap for being the most dangerous city in the world. An unexpected and less-exposed facet to this city with a reputation for danger and poverty, however, is its potential for accumulating the incredible wealth amassed by the players in this violent city and country.

For residents and those familiar with the country, Somalia is home to two parallel worlds. The international perception of a treacherous and poor Somalia that is depicted in the mass media is indeed the reality for an overwhelming majority of the Somali population. In this community, the severe humanitarian crisis and devastation from more than 20 years of conflict is appallingly evident. This ‘poor Somalia’ is home to children, mothers and fathers who risk life and limb to maintain the normalcy of family life in an abnormal situation.

The other world accommodates those with connections to the hustling security companies, minerals and resources-hungry companies, sea trekkers proclaiming patriotism, government forces, the al-Qaeda-linked Al-Shabaab, so-called pan-Africanist rescuers, strategy-enthused regional brethren, opportunist ruffians, or the commonplace businessmen and fraudsters cashing in on the sorry state of affairs in the country. Mogadishu, as the locals say, is full of mad money. Many kinds of dishonest brokers have thrived during the 21-year conflict in the country and the absence of a government with legitimate authority over the nation.

Pirate prize

The most apparent and widely publicised of groups that have benefited from the country’s conflict are pirates who operate off the coast of Somalia, a strategic route for maritime trade. This route is considered one of the busiest, with more than a third of the world’s traded goods crossing there, and pirates have the benefit of the longest coastline of any African country (3,300 km) to operate from. As such, piracy has proved lucrative for those involved in it.

Ransoms demanded and received average in the millions, and have not been exempt from inflation either. In the early 2000s, ransoms demanded were in the tens to hundreds of thousands of dollars range. Since 2008, ransom demands have, on average, been above the million-dollar mark. The largest ransom paid so far has been the $9.5m paid in November 2010 for the release of the South Korean oil tanker Samho Dream. EUNAVFOR (European Union Naval Force, Somalia) estimates that in 2011, around 30 ransoms totalling $147m were paid.

Pirate groups place the figures much higher, insisting that official estimates undermine the actual figures to discourage increased ransom demands from various pirate groups and to underplay the gains of the pirates. Currently, different estimates put the number of people held hostage between 150 and 200.

There have also been indirect gains from piracy, the most obvious being the weapons and boat manufacturing companies, often based in Western countries, which provide the means of operations in exchange for cash and silence.

The danger and cost of piracy has also resulted in insurance premiums for the Gulf of Aden increasing, to the extent that as early as 2008, when piracy in the region doubled, the premiums increased tenfold, according to a Chatham House briefing by Roger Middleton.

Yet another undesirable offshoot of piracy, which is swept under the carpet, is that pirates use their ill-gotten money to make legitimate investments in countries outside Somalia. Neighbouring Kenya and Ethiopia as well as South Africa have seen the inflow of cash by pirates or representatives of pirates. Investments made range from property ownership to foreign exchange trade. The so-called ‘mad money’, which has seen mansions and SUVs pop up in poor villages, is both the motivator as well as the driving engine of piracy in country.

A different face of piracy, however, painted by local Somali communities who live along the coastline, depicts gangs of sea-trekkers who, while making a profit from their activities, serve the national interest. In the absence of any protection for the Somali waters, the pirates are seen as protecting the country’s fishing grounds, which are rich in tuna and mackerel plundered by foreign trawlers in these waters for decades. Fishing vessels from Europe and Asia have been implicated in robbing Somalia’s rich maritime resources.

A report published in February ahead of the London conference on Somalia by the New York-based Global Policy Forum, states that “having overfished their home waters, these sophisticated factory ships are seeking catch in one of the world’s richest remaining fishing zones”. The report continues to emphasise that “the foreign boats are an illegal, unreported and unregulated part of a growing international criminal fishing enterprise”.

The pirates get support as well as new recruits from local fishermen in coastal towns, who say their livelihoods have been hit by foreign trawlers who steal the country’s maritime resources and go as far as spraying Somali fishermen with boiling water from cannons to prevent them from fishing in the Somali waters. Many of the pirates are former fishermen, who have come to the conclusion that belonging to pirate gangs is better for their livelihoods as well as for the preservation of the country’s fishing industry.

(In)security firms

While piracy is proving very lucrative, making even more money than the pirates are those engaged in offering their services of protection against them. The rise in piracy has, as expected, produced a much-needed but ill-regulated maritime security industry.

According to a report released by Colorado-based One Earth Future Foundation, shipping companies spent $1.1bn on security equipment and armed guards. A further $635m was spent on insurance and the crews of ships received an extra $195m in pay for the risks of operating in the pirate-controlled areas. The Security Association for the Maritime Industry, which represents 120 armed security firms, puts the maritime security industry’s financial gains at more than $52m a month from an estimated 1,500 escorted journeys across the pirate-controlled coastline.

The presence of private security firms within Somalia has also increased. Often viewed with suspicion and portrayed as mercenaries, private security companies are hired by businessmen visiting Mogadishu, companies exploring opportunities in the country, government officials and their families, visiting diplomats and whoever has cash handy.

A company well known within Somalia is the disgraced South African-linked private military company Saracen International, which was identified by the UN Security Council as a threat to the peace and security of Somalia. Originally contracted under the Transitional Federal Government (TFG) for Presidential security protection and to train anti-piracy task forces, the firm was found to be breaking UN arms embargoes in Somalia eight months ago and announced the discontinuation of their military and security activities in the country.

Despite this, unconfirmed reports, according to witnesses and carried in Somali media reports, accuse Saracen of continuing to operate in Somalia, merely moving its base to the semi-autonomous region of Puntland. African countries are currently reviewing private security firms in the continent in preparation for adopting the International Code of Conduct for Private Security Service Providers to combat lethal and illegal activities by private security companies.

Hitting it big with oil

With East Africa now clearly emerging as a possible new hot zone for oil and natural gas, there has been increased engagement with different authorities in Somalia. The whole region is seeing a boom of activity, with major discoveries by Anadarko of the US and Italy’s Eni in the Indian Ocean off Mozambique and by Norway’s Statoil off neighbouring Tanzania.

Somalia, say experts, is on the cusp of becoming an oil state. Estimates of Somalia’s oil reserves are said to exceed 100bn barrels, making it potentially the seventh-largest oil nation. Drilling for the first oil well began in late January, with Canada’s Horn Petroleum Corp announcing “the spudding of Shabeel-1 well on the Dharoor Block” in semi-autonomous Puntland. Horn Petroleum Corp, a unit of Africa Oil Inc, has a 60% share on the Dharoor and Nugaal block in Puntland. The other partners on the Dharoor block are Range Resources Ltd and Red Emperor Resources, both of Australia, each with a 20% stake. The expectations of vast natural gas reserves in Somali waters in the Indian Ocean, following the discovery of an estimated 100 trillion cubic feet of gas off Mozambique and Tanzania, have also raised interest and outlooks by companies.

Additionally for Somalia, international shipping companies are planning ahead for the export of oil and gas from the other East African nations crossing the Somali waters, a venture sure to prove worthwhile.

Experts have warned that while the apparent discovery of oil reserves could help to rebuild the country, it also risked escalating the conflicts already existing in the region, and could even result in the newly found resources being pillaged. On the sidelines of the London Conference on Somalia held in late February, Somali Prime Minister Abdiweli Mohamed Ali said that, in future, a share of natural resources would be offered in return for help with reconstruction.

Whether oil and gas will intensify the conflict or be a catalyst for peace and development is unclear. However, Somalia will not be short of new players motivated by money. A win-win situation would be attracting players interested in stabilising the country as well.