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Investing in Piracy with the Somalian Stock Exchange

The Clarksvillian

The Dutch East India Company, based in Amsterdam, was the first to engage in modern stock trading. It raised money by selling shares to the public and paying dividends based on the success of its ventures, which typically involved long voyages at sea. To some extent, the Pirate Stock Exchange in Somalia has managed to keep a lot of the original ethos of the Dutch East India Company.


While no reliable statistics exist to substantiate the number of firms listed, The WSJ claims the Harardhere Pirate Stock Exchange had over seventy different nautical operations listed during their peak periods. Compounded by the lack of a structured national government, it left the town of Harardhere off the proverbial radar of oversight bodies. The reasons Somalis join these pirate groups are too common among locals - avoidance of a militant lifestyle, poverty, and thievery. The world of Somali pirating is much more commercialized than you might expect.


The town of Harardhere has its own stock exchange, where anyone can take part in over 72 maritime firms as a venture capitalist. These investments and "jobs" are the economic engines that propel the entire community's economy. A western understanding may be more easily viewed through the lens of Somali pirates acting as capitalists with simple investment venture capital. It's a very dirty and ugly comparison, but it fits.


How does it work?


When a pirate mission is successful, similar to the days of the Dutch East India Company, the investors who financed the trip receive a portion of the total revenues.

“The shares are open to all, and everybody can take part, whether personally at sea or on land by providing cash, weapons, or useful materials… We’ve made piracy a community activity,” a former pirate revealed.

“Piracy-related business has become the main profitable economic activity in our area and as locals, we depend on their output,” says local security officer Mohamed Adam.


This Somali business plan is remarkably similar to how joint-stock companies developed in many European countries. Except the operators are pirates, rather than merchant ships.


So, how do all the moving pieces work together?


Each pirate operation includes innovative individuals and potential investors scour trading channels for the strongest opportunities for high rates of return.


The pirates use the Pirate Stock Exchange to fund their trip when a profitable opportunity comes along. Anyone can invest in the trek by donating food, kerosene, weapons, information, or good old-fashioned cash.


The pirates then stalk and attack container ships along routes they have researched for the most precious cargo there are hostages. According to Invstr, sailor hostages earn these entrepreneurial criminals an average of $4 million from Western shipping insurance per “job.” Once the cash is secured, everybody goes home relatively unscathed, and the process is repeated until there is no money left to be made. One lady invested an RPG-7 towards such a venture and apparently received a hefty $75k in return.


Here in the U.S., large law firms can structure lawsuits with potentially large payouts and request financial investments in that lawsuit. Then the opportunity presents itself to sell shares of these lawsuits to cover things like expert witnesses, lodging fees, travel expenses, hourly fees, and room service. If a firm loses that lawsuit, the firm still gets paid. Great, right?


The Somalis may be further down the road to westernization than a first glance might suggest.


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