Somali 'Piracy Crisis': Pirates or Coastguards?

Commentary - Executive magazine
By Paul Cochrane in Beirut

Piracy off the coast of Somalia has become another ‘global crisis.’ It took the hijacking of a US ship last month and the media hyped antics of the US Navy in ‘neutralizing’ the rogue elements – three shots, three dead pirates – to make it onto the crisis list.
Yet piracy has been a problem off Somalia for as long as this East African country has been in a state of crisis, since 1991. And it is not a clear-cut case of the good guys – merchant seamen - versus the baddies – Somali pirates.
The dire situation in Somalia is what triggered a surge in piracy that has, like the conflict itself, many regional and international players involved. As an essentially failed state there are no means for patrolling Somalia’s coastline. This has been a scourge for the Somalis as well as the 33,000 ships a year that sail either side of the Horn of Africa. With no regulation, the seas were a free-for-all and the area became a rich source for unscrupulous seafarers.
In the year following the overthrow of the Union of Islamic Courts by US-backed Ethiopian troops in Dec. 2006, there were 31 attacks on ships. As the conflict in Somalia heated up, the number of attacks spiked to 122 in 2008, while in the four months of this year there have been 79 attacks. Pirates are currently holding 280 crewmen on 14 ships for ransom.
But while pirates demand millions of dollars to release hijacked ships, Somalis and the UN have claimed that foreign ships, primarily European, have been dumping toxic and nuclear waste off the coast to avoid high waste disposal costs elsewhere. When some of this toxic waste washed ashore, over 300 people died from radiation sickness.
Illegal fishing has also taken its toll, with an estimated $300 million worth of fish trawled every year. According to news reports, stocks are running so low Somalisare struggling to survive. Vigilante justice ensued when local fishermen took to the seas to levy ‘taxes’ and seize ships suspected of dumping and illegal fishing, calling themselves the Volunteer Coastguard of Somalia.
It was a measure that has popular backing in Somalia, as has actual piracy. According to an editorial in Somali news site WardheerNews, 70 percent of those polled “strongly viewed the piracy as a form of crude, primitive, if you will, national defense of the country’s territorial waters.”
It is a bit of a stretch however to say a ship hijacked up to 900 nautical miles off the coast is national defense, particularly with the ransoms paid out funding militias in Somalia. But such piracy could be viewed like the folkloric hero Robin Hood, robbing the rich to feed (and arm) the poor. After all, whether someone is referred to as a pirate depends on how they are regarded, similar to the way ‘one man’s terrorist is another man’s freedom fighter.’
Take Captain Morgan of Jamaican rum fame, who was a privateer in the service of the British navy in the Caribbean in the late 1600s, attacking Spanish flotillas laden with booty. Morgan and his ilk – what we might now refer to as maritime mercenaries – served a foreign policy objective by pillaging from the Spanish, but crucially set the course for Britain to become an empire through its domination of the seas. Piracy had its uses, and for his efforts Morgan was made the Lieutenant Governor of Jamaica. The founder of New Orleans was also a pirate and during the American Revolution,George Washington, lacking a navy, paid pirates to patrol the coast.
Piracy could also be considered a policy common to the financial world, whether it’s offshore banking havens that launder dirty money or of the more cutthroat capitalist variety. There was even a recent posting on the Wall Street Journal’s blog on “Piracy vs. Private Equity: A Comparison.” Similarities were the seizing of assets and adopting a “all for one, one for all” partnership model, but where piracy demands a ransom to divide among the pirates, PE has a dividend recap, then sale or initial public offering.
And just as tighter regulations of the free market are being sought,amid the global financial crisis,amid the global financial crisis, NATO is debating whether to provide armed convoys for ships plying Somalia’s waters. But despite the 15 to 20 warships under UN auspices currently off the coast, Somalis claim navy vessels are protecting illegal trawlers that were initially scared off by its volunteer coastguard.
While some temporary measures are needed to protect shipping routes, the real solution to the crisis lies on land. With stability, Somalia would have less need to resort to piracy – defensive or offensive - and its natural resources could be better protected. If one good thing can be said of the ‘piracy crisis’, it is bringing attention to the ramifications of a failed state.

Auto Sector in UAE, Gulf Region Not Immune to Global Meltdown

By Paul Cochrane in Dubai
WardsAuto.com, April 13, 2009

While the economic slowdown in the UAE is being felt all over, the country’s auto sector is adopting new financial strategies and a greater focus on services as access to credit tightens.
Vehicles sales in the United Arab Emirates plunged by up to 45% in the first two months of the year compared to 2008, according to Ford, a remarkable change in fortunes from the years of double-digit growth when the $3.6 billion sector was one of the fastest growing in the world.
“Since October, traffic has been different, the roads are noticeably quieter,” said Mike Devereux, President of GM Middle East. “And the end of the third quarter 2008 was vastly different from the fourth for manufacturers. This year we are looking at a decrease overall, with the same daily sales rates since December to now.”
But while the economic slowdown in the Emirates is being felt across the board, the automotive sector is adopting new financial strategies and a greater focus on services to shift units as access to credit tightens.
“The financial crisis has certainly affected automotive sales in the UAE, with banks applying more restrictions on financing. And since nearly 80% of the UAE's automotive sales are dependant on financing, this is more evident locally,” said Waldo Galan, Managing Director of Ford Middle East. “Overall for 2009, we expect the automotive industry to achieve minimal growth in the UAE.”
In the face of tighter lending, manufacturers and dealers are teaming up with banks to offer zero percent interest on vehicle sales and making credit more readily available to customers. The most notable change in sales strategy has been the widespread introduction of leasing, a technique dealers had formerly eschewed as vehicle prices were low and customers preferred to buy.
“Financing is a problem so schemes have to be more tactically focused. Screaming the price from the rooftops is not what it’s about, but customer issues. Lots of people want vehicles but need financing, so we’re focusing on a partnerships with the National Commercial Bank (NCB) of Saudi Arabia and in the UAE a car leasing scheme,” said Devereux.
While enticing customers into showrooms is one concern for the manufacturers, so is keeping dealerships afloat, having ordered vehicles months in advance that can now not be sold or re-exported elsewhere. Furthermore, 2009’s models are now on sale yet dealers have not shifted all of last year’s lines.
“Credit, wholesale finance, and bank loans are difficult for dealers. Stock levels for dealers means reduced working capital so less money in the inventory,” said Devereux. “We will winnow down our inventory and import much less cars.”
And while there is an excess of unsold cars, manufacturers are hesitant to offload vehicles in fleet deals and government tenders.
“We’re trying not to chase unprofitable fleet tenders that we would have done before, as there is little to no margin. Price is important, and if flooding the market with 2-3 year old vehicles, too much value at a low price,” said Devereux. “We are now focusing on the retail business, with 65% retail and 35% fleet.”
Consumer preferences are also expected to shift towards more competitive fuel efficiency, fewer SUVs and trucks, and more crossovers, such as GM’s Chevrolet Cruise.
“While demand for luxury vehicles would possibly see a reduction, quality and value would still remain on top of the consumer's list,” said Galan. “We believe that consumers will act more out of a rational mindset and look for quality and value for money rather than the emotional drive.”
Such consumer shifts were taking shape last year with Kia reporting a 60% jump in sales over 2007. Japanese brands, which have the lion’s share of the market, at 40%, are also focusing on more efficient models. European brands cater more to the luxury sector with 30% market share, while the remaining 30% is equally divided between American and Korean brands.
Some 180,000 units were sold last year in the UAE, according to Ford. Last year, Ford, Lincoln and Mercury sales grew 35%, while GM sales were up 19%, and up 30% in the Middle East, with an all time record of 144,485 units sold.
After sales is a further area manufacturers and dealers are focusing on as sales stagnate, a sector valued in the Middle East at some $11 billion, while the UAE tire trade is valued at AED 4.15 billion and slated to grow this year.
“We don't see a change in after parts as value has grown. There is a big focus now on services, which will be a stable haven in a downturn. Most dealers here are under invested in service capacity, and the number of vehicles has increased so quickly,” said Devereux. “There is a need to invest in new services as vehicles are coming into prime servicing years after 2-3 years since purchase.”
While manufacturers continue to monitor the local environment, they are optimistic that revenues will go up next year as supply and demand aligns, even though it might not be the double-digit figures of the boom years.

Imports up, food production down, GCC eyes arable land overseas

By Paul Cochrane in Dubai
Executive magazine

Last year, food was big news as prices soared globally by 54.9 percent and associated riots erupted in 60 countries, while in the Arab world the shortage in food sufficiency was estimated at $18 billion by the Arab Authority for Agricultural Investment and Development (AAAID). In the Gulf countries, dependent to the tune of $12 billion a year on imports and agricultural water consumption at unsustainable levels, the issue took on grave importance. State and private investors promptly started eying up arable land in Africa and Asia to secure food for a region that is expected to increase import dependency to 60 percent by 2010, according to the UN’s Food and Agriculture Organization (FAO).
But while food prices and commodities have reduced in the wake of lower oil prices and the global financial crisis, the issue of food security has not gone away. Although whether all the touted agribusiness projects will take off is not a given as Sovereign Wealth Funds (SWFs) and private investors tighten their belts in the face of the slowdown.

The big issues

The Arab world’s population ballooned 121.9 percent between 1975-2005, while over a similar period, 1980-2004, the region’s food grain and meat production increased by 93 percent.
The shortfall was not overly concerning given access to the free market and staples such as wheat and rice being fair cheap, certainly affordable enough for governments to subsidize. Additionally, countries such as Saudi Arabia, Syria and Iraq were involved in large-scale agricultural projects to boost domestic production.
Saudi Arabia, for instance, spent a staggering $85 billion on agricultural development between 1984-2000, according to estimates by Elie Elhadj in The Middle East Review of International Affairs.
But the cost of such investment has gone beyond budgetary concerns. Aside from the fact that Saudi Arabia was paying up to $500 a ton for domestically produced wheat - whereas international market rates were around $120 – to maintain local agriculture some 300 billion cubic meters of water was used between 1980-1999, two-thirds of it non-renewable, according to the Ministry of Agriculture and Water. Such a gigantic amount of water was needed to grow produce in the kingdom’s arid climate, which is two to three times more water than required in a temperate climate.


After investing an estimated $16-18.7 billion over the last 30 years on its wheat program, according to BMI, Riyadh last year decided to phase out production due to water shortages. The costs versus the benefits were no longer sustainable, having been self-sufficient in wheat since the 1980s when production reach 4 million tones per year, but now a net importer and as of 2016 totally dependent on imports. Furthermore, with Saudi Arabia joining the WTO, the kingdom has to abide by the organization’s requirement to reduce state support for agriculture to 13.3 percent over the next decade. This will have other knock on effects, such as on the 12 percent of the workforce involved in a sector that accounts for just 3.3 percent of GDP.
Saudi Arabia is not the only country re-thinking its agriculture policies, with the region losing an estimated one million hectares a year to salinity, according to Dr Shoaib Ismail, a halophyte agronomist at the International Center for Biosaline Research (ICBR) in Dubai.

Crop circles in Saudi Arabia

“Twenty years ago there was good quality water everywhere. Now there is one-third seawater concentration in the groundwater, and salinity is even higher in other places. Mismanagement has led to more salinity,” said Ismail. “Some 85 percent of water usage in the GCC is for agriculture, the highest in the world. In that sense, the question arises, how feasible is agriculture over here?”
The short answer is that it isn’t. Even producing processed foodstuffs for domestic consumption and export requires water, what has been called the “export of virtual water,” and may have to be re-thought given looming water constraints.
One solution is to use halophytes, plants that grow under high saline conditions, as opposed to glycophytes, non-salt loving plants, an alternative the ICBR is involved in. But while halophytes could be used to replace more water intensive plants and trees, such plants would not produce adequate amounts of food. It is in landscaping, which accounts for 18 percent of water use in the UAE, that plants and non-conventional grasses can be advantageous, according to Ismail.
Oman is developing a salinity plan, and has invested in a project to clean water from the oil industry, as for every barrel of oil pumped out of the ground seven barrels of water are used. The UAE has also developed a Master Development Plan to assess water usage and improve efficiency, such as changing irrigation systems, phasing out subsidies and expanding water pricing to include agriculture and industry.
Desalinization is another touted panacea for the region’s water concerns, but costing between $0.81-$1 per cubic meter, desalinated water is too expensive for agricultural usage.
“Building new desalinization plants is not the solution, as warms up the sea and affects marine life,” said Ismail. It also increases the sea’s salinity and, once entering groundwater, makes fresh water even more brackish, of little to no use to either man or beast.

Dr Ismail is not optimistic about improved use of water resources in the region

Eying pastures new

With wheat prices rising 83 percent last year and other staples doubling in price, governments started eating into their reserves to placate populations that were spending ever larger amounts of their income on food.
Over in Pakistan, the NGO Oxfam reported that due to food inflation the number of poor has risen from 60 million to 77 million since 2007, while in the Arab world the AAAID predicted some 35 million people were falling into poverty due to high food costs. With the region having an overwhelmingly young population and high population growth, food security is paramount.
For the GCC, the surge in food prices didn’t push people under the poverty line, but was a contributor to inflationary pressures. And with the population expected to double by 2038 to 60 million, demand for food will continue to grow at a rapid pace. Saudi Arabia, the Gulf’s most populated country, already imports some $5 billion a year of food and beverage items, according to BMI, and that will figure will spike in years to come.


“Food security is officially defined not just as a shortage, but also looking at availability and affordability,” said George Attala, a Principal at Booz Allen Hamilton. “There are a number of ways to ensure supply is always available. One is try and diversify sources, not all wheat from say Ukraine. Another is look at internal networks, such as imports through more than one port. A third way is storage capacity, of four to six months, while the fourth is to get into contract farming, but that is not always the best solution.”
Essentially, the Middle East is left with two choices.
“The region has to import. The question is, invest abroad or rely on the free market?” said Dr Eckart Woertz, program manager in economics at the Gulf Research Center in Dubai.
Last year, Arab states appeared to be opting for the first choice in the face of high food prices, with government missions from Saudi Arabia, the UAE, Qatar, Kuwait, Egypt and Libya visiting Pakistan, Ethiopia, Cambodia, Uganda, Angola, Kazakhstan, Ukraine, Thailand and the Philippines to discuss the possibilities of buying up arable land to cultivate. The private sector also got in on the act, with the likes of the Emirates Investment Group, Abraaj Capital, Al Qudra Holding and the Bin Laden Group reportedly acquiring land in Sudan and Pakistan.
But such policies are not always popular, and also not necessarily dependable sources in the long run. “For the GCC it is a ‘pros and cons’ situation. In the short term it is profitable to buy or lease land, but it also depends on the geopolitical situation. A country may be a friend today, but might not be tomorrow, so it is a dependency issue,” said Ismail.
Last year, the FAO warned that rich countries trying to secure land overseas risked creating a “neo-colonial” system. The concerns were related to Gulf investments in Sudan where only indigenous water and land were used, whereas fertilizer, seeds, equipment and labor came from abroad. It was a similar story in Pakistan.
As Woertz remarked, “the negative case is bribe an African official, then expel locals and pastoralists, so no benefit for the local population at all. There is political baggage.” Furthermore, he added, “the GCC doesn’t have a good track record of labor rights or the environment, and these need to be taken into consideration.”
And while the countries being courted may be interested in foreign investment, they also have to feed their own populations. Sudan for instance has an estimated 200 million acres of fertile land, yet only 20 percent is being utilized. However, despite 160 million acres of available arable land, the country is importing two millions tons of wheat per year and five million people are dependent on food aid. Similarly, Pakistan is facing problems in feeding its population, as well as losing groundwater to salinity.
But although there are many reports on plans to buy land, there has been minimal information coming forth about these projects, with “transparency limited to media accounts,” said Woertz. “They announce it - billion dollar deals - but it is unclear whether it has taken off the ground, and how the private sector has been brought in.”
An additional factor is that discussions to acquire land overseas were kicked off when oil and food prices were higher. “The urgency is not there now and there is less money to throw around,” said Woertz. “The SWFs lost money in the markets and have less revenues, so [acquiring land abroad] may not be such a widespread phenomenon as made out.”

Photographs by Paul Cochrane