Piracy in the Gulf of Aden: The legacy of a failed state.

In recent weeks pictures of teary reunions between liberated crew members and their families have once again brought piracy back to centre stage. Daring commando raids and Kalashnikov totting pirates have been gold-dust for a media otherwise engaged in an increasingly stale commentary of the global recession. Several prominent leaders have affirmed their commitment to combating the scourge of piracy, President Obama declaring that he was “resolved to halt the rise of poverty”.

In the meantime, attacks in the Gulf of Aden have continued and both ships and crews from all around the world are docked off the coast of Somalia in the possession of various pirate gangs. The response to the increased threat of piracy in the Gulf of Aden, while politically expedient is likely to be prove ineffective. Reinforcing the Naval presence in the area while potentially helpful is merely a superficial response to a more profound problem. With a vast area to patrol, 6.6 million square kilometres, and a limited number of ships, the international naval presence is spread thin.

The Gulf of Aden is a vital artery for world trade and approximately 20,000 ships pass through it every year. According to the International Maritime Bureau there were 111 attacks on shipping in the gulf last year of which 42 were successful. Sources from nearby countries put the ransom money from these operations at $350 million, a very significant amount in a country where GDP per capita hovers around $600. In recent months the naval presence in the area has been bulked up with forces now hailing from China, India, Italy, Russia, France, the United States, Denmark, Saudi Arabia, Malaysia, Greece, Turkey, Britain, and Germany patrolling the waters off the coast of Somlia. However, this approach seems to be having little or no effect on the security of shipping in the area, with the Maritime Bureau reporting over 70 attacks so far this year.

While the success percentage of the attacks is relatively low and the percentage likelihood of a boat even being attacked in the Gulf of Aden is around 0.5%, the threat from piracy has had several significant consequences. Insurance costs for boats travelling in this area have increased, and this twinned with the fear of attack has led to many ships being diverted around the Cape of Good Hope, resulting in higher costs and slower transport times. Also, boats passing through the Gulf pay for access to the Suez Canal providing much welcome income to the Egyptian government, with revenues declining Somali piracy could have a negative impact on regional stability. Estimates of the total cost of global piracy range from $1 billion to as high as $16 billion

How should be respond to the growing threat of piracy? The sheer vastness of the area to be patrolled renders patrols mostly ineffective, and shipping companies reject calls for convoys on the grounds that they would introduce too many constraints on ship movements. The UN introduced passed four resolutions in 2008 which aimed to help combat piracy by permitting the pursuit of pirates within Somali jurisdiction (with Somalia’s consent). Yet the reality is that prosecuting pirates is almost impossible due to the innumerable complexities of international law. Recent debates have centred on possible links between terrorism and piracy, but the links between the two seem at best “tenuous”.

Any responses up until this point have been almost entirely defensive in nature; arming crews, hiring private security to protect boats, and as discussed above increased naval patrols. Other suggestions are the formation of a regional anti-piracy framework such as that which was effective in combating pirates in the Straits of Malacca, which link the Indian and the Pacific Oceans. However this proposal, as well as that for the formation of a Somali coast guard, tend to overlook the internal instability in Somalia which renders any such step almost impossible. For as Defence Secretary Robert Gates recently stated “piracy will continue to flourish in the area until a stable government is installed in Mogadishu”.

The link between the absence of any central Somali authority and the growing incidences of piracy is illustrated by the fact that during the brief rule of the Islamic Courts Union in 2006 attacks in the Gulf were almost non-existent. However, political appetite for intervention to reinforce the authority of a Somali government could not be less. Not only does the US have haunting memories of the ill-fated military intervention in 1993 which has become synonymous with the call “Black hawk down”, but current interventions in Iraq and Afghanistan are currently absorbing the energies of many western nations.

What does this mean? The reality is that while the pirate attacks in the Gulf of Aden are a threat both to commerce and to the safety of crews, this threat is not sufficient to justify the land based intervention that is necessary to tackle the root of the problem. States and shipping companies will continue to follow a defensive strategy, aiming to minimise the number and success of pirate attacks. Meanwhile, the pirates will continue to invest in faster boats, better weaponry and more advanced technology. An escalation of violence, especially in the aftermath of recent US and French commando operations, seems almost inevitable.

What future for Aid?

As countries revenue streams tumble and their debt obligations continue to rise, budgets are coming under increasing scrutiny. One facet of spending which is likely to meet with increasing opposition is aid commitments. This tendency will undoubtedly be widely decried as morally corrupt. However is this reaction justified, is aid really that vital? Should we urgently resist any attempt to cut aid, or as Dambisa Moyo declares, is aid is the problem rather than the solution?

Taking the case of bilateral aid (rather than emergency aid) to Africa there is a broad spectrum of opinions. Moyo, in her book Dead Aid, provides an avalanche of figures supporting her statement that aid has in fact constrained their ascent up the ladder of economic development by fostering a culture of dependency, encouraging corruption, and propping up repressive and autocratic regimes. She cites the case of Zimbabwe and the $300 million aid it received in 2003 as an example of providing a lifeline to a struggling dictator, while Professor Bill Easterly another prominent critic of aid cites western payouts to Mobutu Sese Seko of Zaire. The idea that aid could encourage corruption and lethargy on behalf of governments and state officials is one which seems plausible, because it is fungible aid may be easily stolen redirected or extracted and stories of Mugabe’s excesses in Zambia and that of other African leaders are well renowned. Indeed, in 1999, the Economist estimated that African leaders had stowed $20bn in Swiss bank accounts. What is more, the recent growth rates of several African countries heavily dependent on aid, when compared to the growth rate of other developing countries such as those of SE Asia do not act as a good advocate for increasing or even maintaining aid flows to these countries.

However, these figures taken in isolation can provide a somewhat misleading picture. Africa, suffers from what geographical determinists like Jared Diamond see as several natural disadvantages- a harsh climate, arbitrarily drawn borders, ethnic diversity etc. What is more, the fact that corrupt African countries receive a lot of aid is not proof of a causal link between aid and corruption. Paul Collier, an economist at Oxford, determined that aid flows are subject to less corruption than other revenue sources, such as those emanating from natural resources, a finding which suggests that aid is far from the absolute corrupter that critics make it out to be, but rather a result of a broader socio-economic context. Where there is significant disaccord is on the interpretation of statistical studies which attempt to establish a relationship between aid and economic growth. Where Moyo sees a hindrance, Burnside and Dollar, two economists at the World Bank found that aid is positively correlated with growth, albeit with a diminishing rate of return. While the studies on the impact of aid on economic growth may be somewhat open to contestation, aid has had other positive effects which are widely accepted even by its critics. Professor Easterly accepts that “foreign aid likely contributed to some notable successes on a global scale, such as dramatic improvement in health and education indicators in poor countries”, and a dramatic increase in life expectancy on the African continent. This equates to saving people’s lives, a fact that it would be difficult if not impossible to give a monetary value.

It is difficult to oppose the notion that large flows of bilateral aid provide a dangerous temptation to engage in corrupt practices. However, this can be countered by increased transparency and a more efficient monitoring of the spending of aid moneys. The idea of an international independent evaluation group made up of staff trained in the scientific method from the rich and poor countries, who will evaluate random samples of each aid agency's efforts seems particular noteworthy.

So what is the solution for Africa, a continent which remains firmly rooted at the bottom of league tables measuring economic performance, life expectancy and many others? Aid should not be viewed as a long term solution, nor should it be seen as disposable in the short term. Jeffrey Sachs, author of “The End of Poverty” is a proponent of the “big push” approach which advances the notion of a significant increase in aid in order to stimulate a rapid 'step' increase in Africa's underlying productivity, both rural and urban. Dambisa Moyo suggests a phone call to African governments telling them aid will stop in 5 years, in order to rouse them from their aid induced stupor and encourage them to seek help from international markets, in particular FDI and bond offerings. Robert Calderisi, who spent three decades working for the World Bank suggests cutting aid to African countries in half and focusing on supporting governments who are serious about pursuing reform.

Whatever approach is adopted it must keep at its forefront the welfare of the people of Africa, and favour their long term security and economic independence. However it is worth calling to mind the statement of President Kennedy that “to those peoples in the huts and villages across the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves, for whatever period is required—not because the Communists may be doing it, not because we seek their votes, but because it is right. If a free society cannot help the many who are poor, it cannot save the few who are rich.”

Ireland's emergency budget: Swimming against the current.

I wrote some time ago about how the Irish economic outlook was looking bleak. Unfortunately the situation has since deteriorated. On the 27th of March Standard and Poor’s downgraded the Irish sovereign debt rating from AAA to AA-plus, and labelled its outlook rating as “negative” meaning a future downgrade could be on the cards. As fiscal receipts tumble and the demand for welfare payment booms the budget deficit for 2009-10 is estimated at around 12%. With Standard and Poor’s predicting that Ireland’s net general government debt burden could peak at over 70 per cent of gross domestic product by 2013, and GDP declining by 7.5% in the last quarter of 2008, the call for a decisive response could not be clearer.

So it was with a sense of baited breath that many in Ireland waited for the emergency budget which was released this Tuesday the 6th of April. The task facing finance minster Brian Lenihan was nothing short of Augean. Faced with a burgeoning public sector pension burden, a public service unwilling to forgo any of their privileges, a banking sector who have lost the confidence of investors and consumers alike, and a private sector who are facing an exodus of the FDI few, if any, can see the light at the end of the tunnel. Indeed, many were questioning if Brian Cowen’s government was capable of discerning a path which would lead Ireland back up towards daylight.

The emergency budget set out to try and slow Irelands slide towards ever greater debt and attempt to prop up a banking system which lies paralysed and some argue insolvent. The centre piece of the measures to reign in the deficit is a levy of 2, 4, and 6% respectively on the gross income of those earning above 5,028 euro, 75,036 and 174,980 euro. This levy seems to be a clear statement by the government that they believe that while the G20 calls for ever greater stimulus packages, Ireland simply cannot afford to further imperil its public finances. Brian Lenihan believes that the higher interest rates which would accompany further borrowing would outweigh the positive aspects of an increase in spending.
However, the government also announced the creation of the National Asset Management Company which will take over €80-€90bn of bad loans. This makes Ireland the first EU country to implement the much debated bad bank solution in a bid to restore liquidity in the Irish credit markets, and also burdens the government with the debt it is trying to minimise. The government argues that this is justifiable as the negative economic effects of a continued nuclear winter in Irish lending markets would be catastrophic for national GDP, unemployment rates and the confidence of the international markets.


While Brian Lenihan’s move against the consensus expressed at the G20 for financial stimulus may at first to appear to be foolish, the markets lack of faith in Ireland’s ability to repay its debt, the restrictions on monetary freedom imposed by membership of the Euro lend it a certain air of sagacity. Ireland’s recovery will depend on export led growth and thus it is key that we strive to minimise the extent to which our ability to respond to the eventual global recovery is compromised by the debt burden. The next task, in the name of both equality and economic rationality is to tackle the bureaucracy that cripples the efficiency of the public sector and the health of the Irish exchequer. This will be neither popular nor straightforward, but unless government spending is brought back into a sustainable range Ireland’s recovery will be seriously impaired. With the latest budget it seems that Brian Lenihan has picked the right road. Now he must continue in the same direction, delays must be avoided for in the current environment hesitation spells devastating consequences.