This thesis estimates the macroeconomic effect of Somali piracy through the measurement and analysis of the costs that the phenomenon imposes on container shipping. Piracy incidents in the wider area of the Gulf of Aden have been intensified over the last years and are creating and levying immense costs that are a heavy burden on Governments, the Shipping Industry and World Trade, which consequently, are also levied onto the markets’ consumers – this is especially the case because the area of Somali piracy activity covers the busy sea trade route between Europe and Asia; the Suez Canal. This research has calculated the cost of Somali piracy per container per year that passes through the High Risk Area (HRA) to be 29 US Dollars – a total cost of 3.4 billion US Dollars per year spread over 116.4 million containers. By treating this cost as a tariff equivalent on container shipping and by using the Global Simulation Model (GSIM) developed by J. Francois and H. K. Hall (2003) we have estimated its effect on welfare, prices, output and bilateral trade of a sample of 10 countries and the Rest of the World (ROW). We find that in terms of welfare countries experience a loss of nearly 77 billion US Dollars. In terms of prices, we find that piracy leads to an average increase of 1.4 percent and in terms of output an average decrease of 0.9 percent. World trade is heavily affected. We estimate that there is a reduction to world trade of roughly 80 billion US Dollars annually. Looking at country-specific effects, we find that in terms of welfare as well as value of trade, China and the European Union are the most affected and Brazil and Australia the least in absolute values. Countries inside or in the wider area affected by piracy, such as the United Arab Emirates, Saudi Arabia and India are fundamentally affected taking their trade sizes into consideration. Overall we reached the conclusion that Somali Piracy indeed has a significant economic effect on container shipping trade and that it is becoming apparent in different ways. Moreover, we ran a hypothetical scenario of a 30% decrease in the cost of Somali Piracy per TEU to show the benefits that can be derived if the international community engages the phenomenon appropriately. A 30% hypothetical reduction in Somali piracy activities – either by addressing the cause of piracy in Somaliland or by effectively combating piracy at sea – can lead to welfare gains of 25 billion US Dollars and a world trade value increase of 26 billion US Dollars.

Berden, K. (Koen)
Maritime Economics and Logistics
Erasmus School of Economics

Anastasiadis, E.A. (Epameinondas). (2012, September 14). An Economic Impact Assessment of Somali Piracy. Maritime Economics and Logistics. Retrieved from