Sharp end of the financial stick

One of the poorest around is Somalia; dogged by civil war, tribal warfare and a defunct economy, many turned to piracy as a viable economic option.

Remittances from abroad are the biggest foreign currency earner for Somalia accounting for an estimed one-third of the economy. An estimated 600,000 to 800,000 Somalis living in the diaspora send home some $1.3bn a year to support around 3.8m people. The largest amount comes from the US but virtually all major US banks have stopped offering remittance services to Somalis because of counter-terrorism regulations.

Experts are warning that the US policy may prove counterproductive in combating terrorism as the closing of legal channels will cause the money to find illegal means to transfer funds, thereby abetting money laundering and support for potential terrorism.

This could well have repercussions on the maritime industry as the ending of the money flow will cause additional people to engage in illegal activity, including piracy. In the UK there is a serious threat to cut the legal transfer of funds as major banks are concerned about being caught up in anti-terrorism regulations. Barclays is one such bank that has announced that it will end transfers, thereby causing a political protest in the UK against the move.

As the threat of piracy increases, vessel operators passing by the Horn of Africa will need to spend more money on security, including carrying armed guards as well as having to steam at full speed in an effort to get through the zone quickly. This in turn impacts the economic cost of shipping goods as operating and insurance cover costs increase. This eventually feeds back to the shippers who will have to pay more to get their goods to their destinations.

The economic lesson here is that we cannot forget that decisions not related to international trade of goods can have a direct impact nonetheless. Clearly the war on terror has broader implications than we imagined.