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World's Weirdest Stock Market Will Soon Serve a $400 Million Industry

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Despite extremely poor local economies and global market turmoil, a sector rife with profits is enjoying unprecedented growth. After experiencing regional market expansion of 1500% in recent years, the Somali piracy sector looks ripe for IPOs.

Okay, obviously we don't mean legal IPOs, but the market indicators in the piracy "sector" put even the most buoyant of emerging nation industries to shame, according to a new report. 

The Economics of Piracy, a Geopolicity report from earlier this year, shows that income from piracy off the coast of Somalia (worth $238 million in 2010) “could rise to… $400 million by 2015 based on projections. Given the supply and demand for pirate services, and income disparity between pirates and non-pirates, there's plenty of room for expansion.” In an indication of the sector’s strength, operations were shown to become more frequent even as trade in the area declined.

So with that good potential for growth and demonstrated resilience to global economic trends in mind (remember that much of the sector’s expansion was during the Great Recession), we should look at some of the big players in the sector not as maritime criminals, but more as “the very essence of rational profit-maximizing entrepreneurs described in neo-classical economics,” say the study's authors.

Geopolicity’s “low case scenario for pirate revenues indicates remuneration at 67 times the current annual per capita GDP -- and the higher case up to 157 times that,” over the course of a five-year career in piracy. Even if the number of pirates were to double, the report’s data suggest that the average earnings would not drop significantly, demonstrating a lack of overexpansion risk. Plus, up to 70% of their revenue goes to financiers and support activities, ensuring continued backing and providing a more sustainable business model than that of, say, Groupon.

Some of the big players in the sector have definite potential to take their companies public -- in fact, some of them already have. Mohammed, a former pirate, told Reuters that “we decided to set up this stock exchange. We started with 15 'maritime companies' and now we are hosting 72. Ten of them have so far been successful at hijacking… 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." Some investors are enjoying previously impossible wealth -- one 22-year-old divorcee reported making $75,000 in only 38 days since joining the company; her initial investment was a rocket propelled grenade she received as alimony.  For reference, the average per capita GDP in Somalia is $600.

A public offering on the NYSE might still be far away, but here are some names to keep in mind:

The Somali Marines: Led by Warlord Abdi Mohamed Afweyne, this group operates under a military structure, with admirals and a CFO. Globalsecurity.org reports that this is the “most powerful and sophisticated of the pirate groups,” thus; they are a good bet to expand their market share.

The National Volunteer Coast Guard specializes in collecting ‘fines’ for illegal fishing from small boats and foreign fishing vessels. Under the leadership of Haraad Mohamed, it operates on the southern coast.

The focus on fishing vessels is a throwback to the origin of Somali pirates -- or as they call themselves badaadinta badah, “saviors of the sea.”

According to Jay Bahadur, author of The Pirates of Somalia: Inside Their Hidden World, some pirates were “legitimately aggrieved by foreign fishing… ships came in and through drag fishing destroyed lobster habitats,” and would shoot local fishermen and destroy gear. However, the market has expanded beyond protecting the local waters: “it's gone so far beyond fishing," Bahadur says. "I think something like 6 percent of ships attacked are involved in fishing in any way."

Also read: Another Hijacking off Somalia Keeps World's Weirdest Stock Market Moving
POSITION:  No positions in stocks mentioned.

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