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SCOTT SIMON, host:

This is WEEKEND EDITION from NPR News. I'm Scott Simon.

This week, a Somali teenager charged in the pirate hijacking of an American cargo ship last week was brought to New York for trial. Abdiwali Abdiqadir Muse was the only surviving pirate of a Navy Seal raid that rescued the ship's captain. Law enforcement officials say he's 18 years old and was the ringleader of the hijacking. Mr. Muse's lawyers and his parents say he's only 15 and was coerced by other pirates.

Whatever the truth, piracy is a lucrative business, makes up a large part of Somalia's economy and benefits others outside of that country. Peter Pham explores the intricacies of the pirate economy in an article posted this month on the Web site of Foreign Policy magazine. Dr. Pham is director of the Nelson Institute for International and Public Affairs at James Madison University in Harrisonburg, Virginia.

He joins us from member station WMRA there. Thanks so much for being with us.

Dr. PETER PHAM (Director, Nelson Institute for International and Public Affairs, James Madison University): A pleasure to be with you.

SIMON: And how rich and intricate are some of these operations?

Dr. PHAM: Well, the average ransom for a captured boat these days is averaging slightly over a million dollars. So, we're talking a major industry that contributed well over a hundred million dollars last year, perhaps Somalia's largest foreign exchange earner, you could say.

SIMON: And are there a lot of Somali families, and not just Somali families, that have a stake in it?

Dr. PHAM: Certainly. The biggest beneficiaries of piracy are the financiers who put up the seed capital to mount the operation, to acquire the speedboats, the so-called mother ships, to arm the pirates. But the pirates themselves make fabulous sums. Typical attackers make somewhere between $10,000 to 20,000 for a successful hijacking.

To put this in some frame of reference, the average Somali family is living off $500 to 600 a year. So, these guys are set almost for life after a successful hijacking. But then the economy extends to ordinary people in Somalia as well: watchmen, who guard the boats once they're being held and negotiations are going on, the intermediaries that get a commission off the ransoms, corrupt government officials, the suppliers - you have everything from caterers to prostitutes, all of whom thrive off this pirate economy.

SIMON: I'm going to leave the prostitute part alone, but caterers?

Dr. PHAM: Yes. During the months in which a ship is held captive, the pirates feed the crew. We actually know from several instances that I was involved with that the catering bill ran into the hundreds of thousands of dollars when the hijacking endured several months.

SIMON: Do insurance companies have a stake in piracy?

Dr. PHAM: Very much so, in two ways. One: typical ransoms, as I mentioned, are a little over a million dollars for a boat. To replace that boat will cost anywhere from 20 to 30 million plus the value of the cargo. So, certainly, from the insurance company's point of view, paying off the pirates is certainly the economically rational decision to do.

They also have been making a nice profit. This is the little dark secret of piracy. The insurers of maritime shipping in this area have been, in the last 18 months, been slapping a surcharge of about a 20 to 30, 40 thousand per vessel, per transit through the danger zone. If you think that 20,000 ships sail through this area every year, you're talking about a minimum surcharge of 400 million, possibly as high as six, seven hundred million.

Now, we know the insurance companies have paid only about a hundred million in ransoms. So, they've actually had a windfall profit off the pirates of at least 300 million.

SIMON: And what's the net effect of paying the ransom, do you think?

Dr. PHAM: Well, unfortunately, what it does is it does drive up the incentives for piracy. This is a very impoverished country, unemployment in Somalia is in excess of 90 percent, so there are a lot of people willing to get involved and the million-dollar rewards for a few weeks of work certainly are profitable.

Unfortunately, the shipper owners are caught in the middle of this. On one hand, once a ship is taken, they're under pressure from government officials, from families of seamen, to settle this matter and make it go away. On the other hand, they all realize that as they pay, they put themselves and their competitors at risk for more piracy.

SIMON: Peter Pham of James Madison University. Thanks very much for being with us.

Dr. PHAM: Pleasure to be with you.

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