Piracy's Suez Diversion

By Dave Anderson:

How much has piracy impacted Egypt?  The main impact on Egypt is the loss of trade from ships that would otherwise have landed at an Egyptian Red Sea port but no longer or not as frequently and the loss of revenue from the Suez Canal.  The first group of losses should be fairly minor as there are no major Egyptian Red Sea ports that handle intercontinental trade; instead most of the local trade is either coastal trade between ports, fishing or short hops up and down as well as across the Red Sea.  The second group of diverted Suez Canal transits is the more important aspect as it is both a denial of cash flow for Egypt and an indicator of piracy's system level impact.

Lloyd's reports that toll traffic through Suez has fallen 13% year over year.

SUEZ Canal revenue last month fell 13% to $365.5m, down from $419.8m seen in the corresponding month of 2008, an Egyptian state website has reported. Oil traffic is said to have declined in what is traditionally a slow month for the waterway.

So is piracy costing Egypt $80 million dollars per month? 

No.  We have to disaggregate piracy and general trends.  Global trade collapsed by roughly 10% over the course of the year.  Seaborne trade has fallen by roughly 5% in the same time period.  Assuming uniform distribution of trade (which is a massive simplifying and thus wrong assumption), the decline in world trade value and volume accounts for 5 to 10 out of the 13 points of revenue decline.  Since Lloyd's mentioned oil as a primary user of the Canal, I'm guessing the best guesstimate is at the higher end of the range. 

So Somali piracy is probably costing the Egyptian government three to five points in Suez Canal revenue, or roughly 3 or 4 million dollars per month.  That is not a lot of money, and not really worthy of a large scale response from Egypt despite the fact that Egypt has a small but reasonably capable frigate force that could conduct long distance, long endurance anti-piracy patrols. 

Notably, the other interested parties whose shipping and interests would conceivably be under threat in the region; namely the oil exporters, have not contributed ships to the anti-piracy patrols either.  Instead the Saudi Navy is supporting the Yemenese government in its civil war while the Iranian Navy is either supporting its proto-ally in Eritea or supporting the Yemenese Shi'ite rebels. 

The local stakeholders are not placing too many chips into the piracy pot...

Comments

[John Ballard]

I was surprised to discover that the canal is not as important to the Egyptian economy as I thought.

...the canal typically contributes just four per cent of Egypt’s GDP, compared to manufacturing (14.2 per cent), petroleum and extracts (16 per cent) and the construction and telecommunications industries, which weigh in at over 10 per cent each.

This is from a detailed history of the canal in The National, the UAE daily, on the occasion of the canal's 150th anniversary.

When Napoleon invaded Egypt in 1798, he commissioned a canal feasibility study, but his engineers mistakenly concluded that the Red Sea was at least nine metres higher than the Mediterranean. The idea was consequently shelved – all the more so in 1801, when the British defeated the French navy off the coast of Alexandria, forestalling France’s bid to dominate trade routes to the East.

Where imperialists failed, a group of utopian socialists hoped to succeed. The Saint-Simonians, many of them promising graduates of the École Polytechnique in Paris, believed in love as a means of levelling social inequities, and canal building as a manifestation of technology’s power to unite countries and cultures. After being expelled from France in 1833 for allegedly conducting orgies, several Saint-Simonians headed to Egypt, which they viewed as “the nuptial bed” where East and West might be joined by the parting of the desert and the marriage of the seas....

Much more at the link.