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Kenya property boom blamed on Somali pirates

By Tom Odula  /  AP , NAIROBI

Property prices in Nairobi are soaring, and Somali pirates are getting the blame.

The hike in real estate prices in the Kenyan capital has prompted a public outcry and a government investigation this month into property owned by foreigners. The investigation follows allegations that millions of dollars in ransom money paid to Somali pirates are being invested in Kenya, Somalia’s southern neighbor and East Africa’s largest economy.

Even as housing prices have dropped sharply in the US, prices in Nairobi have seen two and three-fold increases the last half decade.

“There is suspicion that some of the money that is being collected in piracy is being laundered by purchase of property in several countries, this one being one of them,” government spokesman Alfred Mutua said. “Especially at this time when we are facing global challenges of security such as terrorism and others, it is very important for us to know who is where and who owns what.”

The investigation will also help the government catch tax evaders, he said.

Kenya may be the most attractive spot for pirates to launder their money because it shares a roughly 800km border with Somalia and has investment opportunities and a large Somali community of up to 200,000 people, Mutua said.

In a neighborhood of Nairobi now called “Little Mogadishu” because of its Somali community, large business and apartment buildings have sprung up. A similar explosion of real estate development can be seen in higher-income areas of the city.

Somali pirates have been paid more than US$100 million in ransoms in the last two years, said Roger Middleton, a piracy expert at the London-based think tank Chatham House. The average ransom is also up, from US$1 million per vessel a year ago to about US$2 million today.

Pirates in Somalia say they invest their ransom money outside their war-torn country, including in Kenya. One pirate who gave his name as Osman Afrah said he bought three trucks that transport goods across East Africa. A second pirate, who only gave his name as Abdulle, said he’s investing in Kenya in preparation for leaving the pirate trade.

“Pirates have money not only in Nairobi but also other places like Dubai, Djibouti and others,” Abdulle said. “I have invested through my brother, who is representing me, in Nairobi. He’s got a big shop that sells clothes and general merchandise, so my future lies there, not in the piracy industry.”

Kenya also does not have stringent laws against money laundering, although a bill to curb the practice is being debated in parliament.

The US State Department in its annual report by the Bureau of International Narcotics and Law Enforcement Affairs describes Kenya as major money laundering country.

The investigation has drawn angry reactions from the Somali community, and business leaders said Somalis would not cooperate with the investigation and may go to court to try to stop it.

“This is very, very unfair discrimination,” said Hassan Guled, the chairman of the Somali business community. “We consider this utter rubbish.”

Guled said Somalis living in Kenya have acquired property by pulling resources together and borrowing from banks. Somalis there also depend on money sent by a large Somali population in Europe and the US who cannot invest in those economies because of religious beliefs, Guled said.

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