Piracy and its Effects on the Economy of Seychelles

http://www.un.org/africarenewal/web-features/%E2%80%98invest-people%E2%80%99-says-seychelles-president

The economy of Seychelles depends largely on its exportation of fish and Tourism. With the Somalian pirates entering the waters of Seychelles, this causes a large loss in the tourism and fishing industry. The government has to use the resources they have in order to ensure the security of the people with the help of other international delegations.

As Seychelles relies greatly on its fishing industry, there will be a decrease in the supply of fish entering the country as fishermen are unwilling to go out at sea with the fear of being attacked by the pirates. This in turn will lead to a higher demand in fish, not only from the locals but from people who import fish from the Seychelles tuna factory. The high demand in fish and the low supply available would lead in the price of the fish going up. Therefore as the law of demand states; other things remaining the same, the higher price of a good, the smaller is the quantity demand. This in turn would lead to the substitution effect whereby people would look for a substitute for fish as the price would increase due to its decrease in quantity available.

The fact that there is a decrease in supply, there will therefore be a change in quantity demanded for the fish; that is, the amount that people will be willing to buy during the piracy period will change. The quantity of fish that people are willing to buy will change at every price so that there is a new demand curve. Basically, the rise in price of the fish would mean that the quantity demanded would decrease and there would be movement up the curve.

As the Law of Demand states; other things remaining the same, the higher the price of a good, the smaller the quantity demanded and the lower the price of a good, the larger is the quantity demanded. The law of demand results from the substitution effect and the income effect.

The Income Effect will come into play as prices of the fishes will increase but since income will not be a factor that changes. This would influence the demand for fish. That is that people would either be willing to pay although the increase in price due to that fact that they can afford it and see it as a normal product, while others may now see it as a luxury meal as the increase in price would mean that they would not be able to afford it as they used to. This would lead to the substitute effect for those who cannot afford fish.

The Substitute Effect simply comes to mean that people would start looking for the next best thing as fish would no longer be in their price range.

The Demand curve may alter due to factors which affect it and change its state. If people knew that there would be a change in the price for fish before-hand, this would also lead to a change in the demand curve. If the price is meant to rise, then the current demand for fish would increase leading the curve to move rightwards.

Boats who would charter within the area would decrease; this would be due to the heavy piracy activities that would occur. Sometimes, these boats would bring in fish caught from the trip and would sell it to the people, however, their lack of fishing activities would lead to a decrease in the amount of fish which in turn would encourage the increase in the price of fish and the shift rightwards on the demand curve.

When the demand curve  shifts to the left it would be due to the fact that the preferences of people within the country have changed or that the substitute of the fish would have decreased its price hence people would buy more. In terms of expectations, if people expect that the price of fish would decrease after the talk of piracy settles, then they would hold out on buying fish until then.

Taking into account that most of Seychelles’ basic goods come from overseas and come by cargo vessels, there will be a decrease in the amount of goods made available within the country. Hence, as the Law of supply states, other things remaining the same, the higher the price of a good, the greater the quantity supplied and the lower the price of a good, the smaller is the quantity supplied.

 Producers are willing to supply a good only if they can at least cover their marginal cost of production. Therefore, with the lack of supplies the marginal cost will not be the price will increase together with the quantity demanded of that product. This in turn would tend to shift the supply curve to the left. Although there might not be a great amount of fish that is being brought into the country, there are still people who are supplying the fish despite the cost and therefore, these suppliers would move the supply curve to the right.

As there would be an increase in demand for goods within the country, there would be an increase in demand for labour for locals. This would come to mean that where there was a market surplus there is now a higher demand for the local products which could lead to a surplus if there is more demands than products can actually be produced. Although there is a willingness from suppliers to increase the amount that they want to supply to the people, they may not be technologically advanced enough to cater to everyone’s demand as although they are selling their products, the cost of living in Seychelles is very high, hence the suppliers might not afford to enhance their mean of production even if they increase the price of the product.  I would propose that the government would create innovative ways of investing the money which they are given from other countries, to help support the suppliers in advancing their products as so to make Seychelles a more self-sustainable country as so that next time a disaster would occur it would be less harmful on the economy and the people. The money that they would invest within these innovations would also lead to an investment for the country, they would be making and assuring that money from production flows only in Seychelles.

It must be noted however, that in order to keep the clientele, the suppliers must find the market equilibrium-which is when the price balances the plans of buyers and sellers. The sellers must take into consideration that there is a decrease in fish and they know that there is a price that the consumers are willing to pay that is higher than what they would previously sell that would satisfy them as well as the buyers. If the price is above the equilibrium price, a surplus forces the price down, at any price below the equilibrium price, a shortage forces the price up.

The graph indicates the increase in demand and the supply of fish within the market. The focus however is on the market equilibrium. The graph shows that when the demand increases the demand curve shifts rightward. At the original price there is now a shortage. The price rises and the quantity supplied increases along the supply curve.  It also indicates that when supply increases the supply curve shifts to the right. At the orginal price there is now a surplus. The price falls and the quantity demanded increases along the curve. The surplus would occur when the act of piracy would be over. Hence it would occur in future. With the act of piracy, there would be a shortage of fish within the market.

In the case of piracy and its effects on the economy of Seychelles, it could be noted that it is not a long-term effect although it is currently being badly affected. There will be an increase in demand and a movement up along the supply curve which would lead the equilibrium price to rise.  In future with an increase in supply there will be movement along the demand curve. The equilibrium price falls and the equilibrium quantity increases.

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