Investing in troubled territories: industry specific political risk analysis and the oil and gas industry

Boshoff, Marc James (2010-03)

Thesis (MA (Political Science))--University of Stellenbosch, 2010.

Thesis

ENGLISH ABSTRACT: The central research question of this study concerns the level of political risk that the Ogaden region of eastern Ethiopia poses for companies operating in, or intending to operating in the oil and gas industry of that region. The aim is to answer that question as well as two further subquestions. The first sub-question concerns issues pertaining to the factors and indicators that would be included in a political risk model specifically envisaged for the oil and gas industry, and the second concerns the practical application of political risk as a decision-making and management tool for investors. It is practically impossible to gather all the relevant information when undertaking a political risk analysis, to know all the unknowns. It would take an immense amount of time to attempt such an analysis and the costs would be exorbitant. In creating a political risk model specific to the oil and gas industry, a methodological approach is adopted to streamline this process. It is the aim of this research study to engage in this streamlining process; selecting the most salient variables that can then be incorporated into an industry specific model, which will yield realistic and practical results. In terms of the political risk indication, the political risk analysis of the Ogden returned a score putting the region in the high risk indication bracket. In terms of investment indication, the score indicates a moderate to high risk for investments the oil and gas industry. This does not mean that investors should stay away from the region. A high degree of risk, if sufficiently managed, can result in increased opportunities for higher returns for the investor. Beyond the traditional approaches to risk management there are other avenues that the investor may choose to follow, such as a commitment to engage with local stakeholders. These initiatives should extend beyond mere financial incentives to a more genuine form of community interaction, with extensive local consultation. Strategies, policies, and procedures should be developed that ensure that companies engage productively with NGOs and the media at local levels in order create a suitable environment for all involved. Political risk is more than simply providing a report with a risk rating tagged to the end of it. It should be a fully integrated part of the investor’s strategy, essential to the continued success and profitability of the investment.

AFRIKAANSE OPSOMMING: Die sentrale navorsingsvraag van hierdie studie handel oor die vlak van politieke risiko wat maatskappye wat besigheidsbelange in die Ogaden streek van oos Ethiopië het, of wat beplan om besigheidsbelange in die olie- en gasbedryf te begin, in die gesig staar. Die doel is om die vlak van politieke risiko te identifiseer en om verder twee sub-vrae te beantwoord. Die eerste sub-vraag is om die faktore en indikatore te identifiseer wat deel sal vorm van ‘n politieke risikomodel, spesifiek vir die olie- en gasbedryf en die tweede handel oor die praktiese aanwending van politieke risiko as ’n besluitnemings- en risikobestuur-instrument vir beleggers. Dit is prakties onmoontlik om alle relevante informasie in te samel wanneer ’n politieke risiko-analise gedoen word, of om bewus te wees van al die onbekende aspekte. Dit sal ‘n ongelooflike lang tydperk neem asook die kostes sal uiters hoog wees. Wanneer ‘n politieke risikomodel spesifiek vir die olie- en gasindustrie gebou word, word ’n metodologiese benadering om die proses te vergemaklik gevolg. Dit is die doel van hierdie studie om by te dra tot die vereenvoudiging van hierdie metodologiese proses deur die mees prominente aspekte te selekteer wat gevolglik geïnkorporeer kan word in ‘n industrie spesifieke model. Die model sal beide realistiese en praktiese resultate bied. Ten opsigte van die skaal vir belegging en politieke risiko indikasie, het politieke risiko analise van die Ogaden gedui op ’n hoë risiko indikasievlak. Vir belegging dui die risikovlak op ’n medium tot hoë risikovlak vir die olie- en gasindustrie. Dit beteken nie dat beleggers die area noodwendig moet vermy nie. Indien ’n hoë risikovlak aanwesig is, kan suksesvolle bestuur steeds verhoogde winsgeleenthede vir die belegger verseker. Behalwe vir die tradisionele benaderings tot risikobestuur en risikomitigasie is daar ook ander moontlikhede wat die belegger kan volg om die vlak van risiko te verlaag, soos ’n ooreenkoms om saam met plaaslike belanghebbendes te werk. Sulke meganismes moet verby finansiële belonings strek en ‘n opregte vorm van gemeenskapsinteraksie aanneem wat net kan gebeur deur middel van uitgebreide plaaslike konsultasie. Strategie, beleid en prosedure moet ontwikkel word, wat sal verseker dat maatskappye optimaal saamwerk met nie-regerings-organisasies en die media op plaaslike vlak. Dit sal verseker dat ’n geskikte omgewing vir alle partye geskep word. Poltieke risiko is veel meer as net risiko-evaluasie waar ’n vlak van risiko verskaf word. Dit behoort ten volle deel te wees van die belegging en is essensieël tot die sukses en winsvlak vir die belegger.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/4254
This item appears in the following collections: