The (non)-impact of democracy on levels of political risk. An evaluation of the relationship between levels of democracy and the political risk facing the oil and gas industry in Angola

Garcia, Anna Valentina Troeng (2014-12)

Thesis (MA)--Stellenbosch University, 2014.

Thesis

ENGLISH ABSTRACT: In a world where emerging markets are increasingly driving the world’s economic growth, and an increasing part of the world’s energy supply comes from politically unstable or undemocratic countries with less developed institutions and inadequate rule of law, the field of political risk has acquired especially great significance. In order to keep up with international and domestic demand, as well as maintain profit levels, there has been and will continue to be a search for new sources of petroleum reserves. This has pushed the extractive industries to invest in new territories, some of which pose potential risks for new investments. These trends are changing where and how oil and gas companies conduct their business, as many of the political risks that face the extractive industries stem from the political, institutional and structural framework of the host country. The core of this study has been the investigation of the assumption that high levels of democracy constitute low levels of political risk. The assumption that high levels of democracy constitute low levels of political risk implies, conversely, that low levels of democracy constitute high levels of political risk. The debate around this assumption is an essential part of this research study; its validity was tested through conducting an industry-specific political risk analysis, using the case of Statoil’s operations in Angola. Angola poses an interesting case for analyzing political risk in the oil and gas sector, as it exhibits many of the qualities that are found amongst these “new” actors in the oil industry. Furthermore, additional and new research on the risk of investing in these emerging markets is more relevant than ever before. The stipulation of the relevance of this research study is based on the following two main points: firstly, the general decline in the level of democracy in Sub-Saharan Africa; secondly, the fact that many of the current oil and gas resources are located in these very areas, i.e. in undemocratic and unstable countries. Moreover, there is little research on the effects the level of democracy has on the industry-specific risk, in this case the oil and gas industry. Hence further research on this area is both relevant and necessary. The political risk analysis shows that the political risks that face Statoil in the undemocratic nation of Angola are in fact not high. The analysis concludes with a result that indicates that investment in Angola poses a medium level of political risk. This challenges the abovementioned assumption, as the political risks are not necessarily higher in an undemocratic country. This study finds that the political risk associated with Angola is in the short- to mid-term seen as stable and medium; however, there are simmering tendencies and trends that currently point to a different long-term political risk picture.

AFRIKAANSE OPSOMMING: In ‘n wêreld waar opkomende markte die ekonomiese groei van die wêreld toenemend voortdryf en ‘n toenemende deel van die wêreld se energie voorraad van politiese onstabiele of ondemokratiese lande met minder ontwikkelde instellings en onvoldoende regering kom, het die veld van politieke risiko groot waarde gekry. Om by te hou by die internasionale en plaaslike vraag, sowel as om winsvlakke te handhaaf, is en sal daar altyd ‘n soektog na nuwe bronne van petroleum reserwes wees. Dit het die ekstraksie industrieë gedruk om in nuwe gebiede te belê waarvan sommiges potensiële risiko’s het vir nuwe beleggings. Hierdie neigings verander waar en hoe olie- en petrolmaatskappye hul besigheid doen omdat baie van die politieke risiko’s wat die ekstraksie industrieë moet hanteer voortvloei uit die politieke, institusionele en strukturele raamwerk van die gasheerland. Die kern van hierdie studie was die ondersoek van die aanname dat hoë vlakke van demokrasie aanleiding gee tot lae vlakke van politieke risiko. Die aanname dat hoë vlakke van demokrasie aanleiding gee tot hae vlakke van politieke risiko impliseer dat lae vlakke van demokrasie aanleiding gee tot hoë vlakke van politieke risiko. Die debat rondom hierdie aanname is ‘n noodsaaklike deel van hierdie navorsingstudie; die geldigheid daarvan is getoets deur die uitvoering van ‘n industrie-spesifieke politieke risiko analise, deur gebruik te maak van die geval van Statoil se operering in Angola. Angola is ‘n interessante geval vir die ontleding van politieke risiko in die olie en petrolsektor, omdat dit baie van die kwaliteite toon wat onder die “nuwe” rolspelers in die olie-industrie gevind word. Verder is bykomende en nuwe navorsing op die risiko van belegging in hierdie opkomende markte meer relevant. Die stipulasie van hierdie relevansie van hierdie navorsingstudie is gebaseer op die volgende twee punte: eerstens, die algemene afname in die vlak van demokrasie in Sub-Sahara Afrika; tweedens, die feit dat baie van die huidige olie en petrolbronne in hierdie areas geleë is, d.i in ondemokratiese en onstabiele lande. Daar is ook min navorsing oor die uitwerking wat demokrasie het op die industrie-spesifieke risiko, in hierdie geval die olie en petroleum industrie. Daarom is verdere navorsing in hierdie area beide relevant en noodsaaklik. Die politieke risiko ontleding wys dat die politieke risikos wat Statoil in die gesig staar in die ondemokrastiese nasie van Angola nie hoog is nie. Die ontleding sluit af met ‘n gevolgtrekking wat toon dat belegging in Angola ‘n medium vlak van politieke risiko toon. Dit daag die bogenoemde aanname uit, omdat die politieke risiko’s nie noodwendig hoog is in ‘n ondemokratiese land nie. Hierdie studie vind dat die politieke risiko wat met Angola geassosieer word in die kort tot middel termyn is en as stabiel en medium beskou word; daar is egter neigings wat dui op ‘n ander langtermyn politieke risiko prent.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/96002
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