Investing in troubled territories: industry specific political risk analysis and the oil and gas industry
ENGLISH ABSTRACT: The central research question of this study concerns the level of political risk that the Ogadenregion of eastern Ethiopia poses for companies operating in, or intending to operating in the oiland 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 thatwould be included in a political risk model specifically envisaged for the oil and gas industry, andthe second concerns the practical application of political risk as a decision-making andmanagement tool for investors. It is practically impossible to gather all the relevant informationwhen undertaking a political risk analysis, to know all the unknowns. It would take an immenseamount of time to attempt such an analysis and the costs would be exorbitant. In creating apolitical risk model specific to the oil and gas industry, a methodological approach is adopted tostreamline 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 politicalrisk analysis of the Ogden returned a score putting the region in the high risk indication bracket. Interms of investment indication, the score indicates a moderate to high risk for investments the oiland gas industry. This does not mean that investors should stay away from the region. A highdegree of risk, if sufficiently managed, can result in increased opportunities for higher returns forthe investor. Beyond the traditional approaches to risk management there are other avenues thatthe 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 ofcommunity interaction, with extensive local consultation. Strategies, policies, and proceduresshould be developed that ensure that companies engage productively with NGOs and the mediaat local levels in order create a suitable environment for all involved. Political risk is more thansimply providing a report with a risk rating tagged to the end of it. It should be a fully integratedpart of the investor’s strategy, essential to the continued success and profitability of theinvestment.
Year of publication: |
2010-02-12
|
---|---|
Authors: | Boshoff, Marc James |
Other Persons: | Lambrechts, Derica (contributor) |
Institutions: | University of Stellenbosch. Faculty of Arts and Social Sciences. Dept. of Political Science. (contributor) |
Publisher: |
Stellenbosch : University of Stellenbosch |
Subject: | Political Risk | Oil and Gas Industry | Foreign Direct Investment | Political science |
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