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

[摘要] 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.

[发布机构] Stellenbosch University