Political risk and Chinese investments in the African oil and gas industry : the case of China National Petroleum Corporation in South Sudan

[摘要] ENGLISH ABSTRACT: Chinese national oil corporations have increased their foreign direct investments over thelast decade in Africa, where the political environment of oil producing countries often expose thefirms to high political risk. The analysis of political risk is increasingly relevant for theinvestment decision-making process of Chinese corporations, as changes in political dynamics ofhost countries can affect the opportunities and profitability of investments. The study emphasisesthe need for firm-specific political risk analysis as a decision-making tool for internationalbusinesses operating in foreign countries.The main research question of the study is concerned with the main indicators of politicalrisk that Chinese corporations may face in the African oil and gas industry. Chinese oilcorporations may be affected by political instability, international and internal conflict,corruption, and poor economic and social development in African countries. The political riskthey face may be influenced by indicators such as the location of the oil operations, the relativeimportance of the Chinese oil firm to the host country's oil industry, the competitive advantageand technical abilities of Chinese oil firms, the support of the Chinese government to state-ownedfirms, and economic relations that the host government have with China and the oil firm.The study follows a qualitative research approach by way of an empirical case study ofthe political risk faced by one of China's national oil corporations, China National PetroleumCorporation (CNPC), in South Sudan. A major part of CNPC's business operations in Sudan wastransferred to South Sudan after the country seceded from Sudan in July 2011. The political riskfor CNPC in South Sudan is analysed and measured in accordance with an industry-specificpolitical risk model for the oil and gas industry. The study finds that CNPC faces a high level ofpolitical risk in South Sudan since independence.An examination of the political risk analysis is done to serve as a basis for answering themain research question. The hostile relationship between South Sudan and Sudan in particularmay expose CNPC to high political risk as it led to the shutdown of the oil industry and violentinterstate conflict. However, CNPC's political risk exposure may be mitigated by certainindicators, such as CNPC's significance in the operation of the South Sudanese oil industry,CNPC's attributes of being a Chinese state-owned enterprise, the availability of support from theChinese government in the form of economic cooperation packages and CNPC's technicalabilities in exploration operations. Furthermore, while negative sentiments on the part of theSouth Sudanese government towards China and CNPC due to the latter's close relations withSudan might expose CNPC to high risk, the risk is mitigated by the high level of economicdependency of South Sudan on both China and CNPC.

[发布机构] Stellenbosch University