Global Business: Political Risks for Shell in Nigeria

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Hi,

Interesting question! Let's take a closer look.

RESPONSE:

1. What specific political risk problems does Shell face in Nigeria? What are the underlying reasons for these problems?

Continuing General Unrest In Nigeria:

? An estimated 10,000 people have died in outbreaks of ethnic, religious and political bloodletting since Obasanjo's election in a military-supervised vote in 1999
? Tribal unrest over land ownership in the oil-producing Niger delta threatens stability (Shell)
? The UN estimates that by 2020 one in two Africans will be Nigerian
? At least two dozen killed in recent parliamentary elections (1)

Political Risks
? Corruption
- Transparency International Corruptions Perception Index 2002 rated Nigeria the second most corrupt nation in the world
? Without army intervention rival groups (religious and tribal) have begun protracted conflict
? Economic models based on natural resource extraction and foreign aid
? Fundamentalism
- February 2000 Sharia Riots over implementation of Islamic law
? Land ownership
? Infrastructure (1)

These political risks are a result of the political infrastructure of Nigeria impact Shell in various ways as shown below in the long history of the company. However, Shell seemed to handle the political risk through the company's extensive community development programs and environmentalist policies are weighted against the political cause of the Ogoni people in the Niger Delta (where the company has most of its oil wells) for greater independence, political control and decentralization of economic power from the federal government to the Ogoni people. Was Royal Dutch/Shell right to stand firm behind its business principles, which committed the company to an apolitical role and non-interference in the legal proceedings of a sovereign state, in light of the arrest, trial and execution of Saro-Wiwa, the Ogoni leader? (1)

Let's look closer:

Royal Dutch/Shell

? Merger in 1907.
? Largest oil company in the world, with revenues of $103 billion in 1991; operates in 130 countries, has 101,000 employees.
? Mid-1990s: financial performance viewed unsatisfactory; major transformation effort.
Environmental controversy, disposal of the Brent Spar (a North Sea storage buoy in operation since 1976); Shell abandoned its plans to sink the spar after Greenpeace initiated protest campaigns.

Royal Dutch/Shell in Nigeria

? Under British colonial rule, 1937 given exclusive right to prospect for oil, in equal partnership with BP.
? 1958 oil discovered in the Niger Delta.
? 1973: three-way JV, with Nigerian government taking a 35% stake. Government-owned Nigerian National Petroleum Corporation (NNPC)
? Since 1974, NNPC holds a controlling interest in the JV.
? 1979: Nigerian government appropriated BP's 20% share of the JV.
? 1988: Nigerian government gave minority stakes in the JV to Elf and Agip (European oil companies).
? 1995: JV structure: NNPC 55%; Shell 30%; Elf 105; Agip 5%.
? Shell's share of the JV ...