Corporate Oil Investing in Ethiopia and Egypt - Essay Example

In addition, KPIOS seeks to support Egypt following the revolution in the country to produce more natural gas and oil. This project will profit KPIOS as a GCC company to increase revenues and help in improving the oil industry in the two countries.  

Reason for the project

               If KPIOS were to take advantage of this opportunity, it would be very profitable. Ethiopia has seen a high growth of GDP recently at an average of 11.2% a year that could aid Kuwaiti investors to improve the company’s revenues, as well as help the country to become economically stable. Investment dropped drastically following the revolution in Egypt with a democratic government coming into power (Pewglobal.com, 2011). The Islamist government in power will want to see an Islamic company take charge of its oil industry. In addition, the government is actively looking for foreign investment, to return the country to economic growth. This is because the revolution and the political instability that followed scared off foreign investors. For this reason, any foreign investment will be appreciated and should be pursued by KPIOS. 

Risk of the project

            As with any other project in economically and politically unstable countries, the project does face some risks. One is the risk of inflation in Egypt that increased to 10% from 4% between 2006 and 2007 (El Shazly, 2009). This occurred because of drop-in government support for domestic energy products. Inflation will impact negatively foreign investments due to lower exchange rates, which could make the country’s currency very expensive for foreign investors. In Ethiopia, one risk has to do with extracting the oil and gas at a reasonable cost, as well as the political and market risks in the country (Mwanakatwe & Barrow, 2010). The labor and education skills in the country are also relatively low. In addition, KPIOS needs to be aware of government changes that could lead to changes in foreign investment policy, which is a major risk, especially taking into consideration that Ethiopia is an authoritarian state that could see political upheaval. It is, therefore, essential to have risk mitigating strategies.    

Background

            Ethiopia is Africa’s oldest independent state that follows a civil law system. Its population is officially 93,877,025 with a population growth rate of 2.9%. The country has a peace treaty with Eritrea that followed a war for the emancipation of Eritrea (El Shazly, 2009). Ethiopia’s economy is agriculture-based with agriculture employing 80% of the country’s population and contributing 46% of the country’s GDP. They also have significant amounts of platinum and gold, as well as coal, hydropower, natural gas, biomass, and copper. Compared to other African countries, Ethiopia’s hydrocarbon deposits are relatively low, although there is significant potential to find more as they have just discovered more hydrocarbons awaiting exploitation (Xu, 2010). However, Ethiopia is a net importer of oil since 1997 with production and exporting of crude oil being nil up to 2011.

            Egypt is in North Africa and is a democratic country after the revolution. They follow a mixed legal system that straddles between Islamic religious law and Napoleonic law. They have a population of 85,294,388 with Arabic as their national language (El Shazly, 2009). However, French and English are the official languages in schools. Their natural resources include gypsum, manganese, phosphates, natural gas, and petroleum, as well as rare earth elements. It is one of Africa’s largest oil producers with a production rate of 740,000 barrels a day, rating fifth in African production while ranking second in gas production, and second in proven gas and oil reserves (Knight, 2011).

Methodology

            It is argued that, through improving perspective and information, corroboration from obtained data gives biased information; as a result, it will lead to more accurate conclusions being drawn. Corroboration of data is achievable through using quantitative qualitative methods. Polarization of the methodology, i.e., the use of strictly qualitative or quantitative methods of research, is a threat to social science advancement. For this reason, the research design will include both qualitative and quantitative methods of research. For each case, the rest search tool application is limited to data richness. By, conducting an in-depth literature review, a better understanding of the investment opportunities was gained. The research project collected data from international reports and databases. In addition, because the research project is designed for gathering data at a specified time, we will categorize it as a cross-sectional study.