Political instability and business: Focus on Shell in Nigeria

Abstract

Business managers name Africa's political instability as a key obstacle to economic development, but many companies continue to invest in Africa. The article explains this apparent contradiction by looking at the case of Shell in Nigeria. Nigeria experiences serious political instability, yet Shell is expanding its investment in the country. This article deals with sources of firm-specific political instability that have affected Shell in Nigeria in the past and attempts to explain why a specific corporation such as Shell may want to make investments in the country despite political instability. The examination of three different angles of Shell's activity, which forms the core of this paper, reveals that political instability does not hinder Shell from operating in Nigeria. Firstly, the international perspective illuminates in what way Nigeria may be more attractive to Shell than other countries. Profits in Nigeria appear to be higher than elsewhere, while Shell occupies a dominant market position unrivalled in most other countries. Secondly, the structural perspective illuminates the interconnectedness of Shell with state structures in Nigeria that may tie the company to Nigeria. Shell established a first mover advantage in the 1950s, since Nigeria was a British colony until 1960 and British oil companies were given preferential treatment. After independence, Shell managed to penetrate state structures which helped to hedge political risk in the country. Thirdly, the strategic perspective explores how Shell's strategic approaches may make political instability less significant to Shell. This article concludes that Shell has adopted to political instability. The conclusion that political instability can be conducive to business is significant since one expects political instability to be inherently harmful to business.