For ENI, business risk, geography, and political risk all come together

What is business risk? How do you measure and how can you manage it? The Man from FCPA thought about those and other questions when reading a recent piece in the Financial Time’s Big Read about the Italian energy company ENI and its refocus on doing business in Africa. Libya has always been an ENI stronghold, given the historic ties between the two countries and now it is no different. Indeed, Libya constitutes up to 20 percent of the company’s production, so any stability in that country would be welcome news for ENI and its shareholders.

Yet more than simply upbeat news from Libya, its renewed African focus has put some investors ill at ease. Obviously the political risk in the continent remains high. Yet the company is committing to large projects in Egpyt, Nigeria, Congo and Mozambique. What are some of the risks that occur with such a strategy? First is the political instability risk, as many of these countries have been recently convulsed in turmoil.

Moreover, the corruption risk in each of these countries is high. The article noted that “In Nigeria, Eni has suffered attacks and supply chain disruptions, and Mr Descalzi [ENI CEO] is the subject of an investigation by Italian prosecutors in connection with an oil project.” Given the places where ENI has chosen to pursue development, one can only hope the compliance function of the company has some credibility.

However, more than the above risks are present. The article quoted one un-named former executive that “The company is essentially a prisoner of Africa.” This points to an obvious commercial risk that every company faces when it puts too much emphasis on one product or into one geographic region: If that product or region goes south, the company may well be taken down with it.

Complicating all of the above is that ENI is over 30 percent owned by the Italian government. The current Italian Prime Minister has noted that ENI is really just an extension of Italian foreign policy. For any FCPA practitioner this brings up an entire additional set of risk to manage.