Using recent analysis of power projects in West Africa, David Hunt, Senior Manager, Risk Indicators & Analytics, demonstrates how location analytics can be used to identify opportunities in environments considered to be ‘high-risk’. This video accompanies a full article published in the Fall 2013 edition of the Country Risk Quarterly on Egypt’s likely political scenarios and their commercial implications.
Power Projects West Africa – Project Risk Location Analytics. Published: Oct 18, 2013
Location Analytics in the context of country risk is all about putting the specific location of an asset or project or facility at the forefront of the risk assessment process. It’s about moving beyond the generalities of country level risk analysis to identify really commercially relevant opportunities in high risk environments and allowing us to do an end-to-end assessment of the risk associated with those projects that support risk transfer, treatment and pricing.
Location Analytics isn’t all about putting dots on maps. Sometimes a map is a great way of representing a complex data set but often times you don’t actually need a map visual. What you need is really credible, actionable metrics to feed into a decision-making process. Location Analytics is all about creating nuanced surprising levels of insight into the risk distribution to a particular operation or a decision-making process. It’s about reducing complexity not adding to it.
The strategy and risk professionals that we speak to tell us they are drowning in information. There is no shortage of good ideas around investment plays or indeed the risks associated with investments in emerging and frontier markets. But the people that we speak to are finding it difficult to pass between those in actually making decisions. What they need to consider is actually starting to move beyond the paradigm of written reports and gathering more and more information, and actually reduce that complexity, focus in on what’s really important to a specific decision-making process. And that is where Location Analytics comes to the fore.
Location Analytics has delivered some real surprises to us in our work recently analysing risks to the West African power sector. In this project we were actually trying to understand the risk to dozens of upcoming and under construction power projects in a very complex risk environment. Understanding these risks requires new tools and new thinking.
One of the things we wanted to understand was how risks to projects were changing over time as the underlying security and political environment evolved. Were commercial opportunities arising as these dynamics played out? We actually found in our analysis that across West Africa the vast majority of power projects had seen reduced security risks over the last year. The exception to this was in Mali where there has been a war, an insurgency which has led to significant increase in risks as government forces battled rebels.
In Nigeria, we saw from 2012 to 2013 reductions of up to 50 per cent in some of the location specific risks that we were measuring. For sure, this was still a very high risk environment in global terms but the significant decrease in risks was something that was unusual given the daily news articles coming out around the Boko Haram threat and attacks across the country, in particular in the north.
To a large extent this has been driven by the military operations which have pushed the Boko Haram area of operations away from the central and southern areas of the country through to their north-eastern heartlands in Borno state. From 2012 to 2013, we saw their area of operations shrink and be pushed north-east significantly, away from the power projects that we are assessing risks at.
We found that you need to really dig behind what the model is telling you. The numbers aren’t the full picture here. Speaking to our on-the-ground sources in the Niger Delta we found out that Delta militants and youth activist groups regard natural gas as something which is a local resource and should be kept for local benefit. Translating this into risks for power projects, we found that even though this is a very high risk terrorism area, projects in the Delta are probably at a lower risk because the scene is providing a local resource. Conversely projects in the north of the country that rely on piped gas from the Delta are at increased risk of supply interruptions due to those pipelines being sabotaged.
So what we have seen here is how Location Analytics can be used to support decision-making processes across the life-cycle of a particular project from the initial identification of commercial opportunities in high risk environments, through to risk transfer, treatment insurance purchasing, and tactical security planning.