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MULTINATIONAL CORPORATIONS AND DEVELOPMENT IN AFRICA: ISSUES AND SOLUTIONS

INTRODUCTION 1. Development today is linked to the globalization in the

world and by extension, business with the emergence of Multinational Corporations (MNCs). Most of Africa's mineral wealth has been and is being developed by large MNCs. Increasingly however, in recent years, African governments have become substantial shareholders in the operations within their own countries. 2. With advances in technology and communications,

companies are now equipped to spread their products all over the globe. These MNCs build production facilities in areas outside of their home country and are able to reach new communities in the global marketplace. The economic role of MNCs is simply to channel physical and financial capital to countries with capital shortages. Consequently, wealth is created, which yields new jobs directly and through crowding-in effects. For example, Coca-Cola now sells its soft drinks in over

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200 countries worldwide1 while 27% of Microsoft's computer software revenue is earned outside of the USA2.

3.

In addition, new tax revenues arise from MNC generated allowing developing countries to improve their

income,

infrastructures and to strengthen their human capital. By improving the efficiency of capital flows, MNCs reduce world poverty. The developing countries need to provide or make exists necessary political and economic environments that can attract Foreign Direct Investments (FDI). These corporate giants have developed into important international actors in their own right their budgets, organization, and influence on the world stage rival most nations. Nations lacking FDI have common characteristics: they have economies that are heavily dependent on government regulations and controlled by inefficient stateoperated monopolistic enterprises, and they tend to have nondemocratic regimes. As a consequence, these nations are experiencing extreme rates of poverty, repressed human rights, and excessive environmental damage. These problem countries are primarily concentrated in Sub-Saharan Africa, South Asia, North Africa, and the Middle East.3

4.

The environmental impact of multinational corporations has

been hotly debated. As MNCs build new factories and use up

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more resources, new strains on the environment emerge. Industrial waste may release dangerous chemicals into the atmosphere and water reservoirs. Additionally, more people move into cities in order to find jobs with MNCs. This "urbanization" results in a greater use of automobiles and energy resources in city areas, both of which contribute to pollution in the atmosphere. The purpose of this paper is to review the effect of MNCs on Africas development. The paper would be limited to Nigeria as a part of Africa. The assumption is that the reader as a fair knowledge of MNCs.

AIM 5. The aim of this paper is to discuss the effects of

multinational corporations on African development with a view to drawing lessons.

DEFINITION OF TERMS

6.

The term "multinational" signifies that the activities of the

corporation or enterprise involve more than one nation. While the term "corporation", can be used interchangeably with firm and company and they generally describe a legal entity formed for
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the purpose of conducting business that is separate from its owners, the shareholders.

7.

The term "enterprise" is sometimes preferred as it clearly

includes or describes a network of corporate and non-corporate entities in different countries joined together by ties of ownership. THEORETICAL FRAMEWORK

8.

The

discourse

on

multinational

corporations

and

development in Africa would be based on the dependency theory approach of international relations. This is discussed below.

DEPENDENCY THEORY

9. with

The developing nations are essentially acting as colonial minimal compensation. In dependency theory, the

dependencies, sending their wealth to the developed nations developed nations actively keep developing nations in a subservient position, often through economic force by instituting sanctions, or by prescribing free trade policies attached to loans granted by the World Bank or International Monetary Fund. The

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free market ideology holds, at its most basic, that open markets and free trade benefit developing nations, helping them eventually to join the global economy as equal players. The belief is that although some of the methods of market liberalisation and opening may be painful for a time, in the long run they help to firmly establish the economy and make the nation competitive at the global level.

10. Dependence is a situation in which the economy of certain countries is conditioned by the development and expansion of another economy to which the former is subjected. The relation of interdependence between two or more economies, and between these and world trade, assumes the form of dependence when some countries (the dominant ones) can expand and can be self-sustaining, while other countries (dependent ones) can do this only as a reflection of that expansion, which can have either a positive or a negative effect on their immediate development (Dos Santos, 1970).4

11. Although dependency theory represents an advance over evolutionary theories of development and underdevelopment, it has confronted serious difficulties in attempting to analyse social relationships based on geographical observations and in attempting to construct a model of the world capitalist system. It
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is argued that these difficulties are rooted in four basic aspects of dependency theory:

a.

The basic unit of the world system is seen as a dyadic

relation between nations;

b.

Models of the world system are cumulation of units

into hierarchically ordered sets of roles;

c. and

Geographical and social relationships are collapsed in

description, preventing independent analysis of the latter;

d.

Basic relations among units of the system are those of

exchange instead of production.

The major contribution of dependency theory ie the powerful description of consequences within dependent regions of dynamics within the world system can be enhanced, and the difficulties resolved, through its careful integration with Marxian theories of capitalism and imperialism.5

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EFFECTS OF MULTINATIONAL CORPORATIONS ON LOCAL ECONOMY THE LATIN AMERICA AND EAST ASIA EXPERIENCE 12. The impressive rise of some newly industrializing countries of Latin America and East Asia since the 1960s defied the bleak prognosis of dependency theorists. Both Mexico and Brazil, for example, were exporters of raw materials that turned to import substitution industrialization (ISI) and encouraged direct foreign investment and external loans, and thus have experienced substantial industrial growth.

13. Similarly,

South

Korea

and

Taiwan

successfully

implemented ISI policies and became global exporters of manufactured goods. Dependency theorists considered that these apparent exceptions were in fact replications of the same system with the more successful developing nations succeeding at the cost of other, even poorer, nations. Consequently, some of these economic success stories resulted in a re-evaluation of the central premises of dependency theory. 14. In the 1970s, sociologist Fernando Henrique Cardoso (who later became President of Brazil) addressed weaknesses in dependency theory. He asserted that developing countries could
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achieve substantial development despite their dependence on foreign businesses, banks, and governments for capital, technology, and trade.6 He believed that developing nations could defend national interests and oversee a process of steady economic growth by bargaining with foreign governments, MNCs, recognizing and the international even importance of lending further than negotiations agencies. Cardoso in between Other scholars have gone

governments in developing countries and governments and firms from industrialized nations.7 These analysts believe that the way nations respond to dependence on foreign capital can be as important as the dependence itself. These refinements to dependency theory suggest the promise of new approaches to the problem of development. The approaches should seriously take into account the role of politics and government-level negotiations in determining economic outcomes.

POSITIVE EFFECTS OF MULTINATIONAL CORPORATIONS ON DEVELOPMENT IN AFRICA

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15. Advocates of ISI view industrialization as the precondition of economic and social progress. However, many developing nations that managed to manufacture their own consumer products continued to remain dependent on imports of capital goods. ISI also encouraged MNCs with headquarters in the industrialized world to establish manufacturing subsidiaries in the developing world.8 In 1998, MNCs had 86 million employees, 19 million in developing countries and were also responsible for more than 100 million jobs created indirectly through multiplier effects.9This has led to gainful employment of the many of the people of those host countries.

16. Some developing countries

attempted

to

counter

the

inequalities in trade by adopting ISI policies. ISI strategies involve the use of tariff barriers and government subsidies to companies in order to build domestic industry.10This is with a view to strengthen local capacity and grow local industry and economy.

17. There is no question that in some countries MNCs are making significant contributions in the countries where they are located and active. In some cases Corporate Social Responsibility (CSR) programmes are far from the companies

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core competence but they are carried out nonetheless. The HIV/AIDS crisis in South Africa for example has compelled many companies to adopt aggressive programs that offer treatment and prevention to employees, family members and communities where employees live.11 Similarly, in Equatorial Guinea, oil companies have entered into partnerships with the government to train teachers and eradicate malaria. In Nigeria, various oil companies have donated generators, offered scholarships to children and assisted in rebuilding some schools among other things. In Angola, the MNCs are involved in resettlement of ex combatants. In fact, the budget for these CSRs in Angola is greater than the budget of USAID.12 These efforts have helped to provide some welfare for the citizens of those host communities through grants and donations among other things.

18. A further central characteristic of multinational corporations is that they are in general the product of developed countries and are used to competition. Competition in business is not destructive. It only helps to improve the product quality and cuts prices. Thus, it has compelled MNCs to provide the world with an immense diversity of high-quality and low-priced products. Competition, given free trade, delivers mutually beneficial gains from exchange and sparks the collaborative effort of all nations to produce commodities efficiently.13
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NEGATIVE EFFECTS OF MULTINATIONAL CORPORATIONS

19. Dependency theorists have focused on how foreign direct investments of MNCs distort developing nations economies. These distortions include the crowding out of national firms, rising unemployment related to the use of capital-intensive technology, and a marked loss of political sovereignty.14 MNCs thus represent a new form of imperialism or colonialism as the labour of African people is used to produce and sell products of foreign origin. The proceeds of such businesses are largely repatriated to the home countries of those companies. For example, in the Gambia where the British have been for over 200 years, for every dollar the British have put in the Gambia, they have taken out ten. Thus, Gambians are poorly paid and seen coming to work but paid less than 50 cents a day. African natives are thus indirectly made slaves without developing the colonies or nations.15 20. From the perspective of dependency theory, the

relationship between developing nations and foreign lending institutions, such as the World Bank and the International Monetary Fund (IMF), also undermines the sovereignty of developing nations. These countries must often agree to harsh conditionssuch as budget cuts and interest rate increasesto
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obtain loans from international agencies. During the 1980s, for example, the foreign debt of many Latin American countries soared. In response to pressure from multilateral lending agencies such as the World Bank and the IMF, these nations enacted financial austerity measures known as Structural Adjustment Programmes in order to qualify for new loans. These economic policies led to a decrease in the amount of money spent on health care and education, higher levels of unemployment, and thus slower economic growth.16

21. Furthermore, MNCs are perceived to be methodically eliminating domestic firms in order to exploit their monopoly powers, exporting high-wage jobs to low-wage countries, undermining the worlds environment, augmenting the external debt problems of developing countries, perpetuating world poverty, and exploiting child labour. 22. Although most MNCs have CSR programs in Africa. They are however in reality focused on doing well rather than doing good. For example, since the transition to democracy in South Africa, there has been a proliferation of external codes of corporate conduct. The Global Sullivan Principles launched by the UN in 1999 have been joined by the Global Compact of the UN, the Extractive Industry of the Transparency Initiative, the Voluntary Principles and others.17 While each of these codes has
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its own objectives and methods of implementation, there is no shared set of indicators which demonstrate how companies contribute to Africas development. Moreover, there is increasing evidence and perceptions that MNCs especially those in the extractive sectors are doing a lot in contributing to environmental degradation such as in the Niger Delta or poor governance as in Equatorial Guinea. 18

23. In the light of the above, there is the likelihood that CSRs are done for public relations (PR) purposes with little thought given to real economic needs. Additionally, the CSR programs seem to be contributing to the phenomenon of weak states which is generally regarded as a major obstacle to development in Africa. From the onset, most African states do not have the power to implement broad based development programs. The involvement of MNCs in education, community development or environmental programs implies that they are taking on functions that the governments of those states are supposed to be performing. Hence, the governments are simply nonchalant about those issues which are of importance to their citizens and thus they abdicate those responsibilities leaving them to MNCs. LESSONS LEARNT

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24. In the light of the above, the challenge for African governments and donor agencies is to clearly understand how CSR programs could contribute to the growth and developmental process in those nations. The companies need to look beyond the PR and get to genuine socioeconomic needs in their host countries genuinely in order to assist the in cultivating nations sustainable economic development. It is necessary that MNCs CSR programs are integrated into host development plan. Additionally, African governments need to take the bull by the horn and be up and doing. They need to take on their responsibilities squarely rather than abdicating same and waiting for some MNCs to take them over under the guise of looking for foreign aid or investments.

25. With more international companies taking more interest in trade in Africa, more MNCs are expected to make large investments in Africa especially in the extractive sectors. It is however the responsibility of African governments to ensure that the investments have better impacts on the socioeconomic lives of their people. To this end, African nations could emulate the strategies applied by Brazil and most of the Asian countries to develop local industry and grow their economies despite the presence of MNCs. This way companies that are truly indigenous would emerge and the issue of capital flight and most
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other problems associated imperialism and colonialism with presence of MNCs would be solved.

CONCLUSION

26. The role of MNCs is very much under-appreciated in Africa. They have provided developing countries with much needed capital, jobs, and environmentally friendly technologies. Through free market initiatives, MNCs create wealth, which provides the income flow necessary for welfare improvements. If the developing countries are to escape severe conditions of poverty, they need to privatize, deregulate, protect private property rights, and establish a rule of law. They could still allow the MNCs to bring in the expertise capital and organisation that could be copied by the local industries or enterprises. 27. The African governments should emulate the Asian economies that have grown in spite of the presence of the MNCs and have become big employers of labour in their countries. Additionally, the CSR programs of the MNCs should be neatly harmonised with the governments developmental initiatives to ensure that the people reap greater benefits and not just receiving charity from foreign companies. The governments exist for the welfare of the people. Thus African governments should
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tackle their responsibilities and not adopt a posture that shows that they need aid for everything in their nation to work normally.

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REFERENCES

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"Welcome to Coca-Cola," Coca-Cola Corporation, accessed 13 November 2003, http://www2.cocacola.com/ourcompany/index.html.

1

"Press Pass Information for Journalists," Microsoft, Accessed 13 November, http://www.microsoft.com/presspass/inside_ms.asp

2

World Investment Report 1999: Foreign Direct Investment and the Challenge of Development, United Nations, New York and Geneva, 1999, pp. 4573. Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick, 1999 Index of Economic Freedom, The Heritage Foundation and Wall Street Journal, 1999, pp. xixxxviii.
3 4

http://zimmer.csufresno.edu/~sasanf/101Documents/DependencyT... 5. http://www.jstor.org/pss/3340297 accessed 3 Mar 12.

accessed 29 Feb 12.

Microsoft Encarta 2008, Multinational Corporations. Ibid.

Witney W Schneidman, Multinational Corporations and Economic Development in Africa, (Centre for Strategic and International Studies 25 Jul 2007), p 2.
8

World Investment Report 1999: Foreign Direct Investment and the Challenge of Development, United Nations, New York and Geneva, 1999, pp. 2619.
9 10

Witney W Schneidman, Op Cit., p 3. Ibid. Ibid World Investment Report 1999: Op Cit., p. 115.

11

12

13

Lord Aikins Adusei, Multinational Corporations: The new Colonisers in Africa, in www.martinfrost.ws/htmlfiles/april2...accessed 12 Mar 12.
14 15

ibid
Ibid.

16

17

Witney W Schneidman, Op Cit., p 4. Ibid.

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