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AFCSC/DJS/SC 34/MIASS/ SYN 3

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

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over 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

income, allowing developing countries to improve their

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 state-operated monopolistic enterprises, and they

tend to have non-democratic 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

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up 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 Africa’s 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

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for 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. The developing nations are essentially acting as colonial

dependencies, sending their wealth to the developed nations

with minimal compensation. In dependency theory, the

developed nations actively keep developing nations in a

subservient position, often through economic force by instituting

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sanctions, or by prescribing free trade policies attached to

loans granted by the World Bank or International Monetary

Fund. The 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

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

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

3 World Investment Report 1999: Foreign Direct Investment and the Challenge of Development, United Nations, New York and Geneva, 1999, pp. 45–73. Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick, 1999 Index of Economic Freedom, The Heritage Foundation and Wall Street Journal, 1999, pp. xix–xxviii.

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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

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. Geographical and social relationships are collapsed

in description, preventing independent analysis of the

latter; and

4 http://zimmer.csufresno.edu/~sasanf/101Documents/DependencyT... accessed 29 Feb 12.

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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

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.

55. http://www.jstor.org/pss/3340297 accessed 3 Mar 12.

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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 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, and international lending agencies.

Other scholars have gone even further than Cardoso in

recognizing the importance of negotiations between

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

6 Microsoft Encarta 2008, Multinational Corporations.

7 Ibid.

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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

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

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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’

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

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

9 World Investment Report 1999: Foreign Direct Investment and the Challenge of Development, United Nations, New York and Geneva, 1999, pp. 261–9.

10 Witney W Schneidman, Op Cit., p 3.

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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

11 Ibid.

12 Ibid

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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

13 World Investment Report 1999: Op Cit., p. 115.

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

15 ibid

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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

conditions—such as budget cuts and interest rate increases—

to 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 world’s 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

16 Ibid.

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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 its own objectives and methods of implementation, there is

no shared set of indicators which demonstrate how companies

contribute to Africa’s 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

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

18 Ibid.

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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

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 in order to assist in cultivating

sustainable development. It is necessary that MNCs’ CSR

programs are genuinely integrated into the host nations’

economic 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

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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 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

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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 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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