IMPACT OF MULTINATIONAL CORPORATIONS ON AFRICAN COUNTRIES
A DISSERTATION ABOUT IMPACT OF MULTINATIONAL CORPORATIONS ON AFRICAN COUNTRIES
Student’s Name
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Submitted in [partial] fulfillment of the requirements for the degree of
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The research paper uses various standard terms throughout the document. They include developing nations, developed countries, foreign direct investment, and multinational corporations.
The research focuses on multinational corporations and their impacts on developing African countries. MNCs are businesses, which maintain direct investments in foreign countries and have subsidiaries in over one nation. The study was vital in analyzing the positive and negative impacts of these MNCs on African countries, concerning job creation, economic development, payment of tax, environmental pollution, and profit expatriation, among other factors. The study employed secondary research, such as journals, scholar articles, and publications, and other credible and relevant materials to the topic. Theories, such as the dependency theory, unequal exchange theory, the structural theory of imperialism, and new trade theory, were used to show the relationship between developing African countries and MNC’s desire to operate and venture in these countries. The study objectives were designed to explore the impact of the MNCs on emerging African economies to make analysis and provide recommendations. The study concluded that MNCs have both positives and adverse effects on developing African countries, such as job creation, economic development, enabling developing enterprises to access international markets, and FDI increase. Adverse effects include cultural degradation, tax evasion, environmental pollution, and expatriating the profits.
Table of Contents
Statement of Original Authorship. viii
1.4 Significance, Scope, and Definitions. 3
1.4 1 Significance of the study. 3
Chapter 2: Literature Review.. 6
2.4 Why Developing Nations are Attractive to Multinational Corporations. 11
2.5 Positive Impacts of MNCs in African Nations. 13
2.6 Negative Impacts of MNCs in African Nations. 17
2.7 Summary and Implications. 20
Chapter 3: Research Design. 21
3.2 Methodology and Research Design. 21
3.4 Procedure and Timeline. 23
3.6 Ethics and Limitations. 24
Case 2: Environmental Pollution. 32
Table 1: The chart illustrates the dissertation timeline. 25
MNCs- Multinational Corporations
FDI- Foreign Direct Investment
GDP- Gross Domestic Product
R&D- Research & Development
HR- Human Resource
UNCTAD- United Nations Conference on Trade and Development
OECD- Economic Cooperation and Development
GHG- Greenhouse Gases
CO2– Carbon dioxide
AZF- Associated British Food
KRA- Kenya Revenue Authority
VAT- Value Added Tax
FEPA- Federal Environmental Protection Agency
NESREA- National Environmental Standards and Regulations Enforcement Agency
Statement of Original Authorship
The work in this dissertation has not been previously submitted to meet specification for an award at this or any other higher learning institution. To the best of my belief and insight, the dissertation does not contain any material that have been previously written by another person except for the sections cited with the sources.
Signature: _________________________
Date: _________________________
My special acknowledgment goes to X for their assistance during my research and for nurturing me academically.
My gratitude and indebtedness to X, my supervisors, who have assisted me in shaping this
dissertation through his/her direction and guidance, I cannot adequately convey my gratitude in a few sentences. Nonetheless, I express my sincere and heartfelt appreciation for his or her endless and constant encouragement, mentorship, and advice that has kept me pushing during my research period.
A warm thanks to my friends and family who have stood with me during the completion of this dissertation. Thank you for your encouragement and for unflagging trust in me. You have always been my source of inspiration and motivation to my vision and purpose.
Chapter 1: Introduction
This chapter describes the background of the research and context of the dissertation, including the objectives of the dissertation. Moreover, the section illustrates the significance and scope of this study and definitions of the used terms. The last part of the chapter will provide the outline of dissertation.
1.1 Background
The dissertation stems from the realization that, in the present globalized world, multinational corporations (MNCs) play a fundamental role in shaping the international economy [1]. Multinational Corporations are organizations established in one nation but which operate, manage, or control production and distribution facilities in various states. Hence, MNC’s also referred to as transnational corporations since they transact business in multiple countries and diversified businesses operations [2]. Globalization is among the factors contributing to an increased investment of multinational corporations in developing nations [3]. Globalization increases global interconnectedness and interdependence, leading to the integration of countries. Following globalization, the globe has become a single market without trade barriers, and this immense impacts on developing countries. Internationalization has led to the creation of opportunities or developing nations to open their trading zones for multinational corporations. As a result, MNCs increase private capital flows, increased employment, economic growth, FDI, and enhanced circulation of technology. It is worth noting that multinational corporations have become a key institution in developing countries. Although multinational corporations’ benefit in various ways, such as grants and lower labor costs while operating in developing nations, the developing African nations gain significantly — for instance, MNCs aids in boosting economic development, reducing poverty, and raising employment standards[4]. However, MNCs also have various disadvantages in developing nations, such as preventing autonomous development, the outflow of capital, exploiting employees, polluting the environment, and evading taxes.
1.2 Context
1.2.1 Problem Statement
The impacts of multinational corporations on developing African countries cannot be ignored. Multinational corporations have economic and social effects at the international level, particularly in African nations in which the companies invest. These corporations gain significant benefits by operating in emerging African countries, such as the lower cost of labour and the accessibility of raw materials. On the other hand, developing African countries gain through job creation, boosting the economy, and increased FDI. However, while MNCs continue to play an indispensable role in developing African nations’ economies, researchers indicate that these corporations also influence emerging African countries negatively. For instance, studies reveal that MNCs not only evade income corporate tax, but also exploits workers and engage in child labor, contribute to environmental pollution, cultural degradation, profit repatriation, and inhibit autonomous development. Therefore, the research sought to address the impact of MNCs by examining various cases in developing African countries. As such, the dissertation aims to answer the following question; How do multinational corporations impact developing African countries?
1.3 Purposes
The purpose of the dissertation is to examine the positive and negative implications resulting from increasing operations by the multinational corporations in developing African countries.
1.3.1 Specific Aim
The specific goal of conducting this research is to determine how multinational corporations impact developing African countries. Besides, the survey at reviewing various past cases involving the operation of MNCs in the African States to offer solutions to the associated negative implications.
1.3.2 Objectives
The primary objectives of conducting the research on the impact of MNCs in third world nations are
- To determine the positive impact of the businesses on developing the African States.
- To examine the negative impact of the companies on developing the African States.
- To investigate different cases associated with MNCs operations in the developing African nations.
1.3.3. Research question
- How do multinational corporations impact the developing African countries?
1.4 Significance, Scope, and Definitions
1.4 1 Significance of the study
The operation of MNCs and their impact in developing countries, such as African nations, is worth considering. The current research aims at conducting a study to examine how multinational corporations impact developing African nations. Besides, the survey will focus on reviewing various past cases involving the operation of MNCs in the African States to offer solutions to the associated negative implications. Therefore, the study will be not only crucial to African countries and multinational corporations but also helpful to future researchers. The research will be beneficial for epistemology research by helping future researchers with information about the adverse and positive influence of MNCs in developing African countries. The study will also help in attracting scholarly attention on the topic and motivate further future study.
1.4.2 Scope of the study
The research focused on multinational corporations operating in developing African countries. The study sought to analyse the impacts of MNCs in developing nations, such as African nations, thereby offering recommendations to mitigate the identified adverse effects.
1.4.3 Definitions
- MNCs are businesses, which maintain direct investments in foreign countries and have subsidiaries in over one nation.
- Gas venting and flaring are the burnings of related gas, which involves the extraction of crude oil from oil exploitation
1.5 Thesis Outline
The chapters below will include a literature review, research design, results, analysis, and conclusion and recommendations. Chapter 2 of the study will discuss in details a brief history of MNCs in Africa and the reasons why MNCs venture in developing African countries. Conceptual and theoretical theories, such as new trade theory, dependency theory, and unequal exchange theory, will help in relating the MNC’s operations in emerging economies. Chapter 3 of the study will discuss the research design used to conduct the paper. Case studies from various African nations will be used to help draw an analysis of the topic. Chapter 4 of the study will focus on analysing multiple case studies, which will aim in both positive impacts and adverse effects of MNC’s operations in African countries. The case study will help in the analysis chapter. Chapter 5 will entail the discussion part, which will focus on analysed results in section 4. The analysis will be crucial in examining how MNC’s operations in African countries influence these nations’ economies and development capabilities. Chapter 6 focused on providing a conclusion about the study and providing recommendations on what the MNCs and the developing African countries could do to reap maximum economic benefits.
Chapter 2: Literature Review
This chapter elaborate with a past background and examination standard literature on the following topics: conceptual framework, which will provide a brief description of MNCs and their aims for venturing in developing African countries. The chapter explain the theoretical outline, whereby theories such as New trade theory, dependency theory, and unequal exchange theory will be analysed predicated on the topic. Why developing nations are attractive to multinational corporations, advantages of MNCs on developing African nations and disadvantages of MNCs on developing African countries are discussed in this chapter.
2.1 Historical Background
Global business has come to age, with the elevating expands of many regional bodies like African union[5]. With the disappearance of tariffs and national boundaries, more and more services and products move into the global business scene. In previous decades, various foreign subsidiaries have expanded their business operations in African nations, culminating in the emergence of MNCs.
Multinationals and Africa
African nations are endowed with the most abundant natural resources. The African countries are rich in gold, copper, diamond, and oil deposits, among others. For centuries, Africans and Africa developed their economy that produced food and weapons. However, Europeans that came to African in the 16th century had interests in natural resources like gold and ivory. Politically, most of the developing nation has been sovereign for an elongated time, but economically, a significant number of Africans nations remain in chains[6]. Over time, the MNCs have found the right market for themselves in African countries.
2.2. Conceptual Framework
There are various definitions associated with multinational corporations. MNCs make direct investments in international states[7]. Multinational corporations comprise of formulation from a parent organization and consists of a cluster of numerous branches or subsidiaries in different countries with a shared pool of financial, managerial, and technical resources. The parent organization operates the whole corporation in terms of coordinated and well-planned global strategy. Production, research, purchasing, and marketing, among other functions, are planned and managed by the parent organization to attain a set of long-term corporate objectives aimed at accomplishing the overall development. Multinational corporations refer to business companies, which uphold the value added-holdings in foreign nations.
Moreover, MNCs are businesses that maintain direct investments in foreign countries and have subsidiaries in over one country. A company is not entirely a multinational corporation if it only operates in foreign nations or contracts overseas firms[8]. Additionally, multinational corporations send capital, managerial talents, technology, and marketing skills to conduct production in overseas nations. According to Eluka and Anekwe, the authors support the same viewpoint and defines MNCs as organizations which engage in FDI and owns, controls, and manages value subsidiary companies in different nations[9]. Another definition of MNCs is any company that has productive activities in different nations that grow from its sovereign country to spanning globally. The core goal of multinational corporations is to acquire proficient locations for manufacturing facilities as well as obtain taxation concessions from the host federal state. The MNCs confirm the Marxists theory that viewed MNCs as progressive representatives of capitalism.[10] MNCs lies in the fact that its main headquarter is situated in one nation while the organization conducts out business operations in various countries.
2.3 Theoretical Framework
Multiple theories could be used to explain the relationship between developing nations and multinational corporations. Such approaches include the new trade theory, which according to Medin, the theory emerged in the 1980s, and emphasized that market failures and economies of scales are the driving force behind multinational trade.[11]Before 1980, international trade theory aimed at a business using different products between various nations and the comparative gain was held to be the primary driving force attributed to international trade. Any deviations from the perfect competition were believed not to have a significant effect on the conclusions provided by the models. In perfect competition, the market makes sure that resources are allotted most proficiently. Nonetheless, this transformed with when the new trade theory emerged. The new trade theory emphasizes that market failure and the significance of economies of scale like externalities and imperfect competition were the driving forces impacting trade.[12] The new trade theory is a crucial factor that elaborates on the development of globalization that MNCs serve as the primary agents. The theory implies that more impoverished and developing countries, such as Africa continent, may struggle ever to grow specific industries since they lack economies of scales enjoyed by developed nations. [13] The new trade theory indicates that federal governments have a role to play in enhancing new industries and supporting the development of primary industries. Hence, a developing economy may necessitate tariff guard as well as a domestic subsidy to attract the formation of capital-intensive companies. When the established industries receive support for a few years, such companies will be capable of exploiting economies of scales thereby becoming competitive without the government’s help. Important to note, Eluka, Ndubuisi-Okolo, and Anekwe indicate that new trade theory is not entirely about encouraging states’ intervention in the industry but is emphasizes the realization that economies of scales are the primary factor in enhancing the development of trade[14]. Accordingly, the theory also implies that free trade and government intervention may be much minimal desirable for growing economies that find themselves incapable of competing with the existing MNCs.
Dependency theory is a significant theory that explains the association between developing nations and multinational corporations. According to Eluka, Ndubuisi-Okolo, and Anekwe, the theory suggests a type of parasitic association, which exists between less developed and highly industrialized countries in a way that ascertains a continuous advancement of developed nations in developing nations. [15] According to Yusha, dependency theory — developed in the 1950s —implies that the development of rich nations is not often on par with the developing and developing countries. R. Prebisch —a principal articulator of dependency theory — stated that the growth of western nations does not necessarily culminate in the increase in most impoverished nations. He emphasizes that the economic growth in industrialized nations often becomes a significant hindrance to the developing countries. Prebisch explanation is found in the system that developed nations have been developed with the periphery. Therefore, the developing countries’ development has become entirely reliant only on manufacturing raw materials for developed nations, and ready-manufactured products become accessible through import.
On the other hand, Yusha indicates that Frank, Prebisch’s colleague argues that reliant countries offer cheap labor and cheap materials, and in turn, they get goods, money, and services from developed nations. [16] Such division of work is the primary description of the reliance and, thus, underdevelopment in African countries. The primary implication of the dependency theory is that African nations are undergoing underdevelopment attributed to the incorporation of the European economic system.
Johan Galtung’s structural theory of imperialism has two presumptions; the first assumption is that there is inequality within and among countries, including the ability to determine the living condition of a nation’s population; secondly, the variation resists change[17]. The theory presumes that the globe encompasses the Periphery and Center countries, with every state, in turn, having its periphery and center[18]. Under this theory, imperialism is comprehended to be the dominance link among countries in which the Core defines the conditions in which the periphery should exist. Hence, MNCs are conceived within this approach to serve as relaying strategies among countries[19]. The theory suggests that there is a division of labor, where the branch company in the Periphery country is concerned with making the available raw materials and securing markets for the parent organization in the Core country. Thus, when the conditions in the Periphery nation fail to allow the branch company to obtain the raw materials and market, it communicates to the parent corporation, which in turn, persuades the political elites in the Core nation to act on the periphery country. In other words, the theory suggests that MNCs will serve to enhance the national interests of the Core in the Center country, in the Periphery or act in a manner that influences the Center country to behave in a certain way towards the core in the border country to secure the interests of both the Center state and the MNCs interests in the Periphery country.
Lastly, Emmanuel established unequal exchange theory to show global transfers of value-hidden behind trade equality. [20] The theory asserts that the variation in monetary wages between developed and developing economies determined by trade union generates inequality in value transfer and trade. In international trade, when the developing nations sell products to developed countries below the value, the same commodities are sold to developing nations above the price value. For instance, in Nigeria, crude oil is sold at a lower price to MNCs who refine crude oil and sell to developing countries at very high prices.
2.4 Why Developing Nations are Attractive to Multinational Corporations
The first reason developing nations, such as African countries lure multinational corporations, is reliable with the neoclassical theory, which implies that nations with comparative unskilled and low-skilled labor will specialize in the manufacturing and exporting products utilizing their factor endowment[21]. International competition among labor-abundant countries like Africa transforms the nature of the factor endowment since it puts pressure on the manufacturing techniques enhancements to remain competitive, while at the same time pushing down salaries. MNCs’ primary objective is to stay competitive in the global market as well as elevate their market share globally. To attain this, developing nations, such as African countries, become an attractive niche for MNCs to expand their market. As the MNCs size increases, the management starts locating capital investments in manufacturing where the operational cost is minimal. Since the supply of labor is inelastic with regards to salaries in developing countries, African nations are increasingly becoming attractive to multinational corporations because they allow the negotiating power of wages. As such, salaries tend to reduce in African nations undergoing trade liberalization. The availability of cheap labor is crucial to low-skilled industry development[22]. Currently, most brand names, for instance, shoes and garments, are grounded in the developing nations and use production facilities in these countries. The cost of labor for only one to three percent of the retail price is paid by end-user, while profit margins are over 50% [23]. Notably, multinational corporations focus on the emerging niche in African nations, thereby locating their corporations in African countries. As the transnational corporations seek to elevate their market share through business expansion, which is a paramount factor for remaining competitive, the MNCs refers nations that fulfill the need for low production cost and easy accessibility to these markets. Developing nations also seek investment from multinational corporations to increase the nations’ foreign direct investment[24]. Arguably, with the decrease in financial grants and aids, the developing countries’ federal governments are focused on FDI, as it creates job opportunities and new sectors via skills and technology transfer, thereby helping in payment of the national debt.
2.5 Positive Impacts of MNCs in African Nations
2.5.1 Employment creation
MNCs have productive abilities in various nations[25]. The income and profit flow they create are part of the international capital flows moving between nations. Multinational corporations play an indispensable role in creating new types of jobs, thereby making employment in African countries like Kenya, South Africa, and Nigeria, among many others. According to Ferdausy and Sahidur, multinational corporations create more than 12M jobs in developing nations[26]. Multinational organizations account for about one-fifth of the jobs in the non-agricultural industry and generate a significant number of opportunities in the production sector, particularly in technology. MNCs also contribute to enhancing employees’ health, welfare, housing, and education. Creating more jobs in developing nations helps in alleviating poverty, thereby enabling workers to afford suitable housing and education for their children.
2.5.2 Economic development
Multinational corporations are considered a significant stimulus for developing nations’ economic growth. Inward foreign direct investment offers external financing for compensating the insufficient amount of local savings as well as international aid. Overseas development investment inflows are steady and more comfortable to service compared to portfolio investment or commercial debt[27]. In the 1990s, the FDI net flows to developing countries amounted to about 4334B yearly, showing a drastic increment in FDI in developed nations in 2010 to approximately $574B[28]. The foreign direct investment brings benefits to developing countries by contributing to the Gross Domestic Product, the formation of gross fixed capital as well as balancing the payments.
According to Rugraff and Micheal, FDI in developing countries has significantly transformed in recent years[29]. Recently, there is increased growing efficiency as well as strategic asset-seeking MNCs in Africa attributed to African nations’ ability to establish industries that are attractive to foreign investment. Notably, the share of foreign direct investment from developing countries has increased from about 10 percent of worldwide FDI in 2000 to over 20% by 2009. According to NCTAD, FDI in African nations increased by 63% over 2007[30]. Most of the foreign direct investment is through acquisitions, thereby attracting MNCs to invest in these African nations. MNCs are also making significant changes in their strategy, such as outsourcing their business activities overseas and increasingly disintegrating their value chains. MNCs are also shifting their competitive niche from regional and national arenas to international arenas, such as in African nations. The transforming change in FDI has had an indispensable impact on African countries’ economic development. Besides providing investment capital, foreign direct investment comes with market opportunities, technology transfer, and skills[31]. Foreign direct investment culminates in improved and better cheaper goods and increases competition, hence heightening consumer welfare.
2.5.3 Industrialization of exports
MNCs help in promoting the developing nations’ exports in which they invest. With significant links across the globe as well as manufacturing products effectively, MNCs play a vital role in promoting African nations’ exports.
2.5.4 Formation of capital
It is worth mentioning that money represents a significant economic asset in emerging economies. A considerable advantage of MNCs is their ability to inject capital into emerging economies, thereby bringing resources to these nations, which otherwise would have been unavailable and challenging to access global markets. MNCs invest a significant amount of capital in African countries. Research indicates that international multinational corporations are more profitable, productive, and expert more products compared to local industries[32]. Multinational corporations facilitate foreign exchange earning via trade impacts producing exports. By manufacturing products for exports, the balance of payments in emerging economies promote economic growth, thereby becoming attractive for potential investment. Lastly, multinational corporations offer instant access to international markets and consumers, which should have taken domestic companies’ years of speculation and attempt to gain access to foreign markets.
2.5.5 Research and development
Multinational corporations’ investment in African nations has had a momentous effect on the expansion of human resources (HR), industrial technology, and research and development (R&D). First, MNCs’ investment in African nations has culminated in the development and growth of HR on a large scale. It is worth mentioning that MNCs put emphasis on training workers and view improving the quality of HR as a critical factor in competition [33]. Although some African nations have quality personnel, most of the talents are utilized to undertake basic research. Accordingly, these talents fail to meet the requirement and requirements of the global marketplace. Thus, training offered by MNCs helps in developing African countries’ human resources as well as improving their talents. MNCs also bring improved R&D management to the African continent. MNCs do not have excellent experience with the latest and sophisticated innovation systems and global technology networks but also have enhanced management systems and strategies of research and development networking. Hence, MNCs’ training and R&D have a positive spillover impact on the R&D management of African nations’ companies. Accordingly, MNCs R&D and technology increases the overall industrial-technological use in African countries. Since MNCs R&D labs are technical intensive, these corporations elevate the industrial technology level of African countries’ economies by carrying out research activities.
2.5.6 Alleviating poverty and creating skills and competence
Multinational corporations play an indispensable role in alleviating poverty in developing nations[34]. MNCs not only generate employment but also encourage individuals to produce products required by their corporations leading to enhanced livelihood. Accordingly, MNCs help in creating competence and elevating skills through training. International investment offers managerial skills and expertise, which enhances productivity. MNCs prefer employing locals within the country, which they invest. Although inadequately skilled labor challenges the MNCs’ business operations, MNCs often offer education and training to local employees focusing on enhancing their skills[35]. As a result, there is the development of expertise and skills among African Nations’ employees.
2.6 Negative Impacts of MNCs in African Nations
Despite having positive effects in developing countries, MNCs had disputed impacts in the emerging nations, such as African countries.
2.6.1 Inhibiting autonomous development
According to Ferdausy and Sahidur, dependency refers to a situation in which the number of states that are trained by the growth and growth of another country place the reliant country in a backward situation exploited by the developed nation[36]. Arguably, according to dependency theorists, the present underdevelopment in emerging economies falls in the outline of the international capitalist scheme. International capitalism is a procedure that produces prosperity and growth of the Western nations and developed in industrialized countries at the expense or exploitation of emerging nations through the creation of poverty [37]. According to dependency theorists, multinational corporations inhibit the emerging nations from attaining proper autonomous development. Multinational organizations hinder local companies and existing and upcoming businessperson from engaging in the most vibrant industry of the economy. MNCs also elevate income inequality and utilize improper capital-intensive technologies, which contribute to joblessness.
2.6.2 Exploitation of employees and child labor
Critics argue that most multinational corporations venture into emerging nations to exploit their cheap labor and plentiful natural capital. According to Wangusa, due to high-demand by MNCs for cocoa, and since hired labor is expensive, farmers manage to use child labor in the cocoa farms to grow the output while paying less for work[38]. Not to say that child exploitation is the only labor utilized on cocoa plantations, but it exists alongside adult workers to cuts labor costs. Accordingly, due to the high demand for cocoa, MNCs often pay reduced devotion to workers’ issues and worries but focuses more on the quality and quantity of cocoa the companies obtain from Ghanian farmers. Wangusa indicates that in 2008, about 215M children worked illegally. In Sub-Saharan Africa, the proportion of child labor exploitation accounted for 25%. Malawi, Nigeria, and Ghana are among the African nations, where child labor is rampant, especially in the agriculture industry[39].
2.6.3 Polluting the ecosystem
Concerning the ecosystem, MNCs are polluters or environments in African nations, in which they invest their capital. Oil-producing countries, such as Nigeria, are among the most affected [40]. Although most experiential researches have paid little consideration to the role of MNCs in ecosystem pollution, Osabuohien, Uchenna, and Ciliaka assert that this is pivotal with the increasing inflow of MNCs in the Africa continent[41]. The issue of environmental pollution in Africa is high, as supported by Osabuohien, Uchenna, and Ciliaka, who reveal that 60% of the nations in the globe with susceptibility to environmental pollution are in Sub-Saharan Africa. The emission of harmful gaseous molecules like greenhouse gases (GHG) and Carbon dioxide (CO2), per-fluorocarbons, hydrofluorocarbons, and sulfur hexafluoride that elevates the risks of ecosystem pollution are contributed human activities[42]. The effects are severe; for instance, harmful gases in the environment culminate in health issues such as respiratory complications, food security issues, and reduction income among others. Among the primary contributors to the emission of CO2 and GHG are companies and factories owned and operated by MNCs.
2.6.4 Tax Evasion
The issue of evading tax by multinational corporations continues to produce debate despite the organization for Economic Cooperation and Development (OECD) strategies [43]. MNCs indicate that they pay their taxes dutifully; however, cases from African nations like Zambia indicate otherwise.
2.6.5 Cultural degradation
Among the adverse influence of MNCs in developing African nations is the deterioration of culture. For instance, in Nigeria, the operation and presence of MNCs have been felt in the nation’s most valued cultural heritage[44]. Some of the negative impacts of FDI on the social and cultural wellbeing of Nigerians and other developing countries include the MNCs’ ability to domineer in the form of cultural imperialism of the community. MNCs undermine the traditional norms of Nigerian society through which the states end up losing control over their social and cultural development[45].
2.6.6 Repatriating profits
Some of the MNCs not only evade tax but also engage in profit repatriation by siphoning the developing economies by sending a significant amount of earnings to their parent companies. As a result, this continues to significant deny the developing African countries’ ability to offer their population better economic and social benefits, such as good education, infrastructure, health care, and other social amenities.
2.7 Summary and Implications
The above literature provides a detailed analysis of the advantages and disadvantages of MNC’s operations in developing African nations. The research helps in analyzing the research question, thereby proving helpful information that will be vital in Chapter 4. Theoretical frameworks used are crucial in showing the relationship between developing nations and multinational corporations. Such theories include the new trade theory, which emphasizes that market failures and economies f scale are the compelling force behind transnational corporation trade. The theory suggests that African countries continue to struggle to develop economically due to a lack of economies of scale. Therefore, emerging countries may need tariff protection and grant to lure the formation of capital-intensive corporations. The dependency theory implies that a parasitic relation exists between industrialized and developing countries in a way that ensures the development of developed countries in African states through MNCs. Hence, this research helps in conducting qualitative research based on previous research and case studies to identify the influence of MNCs on developing African nations.
Chapter 3: Research Design
3.1 Introduction
The section provides the methods utilized in the process of obtaining information essential in examining the objectives of the study. The purposes include the determination of the positive impact of the corporations on developing the African States, the examination of the adverse effects of the corporations on developing the African States, and investigating different cases associated with MNCs operations in the developing African nations. The methods include that study methodology, research design, participants, and the considered ethical consideration in the process of conducting the research analysis.
3.2 Methodology and Research Design
3.2.1 Methodology
The study utilized a case study research methodology in the course of investigating the impact of multinational corporations in African states. Often, scholars use case study design in the process of performing empirical inquiry aimed at investigating a selected phenomenon in a real-life situation[46]. The case study design would aid in investigating the research questions, including both the positive and adverse implications associated with multinational corporations in developing African countries.
3.2.2 Research Design
The study used a qualitative research methodology focused on making an inquiry essential in informing the issue under investigation. A qualitative research design focus on answering how or why making the research design effective in studies that aim at exploring a selected issue/ phenomenon[47]. Notably, the research employed a qualitative research design because the specific aim of the study is to investigate how multinational corporations impact unindustrialized African nations. Besides, the study involved collecting secondary data comprising of narrative and cases that enhance the verification of the primary objectives. The procedures, techniques, and strategies used in the analysis of the gathered information focused on the aggregation of the data collected and the making deductions from the garnered data. The study examined the content of different academic sources in terms of their credibility and relevance to the discussed topic and research objective by utilizing secondary analysis. Therefore, the study considered the information in different scholarly articles and journals for their application to the study topic. Logically, the study sought to apply the various sources presented by varying scholars in the gathered information.
3.3 Instrument
In carrying out research work, the instrument forms the essential components in data collection. Notably, different research technique utilizes various tools aimed at promoting the realization of a research objective. In this case, the study used the document analysis technique in the collection of information vital to informing the purposes and the aim of the research. Document analysis is a qualitative technique that involved the assessment of existing documents for crucial information obtained from the company, newspaper articles, books, government reports, among other verified documents[48]. As a result, document evaluation was the most appropriate technique of gathering information suitable in informing this research on the impact of multinational companies in developing African nations.
3.4 Procedure and Timeline
3.3.1 Procedures
The study used the secondary technique in collecting and recording qualitative information. The collection involved a review of past recorded information from government websites as well as conducted research about the positive and adverse influence associated with multinational corporation operations in African nations. Nonetheless, the study presents the collected data in the form of case studies, tables, and respective charts aimed at answering the research question as well as addressing the problem statement. The nature of the study aimed at evaluating the impact of multinational corporation’s operations in the developing African nations inspired the rationale for the procedure used in the study. Notably, the qualitative research technique was the most suitable for this study because it is difficult to collect relevant information covering a vast population; in this case, African countries.
3.3.2 Timeline
The table below demonstrates the timeline used in the completion of the dissertation from the beginning to the publishing of the research work.
Table 1: The chart illustrates the dissertation timeline
| Activities | July | August | September | October | November | December | January |
| Writing proposal | |||||||
| Review by Supervisor | |||||||
| Proposal Approval | |||||||
| Writing the dissertation | |||||||
| The dissertation review by the supervisor | |||||||
| Dissertation correction | |||||||
| Approval | |||||||
| Publication |
3.5 Analysis
The analysis in the study involved coding and dealing with divergent data collected from different reputable sources. The coding process included the provision of the author’s findings in summary as well as categorizing and matching similar data. Information alignment enhanced the ability to develop comprehensive and tangible information with a capacity to inform the specific purpose and objective of the research. The process aided in dealing with the available divergent data, thereby informing the intent of the study.
3.6 Ethics and Limitations
3.6.1 Ethics
As a part of upholding ethics in carrying out the research, the study integrated necessary ethical measures essential in ensuring that the dissertation meets the criteria. The moral actions included obtaining a signed letter from the dean’s office as needed before carrying out research work in partial fulfillment of the program. Besides, the dissertation involved a high level of professional competence and scientific responsibility aimed at promoting the credibility and validity of the thesis. Other moral considerations included a high level of integrity as well as respect for diversity and dignity. Moreover, the study adhered to the necessary level of accountability as well as assured that there was no conflict of interest.
3.6.2 Limitation
Nonetheless, the research faces numerous limitations, including
- Limited available quantitative information essential in supporting the objective of the study. The availability of the statistical data would have enhanced the provision of supporting information regarding the topic under investigation.
- Time allocated to complete the study proposal, and the submission of the dissertation was limited, forming another limitation of the study.
3.7 Conclusion
The chapter has addressed the research technique for the research and outlined the ethical considerations for this dissertation. The section has highlighted the data sources for the study. Accordingly, it has justified the preferred gathered of data and analysis methods. In the following Chapter, the dissertation addresses the results of the investigation.
Chapter 4: Results
4.1 Introduction
The chapter describes a detailed analysis of the positive and negative impacts of multinational corporations in African Nations. Cases studies will be used to elaborate further both the adverse and positive influence of MNCs developing African countries.
4.2 Findings
MNC’s and Employment
MNC’s have been a significant employer in developing African nations. The chart below demonstrates the MNC’s Employment by sector in Ethiopia one of the developing African countries.
Figure 1: The Pie chart illustrates the percentages of employment opportunities offered by MNC’s in Ethiopia by sector (Data Source: World Bank group[49])
Training by MNC’s to Citizen
The figure below illustrates the training provided by MNC’s regarding manufacturing to the citizen of the nations in which the corporations operates in the developing African countries.
Figure 2: The Bar graph demonstrates the manufacturing training offered by MNC’s to the Citizen in the developing African Countries (Data Source: World Bank Group[50])
MNC’s Jobs Distribution in Rwanda
Distribution of jobs is another impact influenced by MNC’s operations in developing nations with the chart below, illustrating the job distribution in Rwanda.
Figure 3: The bar chart demonstrates job distribution in Rwanda offered by MNC’s (Data Source: World Bank Group[51])
MNC’S Contribution to Developing African Countries in terms of FDI Inflow
Foreign domestic investment is another area that has been promoted by the operation of multinational corporations in developing African nations. The table below reveals the FDI inflow in the different African regions in Billion US$.
| FDI Inflow in US$ Billion | ||||
| Year | Eastern Africa | Southern Africa | Central Africa | Western Africa |
| 2008 | $7.00 | $5.00 | $14.20 | $12.50 |
| 2009 | $6.50 | $6.00 | $12.30 | $14.80 |
| 2010 | $7.40 | $9.40 | $4.50 | $12.00 |
| 2011 | $7.50 | $8.50 | $7.60 | $18.60 |
| 2012 | $7.90 | $9.90 | $6.70 | $16.60 |
| 2013 | $9.30 | $8.20 | $13.20 | $14.20 |
Table 2: The table depicts the FDI Inflow in US$ Billion by Regions (Data Source: World Bank Group)
4.3 Case Studies
Case 1: Tax Evasion
Zambia Sugar Plc
Zambia Sugar Plc is a branch of Associated British Food (ABF), which has successfully opted out the organization tax system in Zambia via a mixture of lawful and ingenious tax dealing, and significant tax concessions given by the Zambian government. Zambia is an African nation that is still stricken by poverty, thereby having a high number of its population living below the poverty line. The country exports food products such as sugar, and yet, over 45% of Zambian children are malnourished. Arguably, Andebo asserts that hunger and poverty cannot be eliminated if emerging nations cannot raise adequate proceeds to cater to the requirements of their population[52]. This cannot be attained if MNCs like Zambia Sugar Plc continues undermining the country’s tax evasion, and the Zambian government is incapable to regulate the various dealings the corporation utilizes to allocate more than a third of its pre-tax gains —more than US$13.8M yearly out of Zambia through tax haven subsidiaries in Mauritius, Ireland, and Netherlands. It is worth noting that the business tax in Zambia is 35%, and since 2007, ABF’s Zambian Sugar Plc has paid 0.5% of its US$ 123M pre-tax gains in the oragnization income tax, which amounts to ZK450M, or approximately US$90,000 yearly[53]. Besides evading tax, ABF sue the Zambian government and won a reflective tax break in the year 2007, thereby receiving a substantial refund of tax paid in the previous years with concessionary levy rates for intensifying its sugar estate and mill, under system of promoting investment and recategorizing its incomes as farming income in accordance with Zambian laws. From the year 2008 to 2010, Zambia Sugar Plc had not paid the corporate income tax. Also, through mystery management, Zambia Sugar Plc paid about USD2.6M since the year 2006 as ‘buying and management’ fees to a subsidiary Irish Sugar company, which seems an imaginary firm in Ireland. Zambia Sugar Plc also avoided its loan repayments in US and South African banks via Ireland, thereby exploiting the agreement of ‘treaty shopping.’ As a result, it inhibited the Zambian government from charging taxes on interest payments made by the loans. The MNC also made payments for the export agency services to a subsidiary firm in Mauritius, which has no permanent employees. Moreover, the organization sent its profits to its parent corporation, almost tax-free by shuffling the ownership of the firm via a chain of Mauritius, Irish, and Dutch holding firms, thereby taking advantage of tax agreement loopholes and tax regimes to evade tax on its payments of dividends[54].
Zambian Copper and Glencore
Glencore is a giant mining corporate listed in the London stock exchange, whose headquarter is in Switzerland. Glencore is a United Kingdom branch that owns 73% of Mopani Copper Mines in Zambia. Glencore’s Mopani mines sold copper to Switzerland below the market price and elevated its operating costs from 2005 to 2007. The audit showed that Mopani had sold copper at low procs to Glencore Switzerland under a deal between the company’s UK branch in 2000 [55]. The metal was sold, permitting Glencore to manipulate the advantage of Switzerland’s low tax system. Notably, Glencore stated that the copper transaction took place at an Arm’s-length, and globally agreed on prices. However, it is approximated that Glencore’s practices cost Zambian government about £76M yearly in lost corporate tax, which is more than the £59M the United Kingdom state offers Zambia every year[56].
Karuturi: Kenya
Another tax evasion incidence by MCNs involves a case of Karuturi Global Ltd, India. In 2013, the Kenyan government found the MNC guilty of evading tax. The Kenyan Kenya Revenue Authority (KRA) indicated that in 2012, Indian MNC utilized transfer mispricing to avoid paying the Kenyan government tax accounting to £8M or USD11M in income company tax. Karuturi was found to owe KRA approximately USD26M[57].
Case 2: Environmental Pollution
Shell Gas Flaring: Nigeria
Gas venting and flaring are the burnings of related gas, which accompanies the mining of crude oil from oil exploitation[58]. The gas is considered uneconomical to improve by oil organization, and as a result, it is vented or flared to the environment. It is worth mentioning that Nigeria has more gas reserves, which release the excess the natural gas to the environment through the gas flaring process. The gas is released to the environment through smoke or pipes in wells. Under these circumstances, the released gas is associated with increased CO2 emissions, which contributes to global warming [59]. Communities nearing the oil exploration facilities complain of lung complications, vegetation burns, and crops stop growing. Gas flaring wastes not only natural gas but also adds substantial carbon dioxide emissions to the ecosystem. Besides, gas flaring is often incomplete, thereby releasing a significant amount of carbon monoxide and soot, resulting in pollution issues to the environment. In Nigeria, oil organizations engage in gas venting and flaring throughout the year. Adaora states that some of this gas burning from MNCs has not stopped for more than 40 years. Arguably, Nigerian citizens live next door to the ground-level and roaring gas glares, which leap high and generate black clouds of harmful soot to the communities. As a result, these corporations end up violating human rights by exposing Nigerian communities, particularly the Niger Delta community, in pollution-related health issues, such ss blood disorders, asthma, cancers, and chronic bronchitis, among other conditions. Accordingly, gas venting and flaring result in acid rain, which affects soil fertility negatively, leading to a reduction in crop yield. As a result, the Niger Delta community is prone to hunger strikes due to a decrease in food supply and fish populations that have declined because of water pollution from the oil companies.
Chapter 5: Analysis
5.1 Introduction
The chapter describes a detailed analysis of the results discussed in Chapter 4 of this dissertation. The review will be predicated on the positive and adverse impacts of MNC’s on developing African nations, thereby offering the repercussion of these merits and demerits to emerging economies.
5.2 Findings
From figure 1 above, it is evident that MNC’s contribute significantly towards job creations in the developing African nations. In Ethiopia, for instance, the MNC’s constituted 54% of the employment in the Agricultural sector, 28 % in manufacturing, and 1% in the hotel segment. Besides, 11% of jobs in the construction sector came from the MNC’s operations in the country, while 5 % of the total employment opportunities in the real estate were generated by MNC’s Investments in Ethiopia, one of the developing African countries. Offering training to the citizen related to manufacturing is another positive aspect prompted by the operation of the MNC’s in the developing African nations. In 2011, for instance, multinational corporations operating in Ethiopia and Rwanda contributed 60 % and 66% of the specialized manufacturing-related training in the country.
Besides, the MNC’s resulted in 65%, 27% and 39% of the training offered in Kenya, Tanzania and Uganda in the year 2013 respectively, which depict a decisive role of the multinational corporations The training culminated in a skilled workforce with a capacity to enhance the growth and productivity of the foreign companies operating the nations. Figure 3 describes the numerous opportunities and the number of jobs created in Rwanda by the multinational corporation operating in the country. In total, MNC’s have created approximately 97,665 jobs in Rwanda, distributed in different sectors in the country. As an attribute of MNC’s operation in the developing African nations, Foreign Domestic Investment inflow is another significant element contributed by the growing foreign company’s operations in the developing countries. In 2013, for instance. Eastern African nations recorded US$9.30 billion in FDI inflow from the MNC’s operation. On the other hand, the Southern African region depicted US$8.20 billion, while Central and Western African reaped big in terms of FDI inflow in the 2013 recording US$ 13.20 and US$14.20 billion, respectively. The FDI inflow depicts the positive impact the MNC’s have on the developing African nations.
From the above Zambia Sugar Plc case, evading taxes by MNCs aids hinders the economic development of emerging nations. For instance, in the case of Zambia, the AZF tax evasion inhibited the Zambian government from delivering health care facilities to its population, among meeting other basic needs. Accordingly, repatriating its profit and evading taxes depresses local salaries as it provided seasonal employees’ wages, approximating to 20% less than the indicated government minimum wage. It is apparent that through tax evasion by MNCs in African nations, such as Zambia, deny the emerging governments the ability to improve the economic and social benefits of its citizens. The significant tax evasion in Zambia denies Zambia the ability to offer education for her children, among other fundamental necessities. From the Karuturi case, it is evident that evading such a magnitude amount of tax could inhibit the Kenyan government from reducing its Value Added Tax (VAT), which targets the poor, thereby alleviating the cost of essential good, such as flour, sugar, cooking oil, and rice. According to the OECD Tax Convention as well as the United Kingdom Double Taxation Rule between emerging and developed nations, the principle of Arm’s length evades taxation, and inappropriate shifting of corporate loses or profits. The Arm’s-length focuses on alleviating the risks of double taxation. The Arm’s-length principle requires the MNCs to cooperate with the sovereign tax authorities by offering the required information. Hence, any attempt by MNCs to utilize such arrangements to decrease their tax liabilities attentionally is considered the breach of trust.
From the case of MNCs in Nigeria’s oil industry, it is evident that the gas venting and flaring results environmental pollution, thereby violating the human rights, Federal Environmental Protection Agency (FEPA) working under National Environmental Standards and Regulations Enforcement Agency (NESREA), and Nigerian’s Criminal Code Act. Firstly, Article 20 of the Nigerian constitution indicates that the State shall safeguard and enhance the situation and protect the air, water, wildlife, and land of Nigeria[60]. On the contrary, MNCs violate this constitution by releasing harmful gasses to the atmosphere, thereby exposing human water, earth, air, and citizens of Nigeria. Notably, MNCs such as Shell violated the FEPA regulations for protecting the environment by releasing harmful gases to the ecosystem[61]. Article 247 of the Nigerian constitution offers guidelines on offenses against the health of Nigerian citizens. The law finds any person that violates the atmosphere by making it harmful to the citizens’ health or doing any act that believed to endanger the life of a Nigerian citizen guilty and liable of six months imprisonment[62]. Based on this Article, MNCs owning and operating oil production plants in Nigeria violates this code by releasing the toxic gases to the environment; hence, endangering human health and lives.
Chapter 6: Conclusion
6.1 Introduction
This chapter provides the dissertation’s conclusions and recommendations made from the analysis of different collected information.
6.2 Conclusion
The study focused on examining the impacts of multinational corporations on developing African countries. Therefore, the dissertation answered the three main objectives: the positive, negative, and the cases associated with MNC’s impacts in emerging African nations. The research found out that multinational corporations’ aids in creating jobs to the African population, thereby raising their level of living standards, such as better housing. MNCs also played a significant role in alleviating poverty as well as boosting the African nation’s economy through increased FDI inflows. The use of various theories, such as the new trade theory, the structural theory of imperialism, and unequal exchange theory, the researcher was able to link the MNCs and to develop African nations concerning development and economic development. The research found out that MNCs had positive impacts on the developing African countries, such as the creation of employment and alleviation of poverty. Venturing in African countries helped the African population to have jobs thereby improving their living standards, such as hosing and education. Accordingly, MNCs helped in boosting African nations’ economic development through a high level of export and increased FDI inflows. It was found out the MNCs exports more materials from African countries than the local enterprises.
Besides the positive effects of MNCs on emerging African countries, the researcher also identified the various negative MNCs have on developing African countries. For example, the study found out that MNCs engaged profoundly in tax evasion, amount to the strong amount of income corporate tax evasions. MNCs such as Zambia Sugar Plc, a branch of AZF, involved in tax evasion by using other departments from Mauritius and Ireland that had no physical existence. As a result, avoidance of tax affected the Zambian government, as it inhibited the state from providing economic and social benefits to its population. Notably, the research found out that the MNCs engaged in profit expatriation by violating the treaty shopping and arms-length principle. Environmental and cultural degradation were found to be other negative impacts associated with MNC’s operations in African countries. For example, MNCs like Shell Corporation was linked to Nigerian environmental pollution through non-stop gas venting and flaring from their oil exploration activities. As a result, Shells’ oil exploration activities violated the Nigerian human rights, environmental regulations, and the Criminal Code Act as indicated in Article 20 and Article 247 of the Nigerian Constitution.
6.3 Recommendations
- MNCs and the leaders of African countries should engage in an interactive discussion to increase comprehension and promote harmonious business association, particularly on ethical and moral ground.
- Developed African countries should make sure there is the availability of experienced, skilled, educated, and trained labors to attract MNs investors. Having skilled workers will also help in mitigating cases of employees’ exploitation through payments of wages that are below the African government’s minimum wages.
- It is recommended that multinational corporation abides by the principle of arm’s- lengths, which emphasizes that MNC’s should provide essential information to the government of the countries the foreign companies invest. The data would aid in facilitating effective income corporate tax filing and the avoidance tax evasion.
- The fifth recommendation is that MNC’s adheres to the land constitution concerning the human right as well as comply with the African nations environmental policies, laws, regulation, and guidelines. The compliance would help MNC’s to mitigate the case of environmental pollution such as the situation of Shell’s petroleum MNC environmental pollution through gas venting and flaring in Nigeria.
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