European Journal of Social Sciences – Volume 19, Number 3 (2011) The Impact of Multinational Corporations on the Nigerian Economy Bonaventure I. Ozoigbo Corresponding Author, Directorate of General Studies, Federal University of Technology P. M. B 1526, Owerri, Imo State, Nigeria Comfort O. Chukuezi Directorate of General Studies, Federal University of Technology P. M. B 1526, Owerri, Imo State, Nigeria Abstract The paper examines the activities of multinational corporations (MNCs) in Nigeria.
It looks at the stand of some Nigerian political economists who view MNCs as one of the determinants of backwardness in Nigerian economy. These economists believe that MNCs are exploitative. According to them, the natural resources of Nigeria should in the first instance be for the benefit and development of Nigeria but this objective is not realized as a result of the exploitative tendencies and practices of the MNCs. The paper also x-rays the nature, objective and operations of the MNCs.
It argues that although MNCs have some negative tendencies, however they contribute positively in the areas of technological development and employment opportunities. Keywords: Impact, multinational, corporations, Nigeria, economy Introduction Multinational Corporations (MNCs) Multinational corporations are business entities that operate in more than one country. Multinational corporations (MNCs) have been a source of controversy ever since the East India Company developed the British taste for tea and a Chinese taste for opium (John 1998).
A typical multinational corporation (MNC) normally functions with a headquarters that is based in one country, while other facilities are based in locations in other countries. In some circles, a multinational corporation is referred to as a multinational enterprise (MNE) or a transnational corporation (TNC) (Tatum, 2010). The idea of multinational corporations has been around for centuries but in the second half of the twentieth century multinational corporations have become very important enterprises. Tatum proposes that multinationals operate in different tructural models. The first and common model is for the multinational corporation positioning its executive headquarters in one nation, while production facilities are located in one or more other countries. This model often allows the company to take advantage of benefits of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower. The second structural model is for a MNC to base the parent company in one nation and operate subsidiaries in other countries around the world.
With this model, just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few basic ties to the parent. A third approach to the setup of an MNC involves the establishment of a headquarters in one country that oversees a diverse conglomeration that stretches to many different countries and industries (Tatum 2010; Robinson 1979). With this model, the MNC includes affiliates, subsidiaries and possibly even 380 European Journal of Social Sciences – Volume 19, Number 3 (2011) some facilities that report directly to the headquarters.
Such direct investment means the extension of the managerial control across national boundaries (Gilpin, 1987). Rugman et al (1985), who prefer to use the name multinational enterprises, say that the concept of the MNE is that “the difference between Domestic Corporation and the MNE is that the latter operates across national boundaries”. While institutions are important for economic development, particularly in resource rich countries, the interaction between multinational corporations and host country institutions is not well understood (Wiig and Kolstad, (2010).
There is a risk that multinational corporations facilitate patronage problems in resource rich countries, exacerbating the resource curse. Multinational corporations (MNCs) in service industries have given this sector’s large and growing impact on the global economy (Goerzen and Makino, 2007). The Marxists view the emergence of the multinational corporations as a historically progressive aspect of capitalism in the process of developing, at international level (Gilpin 1987; Stopford 1988).
In all these views both Marxist and non-Marxist, the common basis is productive activity in more than one social formation. Another point to be noted right away is that in a social formation there may be many multinationals with different nationalities and also many corporations of the same nationality. In a social formation where there are many MNCs from different nations, there are higher possibilities of conflicts than where they are mainly from the same country. The nature or objective of MNCs is maximization of profit at the lowest possible cost.
Actually it is this feature that gave rise to MNCs. So the idea of investing in foreign land is not to better the lot of the host nation but to exploit as much as is possible in order to develop the home country. Presently multinational corporations have dominated discussion on political economy. Activities of the MNCs in Nigeria have generated a repulsive reaction from many economic theorists like (Onimode 1982). Onimode regards MNCs as monsters that have consistently and systematically stultified economic development in various parts of the world.
The merits as well as the demerits of the MNCs in Nigeria, the consequences of economic exploitation of MNCs in Nigeria and suggest ways for restitution will be discussed. Discussion Objectives of Multinational Corporations According to Gilpin (1987) ‘the principal objective of multinational corporations is to secure the least costly production of goods for world markets. This goal may be achieved through acquiring the most efficient locations for production facilities or obtaining taxation concession from host governments.
This objective confirms the views of the Marxist who see the MNCs as progressive agents of capitalism. As a result of this capitalist motif, the MNCs try in every way possible to cut down expenses and maximize profit. As stated, the MNCs usually have their head office in one country with a cluster of subsidiaries in other countries and maintain a very high standard management outfit. This managerial expertise gives rise to maximum efficiency, that is, maximum result at minimum cost. It is not in the nature of the MNCs to solve social or economic problems of the host countries. Luis Echeveria, the former Mexican President had the belief and feeling that there is the need for transnational corporations to respect the social and cultural fabric, as well as the development priorities of the countries in which they are investing (Robinson 1979). This attitude of MNCs should encourage all those who are clamoring for the involvement of MNCs in activities that are not attuned to or in line with the activity of maximizing profits.
They should begin by way of redefining and re-stating the meaning and nature of the MNCs to have the well-being of the host nation at heart. The MNCs are very faithful to the capitalist principle and would do anything to resist the tendency to make them deviate from their age – long tenets. Rugman 1985 states that the MNCs tend to succeed always due to the financial muscles they exercise. In view of this development some governments believed that they had lost control over their national economy to MNEs.
The balance of power between MNEs and national governments often appeared to be firmly, and unfairly, on the side of the MNEs. In view of this situation, the relationship between • 381 European Journal of Social Sciences – Volume 19, Number 3 (2011) the multinational corporations and the host economies most of the times borders on love – hate relationship. The host governments feel cheated while the MNCs feel that they are doing the right thing. It can be held that from the onset, the MNCs have not been honest with the host country from their deceptive stand during the sealing of the contractual deal.
Robinson 1979 puts it this way, that ‘the transfer of the surpluses is also made possible by the weak bargaining position of the host countries which compels them to provide a number of concessions to the multinationals which encourage the increased imports of the items assembled abroad. Within this framework, increased liberalization of trade or increased capital movements can only lead to an aggravation of the gap between the rich and the poor countries, as the latter will not be able to retain their “fair” share of the surplus generated.
In all these, it can be said without fear of contradiction that absolute exploitation is intrinsic in the nature of the multinational corporations. Hence, they devise any possible means to sustain this objective. Multinational Corporations as Agents of Neo-Colonialism Historically MNCs are creations of wealthy countries. This has been the case, with the United Kingdom and United States in leading positions. While some regard MNCs as ruthless exploiters, others view them as benign engines of prosperity (Stopford 1998). During the era of colonial exploitation of Africa and the other third world countries, Europe featured prominently.
Europe exploited African countries directly by way of physical presence in the form of civil administration while America exploited them indirectly through the activities of their MNCs. According to Gilpin 1987, the term multinational corporation for a long time was largely a euphemism for the foreign expansion of America’s giant oligopolistic corporations. The point being made here is that America took the lead in this neo-colonialism in the form of MNCs. Other countries are also involved in this neo-colonialism. However during the last two or three decades of the last century, the American dominance was challenged.
Hence, there existed and exists serious competition among the MNCs of many nations in almost all the world markets. In the last decades of the 20th century Japan has proved to be the country that gives America the greatest challenge. It has been observed and rightly too, that Japanese MNCs especially in the third world countries are merely for the purpose of getting raw materials or lower- cost components to the international markets. Therefore, it is very rare to see any Japanese MNCs venturing into manufacture investment abroad, that is, in the third world countries.
The main reason for holding the position that the MNCs are the vehicle of neo-colonialism arose from the fact of the type of relationship that exists between the MNCs and their home governments. Taking America as an instance, it has been observed that there is a complementarity of interest between the MNCs and the United States government. Therefore, the US policies have continued to encourage corporate expansion abroad and not only that but offered protection to them. An example of this is the stand of the American government any time there is conflict between the youths of the Niger- Delta and the oil companies of US nationality in Nigeria.
The current kidnapping of oil workers by the youth of the Niger – Delta is a case at hand. Again, American multinationals have contributed in no small measures in stabilizing the US balance of payments special thanks to the fact that they are the major earners of foreign exchange to purchase goods and other economic utilities. Equally important in this regard is that the multinationals are the most veritable mechanism to spread abroad the US ideologies especially that of free enterprises system. In all these, the home countries of the MNCs are doing indirectly what Europe did directly uring the colonial period namely, the exploitation and the oppression of their periphery states by milking them of their all-important raw materials and transferring same to their respective nations for economic development and thereby systematically under-developing the periphery states. 382 European Journal of Social Sciences – Volume 19, Number 3 (2011) Nigeria and the Multinational Corporations The Nigeria nation existed with all the natural resources she was endowed with before coming in touch with the Western world.
Nigeria like the rest of the African nations had her peculiar kind of civilization and development before the arrival of the white man in the 15th century. The contact with the white man resulted into a trade, which marked the beginning of the doom of the African nations at large because of the imbalance in trading pattern. Human beings were exchanged for cheap gin and spurious gun powder. This marked the starting of the development of Europe and underdevelopment of African nations including Nigeria.
As if this imbalance was not enough, the West came down to effect physical domination of the continent and to rape it of her precious raw materials. Thus, with the Berlin division of the continent in 1884, the rape was heightened and given international recognition and support. This situation continued until the coming into the scene by African nationalists who schooled abroad, to demand for self-rule. The West granted independence to the colonies and handed over political powers to these “European-Africans” as the rulers of the independent states.
These new rulers were described by Franz Fanon (2004) as ‘Black Skin, White Masks’ meaning that they were extension of Europe; that is more of Europeans than Africans. The African states including Nigeria were in the hands of these men when the MNCs came on board mainly to replace the white rulers in the area of economic exploitation. So the exploitation contract was signed and sealed with these ‘Black skins, White masks’, who did not know at that time the implications of the contract, and when and where they knew were helpless about the situation.
So whatever the MNCs are doing in Nigeria has the backing of the Nigerian government, no thanks to the unfair contract signed. The way the Nigerian government is protecting and supporting the MNCs against the restive youths of the Niger Delta who are making just and legitimate demands testify to this. The actual implication of the contract signed is that the Nigerian nation is the fake owner of her God-given natural resources who receives only royalties or pittance while the major profit is transferred abroad to the home countries by the MNCs who now are actually the real owners of the raw materials.
There was a time during President Buhari and Idiagbon’s regime when the Nigerian government could no longer bear this unfair treatment of the MNCs and tried to circumvent the terms of the agreement by way of increased tariffs and taxes. The MNCs on the other hand undermined this move by way of double accounting. By the principle of double accounting, which goes by way of the MNCs determining the price of the equipment they bring inside the country and at the same time determine the price they pay for what they take from the country. In this situation Nigeria lost more money than ever.
However, the unfair treatment by the MNCs has come to stay and Nigeria cannot really do anything positive about it. If Nigeria should ask them to go, the high level of corruption in Nigeria will not allow for effective replacement. If Nigeria attempted to sack them, Nigeria will not find it easy in the international market because there the Western world will conspire against Nigeria. So these MNCs have become a sort of devil’s alternative. The only panacea for Nigeria to come out of this mess is to adopt the policy of independent economy.
Negative Impact of Multinatinal Corporations The clash between multinationals and host countries has been most intense in the less developed economies. Individual critics and public officials have leveled vociferous charges against the policies of international corporations and their alleged negative consequences for the economic well-being and development of the host nations (Gilpin 1987). This view prompted the reaction of Onimode (1982) and to conclude that there is more myth than reality in the developmental activities of the MNCs in Nigeria.
He further stated that a thorough empirical analysis of the impact on the Nigerian economy and consciousness will reveal the following: 1) Decapitalization of Nigeria: This thesis argues that most of the capitals in the form of profits are not invested in the country but sent to the home countries of MNCs for investment, thereby rendering Nigeria industrially underdeveloped. The royalties or pittance paid to the government 383 European Journal of Social Sciences – Volume 19, Number 3 (2011) by these MNCs cannot because of its meagerness be employed into heavy industrial projects.
In brief, the MNCs export abroad the capital that would have been used to develop Nigeria thus; the MNCs distort the economy and the economic development in Nigeria because the capital needed for development is no longer here in the country but abroad. 2) Technological backwardness: It is in the area that the MNCs are regarded as the worst culprits because it is in this section that the MNCs play their greatest trick imaginable. The MNCs by way of purporting to help industrialize Nigeria create a branch-plant economy of small inefficient firms incapable of propelling overall development.
The local subsidiaries exist only as enclaves in the host economy rather than as engines of self-reliant growth. These corporations intentionally and deceitfully introduce inappropriate types of technologies that hinder indigenous technological developments. These MNCs employ capital intensive productive techniques that cause unemployment. All these prevent the emergence of domestic technologies. Before the advent of the MNCs, in Nigeria, there were so many assorted types of technologies all over the country, though they were of low scale type.
The MNCs rather than help them grow knocks them off systematically through the introduction of more advanced technologies. The MNC both retain the control of the most advanced technology and do not transfer it to Nigeria or the rest of the developing economies at reasonable prices. The negative impact of MNCs on Nigeria is most noticeable in this area of technology transfer. There are four main reasons for this assertion; a) Most of the imported technologies came under the industrial property system of restrictive patterns and license. This is a very sensitive barrier for Nigeria.
The implication of this is that Nigerians cannot copy and internalize these technologies even if they have the capacity and willingness to do so because it is illegal for them to do so. Because of this, Nigeria has to make do with dependent development, which has several deleterious economic consequences. b) The MNCs jealously guard the technological know-how of their technologies by way of refusing to make use of competent staff. The MNCs instead use mere technicians who are at the last rung of productive process and simply assemble together what they knew not how it was produced.
By implication Nigerians cannot learn from the technicians the intricacies involved in the production of the material or product. c) Another point of skillful deceit by the MNCs is the fact that where qualified and competent indigenous staff are to be exposed to the technological know-how of a type of production. Sometimes the type of technology they are exposed to is so sophisticated that they are mesmerized by it. In some cases, the high capital that may be needed simply embarrasses the nation in that they cannot afford it instead she prefers to forget about it. ) The MNCs increase the mal-distribution of income in Nigeria and other less developed countries. The case of oil workers earning in a month what some federal civil servants earn in a year does not augur well with the development of the nation. This step creates a class-conscious society, which does not help development as such. Therefore, the type of technology that the MNCs imported into the country is the one that serves the few urban elite because only they have the resources to get at it while the generality of the populace continue to face stark underdevelopment. . Structural Distortion: The principle of industrialization in an open economy of the Nigerian government in relation to the MNCs has given the MNCs the freedom to choose their line of operations, the locations of their industry and other productive processes. The MNCs natural base is usually in urban centers of the Nigerian society like Lagos, Kaduna, Enugu and PortHarcourt. The industries in these cities are mainly those of oil and consumer goods. This urban concentration of MNCs distorted the structure of the society by enhancing an uneven “development”. . Political Instability: Because these corporations require a stable host government, which of course is sympathetic to capitalism, they try as much as possible to cause directly protect the 384 European Journal of Social Sciences – Volume 19, Number 3 (2011) existing government whenever a reactionary leader or group seems to take over the government. The MNCs try to maintain the status quo that is, dependent development which encourages the emergence of authoritarian regimes in the host country and go ahead to create alliances between international apitalist and domestic capitalist elite. This exploitative alliance is sustained by the intervention of the corporations’ home governments in the internal affairs of the less developed countries. In this fashion foreign investment tends to make the host country politically dependent upon the metropolitan country (Gilpin, 1987). It is on record that the MNCs kept President Mobutu of Zaire in power for so long because he was tutelage to them and with MNCs they sucked dry the economy of Zaire.
The MNCs equally were responsible for the early exit and assassination of Patrice Lumumba because he would not allow their exploitative activities. The same story is true of Captain Thomas Sankara of Burkina Fasso and so many others. So the multinationals in the third world and Africa in particular have gained much from the political instability that exists here and there. Africa now has the greatest number of countries experiencing one kind of political crisis or the other. In all these, the wicked hands of the MNCs and their home governments are there very glaringly.
Cultural Degradation: The adverse effects of the presence and operations of MNCs in Nigeria are also felt in the area of our cherished cultural heritage. Indeed, there are negative effects of foreign direct investment on the cultural and social well-being of Nigeria and other less developing countries. The domineering presence of the MNCs in Nigeria is characterized as constituting a form of “cultural imperialism or coco-cola-ization of the society” (Gilpin, 1987), through which Nigeria and indeed, the rest of the developing countries lose control over their culture and social development.
These multinationals undermine the traditional values of the Nigerian society and introduce through its advertising and business practices new values and tastes inappropriate to the Nigeria nation. An instance of this is the introduction of foreign violent and crime-laden films and videos as well as pornographic materials into Nigeria. It has been rightly observed that these foreign values are not only bad in themselves but are detrimental to the development of the country because they create demands for luxury and other goods that do not meet the true needs of the common masses.
In considering the issue of the transfer of inappropriate technology, it has to be noted that Nigeria and other third world economies want not only the most advanced technologies but also labour-intensive technology, which will serve as appropriate technology, in order to maximize employment. Furthermore, the transfer of capital-intensive technology by the MNCs is beneficial to the less developing economies like Nigeria. This is true because what would have taken a lot of time doing, machines do better in a lesser time and thereby save costs.
The charge of cultural imperialism, despite its veracity, has to be stated at the same time that the very process of economic growth or development itself is destructive of traditional values, since it necessarily involves the creation of new tastes and unaccustomed desires. MNCs are inherently exploitative. Stopford 1998 states that advocacy groups often portray multinationals as globetrotting sweatshop operators, indifferent polluters, and systematic tax evaders. Exploitation remains a problem. But how much of this is a function of business in general, rather than MNCs in particular?
He claims that smaller, local firms often can be much more exploitative than foreigners. Multinationals typically pay at or above the going wage and provide superior training. But even if most MNCs are well intentioned, they suffer from a credibility gap. Perhaps unwittingly, MNCs can fuel public concern by being culturally insensitive, not honoring promises made by their predecessors, and being inconsistent in other aspects of their “social contract” with local society. With regard to the environment, international big business is both the creator of pollution and the only resource available for its cleanup.
The MNCs’ record on pollution pales in comparison with those of many local businesses and state-owned enterprises. The issue of tax evasion continues to generate acrimonious debate, despite guidelines produced by the Organization for Economic Cooperation and Development. Multinational corporations protest that they pay their taxes responsibly. When many MNCs conclude that the host government had abandoned its favorable investment climate. They cut back on capital spending, closed some plants, and moved money offshore. 385 European Journal of Social Sciences – Volume 19, Number 3 (2011)
Positive Impacts of Multinational Corporations Despite all the negative attributes about the activities of the MNCs in Nigeria and the rest of the third world countries, there are some elements of positive impact in the operations of the MNCs. In Nigeria, the technological backwardness, which was and still is attributed to the operations of the MNCs has challenged the government to look for a way out of this unfortunate circumstance and quagmire. That way is what is referred to as “the import – substitution industrial strategy”.
Prior to the exploitative activities of the MNCS, there was nothing like that. The MNCs in their exploitative bid to maximize profit at the lowest cost here indirectly enhanced the development of the country. An instance is their building of railway lines and roads in the hinterland in order to get access to the location of badly needed raw materials. This may be for their benefit but the country equally shares in this benefit. The introduction of foreign and expensive taste in the Nigerian values is not totally bad.
It is true that only the urban elite benefited from it however it is enhancing the qualities of human life in the country. On the allegation that the MNCs thwart the indigenous industrial development, it has to be appreciated that the MNCs bring in new capital and productive technology as well as employment and thereby generally provide an economic stimulus to the economy. Control of Multinational Corporations Amao, (2008) stated that there is a general perception that home jurisdictions in vulnerable areas are powerless when it comes to the control of multinational corporations.
While this assertion is largely correct, he argues that there cannot be effective control of multinational corporations MNCs at international, regional or private levels without the corresponding development of an effective minimum institutional framework at the domestic level. He also highlighted underlining weaknesses in the domestic forum of the Nigerian legal framework for the regulation of MNCs and also suggested prospects for enhancing the capacity of a domestic framework for the effective control of MNCs.
He noted that, while corporate social responsibility practice by MNCs is becoming well entrenched, this development cannot replace the need for effective host state regulation. Most people believe that MNCs are beyond government control. John, 1998 reported that the relationship between governments and multinationals is characterized by a complex distribution of benefits. Multinational corporations increasingly demand the “freedom” they need to optimize their operations across borders, with the goal of lowering their total costs and continuously upgrading quality. Their key bargaining chip in ealing with host governments is that they have the option not to invest. But once multinationals enter a country, they are, to some degree, locked in by the commitments that they have made to develop local operations and provide job training. Multinationals need access to local skills and other resources such as hot-spot clusters. Host governments need MNCS to act as agents in building competitiveness and trade. John (1998) went further to state that Policymakers urgently need a new mindset if they are to maintain a reasonable equity in the balance of power among states, firms, and consumers.
Just as domestic banks require regulatory institutions that restrain their speculative instincts, MNCS require regulatory mechanisms that check their instincts to put profit above all else. Howell and Edwards 1998 concluded in their study that government policy which aims to attract MNCs to a host country as part of a strategy for economic development can optimize the benefits by distinguishing between types of companies, focusing particular attention on those which give their subsidiary responsibility for new product development, manufacturing and export marketing.
In a case study conducted by Graeme Tonks and Peter J Dowling on Bougainville Copper Ltd, a multinational Australian mining company operated in Papua New Guinea, they concluded that the influence of contextual factors on the management of multinational enterprises (MNEs) has been an important issue in the study of International Business. Especially, the cultural, social and political factors play critical roles in MNEs which are from developed countries to developing countries. Antia et al (2007) found negative relationship between cultural distance and firm valuation.
Specifically, in addition to the cultural distance index, which is a composite measure of cultural differences, most of 386 European Journal of Social Sciences – Volume 19, Number 3 (2011) the individual cultural attributes that make up the index have a negative effect on firm valuation. Their findings are consistent with the notion that cultural differences decrease firm value by imposing a barrier to the exploitation of internalization advantages. Conclusion The MNCs are aware that the contract that they sign is one sided and they are ot worried because it is part of their nature to maximize profit. Therefore, they are very cautious and clever in dealing with the Nigerian government. So anytime the government wants increased tariffs and company taxes, MNCs will counter that move and at the same time try to make gains through the process of double accounting. MNCs are, first and foremost, creatures of their home countries. The home country always gets first priority whenever MNCs have to make hard choices: If faced with a downturn in the market, multinationals will close facilities abroad to protect those at home.
The influence of a multinational can also be gauged by its effect on local suppliers as it creates new demand and sets new standards of quality. All these elements are part of a world where the local production of MNCs in overseas markets now greatly exceeds the sum of world trade. The resulting deep integration of national economies is growing so fast that any suggestion in developed economies that the domestic-policy agenda can be isolated from the global economy seems antediluvian.
Governments in some of these countries like Nigeria now find that they must contend with both host-and home-country influences in their negotiations with MNCs. References  Amao, Olufemi, O (2008) – Corporate Social Responsibility, Multinational Corporations and the Law in Nigeria: Controlling Multinationals in Host States, Journal of African Law, Vol. 52, No. 1, pp. 89-113, 2008 Anthony Goerzen and Shige Makino (2007) – Multinational corporation internationalization in the service sector: a study of Japanese trading companies, Journal of International Business Studies (2007) 38, 1149–1169 Antia, Murrad; Lin, J.
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