In 2009, the federal government of Nigeria launched its amnesty programme for Niger Delta
region of the country to address the concerns of the communities that host the oil and gas
companies operating in the country. One of the matters arising since the launching is whether
the programme has helped in the restoration of peace and security in the region to enable the
companies operate optimally, realise their full potentials and increase their productivity and
consequently their financial performance. Another question relates to the extent to which the
programme motivates the companies to make more effort to satisfy the communities through
increased corporate social responsibility (CSR) activities. This study examined the effect of
amnesty and CSR on the financial performance of listed downstream oil companies in
Nigeria. The study formulated three hypotheses with the third hypothesis focusing on the
moderating effect of firm size on the extent to which amnesty and CSR affect the financial
performance of the companies over the period of 10 years from 2004 to 2013. The robust
regression result based on the annual data collected from five (5) companies revealed that
both amnesty and CSR have significant effect on the financial performance of the companies.
The result also revealed a high level of interacting effect of size on amnesty and CSR. Based
on the findings, the study recommended among other things that the federal government
should continue with the implementation of the amnesty programme and initiate even other
similar interventions as means of maintaining or restoring peace within the Niger Delta and
other regions of the country where such interventions are needed. The study also
recommended that the management of oil companies should continue to execute more CSR
programmes in order to guarantee safety and security of personnel and equipment that are
used to generate higher profits.
AMNESTY CORPORATE SOCIAL RESPONSIBILITY AND FINANCIAL PERFORMANCE OF LISTED DOWNSTREAM OIL COMPANIES IN NIGERIA
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CHAPTER ONE
INTRODUCTION
1.1 Background to the
study
The
Niger Delta region of Nigeria, which is richly endowed with crude oil, and also
known for its gas, wealth of hydrocarbon and water resources had suffered the
effect of oil exploration with its attendant environmental degradation for
years due to the activities of multinational oil companies in the region. It is
argued that the companies have over the years exploited the widespread
ignorance of the people of the region about the obligation for them to be
socially responsible. Consequently, until the late 2000s, the rich natural
endowment was not seen to have translated into concrete development in the
region. However, as the Niger Delta Environmental Survey of 1992 indicated,
while the exploitation was going on, the people in the region were becoming
increasingly enlightened about their rights as citizens, in the same vein that
they were increasingly aware of how much is derived from their communities as
oil revenues both for the government and the multinational oil corporations (Niger
Delta Survey, 1992). Thus, as their business activities continue to expand and
their sizes increase, the companies were confronted with issues related to
sustainable development in the region through Corporate Social Responsibility
(CSR). The call for CSR was premised on the fact that corporations that align
business interests with community interests in terms of CSR objectives can
minimize the risks and liabilities associated with operating in culturally
different regions from their homes countries (Bertels & Vredenburg, 2004;
Grossman, 2005; Lipineux, 2005; Thompson, 2005; Porter & Kramer, 2006). Corporate
social responsibility connotes the commitment of companies towards encouraging
community growth and development and voluntarily eliminating practices that are
not in accordance with public interest. It is thus the deliberate inclusion of
public interest into corporate decision making and the honoring of a triple
bottom line: People, Planet and profit (Solihin, 2009). It is believed that if
corporations or businesses establish an understanding with host community where
such businesses are located, an understanding anchored on the protection of the
people from the adverse effects or impacts of its activities, this will further
enhance the operation of such companies in the organization. However, oil
companies in the Niger Delta have been found to be practicing CSR in the form
of donations and charitable concerns to less privileged, contributions,
sponsorship and charitable gifts devoid of consideration of their different
sizes and scope of activities instead of long lasting CSR programmes.
The
host communities on their part perceived those donations as not sufficient but
deceptive and destructive to the environment compared to the damage being
caused by the companies especially those with expanded scope of activities.
According to the host communities, the region has over the years been deprived
of its resources that were expected to bring about good life to its inhabitants
(Inokoba and Imbua, 2008:647). Prior to the discovery and exploration of oil
and gas resources in the region, the primary occupation of the people was
fishing and farming. It was however noted that oil activities have destroyed
the subsistence economy of the people and the environment suffers degradation
occasioned by oil spillages has made life extremely difficult for the local
people. (Fedelis & Kimiebi, 2011). This consequently affected the
livelihood support system of the inhabitants; the people continue to live in
poverty and famine. As a response, some of their youth formed militant groups
that embarked on disruption of crude oil and gas installations, production
obstruction and kidnapping of foreign oil company personnel. The actions of the
militia led to violent conflict in the region and posed threats to the oil
sales, and in turn reduced drastically the oil revenue to the government.
Various
strategies were devised by the companies and the federal government to enthrone
peace in the region. The companies began to spend large amount of money
according to their size and scope of operations in order to hire security
operatives to safeguard their facilities and personnel from attacks by the
Niger Delta militia, while government expends huge amount of money in peace
maintenance in the region. Despite the huge expenditure, peace could not be
restored in the region and oil revenue continues to decline.
In
order to resolve the conflicts, President Umaru Musa Yar‟Ádua introduced
Amnesty programme in 2009. The program was designed in four phases starting
with pardoning the militants for them to willingly renounce violence, followed
by disarmament, rehabilitation and reintegration (DRR) of the militias. The
essence of the programme was to change the mindset of the militants and facilitate
their adjustment to normal civil life. The hitherto militants were therefore
equipped in different areas of skills and entrepreneurship in the orientation
and rehabilitation camp in Obura in Cross River state. The quantity of crude
oil production for example jumped from 0.80 million barrels in 2008 to over 1.6
million barrels from second quarter of 2010 (Ambily, 2012). Thus the programme
created a conducive atmosphere and peaceful environment that present an
opportunity for oil companies to enhance their production, increase their
profitability and consequently carry out more CSR activities for the betterment
of the region. Furthermore, as the various oil companies are of varying sizes,
the extent of their damage to the host communities varies as well, hence the
need for the Amnesty policy benefits to be commensurate to damages caused as
well as the need for the companies to increase their CSR activities. In view of
the mixed feelings with which the host communities received the amnesty policy
from the time it was launched (Fidelis & Kimiebi, 2011), a study on the
effect of the intervention on the CSR activities and consequently performance
of the oil company is considered imperative.
Many
empirical studies have been conducted on CSR and its impact on the performance
of firms largely in developed countries and relatively in developing countries.
The studies have however yielded mixed results (Friedman, 1970; Bragdon and
Marlin, 1972; Klassen and McLaughlin, 1996; Cordeiiro and Sarkis, 1997; Wright
and Ferris, 1997; Orlitzky et al., 1997; Bird et al., 2007; Arago´ n-Correa et
al., 2008; Nicolau, 2008). This could be attributed to methodological issues
such as model specifications and choice of variables, or domain; or due to CSRs
measurement challenge as captured in the findings of literature review of CSR
and financial performances. According to the literature, measuring CSR has
always been a difficult undertaking as there is no consensus about which
measurement tool is the best to apply. In addition, the studies seem to focus
more on the manufacturing sector, perhaps in view of the nature of its
multi-scale activities and the effect of the activities on the society. The
mixed results documented in the literature have created a motivation for
further research.
AMNESTY CORPORATE SOCIAL RESPONSIBILITY AND FINANCIAL PERFORMANCE OF LISTED DOWNSTREAM OIL COMPANIES IN NIGERIA
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Chapters: 1 - 5, Preliminary Pages, Abstract, References, Appendices.
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