AN EVALUATION OF THE IMPLICATIONS OF MULTINATIONAL CORPORATIONS AND FINANCIAL AID ON THE NIGERIAN ECONOMY

AN EVALUATION OF THE IMPLICATIONS OF MULTINATIONAL CORPORATIONS AND FINANCIAL AID ON THE NIGERIAN ECONOMY

ABSTRACT

Multinational corporations are large companies with their headquarters in the home country- the country of its origin and other branches in several countries around the world. There are specific duties to be assumed by the multinational corporations called social responsibility. Through social responsibility, the corporations put in measures what would benefit the citizens of the affiliates. Through sustainable development, the corporations and the host state ensure that the development practices used today do not hamper the quality of life and the development of the future generations.

Financial aid are loans or grants given by financial organisations like the World Bank, The International Monetary fund etcetera or countries to poorer countries to boost their economies or in response to need resulting from natural or humanitarian disasters. South Korea after its independence was provided aid and through this aid, it has been able to transform its economy and internal structure and is one of the leading Asian states of today.

The main objective of this work is to study the roles played by multinational corporations and financial aid in the Nigerian economy to pin point the shortcomings and provide possible solutions. Other objectives include examining the ideas behind the formation of multinational corporations, to examine the contributions of multinational corporations towards sustainable development, to examine the implications of multinational corporations and financial aid on the Nigerian economy and to proffer possible solutions to curb the negative impacts of multinational corporations and financial aid on the Nigerian economy.

The data used for this study was collected from primary and secondary sources- questionnaires, internet materials, textbooks, and journals. Furthermore the pattern of study adopted was descriptive and analytical. The collected data was properly analysed using the percentage method.

CHAPTER ONE

GENERAL INTRODUCTION

1.1 BACKGROUND TO THE STUDY

The existence and derived importance of multinational corporations can be traced to globalisation and its effects (shrinking the world into one global village). According to William (2009), globalization is the comprehensive term for the emergence of a global society in which economic, political, environmental, and cultural events in one part of the world quickly come to have significance for people in other parts of the world. Globalization is the result of advances in communication, transportation, and information technologies. It describes the growing economic, political, technological, and cultural linkages that connect individuals, communities, businesses, and governments around the world. Globalization also involves the growth of multinational corporations (businesses that see themselves functioning in a global marketplace). The international institutions that oversee world trade and finance play an increasingly important role in this era of globalization. Globalisation has whittled the frontiers and borders of sovereign states as economic, political, agricultural and other sectors have become global issues. According to the Great philosopher Plato, no man is an island. In recent times, that saying has been stretched to „no state is an island‟ and recent happenings in the international system have supported the statement. States have come to rely upon each other in the development of various sectors of their economy; even „closed‟ states like China have opened up their borders and are engaged in relations and partnership with other states.

The dire need for financial aid and loans by developing nations can be said to be the negative implication of the relationship between the developing countries and the developed ones (Great powers) even before they became independent. The weak and dependent economic system inherited by the newly independent states produced inevitably weak and unstable economies. The assumption that these financial problems suffered by these countries can be resolved through Foreign Direct Investment in the form of Multinational Corporations and financial aid has proved itself untrue and unhelpful. Despite the various forms of Foreign Direct Investment in these countries, their economic conditions seem to be depreciating.

Multinational corporations according to www.wikipedia are organisations that are owned or control productions of goods or services in one or more countries other than the home country. There is no exact fact concerning the number of Multinational Corporations scattered around the world but they can be estimated to tens of thousands (Goldstein and Pevehouse, 2011:339). The headquarters of most Multinational Corporations are located in the Group of Eight (G8) states. Multinational corporations vary in functions as there are industrial corporations, financial corporations to measure but a few and they all have the same mode of production but offer different services/ products. Not all multinational corporations are privately owned, some are owned by states although this is quite uncommon. Multinational corporation operations create a variety of problems and opportunities. The sovereignty of states of states ensure that a Multinational corporation cannot operate in a state without government approval, on the other hand, Multinational corporation have a number of states to choose from and they cannot be forced by any state to do business (Ajayi 2008, 93) .

Financial aid on the other hand refers to economic assistance granted to countries going through economic instability in the forms of loans or grants. Financial aid could be from one country to another, a group of countries to another or through international organisations like the World Bank or the International Monetary Fund (IMF). The state in which a foreign Multinational Corporation operates (its subsidiary) is called the host country while the state in which the Multinational Corporation has its headquarters is called the home country (Goldstein and Pevehouse, 2011:343). Financial aid refers to money made available to poor and developing countries by more developed countries or international financial institutions (Goldstein and Pevehouse, 2011:341). Usually, the recipients of these aids have to fulfill certain conditions to be qualified to receive the loans. These conditions are sometimes considered unreasonable but the desperation of the poor states makes them agree to the conditions. A study of poor recipients of financial aid and grants reveal that there is little or no improvement in their economies as most of these aids and grants are embezzled and there is no improvement in the standard of living of the common person.

The emergence and popularity of multinational corporations (multinational corporations) also known as Transnational Corporation or International Corporation can be traced to the emergence of the New Global Economic Order. Multinational Corporations are engaged in business that produces or distributes products or services in one or more foreign countries by establishing a branch or affiliate there (Goldstein and Pevehouse 2011: 343). A branch is a part of a company that is located in another country. An affiliate is a company partially or entirely owned by another company. Sometimes such investment involves acquiring an already existing company. The aid offered by international financial organisations is usually attached to stringent conditions especially when it is being given by international financial institutions for example is the sack policy advised by the International Monetary Fund to all countries that seek assistance.

Multinational Corporations engage in foreign direct investment that is, investment in one country by citizens of another country. Sometimes such investment involves acquiring an existing company. In other cases, Multinational Corporations undertake what is known as green field investment by creating new facilities or activities.

Before World War II (1939-1945), most Multinational Corporations established foreign operations to secure sources of raw materials, and developing countries were the largest recipients of worldwide Foreign Direct Investment. After World War II, the foreign activities of large corporations increased significantly. In the 1950s and 1960s large numbers of United States, corporations began investing in Europe, mainly in manufacturing. Investment in other nations by European and Japanese businesses soon followed. During the 1980s and 1990s investment in the service sector by Multinational Corporations rose considerably. These post war changes in the nature of Multinational Corporations investment have changed where Multinational Corporations operate. Before World War II, the share of Foreign Direct Investment going into developing countries was around 60 percent. In the 1970s and 1980s, it dropped to around 25 percent. By the mid-1990s, it had risen to about 40 percent due to improving economic conditions in some developing countries (Ugwukah and Michael, 2010:100).

The relationships between states have produced a division between states. The global north and the global south, core and the periphery, the haves and the have-not, the developed, developing and underdeveloped states among many other classifications showing the difference between states based on their economic, technological, political advancements. The global north is characterised by better standards of living, strong economy, technological strength, military strength amongst other qualities; the global south on the other hand is almost a direct opposite of the global north. Most Multi-National Corporations are based in the Global North while the states where they domicile are in the Global North thus this wide gaps already existing between states in the global north and states in the global south continues to widen with no hope in sight of it closing. About half of the 600 largest Multinational Corporations have headquarters in the United States; about a sixth are based in Japan; and about a tenth are in the United Kingdom. In the 1980s and 1990s, an increasing number of smaller corporations expanded their production activities abroad (Ajayi, 2008:91). Similarly, an increasing number of Multinational Corporations now originate from the newly industrialized and developing areas, including Hong Kong and South Korea. These developments have been aided by technological improvements in transportation, communications, and production processes.

The distribution of wealth between the Multinational Corporation and the host government depends on how the Multinational Corporation‟s activities and profits are taxed and other ground rules for its operation. Agreements on the terms of operation are often reached before the Multinational Corporation begins operation. The leverage of the host government is the promise of a suitable environment for business while the leverage of the Multinational corporation is to take its business elsewhere, since the Multinational corporations have the upper hand in these negotiations, governments have to offer incentives to persuade them to invest. The incentives include; special taxation and regulation, access to the nation‟s mineral resources, reduced rates for leasing land and property, business infrastructures such as roads, airports etcetera at the governments expense amongst others. States and Multinational Corporations usually enter into agreements before the latter begins operations. The agreements determine the terms of trade, protocols to be observed, property allocation, the gains to be made by the state for allowing the Corporation to operate within its borders etcetera. In some rare case, when the conflict arises between the Multinational Corporation and the host government, the latter may decide to break her agreements. It could do this through nationalization (taking over ownership and assets of the Multinational Corporation with or without compensation) for instance in recent years, Russia, Venezuela, Bolivia and Ecuador have taken state ownership of foreign investments in oil and gas sectors. In this case, the Multinational Corporation acquires great loss as there is little or nothing it can do about the government‟s decision (Goldstein and Pevehouse, 2011: 344). The host governments however are hesitant and reluctant to take this step as it could backfire; other Multinational Corporations may decide not to invest in the future (after doing this, Bolivia‟s Foreign Direct Investment dropped by 90% from 1999-2005. The nationalization is a very rare one (Goldstein and Pevehouse, 2011: 344).

The tremendous growth and spread of Multinational corporations has sparked controversy. Some people believe that Multinational corporations contribute to unemployment in the country where they are based by hiring foreign workers for overseas branches or affiliates. Some people also believe Multinational Corporations exploit the people and resources of other countries. However, others argue that Multinational Corporations create more jobs than they eliminate and that Multinational Corporations bring capital and technology to areas that need it. Examples of multinational corporations include; coca-cola, which is domiciled in almost every country in the world, shell oil which focuses more of its attention on oil producing states amongst others. In truth, these corporations gain a lot, as they prefer to interact with developing or under developed states where they can enjoy tax reductions, very cheap laws, break labour rules that would have been enforced upon them if they were in developed states. Multinational Corporations use a variety of means to influence the host governments. They use lobbyists; use advertisements to stir up public emotions and influence public opinion, offer incentives (and bribes in some cases) to politicians‟ etcetera. Sometimes these incentives create resentment of the Multinational Corporations. They can gain access to very cheap mineral resources and gain large revenue as these developing and under developed states specialise in the production of primary goods and rely upon finished goods from other sources.

Despite their non-attachment/loyalty to states, giant Multinational corporations are usually keen in keeping the stability of the global system. They know that an imbalance could cause strife and this would be bad for business. They focus on security affairs as in trade and monetary relations. They also push for the implementation of policies that could be of interest to them. When a Multinational corporation owns a subsidy in another state, the latter is subject to the legal authority of the state‟s government. This entails that Multinational corporations do not just operate in foreign countries; they own capital in the countries where they operate. This capital is shown through visible infrastructure such as lands, offices etcetera in developing countries.

Foreign Direct Investment is viewed suspiciously, as governments fear the loss of sovereignty. This suspicion is fuelled by the fact that the former colonial masters created most Multinational Corporations. Arguably, the first multinational business organisation was the Knights Templar founded in the 1120‟s. After that came, the British East India Company in the 1600‟s and then the Dutch East India Company, founded in March 20, 1602, a company that grew to become the largest company in the world for nearly 200 years. The exploitative nature of the relationship of the afore mentioned fuels the fear of developing countries (Goldstein and Pevehouse, 2011: 343).

It is also fuelled by the fact that these Multinational corporations may be larger and more powerful than their own governments. Despite these fears and suspicions, foreign direct investment is still sought for by the poor and desperate countries. This fear and suspicion is not just limited to poor countries. Even the industrialised countries fear losing their power and sovereignty for instance in Canada, economic nationalists are alarmed by the fact that the US controls over half of its manufacturing industry and over 2/3 of its oil and gas industry and these factors fuel their fear of losing their national culture and control of their economy. Even the super power- “USA” is concerned that her various debts to countries could reduce her power and sovereignty. Despite all these, it must be noted that Foreign Direct Investment, other monetary and financial interactions are a difficult but necessary pill for all countries no matter how large or powerful hence, it is necessary for each state to create laws and policies to protect its territory and economy from annexation by these financial powers. For example when China wanted to purchase an American company, UNOCAL, USA did its best to make China drop its bid and ended up selling the company for a lesser pride. At the same time, when the HONDA Company builds a new firm in a US state and provides jobs for the US citizens, America accepts, this action could be interpreted as double standard but it is necessary (Goldstein and Pevehouse 2011, 343).

Multinational Corporations are not “stakeholders” in the economy. This can be explained with the fact that once the conditions in a state become unfavourable for business, the Multinational Corporation (most of the time) packs up and moves to a more favourable location. For example when the Niger-Delta militancy took its root in the oil regions of Nigeria, the Multinational Corporations present such as Chevron, Shell oil and a host of others packed up their operations. Shell oil after making billions of dollars from the Nigerian economy and polluting the environment packed up and moved to South Africa, a more business- friendly environment at the same time. The “mess” they left behind became the responsibility of the Nigerian government.

1.2 STATEMENT OF THE PROBLEM

Multinational corporations and financial aid have become very important features in today‟s international system. The main purpose of multinational corporations (foreign direct investment) and financial aid is to ensure that governments have more sources of revenue in the forms of taxes and social responsibility. Financial is also meant to improve the overall national economy. Despite the presence of these two features in most third world countries, there is little or no serious improvement in their economies. Questions are asked if this is the fault of the multinational corporations, donors of financial aid or the home governments. This research work aims at finding the implications of multinational corporations and financial aid on the Nigerian economy and to offer possible solutions that could help the government protect the economy. While previous work done on the subject have dwelt on the harmful implications multinational corporations and financial aid hold for the economy, this research work would offer possible solutions.

TOPIC: AN EVALUATION OF THE IMPLICATIONS OF MULTINATIONAL CORPORATIONS AND FINANCIAL AID ON THE NIGERIAN ECONOMY

Format: MS Word

Chapters: 1 - 5
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Number of Pages: 68

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