Abstract
Multinational corporations are large companies with their headquarters in the home countrythe 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 structu
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
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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 fulfil
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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
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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.
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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).
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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
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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
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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.
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1.3 OBJECTIVES OF THE STUDY
The main objective of this study is to analyse the roles multinational corporations and
financial aid play in the Nigerian economy, in order to pinpoint the short comings and provide
possible solutions. The specific objectives of the study include:
1) To examine the ideas behind the formation of multinational corporations.
2) To examine the contributions of multinational corporations towards sustainable
development.
3) To examine the implications of Multinational Corporations and Financial Aid on the
Nigerian economy.
4) To profer solutions for curbing the negative impacts of multinational corporations on
the Nigerian economy.
1.4 RESEARCH QUESTIONS
1) What is the relationship between the ideas behind the formation of multinational
corporations and how they operate?
2) What are the possible solutions to the harmful effects multinational corporations have on
the economy?
3) Should receiving financial aid be promoted or approached with caution?
4) Who is responsible for the adverse effects multinational corporations create in the
economy, the multinational corporation or the government?
1.5 SIGNIFICANCE OF THE STUDY
The research study on the topic Implications of Multinational Corporations and Financial Aid
on the Nigerian economy is targeted at identifying loopholes in controlling the activities of
multinational corporations domiciled in Nigeria. It is also aimed at understanding how the
country has received millions of dollars of financial aid that have not resulted into positive
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economic growth. The study aims to determine if foreign direct investment and financial aid
really benefit the Nigerian economy or if they are liabilities capable of further crippling the
economy.
1.6 SCOPE OF THE STUDY
As the title suggests, the study covered the Nigerian economy with focus on Dufil Prima Food
PLC, a major packager and distributor of indomie noodles, one of the largest multinational
corporations within Nigeria.
1.7 LIMITATION OF THE STUDY
This study encountered some limitations. The adverse activities of multinational corporations
in the Nigerian economy are recognised by the citizens but not by the corporations.
Furthermore there was no government official I could interview to find out the steps the
government has made to protect the economy.
1.8 DEFINITION OF TERMS
1) Multinational Corporations- refers to organisations that own or control productions of
goods or services in one or more countries other than the home country.
2) Foreign Direct Investment- ownership by somebody not a national. An investment made by
a foreign person or organisation in a particular country, or the total value of this type of
investment.
3) Globalisation- A 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.
4) Financial Aid- Refers to economic assistance granted to countries going through economic
instability in the forms of loans or grants.
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5) Host Government- Refers to the country in which a foreign multinational corporation
operates.
6) Home Government – Refers to the country in which a multinational corporation has its
headquarters.
1.9 PLAN OF THE STUDY
This study has been divided and organized into five chapters. The first chapter discussed the
background to the study, statement of the problem, research questions, and objectives to the
study, scope of the study and significance of the study. The first chapter also included the
limitation of the study and the definition of terms. The second chapter focused on the
literature review and conceptual framework with the aim of providing historical and
fundamental background to the implications of multinational corporations and financial aid on
the Nigeria. The third chapter focused on the research methodology taking into consideration
the design, research population, sampling and sampling technique(s), research instrument(s),
validity and reliability of instruments, data collection technique(s) and finally the data
analysis. The fourth chapter focused on research analysis, findings and assessment of data
collected. Finally, the fifth chapter contained the summary and conclusion of the research
work as well as recommendations on how problems raised can be tackled.