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APPRAISAL OF THE ROLE OF MULTINATIONAL CORPORATION ON THE ECONOMIC DEVELOPMENT OF NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

A multinational corporation is a company that has subsidiaries in several countries.  Their decentralized structure, as well as their degree size, often allows them to overstep governmental constraints which smaller regional or national companies must observe.
Developing nations attracts multinational subsidiary operations due to number factors such as cheap labour, low taxation and less vigilance concerning workers’ rights and environmental protection. They are made to contribute to the social security net (i.e. welfare, unemployment insurance, e.t.c) other factors including low pay for woman workers, child labour, and the absence of labour unions, also combine to make the third world ripe for exploitation.  The presence of multination in these countries improves overall living standards.  The benefits of the relationship are most often one sided, but the economic problems facing these nations makes it difficult for them to be picky about their investor.  Firms become multinational corporations when they perceive advantages to establishing production and other activities in foreign locations.  Firms globalize their activities in foreign locations.  Firms globalize their activities both to supply their home country market move cheaply and to serve foreign markets more directly.  Keeping foreign activities within the corporate structure lets firms avoid cost inherent in arm’s length dealings with separated entities while utilizing their own firm specific knowledge such as advanced production techniques.   By internalizing what would otherwise by cross-boarder transaction multinationals can bridge the information obstacles that often hinder trade.  For example, they may be able to move carefully monitor product quality or worker conditions in factories they own than in those of contractors, or adapt the composition of output more quickly to change in market condition. Improvements in information technology have reduced the impediments to exerting corporation control across boarders.  These advances have combined in recent years with an increased openness on the part of government to foreign multination, as the economic benefits of a foreign presence to the host country have become more widely recognized.  These benefits include the increased investment and the associated jobs and income that the multinational firm brings, as well as technological transfer and improved productivity.  The role of multinationals in spreading industry best practices is likely to be especially important services, many of which are not easily traded across national boundaries.
Evidence of the heightened role of multinationals can be seen in the quickened pace of Foreign Direct Investment (FDI)  in recent years in 1991 FDI flows both in and out of other European country development (OECD), reached regard level; over 2.5 percent (%) of their combined gross domestic product (GDP) for in flow and 3.0 percent for outflow.  Most of foreign direct investment is between developed countries, since 1982, 75% (percent) of FDI out flow from OECD countries have gone to other OECD members. SOURCE: United Nation Multinational Corporation in world development New York (2000).

Despite the efforts of the developing countries and international organizations or the economic activities of Trans-National Corporations (TNCs), developing countries have remained poor and the progress in development is marginal. There are legion of possible causes that might hinder development or result in underdevelopment in the Third World and many scientific studies tried to determine these causes for deadlock in development. The current public and scientific attention has focused on transnational corporations, the major players in the world economy, as possible source of delayed development or even underdevelopment (while other opinions claim the opposite).

However, this interest is not particularly new. Since the early 1970s various research projects focused their analysis on the relationship between FDI – a measure for the activity by and presence of TNCs – in developing countries and the economic development of these poor host countries. The findings of these analyses are quite contradicting. Some assume beneficial effects resulting from FDI on economic development while others claim that FDI hinders economic development. Differences in these research results can be attributed to the diverging theoretical approaches, differences in data (for instance due to different data quality or differences in the composition of the sample, like varying sets of countries), diverging model setups, theory-based assumptions or the interpretation of empirical results, just to name a few.

Two dominant strains of theories pursue differing explanations for these sharply diverging long-run growth patterns. One strain argues that the answer lies in economic and political features of developing countries and the way these have changed over time in response to both world events and internal pressures. That is; that the low economic growth rate and development is home-made due to political instability, insecure property rights, and misguided economic policies (Barro and Sala-i-Martin 1995; Krugman and Obstfeld 2000). The other theoretical strain’s main argument is that underdevelopment is a consequence of differential distribution of power between the Northern industrialized countries of the centre and the Southern countries of the periphery. Transnational corporations (TNCs) are seen as the major economic agents who are interested in maintaining the differences in development. The excerpt from the interview with the former Malaysian prime minister, Mahathir bin Mohamad, reflects this position in a rather generalized manner by emphasizing that TNCs are profit oriented enterprises, which are too strong for domestic enterprises to compete with and whose activities solely serve their own interests. Since the number of TNCs has been constantly increasing and the economic size of some TNCs trumps the size of whole economies, the trend towards an increasingly globalized economy is undamped. Therefore, the theoretical assumptions of development-theories regarding the role of TNCs in the world economy require continuous empirical analysis.

1.2       STATEMENT OF PROBLEM

Dependency theorists and environmentalists are generally pessimistic about the contributions of MNCs to the protection of the natural environment, particularly in host developing countries. For these schools of thought, the profit-maximising nature of multinational enterprises as well as their extensive marketing networks suggests that MNCs would try to move their unwanted products from one country to another until a market is found for such products (ESCAP/UNCTC, 1988:12). Due to their urgent need for employment opportunities, low-income countries are often compelled to set lax environmental standards in order to attract foreign investors. This problem, coupled with the high costs of conforming to the more stringent environmental standards in the advanced world, means that developing countries are likely to remain the “havens” of the pollution-intensive industries of the multinational firms of the developed world.

This argument does not only sound good in theory. Instead, a number of empirical studies have supported the relocation of “dirty industries” to developing countries. For example, during the 1970s, there was a trend to locate new capacities of the Japanese aluminium industry abroad due to environmental considerations (Walter, 1975). In sharp contrast to the above assessment, neo-liberal economists contend that MNCs are perhaps the most significant catalysts for sustainable development, because multinational corporations typically possess newer and cleaner technology and have better management practices which can be transferred to their subsidiaries in the developing world. Thus, rather than “pollution havens”, MNCs create “pollution halos” in developing countries through the export of modern technologies. In support of the pollution halo hypothesis, Eskeland and Harrison (1997) found that foreign ownership was associated with cleaner and lower levels of energy use in Mexico, Venezuela and Cote d’Ivoire. Similarly, Blackman and Wu (1998) found significant support for the conclusion that foreign investment in electricity generation in China increased energy efficiency and reduced hazardous emissions.

The above fundamentally divergent positions clearly demonstrate the need for further investigation about the real impact of MNCs on the environment of the developing world. This is particularly so because these seemingly logical, yet contradictory positions put the policy-maker in a dilemma. How should policy makers reconcile these positions to make appropriate policies towards MNCs? Should multinational enterprises be viewed as inherently detrimental to the advancement of sustainable development? How can the contributions of MNCs to sustainable development be enhanced? Are they a blessing or a burden?

  • OBJECTIVE OF THE STUDY

The study is aimed at achieving the following:

  • To determine the extent to which multinational corporations impact on Nigerian economic development.
  • To ascertain the extent multinational corporations are involved in technology transfer.
  • To ascertain whether multinationals displace rather than generate local business.

1.4       RESEARCH QUESTIONS

The following were the significance of this study: –

  • To what extent have multinational corporations impacted on Nigerian economic development?
  • To what extent have multinational corporations involved in technology transfer?
  • Has multinationals displaced rather than generate local business?

 

  • RESEARCH HYPOTHESES

H1: Multinationals corporations have significantly impacted on Nigerian economic development.

H2: Multinationals corporations have significantly been involved in technology transfer.

H3: Multinationals corporations have generated local business.

  • SCOPE OF THE STUDY

The study of the multinational corporations and its impact on the society could cover a broad scope as their activities carry along with them a multiplier effects that affects all facets of human existence. This study focused on the critical appraisal of the role of Multinational corporations in development of Nigerian economy with major emphasis on Stanbic IBTC Plc and MTN in Enugu metropolis.

 

  • SIGNIFICANCE OF THE STUDY

The importance of this research cannot be over emphasized in respect of the role and impact of multinational corporations in the economic development of Nigeria.

The research will be of significance to the following:

  • RESEARCHERS: The role of multinational corporations in an economy will help them in their other research work, seminars, publications and conferences. It will also assist them to conduct further research in other areas that is related to Nigerian economy.
  • The professional bodies will benefit as basis for policy formulation and enhancement of their curriculum in order to be relevant to the growth of Nigerian economy.
  • Potential investors either multinational or local will benefit as it will help them in their planning and execution of various plans concerning new investment and diversification of investment in the economy
  • The government will benefit immensely as they have the responsibility of providing enabling environment for all operators in the economy. They will have to put all the various financial strategies into consideration in formulating policies and regulations for the economy. The government will benefit most especially in areas of corporate governance which has been a major problem in the public sector and tax planning as many operating companies in the economy are prone to evading taxes, according to Chartered Institute of Taxation Nigeria (2005).

 

  • LIMITATION

Due to the following constraints such as inadequate books or the topic posed a serious constraint on the write up some of the date needed for this write-up are not available at the time this write up services carious out. It is prominent to note that no one has everything to himself.  In everything, there arise some constraints, so it is in the case of this essay

  • Financial problem; This problem is a great one especially in this present day economy recess in with inflation, sky rocketed prices of materials, where people are struggling to live within their limited resources.  This is especially applicable to a student who depends largely on others, among lost is that of transportation to and fro, the place of research, in some cases would have to trek for long distance.
  • Time:  Time factor is another constraint, which the writer encountered.  Such as combining class activities i.e. test, assignments, lectures and exams with the project work other include the drudging of read and writing from one item to another in the attempt to accomplish the task.

 

  •  PROFILE OF ORGANIZATION UNDER REVIEW

1.9.1 STANBIC IBTC PLC

The Standard Bank Group merged its Nigerian operations, Stanbic Bank Nigeria with that of IBTC Chartered Bank PLC. The merger, by way of the first ever tender offer in Nigeria and a $525 million FDI, the largest in Nigerian financial history, gave birth to a new entity now known as Stanbic IBTC Bank PLC which became part of the Standard Bank Group.

Stanbic IBTC Bank PLC through its wholly owned stock broking and asset management subsidiary, IBTC Asset Management Limited has several excellent mutual funds including the IBTC Nigerian Equity Fund, which is Nigeria’s largest

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