The impact of multinational corporations (MNCs) in Africa lays across a wide base of adverse consequences, such as repatriation of profits and shrinking exposure of local value chains, replete with illicit financial flows (IFFs) and subsequent tax injustices. The emergence of MNCs as a result of globalisation ideally posed as a lucrative opportunity for African countries to realise foreign sales and revenue growth through competing on the global market.
However, the global market became highly saturated by developed country corporations that use more advanced factors of production. As such, operations by MNC in the country has greatly impacted the socio-economic standards of citizens with regards to ineffective corporate social responsibility (CSR), crippling of local markets, political interference, unsustainable tax incentives, and compromised labour practices.
Corporate social responsibility
While corporate social responsibility (CSR) can significantly improve business values in the MNCs which include direct (economic value) and indirect (human capital value and reputational business value), research shows that MNCs in Africa do not make deliberate and significant impact towards the development of communities in which they operate in.
Most CSR approaches prioritize brand marketing of the companies rather than adopting a philanthropic approach. Zimbabwe’s mining sector mostly comprises of MNCs and an in-depth look into CSR efforts made by mining companies in the communities they operate in reveals that there being obscure regulations around CSR, most companies do not implement CSR projects, often exposing members of the community to pollution, displacement and even destitution.
Such events are rife in communities where mining takes place, but none can be criminalised due to government’s opaque MNC agreements, silent CSR obligations, ill-defined and unmeasurable CSR project implementation indicators, as well as lack of CSR assessment methods.
Emerging markets
The presence of MNCs in emerging markets should ideally set the tone for competition, foreign direct investments, and technology transfer.
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On the other hand, MNCs attraction to developing countries stems from the benefit of cheaper labour and raw materials as well as new market revenue prospects.
The impact of MNCs in emerging markets particularly in Africa has led to an 11% increase in foreign direct investment although much lower business practice standards have been witnessed in areas of environmental responsibility, social concern and value-added activities in host counties than home countries.
Political involvement
Views of MNCs being another form of imperialism, while controversial, have been supported by the evident slow and lack of development in host African countries where issues of poverty, mass unemployment, high public debt, and environmental damage continue to constitute Africa’s crippling crisis even after MNCs develop lucrative markets in the very region.
MNCs activities and structures have critical and influential control on national policies such as taxation, investment protection and immigration. Zimbabwe’s mining sector is one area with a long history of detrimental effects owing to MNCs opaque agreements and political interferences which result in illicit financial flows and smuggling. Resultantly, the country has lost at least US$12 billion through illicit financial flows.
Socio-economic developement
MNCs activities in Africa have not been uniform as they prefer to operate under certain political and economic conditions. Due to obscure agreements between MNCs and host countries, there is usually no justification of development needs and priorities for approved operationalisation.
Projects involving foreign corporations, especially in the extractive sector, often present conducive environment for illicit business practices and accumulation of external debt. Such projects, benefit nationalities of MNCs at the economic and social expense of host countries.
The displacement and subsequent pushing of mining community members into extreme poverty is a clear indication of apathetic MNC agreements as no alternative habitats with safe homes, hospitals, schools and drinking water are provided when mining companies displace vulnerable citizens.
Tax incentives
The control of MNC operations is often restricted by weak regulations and enforcement as well as corrupt governments. The debate on use of superfluous influence and power by MNCs in negotiating tax breaks, exemptions and lower rates or altogether avoiding and evading tax obligations sits amoung top reasons for illicit financial flows and unrealised tax revenues by host countries.
In 2020 alone the country lost approximately US$1,2 billion through tax exemptions which accounts for 8% of Zimbabwe’s external debt. The debt crisis the country faces has compromised the government’s ability to provide efficient social services and as such poverty, avoidable illness and death, and school dropout rates have increased while citizens are exposed to unclean water, if any.
Political interferences by elites and foreigners on tax accountability provides more lucrative operating environments for MNCs while domestic businesses are crippled by heavy tax obligations and outpriced products and services causing stunted growth and development, particularly for micro, small and medium enterprises.
Social care and assistance
The contribution of MNCs towards social assistance and social care is negligible as evidenced by the number of children involved in artisanal and small-scale mining (ASM) as a means of survival forgoing basic education.
The criminalisation of ASM in the country implies that most school dropouts are juvenile delinquents forced by lack of access to decent living. The destitution of over 300 000 people in mining communities without compensations undermines social protection obligations of the government over mining initiatives that also do not contribute towards social protection within the communities.
The contribution of MNCs towards health care is less than 5% in majority of the Eastern and Southern African countries, including Zimbabwe which accounts for much less that earned tax exemptions and profits gained from operations in the African countries.
There is a lack of deliberate assessment and control policies by the government on compensation of mining initiatives to affected citizens which also undermines the human rights-based approach to MNC and government agreements.
Labour policies, interventions
The notion of free trade and globalisation which form the basis of MNCs operating in new markets claim to encourage employment and use of labour in host countries and as such, employment rates should realise an upward trend over the period in which MNCs are operating.
The country’s unemployment rate, tallied against the number of MNCs operating in the country, raises scepticism on whether this notion has applied itself. Research shows that the rates of foreign investment outstrip the corresponding employment growth rates as foreign investments are as much as double the employment rates.
Rates of employment for women in MNC is largely determined by the sector where women employed in mining sectors are much less than those in tourism but nonetheless scarce representation of women in highly skilled and technical positions. The capital required for MNCs to create employment is much higher than local business and as such citizens are exposed to either unskilled and cheap labour jobs or complete unemployment. This adds to the contradictions and dilemmas of labour market policies and interventions by the government as growth in export markets and GDP does not necessarily relate to social development in the short run.
There are unclear gender-based labour policies and regulations in MNC agreements which also undermines government’s efforts on gender equality in the private sector.
The lack of transparency of MNC agreements stifles social development and undermines the government’s responsibility towards access to decent shelter, basic education, efficient health care and access to water by communities. As such governments should be accountable for impacts of MNC operations on livelihoods and social protection which includes making agreements public and allowing parliament to exercise its oversight role on contracts.
Jaravaza is a policy analyst and writes in her personal capacity. These weekly New Horizon articles, published in the Zimbabwe Independent, are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Chartered Governance and Accountancy Institute in Zimbabwe (CGI Zimbabwe). — [email protected] or mobile: +263 772 382 852.
