Multinational Corporation in Nigeria: Shell Petroleum Development Company - Case Study Example

Running head: Multinational Corporation in Nigeria   Multinational Corporation in Nigeria: Shell Petroleum Development Company Insert         Insert Grade Course Insert Tutor’s Name 27th March 2012 Multinational Corporation in Nigeria: Shell Petroleum Development Company Introduction Multinational enterprises (MNEs) are corporate enterprises that produce goods or deliver services in more than one country. These are perceived to entail business enterprises that run their operations in several different countries (Ozoigbo & Chukuezi, 2011, p.380). Generally, these enterprises are headquartered in their parent or home countries, but they operate in several other countries. MNEs have immense investments in host countries, but they lack harmonized product offering in every host country. The MNEs pay keen attention to tailoring their goods and services to match the individual local market demands. MNEs are hailed for their immense contribution towards economic globalization. The distinctive character of this occurrence is the increase in number of nations taking part in the world economic integration. This level of integration is achieved via three main channels: international capital movements, international exchange of knowledge and technology, and most importantly, through international trade. Motivation for choice to discuss Shell Petroleum Development Company (SPDC) as an MNE in Nigeria Shell Petroleum Development Company (SPDC) is a subsidiary company of a multinational company (Royal Dutch Shell plc), which is headquartered in The Hague, Netherlands. SPDC is the leading fossil fuel producing company in Nigeria. The MNE first started its oil exploration business at an oil field in the Niger Delta in the year 1956, and its first export was in the year 1958. Primarily, SPDC explores and produces crude oil, liquefied natural gas, and other oil products. Like any other oil company, SPDC influences the Nigerian economy both in the positive and negative sense (Ozoigbo & Chukuezi, 2010). The economical and environmental effects accompanying the operations of an MNE such as SPDC cannot be divorced from each other. The effects have a way of interlocking. For instance, oil exploration and production has impacted the livelihood of the citizens residing in the oil producing regions of Niger Delta, Ijaw, and Ogoni. Contrary to the expectation that the oil in Nigeria would rank the country among the world’s wealthiest countries, Nigeria continues to struggle in the ranks of Africa’s poorest nations (Ozoigbo & Chukuezi, 2010). This paper will discuss the impact of an SPDC to the economy of Nigeria. Impacts of SPDC on the economy of Nigeria Multinational’s impact on the economy of a country can never be overemphasized. Least developed countries (LDCs) aim at meeting two main goals of securing an accelerated economic development and better living standards for their people. The contact between developed countries (DCs) and LDCs has afforded the LDCs an opportunity to realize these goals (Taylor, 1983, p.158). Nigeria, being a LDC, has immensely benefited from its partnership with DCs, which have set up MNEs in the country. This partnership between SPDC and the Nigerian government has impacted on her economy both positively and negatively. These impacts are split into two broad subheadings as discussed hereunder. The negative Impacts of SPDC on the Economy of Nigeria The entry of SPDC and other MNEs into the Nigerian market has been occasioned by the open market policy embraced by Nigeria. According to this policy, Nigeria allows free entry to foreign MNEs who bring in capital, technical skills, and entrepreneurship without restrictions. Such an economy has further accelerated industrial development in the West African country (Taylor, 1983, p.158). The exploitative nature of MNEs confers a negative influence on the economy of the host country. The entry of SPDC has wrought the economy in various ways. This section will focus on the discussion of the negative effects of SPDC to the Nigerian economy. For starters, the technology imported by the MNE from mother country was too advanced for the local labor force. This led to an importation of experts along with the technology. Such a move denied the local labor force an opportunity to secure employment in the MNE. This sophisticated technology has also been criticized in the sense that it has led to a stoppage in the advancement of the indigenous technology (Taylor, 1983, p.158). As a result, this has in effect led to the gradual disappearance of weavers, iron-smelters, and blacksmiths, who have experienced job losses due to the imported technology. The capital-intensive nature of the technology was yet another shortcoming. The economy desperately needed a labor-intensive technology to absorb its unemployed citizens, instead, the technology insisted on being capital-intensive. Though SPDC has tried to enhance social corporate responsibility, discontentment has continued to be registered by the residents in the oil rich basins. The residents feel that the MNC should do more as regards to provision of infrastructure and employment (Ugochukwu & Ertel, 2008). These reactions have been evidenced by the rise of militias in the oil rich basins. The militias sabotage the operations of SPDC in a bid to “defend” their turf. Further, the militias engage in criminal activities, which include kidnappings, murder, and abduction of the SPDC’s employees. Gangs such as the Movement for the Emancipation of the Niger Delta (MEND) arose to place demands on the control of oil resources and equitable distribution of earnings to the locals (Walters, 2010). The rise of criminal gangs in the oil rich basins deters potential investors from investing in the region, thus crippling the economy. MNEs are also viewed as vehicles that further neo-colonialism. MNEs have been viewed as ruthless exploiters that only further their agenda without giving due regard to the host countries. SPDC has not been spared from this generalization either. In this regard, the MNE has been seen by the host government as a benign engine of its parent country’s prosperity. The nature of the relationship that subsists between SPDC and her home government further proves this point true (Akintunde, 2008, p.124) The unfair terms of the contracts signed between Nigeria and SPDC pits yet another challenge to the economy. The contracts were restrictive in the sense that Nigeria cannot increase her tax and tariffs levy she charges this MNE. Indeed, there has been a lasting unfair treatment of the Nigerian government on the MNE. An attempt by former President Buhari’s government to remedy the situation was met with resistance from SPDC, which in turn undermined the government’s move by adopting double accounting (Pearson, 1970, p.14). By use of this principle, SPDC calculated the amount of money they used in bringing in the technology, experts, and equipments, and compared this with the amount they paid for the raw materials they got from the oil wells. This accounting method led to further financial losses on the part of the Nigerian government. Another negative impact of the SPDC on the economy of Nigeria is its decapitalization of the economy. Profits made by SPDC are repatriated back to the home country where it is invested in the home country economy, leaving Nigeria under developed. The royalties paid to the Nigerian government is too meager to allow for any significant industrial investment, thus the host country’s economy stalls in development. Nevertheless, repatriation of capital to the parent country effectively distorts the economy and hinders economic development of Nigeria (Oluwanisola, 2010). SPDC has also negatively affected the economy by contributing to its technological backwardness. This has been propagated by the MNE’s importation of sophisticated technology that hampered the development of the indigenous technologies. The economy of Nigeria has been handicapped in the sense that it has no relevant technologies that can fuel its development (Haller, 2007). SPDC’s technology was akin to a vicious predator, which prevents the simultaneous development of the indigenous technologies. The technological backwardness of the Nigerian economy was further compounded by the MNE’s tight control of its advanced technology, which it blatantly refused to share with the rest of the economy. SPDC is credited with the creation of the infamous social classes. These classes resulted from the mal-distribution of income in Nigeria. Generally, oil workers earn a monthly salary equivalent to an annual salary of a federal officer. This huge disparity in income hampers economic development by fashioning a society of class-conscious individuals (Uwakonye, Osho, & Anucha, 2006, p.61). The contribution of SPDC to cultural degradation cannot go unmentioned. SPDC’s domineering presence has led to the erosion of the cultural and traditional values of the Nigerians. SPDC has sponsored commercials and business practices that infringe on the social fabric of the Nigerians. For instance, this influence is well portrayed by the introduction of foreign media into Nigeria. In addition, the government’s over-reliance on oil as the primary source of foreign exchange also obstructed the development of other sectors of the economy. These factors collectively wreak a negative influence on the economy of the country, as they create demand in luxury goods, which do not respond to the true needs of the common Nigerians (Uwakonye, Osho, & Anucha, 2006). The positive Impacts of SPDC on the Economy of Nigeria In spite of the negative effects SPDC’s operations to the Nigerian economy, there exist some traces of positive effects in the undertakings of SPDC. First, SPDC has created jobs to the citizens of Nigeria; many youths have been employed in the exploration and production lines. This MNE has afforded Nigeria with the much needed capital, management skill, and technology. In addition, it has afforded the country the requisite impetus and stimulus for economic development. SPDC has also invested in the training of its manpower through the equipping of personnel at the Nigerian Institute of Welding (Anon., 2011). Secondly, the MNE has also enhanced cordial relations with the communities by embracing social corporate responsibility. In this regard, SPDC continues to work closely with community-based organizations (CBOs) to ensure that the concerns of the communities where it operates are effectively and comprehensively addressed. To meet its social responsibility goal, SPDC has set up schools and health centers to serve the local communities. Third, the MNE has developed infrastructure in its regions of operations. The road network, railway channels, and harbors have been given a face-lift. These improvements are all geared at ensuring that the MNE’s operations proceed smoothly. The improvements confer a residual benefit to the Nigerian economy as other goods and services get to use the improved infrastructures. On the accusation that the MNE brings in foreign media that erode on the social and traditional values of the Nigerians, it has to be recognized that the films are not totally inept (Pearson, 1970, p.14). This has ensured that the Nigerians are kept abreast with the happenings around the globe. Control of SPDC’s activities in Nigeria General perceptions have hinted the inability of the Nigerian government to control and regulate the functioning of MNEs such as Shell Petroleum Development Company. While there is some degree of veracity to this allegation, the engagement of the domestic and international market in the control and regulation of oil trade is desired. The entrenchment of the social corporate responsibility should be encouraged, but this should not deter the push for the host countrys regulation. SPDC requires a regulator to restrain its tentative intuitions to ensure that they do not go over board (Ugochukwu & Ertel, 2008). The contract that subsists between the SPDC and the Nigerian government is one-sided in the sense that it favors SPDC. Whenever the government attempts to alter the agreement by imposing more taxes, the SPDC can counter the move by adopting a double accounting policy, which would in effect result to a higher cost on the side of the host country (Oluwanisola, 2010). Over-dependence of the economy on oil exports is undesirable, as any fluctuations would adversely affect the economy. To guard her against the adverse effects of MNE’s operations, Nigerian government should place more emphasis on the diversification of her economy while at the same time finding ways to lessen the adverse effects of the MNEs operations. Finally, the Nigerian government should also concentrate her efforts on dealing with the rebels who are hampering the smooth operations of the oil industry. Indeed, increased insecurity might lead the multinationals to pull out their investments from the country, and this would further cripple the economy. Reference List Akintunde A.O., 2008. The Role of International Business Operations and the Impact of the Political Environment in Nigeria: a Conceptual Framework Study based on the Banking and Oil Industries. Florida: Universal Publishers. Anonymous. 2011. SPDC Orders Line Pipe from Nigerian Company. [Online]. Available at: http://www.pipelineandgasjournal.com/spdc-orders-line-pipe-nigerian-company [Accessed on March 27, 2012]. Haller, T., 2007. Fossil fuels, oil companies, and indigenous peoples: strategies of multinational oil companies, states, and ethnic minorities: impact on environment, livelihoods, and cultural change. Berlin: LIT Verlag Münster. Oluwanisola, S., 2010. The Impact of the Oil-Producing Multinational Companies on the Nigerian Economy and Environment. [Online]. 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Africa’s cursed black gold: Analyzing Nigeria’s oil industry. [online]. Available at: http://www.consultancyafrica.com/index.php?option=com_content&view=article&id=530:africas-cursed-black-gold-analysing-nigerias-oil-industry-&catid=82:african-industry-a-business&Itemid=266 [Accessed on March 27, 2012]. Read More