CLA News / Navigating the Tension: Multinational Corporations and Host States in Investment Law in Africa by Sharon Buyanzi

Introduction

Many African countries face scarcity of resources to finance long term investment goals. The scarcity of resources in Africa is a huge impediment to economic development and achievement of the millennium development goals.

To mitigate the financial crisis, Foreign Direct Investment (FDI) is seen as a major source of investment in Africa. Many African countries have therefore endeavoured to offer incentives to encourage the influx of FDIs in their territories. Policy makers in the developing world have concluded that FDI is important in boosting economy of the developing countries. The main players in FDI are multinational corporations (MNCs).

Apart from making investible funds available, it is generally assumed that FDI can create employment, increase technological development in the host country and improve the economic condition of the country in general. FDIs are also touted to produce externalities through technology transfer and spill-over effect.

Despite these desirable effects of FDI, this article acknowledges the looming undesirable effects of FDI, and explores how to mitigate them.

Multinational Corporations as the Main Players in Africa

Multinational corporations are mega corporations possessing quasi-governmental powers, including the ability to wage war, negotiate treaties, coin money, and establish colonies. Liberalization of international trade coupled with globalization have spurred the emergence and resurgence of MNCs. Globalization has given an impetus to multinational corporations to operate more easily in other parts of the world other than their home countries.

Many African states played host to these multinational corporations long before they gained their independence. Therefore, the legacy of these multinational corporations in Africa can be traced to the colonial era in Africa.

The number of activities of these multinational corporations have grown over time as African countries struggled to develop socio-economically.

Positive Impacts of Multinational Corporations in Africa

Indeed, the significance of globalization in the current global business environment is undisputable. The establishment of a MNC in a developing country is often coupled with huge capital investment in the developing country’s economy.

Apart from capital investment, MNCs often bring with them varieties of products, services and facilities. Most of the products consumed in Africa are supplied by the MNCs, hence their presence and significance in Africa is undeniable.

Moreover, FDIs in the form of MNCs also improve skills and create jobs for the locals in the developing countries. Whereas, the creation of jobs utilizes the local skills, the transfer of technology builds the knowledge and capacity of the local labour force.

Sharon Buyanzi

Kenya