The Impact of Multinational Corporations in the economic development of Cameroon: case study Guinness Cameroon

The Impact of Multinational Corporations in the economic development of Cameroon ( case study Guinness Cameroon).

CHAPTER ONE

INTRODUCTION

• BACKGROUND INFORMATION

Sub-Saharan Africa enjoyed a period of sustained economic growth since the early 1970’s because of increase in FDI (Foreign Direct Investment). This increase in investment was mainly witnessed in the increase range of MNCs in Sub-Saharan Africa.

The history of MNCs is tied closely to the origins of trade in and between cultural communities. These communities remain important in many sectors the modern economy. One of the major difficulties in early trade was the difficulties of transactions due to the varied and unequal distribution of resources across the globe. As a result of this unequal distribution of resources around the globe, traders have to travel long distances and undergo unusual risk for the hope of gain and trade was quite precious, due to the absolute that some communities enjoyed international trade persisted for many centuries. During this period, transportation was poor and technology to hold inventories was rudimentary. An agent at the right place (spot) at the right time could earn enormous fortunes especially in times when the demand for foreign goods increased and prices rose astronomically. As a result of the long distance between the agent (trader) and the principal (customer) in exporting countries an agent could easily and often disappear with the profits. Due to the dishonest behavior by traders Greif (1989) emphasized the membership in ethnic trading communities. The enclave ethnic group in foreign sites could monitor the activities of agents, principals that could be informed of malfeasance thus deferring their dishonest behavior.

As a result of this long distance between agents and principals there was need for partnership and companies emerged during the 15^th century, coupled with the development of the financial market and banking system. Western states could therefore invest in overseas. Also the increasing wealth of western countries as well as the speed, by which national industries could absorb new loans, encouraged massive foreign investment by the end of the 19^th century and early 20^th century. This was the period of globalization in terms of the percentages of capital outflows to the total capital accumulation. Hence the increasing rate of foreign direct investment marked the development of multinational companies. Britain’s multinational companies developed during the mid-1800’s.

Moreover, MNCs are actually a recent phenomenon whose roots go deep into the America post, thanks to the marshal plan. This plan was put forward by George Marshal, the United States secretary of State’s (1947-1949), in which the US took upon its self to provide economic aid to European post world war two. With this plan many US manufacturers began investing abroad. One of the pioneer investors was singer (sawing machine manufacturer) who operated a subsidiary in France and later in Britain.

The world is gradually becoming a global village. There has been gradual globalization of the world economy. The international economy has expanded from microscopic to macroscopic perspective. The massive growth of international organization as non state actors in global politics has been responsible in pat for the expansion that has taken place today in international business.

In the last years, Africa has received unprecedented attention from major development agencies United Nation and the commonwealth. 

Moreover countries like China and the United Kingdom have also increased their investment in Africa. This interest from the rest of the world in Africa has been catapulted by positive developments that are happening on the continent.

This, GDP growth increased from 2.5% in 1994 to 5.4% in 2005; inflation continues to decline, reaching 8.5% in 2005, compared to 50% in 1994; FDI inflows increased from about USD 2.4 billion in 1990 to just over USD 18 billion by 2004; In fact Sub-Saharan Africa is currently enjoying its strongest period of sustained economic growth since the early 1970’s. GDP growth of 5.2% in 2006 is expected to increase to 6.3% by the end of the year 2007(Mondi, 2006).

Although Africa may be experiencing this economic growth, the record of regional economic integration in Africa has been limited. Intra-African trade accounts for around 12/5% of cross-border trade and on average for 5.3% of GDP (Soko, 2006).

We can therefore conclude that it is globalization that has led to the rapid expansion of FDI in Africa and multinational companies in Cameroon such as TOTAL, SHELL, GUINESS, COCA COLA, PMUC, and ORANGE AND MTN.

Today there are over 5000 MNCs in the world and there are said to be responsible for a stable and increasing share of the world trade and for most international investment.

• PROBLEM STATEMENT

Multinational companies spread over to the third world countries with the aim of expanding, earning profit and taking advantage of the cheap labour in these countries. MNCs help to improve employment, education and provide new skills, improve investment potentials and equally provide capital and equipment.

Despite the numerous advantages of MNCs, their impact is not really felt in Cameroon because of the difficulties in setting up multinational companies. These difficulties range from historical, political, socioeconomic, institutional constraints and poor image. This difficulty is due to the administration bottlenecks o the Cameroon government; also the low purchasing power of Cameroonians limits the settlement of multinational companies in Cameroon thereby hindering economic impact in Cameroon. MNCs take advantage of the political system because they have such a strong impact on the economy. It would be devastating to a country if a corporation decided to remove its large investment from the country’s economy. The company can just pay off the government officials to protect their company from being shut down. The government is then compelled to accommodate the company by modifying heir labor and environmental policies. Many CEO’s and other employees of Guiness are found guilty of crimes such as fraud and tax evasion.

From the above analysis we can conclude that lack of real commitments, which are backed by the means of political, will. Paper rhetoric alone cannot overcome scarcity and institutional constraints. Secondly poor governance, weak institutions and poor infrastructure is topping the list .Hence a lot is still to be done to promote the expansion of multinational companies in Cameroon.

Also multinational companies have strongly been criticized because of their high rate of capital outflow to their home base country (capital flight).Proponents of this view believe that MNCs are instrument for their home base economy and not the economy in which there are located. The world today is a global village and it has strongly been proven that no economy is self sustainable. This implies that in spite all the strategies put in place to disfavor the growth of MNCs in Cameroon there is no gain saving that MNCs like Guiness Cameroon serve as a major instrument for the development of Cameroon and a lot has to be done to promote them.

The relationship between multinational companies and economic development lead us to ask the main question: What is the role of multinational companies in the economic development?         

Economic development can be sub-divided into different sectors which are social sector, economic sector. Hence, this sub-division into sectors will lead us to the following specific questions:

What is the contribution of Guiness Cameroon in the social sector?

How does Guiness Cameroon contribute in the economic sector?

1.3 OBJECTIVES OF THE STUDY

The objectives of this study can be divided into 2.The main objective and the specific objectives.

Our main objective consists of examining the contribution of Guiness Cameroon to the gross domestic per capita of Cameroon. This could be achieved through the following specific objectives:

The first specific objective of the study is derived from the research question that is to find out Guiness Cameroon contribution in social sector.

The second specific objective of the study is to determine Guiness Cameroon contribution in the economic sector.

• WORKING HYPOTHESES

H₁: Guiness Cameroon contribution in the social sector affects the economic

       development of Cameroon.

H₂: Guiness Cameroon contribution in the economic sector affects the economic

       development of Cameroon.