New Internationalist

With a little help from their friends

Issue 085

Third World nations bargain with foreign corporations to maximise the benefits from the commercial investments. Corporations minimise the returns with a little help from their friends. Christopher Sheppard looks at a business survey in Kenya* - one country which has gambled on the wholesale involvementof foreign companies in its economy.

Photo: Margaret Murray
A Kenyan executive in the driving seat. Managing in the interests of his country or corporation? Photo: Margaret Murray

Corporate investment in the Third World is no longer a simple matter of planning the factory, signing some documents and posing for photographs with the relevant government minister. Developing countries are increasingly insisting on certain conditions before letting international companies set up shop. Foremost amongst their demands is local employment - not only unskilled jobs but also senior managerial positions. And often there is an insistence on sharing the profits of the proposed venture by permitting nationals, and sometimes the government, to own a substantial number of the shares in the concern.

Stiff terms? Possibly. Certainly such demands have caused a lot of friction between governments and foreign businesses in the past. But the more flexible and forward-looking corporations have found that native managers and local government shareholding in their overseas operations can work to their advantage. At worse, it can mean little more than a facade of local control and ownership while allowing the foreign firms to effectively silence cries of exploitation. Nevertheless, corporate partnerships with Third World governments for ‘mutually beneficial’ goals are increasing. And with 50 per cent of the shares locally owned, how can multinational subsidiaries possibly act against the interests of the country where they are based? When local people run the company, the proposition seems even more absurd.

Evidence from Kenya contradicts this. It shows that in negotiation with foreign business, officials are often willing to sell their national interest short. Outside control can remain as tight as ever, sometimes with the added benefit of inside information. Company profits, shared by the local elites, are seldom seen by ordinary citizens of the country.

Canadian economist Steven Langdon surveyed more than seventy international corporate subsidiaries doing business in Kenya. These companies were given easy access to the country soon after independence in the 1960s. Today, control of the economy is in few hands; the biggest twenty companies in Langdon’s survey have 86 per cent share of all national business investment. Few of them are constrained by competition. More than 60 per cent hold a virtual monopoly in the main product they sell - helped by high tariffs on foreign imports that might undercut their prices. And all this has occurred with, the consent of the Kenyan government.

Of course, when foreign businesses are negotiating for a share of the Kenyan market, they bring a lot of firepower to the bargaining table. Kenya requires highly skilled people to gather and analyse information in order to assess the proposals of foreign corporations and bargain effectively. They frankly admit they have too few such people, spread too thinly. On the other side, corporate negotiators are skilled specialists, with easy access to information and the experience of parent company operations elsewhere to guide them. The corporations also control much of the technology required to develop new industries. Third World governments find it difficult to bargain for such knowhow, since they can’t fully assess its importance. And behind the corporate investor is the power of their institutional allies: trade federations, cartels and sympathetic Western governments. ‘Even if the days of gunboat diplomacy are over,’ Langdon observes, ‘the involvement in a business dispute of the governments of such large aid donors as the U.K., the U.S. and West Germany, seems to lead to settlements that favour the British, American and German firms involved.’ ‘I get on the ‘phone to Kenyans if I need to,’ said one British High Commission official in Nairobi, ‘That’s why we’re given entertainment allowances - so that we know someone who knows so-and-so who is dealing with it, when the issues come up.’

It is against these odds that Third World negotiators must bargain when trying to get the best deal for their nation.

The Kenyans appear to have done particularly well in their insistence on a local share of the equity holdings in foreign concerns. Indeed, 75 per cent of the multinational subsidiaries in Kenya have local shareholders. More than half are in partnership with the government. But shareholding does not mean control. Two-thirds of the companies with hefty local ownership of shares in the Langdon survey still had their corporate investment, spending and recruitment decisions controlled by an overseas head office. Contact with the overseas head office remained close, with managers regularly flying in and out of Nairobi for foreign training and consultations. It appears that Kenya’s multinationals are more part of the plans of the global corporations than planners in their own right.

Indeed, government participation appears to have protected rather than limited the interests of foreign corporations. Langdon quotes one firm which insisted on government shareholding, ‘to assure that we have got absolute protection, because the day we are in the market and we see anyone else coming in, we are ready to hammer on the government’s door and say "Look, it’s your money, you’ve got to protect it." ’

The financial benefits of government participation are not widely shared. The Industrial and Commercial Development Corporation is the main aim of government investment. Its shareholders are described as a ‘roll-call of the Kikuyu middle class’.

The relationship between Kenya and foreign investors is warm. It’s helped by the ‘Africanisation’ policy - foreigners working in Kenyan subsidiaries were cut by 80 per cent between 1967 and 1972. A dramatic turn-about for multinational recruitment policy and a triumph for the local negotiators. But who benefits from this? Obviously the individuals employed do. Most foreign firms offer managerial salaries that are fixed on an international scale. They are far above locally realistic rates of pay. Such remuneration benefits others: bids up local wages and provides an excuse for higher government and civil servant pay.

The multinationals benefit from ‘Afri-canisation’ too. Langdon argues that the loyalty of black executives is most often to the company. ‘Kenyan born executives are intitiated on a worldwide basis, by training and consultations abroad, as they take on more senior positions.’

This Kenyan elite ensures the smooth running of business operations by providing a direct route to the government’s top decision makers. As one foreign manager interviewed by Langdon says: ‘This is another reason why we are giving Kenyan citizens good chances to get along in our company … they’re all Kikuyu names,mind you. And we certainly find these chaps all know the people in government. They all went to the Alliance High School together; they all went here together and there together. This helps us a lot. If we have problems about getting a license organised or, you know, you have to find your way around, these chaps can usually find their way around.’ Such informal backdoor connections weaken the position of the national negotiators with foreign business. One embassy official noted that ‘some companies get away with murder here, because their top man has good personal relations with the people who matter.’ Key decisions are wrested from government institutions and bargains struck in private.

In 1969 Firestone Tires outmanoeuvred both its competitors and government negotiators by meeting privately with the Ministers involved. The company clinched a tire-manufacturing project, where there were outrageous Kenyan concessions including

  • a ban on all other tire imports

  • the right to decide on tire prices, despite the monopoly position

  • government financial participation in the project to the extent that Firestone desired.

One of Firestone’s major concessions was an undertaking to bring prominent Africans, including a former Cabinet Minister, onto its managerial staff.

Kenya has become a powerful example of the collusion of interests between foreign corporations and local decision­makers. That alliance has done little to lessen the disparities of income, still less the widespread poverty in the country. Instead an important group of government representatives, senior civil servants and business executives have found their interests lie far more with the international economy than with the self-reliant development of their nation.

* ‘The Multinational Corporation in the Kenya Political Economy’ by Steven Langdon, Dept. of Economies, Carleton College, Ottawa. Published in ‘Readings on the Multinational Corporation in Kenya’ ed. Raphael Kaplinsky.

This first appeared in our award-winning magazine - to read more, subscribe from just £7

Comments on With a little help from their friends

Leave your comment