Shady deals undermine government’s social protection capacity

The impact of multinational corporations (MNEs) in Africa translates into a wide range of adverse consequences, such as repatriation of profits and reduced exposure of local value chains, replete with illicit financial flows (IFFs) and resulting tax injustices. The emergence of multinational corporations as a result of globalization ideally presented itself as a lucrative opportunity for African countries to achieve overseas sales and revenue growth through competition in the global market.

However, the global market has become heavily saturated by companies from developed countries that use more advanced factors of production. As such, the operations of multinational corporations in the country have had a considerable impact on the socio-economic standards of citizens with regard to ineffective corporate social responsibility (CSR), paralysis of local markets, political interference, unsustainable tax incentives and compromised labor practices.

Corporate social responsibility

While corporate social responsibility (CSR) can significantly improve business values ​​in multinationals, including both direct (economic value) and indirect (human capital value and reputational business value), research shows that multinationals in Africa do not have a deliberate and significant impact on development. communities in which they operate.

Most CSR approaches favor corporate brand marketing rather than adopting a philanthropic approach. Zimbabwe’s mining sector mainly comprises multinational corporations and a close examination of the CSR efforts undertaken by mining companies in the communities in which they operate reveals that there are murky regulations around CSR, most companies do not implement implement CSR projects, often exposing community members to pollution, displacement and even destitution.

Such occurrences are commonplace in communities where mining takes place, but none can be criminalized due to the government’s opaque deals with multinationals, silent CSR obligations, poorly defined and unmeasurable CSR projects, as well as the lack of CSR evaluation methods.

Emerging Markets

The presence of multinationals in emerging markets should ideally set the tone for competition, foreign direct investment and technology transfer.

On the other hand, the attraction of multinationals to developing countries stems from the advantage of cheaper labor and raw materials as well as new market revenue prospects.

The impact of multinationals in emerging markets, particularly in Africa, led to an 11% increase in foreign direct investment, although much lower standards of business practices were observed in the areas of environmental responsibility, environmental concerns social and value-added activities in host countries than in countries of origin.

Political involvement

The view that multinational corporations are another form of imperialism, though controversial, has been bolstered by the evident slowness and lack of development in host African countries where the problems of poverty, mass unemployment, debt High public and environmental damage continues to be Africa’s crippling crisis even after multinational corporations develop lucrative markets in the region itself.

The activities and structures of multinational corporations exercise critical control and influence national policies such as taxation, investment protection and immigration. Zimbabwe’s mining sector is an area with a long history of detrimental effects due to opaque deals by multinational corporations and political interference that result in illicit financial flows and smuggling. As a result, the country has lost at least US$12 billion to illicit financial flows.

Socio-economic development

The activities of multinationals in Africa have not been uniform as they prefer to operate under certain political and economic conditions. Due to obscure agreements between multinationals and host countries, there is usually no justification of development needs and priorities for approved operationalization.

Projects involving foreign companies, particularly in the extractive sector, often present an environment conducive to illicit business practices and the accumulation of external debt. Such projects benefit the nationalities of the multinationals to the economic and social detriment of the host countries.

The displacement and subsequent push of members of the mining community into extreme poverty is a clear indication of the multinational corporations’ apathetic deals, as no alternative habitat with safe houses, hospitals, schools and clean water is available. provided when mining companies displace vulnerable citizens.

Tax incentives

Control over the operations of multinational corporations is often limited by weak regulations and enforcement as well as corrupt governments. The debate over the use of superfluous influence and power by multinationals in negotiating tax breaks, exemptions and lower rates or simply to avoid and evade tax obligations is among the main reasons for financial flows. illicit and unrealized tax revenue by host countries.

In 2020 alone, the country lost around US$1.2 billion through tax exemptions, representing 8% of Zimbabwe’s external debt. The debt crisis facing the country has compromised the government’s ability to provide effective social services and as such poverty, preventable illness and death and school dropout rates have increased while citizens are exposed to unsafe water, if any.

Political interference from elites and outsiders on tax responsibility provides more lucrative operating environments for multinationals, while domestic companies are crippled by heavy tax liabilities and overpriced products and services, leading to stunted growth and development, especially for micro, small and medium-sized enterprises.

Social assistance and assistance

The contribution of multinationals to 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 by giving up basic education .

The criminalization of ASM in the country means that most school dropouts are juvenile delinquents constrained by lack of access to a decent life. The misery of more than 300,000 people in mining communities without compensation undermines government social protection obligations on mining initiatives that also fail to contribute to social protection within communities.

The contribution of multinationals to health care is less than 5% in the majority of countries in Eastern and Southern Africa, including Zimbabwe, which accounts for far fewer tax exemptions and profits from operations in African countries.

There is a lack of deliberate policies of evaluation and government oversight over compensation of mining initiatives to affected citizens, which also undermines the human rights-based approach of agreements between multinationals and the government .

Labor policies, interventions

The notion of free trade and globalization which is the basis of multinationals operating in new markets claims to encourage employment and the use of labor in the host countries and, as such, the employment rates should experience an upward trend during the period of activity of multinationals.

The country’s unemployment rate, compared to the number of multinationals operating in the country, raises skepticism about the application of this notion. Research shows that foreign investment rates exceed corresponding employment growth rates, as foreign investment accounts for up to twice employment rates.

The employment rates of women in NMCs are largely determined by the sector where women employed in the mining sectors are much less numerous than those in tourism but nevertheless underrepresented in highly skilled and technical positions. The capital required by multinationals to create jobs is much higher than that of local companies and as such, citizens are exposed either to unskilled and cheap jobs or to complete unemployment. This adds to the contradictions and dilemmas of labor market policies and government interventions, as the growth of export markets and GDP is not necessarily linked to short-term social development.

Gender-based labor policies and regulations in MNE agreements are unclear, which also undermines government efforts on gender equality in the private sector.

Lack of transparency in multinational deals stifles social development and undermines government accountability for access to decent housing, basic education, effective health care and access to water for communities. As such, governments should be accountable for the impacts of multinational operations on livelihoods and social protection, which includes publishing agreements and allowing parliament to exercise its oversight role over contracts.

Jaravaza is a political analyst and personal writer. These weekly New Horizon articles, published in the Zimbabwe Independent, are coordinated by Lovemore Kadenge, independent consultant, former president of the Zimbabwe Economics Society and former president of the Chartered Governance and Accountancy Institute in Zimbabwe (CGI Zimbabwe). — [email protected] or mobile: +263 772 382 852.

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