Jakubowska - Key Idea 3

Question 1

What is FDI?

Answer 1

Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.

Question 2

What are the positive economic impacts of TNC’s?

Answer 2

Capital Transfer - e.g the GDP per capita in Botswana has risen from $800 in 1975 to $16,000 in 2007.
Job Creation - Higher paid than domestic work and brings a positive multiplier effect as well as formal employment.
Larger tax base - Workers pay income tax, TNC’s pay corporation tax. E.g. Mcdonalds has added $700 million to Brazil’s economy as well as providing 66,000 jobs and paying $200 million in tax.
Technology transfer - Shell has allowed Nigeria to access its fundamental comparative advantage of oil.

Question 3

What are the positive political impacts of TNC’s?

Answer 3

Political stability - Incentive for stability as this attracts FDI. Improvement of transparancy/accountability.
Empowerment of citizens to be involved in the political process.

Question 4

What are the negative politcal impacts of TNC’s?

Answer 4

TNC dependency - Leaves the host nation at the whim of the TNC. Governments will do anything to keep TNC’s on side and will therefore lose autonomy. E.g Diamonds accounted for 80% of Botswana’s exports between 2001 and 2005 leaving the country TNC dependant.

Question 5

What are the positive social impacts of TNC’s?

Answer 5

Higher corporate standards - Better working conditions. E.g Mcdonalds set up in Hong Kong in 1975. They were the first restaurant to consistantly offer clean restrooms, driving customers to demand the same of other restaurants and institutions.
Corporate social responsibility (CSR) - Companies consider the interests of all stakeholders. The two main mining companies in Botswana De Beers and Debswana invest in health and education in local communities.

Question 6

What are the negative economic impacts of TNC’s?

Answer 6

• Tax avoidance
• Strong focus on individual wealth rather than community development (profit based) - LG set up a factory in Newport in 1996 and promised to create 6,500 jobs and took more than £87 million in incentives. Only 3,000 jobs were created and the company left in 2007.

Question 7

What are the positive environmental effects of TNC’s?

Answer 7

Corporate image - Raises standards through TNC’s awareness of this. E.g Mcdonalds now uses coffee from stocks that are certified by the rainforest alliance.

Question 8

What are the negative environmental impacts of TNC’s?

Answer 8

Environmental degradation - TNC coke has a factory in Rajasthan, India. It has been blamed for lowering groundwater levels by 25 metres. The plant is also dumps surplus toxic waste onto the land, polluting the food chain. Farmers are left unemployed since their water sources have dried up.

Question 9

What are the negative social impacts of TNC’s?

Answer 9

Footloose nature - Competitive bidding which drives down standards, wages, taxes etc. E.g Union Carbide in India caused the Bhopal disaster in 1994, when a dense toxic pesticide leaked from a factory into surrounding slums. Nearly 3,000 died and 50,000 were treated for side effects including blindness.

Question 10

Background to Nigeria

Answer 10

Location: West Africa, bordering Benin, Chad, Cameroon and Niger
GDP per Capita: $2550
Population below poverty line: 60%
Life expectancy: 47

Question 11

Background to Shell and oil in Nigeria

Answer 11

• Oil accounts for 20% of GDP and 95% of export earnings
• Shell produces around half or Nigeria’s oil output and has operated in the Niger Delta for over 60 years.
• The delta is the worlds 9th biggest source of crude oil.

Question 12

What are the positive economic impacts of Shell?

Answer 12

• Employ 5,000 people, 95% of whom are Nigerian and 66% from the Delta region.
• Another 20,000 people are indirectly employed by companies providing services and supplies.
• Shell has allowed Nigeria to access its fundamental comparative advantage of oil, as the country did not have the technology to access its resources.

Question 13

What are the negative economic impacts of Shell?

Answer 13

Shell investment has solely been focused on the Nigerr Delta region, leaving it as an economic core, with the rest of the country being left as a periphery with a low standard of living.

Question 14

What are the political impacts of Shell?

Answer 14

• For many years Nigeria has suffered with political instability (changes of governments and corruption).
• A US investigation discovered that Shell had ‘inserted staff’ into all the main ministries of the Nigerian government, giving it access to politicians every move.

Question 15

What are the environmental impacts of Shell?

Answer 15

• There have been over 4,000 oil spills since 1960, which have contaminated food supplies and destroyed natural habitats.
• Shell often engage in gas flaring, which is the burning of gas which cannot be collected, resulting in air pollution.

Question 16

What are the positive socio-cultural impacts of Shell?

Answer 16

• Shell has offered local people the chance to gain a free university level qualification related to the oil industry. This allows local people to access the economic benefits of Shell.
• Shell supports 27 health facilities in the Delta area with more than 880 community health staff working at these facilities.

Question 17

What are negative socio-cultural impacts of Shell?

Answer 17

• Local people have had their water supplies contaminated by Shell due to numerous oil spills.
• The Ogoni people have protested heavily against Shell resulting in extreme force by the Nigerian Govt. forces leading to the death of many protesters.