FOREIGN DIRECT INVESTMENT (FDI) AND TRADE AS A TOOL BY MNES TO MITIGATE CORRUPTION IN SUB-SAHARAN AFRICA
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INTRODUCTION 9
Introduction and Background of the Study 9
Rationale and Relevance of the Study 10
CHAPTER 1 13
LITERATURE REVIEW 13
1.1 Introduction 13
1.2 Overview of Corruption In International Business and FDI 13
1.2.1 Institutional Quality and FDI 15
1.2.2 Motives of Foreign Direct Investment 15
Market Seeking as Expansion 16
Market Seeking as Replacement 17
Labour Resource Seeking 17
Natural Resource Seeking 18
Strategic Asset Seeking 18
1.3 Empirical Studies on Activities of MNEs, FDI, Trade and Corruption 19
1.4 Empirical Studies on FDI, Trade and Corruption in Sub-Saharan Africa 24
1.5 Research Gap 29
1.6 Conceptual Framework 30
1.7 Chapter Summary 31
CHAPTER 2 32
RESEARCH METHODOLOGY 32
2.1 Introduction 32
2.2 Research Problem 32
2.3 Research Paradigms and Philosophical Assumptions 32
2.4 Methodology 33
2.4.1 What are the trends in MNEs level of FDI, Trade and the level of corruption in Sub
Saharan Africa? 34
2.4.2 How can MNEs use FDI and trade to mitigate corruption in Sub-Saharan Africa? 34
2.4.3 What are the FDI and Trade linked strategies used as a tool to control corruption in Ghana?
34
2.5 Scope of the Study: Sub-Saharan African Region 35
2.6 Data Collection 36
2.7 Research Design and Data Analysis 37
2.8 Chapter Summary 38
CHAPTER 3 39
FINDINGS AND DISCUSSIONS 39
3.1 Introduction 39
3.2 Trends and Relationship between MNEs FDI, Trade and Corruption 39
3.2.1 Trends in Foreign Direct Investment in Sub-Saharan Africa 39
3.2.2 Developments in Trade in Sub-Saharan Africa 43
3.2.3 Corruption Perception Attributed to Sub-Saharan Africa 46
3.3 Utilization of FDI and Trade In Mitigating Corruption in Sub-Saharan Africa 50
3.4 MNEs FDI and Trade linked strategies used as a tool to control corruption 52
CONCLUSION 56
REFERENCES 58
APPENDICES 65
LIST OF TABLES
Table 1. Summary of Relevant and Related Studies Within Sub-Saharan Africa Based on (Author’s Summary) 28
Table 2. Sub-Regional Segmentation of Sub-Sharan Africa 35
Table 3. CPI Central Africa Region (Compiled by Author) 47
Table 4. CPI Eastern Africa Region (Compiled by Author) 47
Table 5. CPI Southern Africa Region (Compiled by Author) 48
Table 6. CPI Central Africa Region (Compiled by Author) 48
LIST OF TABLES
Figure 1. Nature and Origination of Corruption (Based on Bahoo et al., 2020) 14
Figure 2. Eclectic Paradigm (OLI Framework), Dunning (2000) 16
Figure 3. Uncertainty based conceptualization of the relationship between host market government corruption and MNE foreign entry strategy (Adopted from Sartor and Beamish, 2018) 21
Figure 4. A conceptual framework showing the interaction among elements of host nation corruption and integration-oriented strategies 24
Figure 5. Conceptual Framework (Author’s Construct) 30
Figure 6. Pictorial Representation of Sub Saharan Africa - Source: European Union (2016). Education and Development 36
Figure 7. FDI Inflows to Sub-Saharan Africa (UNCTADSTAT, 2022) 43
Figure 8. Sub-Saharan Africa Trade Openness in Goods and Services Exports 44
Figure 9. Sub-Saharan Africa Trade Openness in Goods and Services Imports 45
Figure 10. Trade Openness for the Year 2016 Sub-Saharan Africa - Imports 46
Figure 11. Pooled Trends in FDI, Trade and Corruption (Author’s Construct) 49
Introduction and Background of the Study 9
Rationale and Relevance of the Study 10
CHAPTER 1 13
LITERATURE REVIEW 13
1.1 Introduction 13
1.2 Overview of Corruption In International Business and FDI 13
1.2.1 Institutional Quality and FDI 15
1.2.2 Motives of Foreign Direct Investment 15
Market Seeking as Expansion 16
Market Seeking as Replacement 17
Labour Resource Seeking 17
Natural Resource Seeking 18
Strategic Asset Seeking 18
1.3 Empirical Studies on Activities of MNEs, FDI, Trade and Corruption 19
1.4 Empirical Studies on FDI, Trade and Corruption in Sub-Saharan Africa 24
1.5 Research Gap 29
1.6 Conceptual Framework 30
1.7 Chapter Summary 31
CHAPTER 2 32
RESEARCH METHODOLOGY 32
2.1 Introduction 32
2.2 Research Problem 32
2.3 Research Paradigms and Philosophical Assumptions 32
2.4 Methodology 33
2.4.1 What are the trends in MNEs level of FDI, Trade and the level of corruption in Sub
Saharan Africa? 34
2.4.2 How can MNEs use FDI and trade to mitigate corruption in Sub-Saharan Africa? 34
2.4.3 What are the FDI and Trade linked strategies used as a tool to control corruption in Ghana?
34
2.5 Scope of the Study: Sub-Saharan African Region 35
2.6 Data Collection 36
2.7 Research Design and Data Analysis 37
2.8 Chapter Summary 38
CHAPTER 3 39
FINDINGS AND DISCUSSIONS 39
3.1 Introduction 39
3.2 Trends and Relationship between MNEs FDI, Trade and Corruption 39
3.2.1 Trends in Foreign Direct Investment in Sub-Saharan Africa 39
3.2.2 Developments in Trade in Sub-Saharan Africa 43
3.2.3 Corruption Perception Attributed to Sub-Saharan Africa 46
3.3 Utilization of FDI and Trade In Mitigating Corruption in Sub-Saharan Africa 50
3.4 MNEs FDI and Trade linked strategies used as a tool to control corruption 52
CONCLUSION 56
REFERENCES 58
APPENDICES 65
LIST OF TABLES
Table 1. Summary of Relevant and Related Studies Within Sub-Saharan Africa Based on (Author’s Summary) 28
Table 2. Sub-Regional Segmentation of Sub-Sharan Africa 35
Table 3. CPI Central Africa Region (Compiled by Author) 47
Table 4. CPI Eastern Africa Region (Compiled by Author) 47
Table 5. CPI Southern Africa Region (Compiled by Author) 48
Table 6. CPI Central Africa Region (Compiled by Author) 48
LIST OF TABLES
Figure 1. Nature and Origination of Corruption (Based on Bahoo et al., 2020) 14
Figure 2. Eclectic Paradigm (OLI Framework), Dunning (2000) 16
Figure 3. Uncertainty based conceptualization of the relationship between host market government corruption and MNE foreign entry strategy (Adopted from Sartor and Beamish, 2018) 21
Figure 4. A conceptual framework showing the interaction among elements of host nation corruption and integration-oriented strategies 24
Figure 5. Conceptual Framework (Author’s Construct) 30
Figure 6. Pictorial Representation of Sub Saharan Africa - Source: European Union (2016). Education and Development 36
Figure 7. FDI Inflows to Sub-Saharan Africa (UNCTADSTAT, 2022) 43
Figure 8. Sub-Saharan Africa Trade Openness in Goods and Services Exports 44
Figure 9. Sub-Saharan Africa Trade Openness in Goods and Services Imports 45
Figure 10. Trade Openness for the Year 2016 Sub-Saharan Africa - Imports 46
Figure 11. Pooled Trends in FDI, Trade and Corruption (Author’s Construct) 49
The activities of Multinational Enterprises (MNEs) have been recognized as being a key contributor to global economic dynamics. Advancement in technological infrastructure and favourable trade conditions both inward and outward meant that MNEs created a stronger base of activities across Asia, Africa and the Americas. As part of this expansion, MNEs engage in acquitions as part of other investments to gain access to growing markets, knowledge and even further resources. Through this decision to be present in markets and other locations for specific reasons, a number of regulations and environment-specific conditions might affect the conduct of business. Among these conditions are structures established to control corruption and allow for responsible business conduct. In an attempt to achieve a sustainable business environment and future, the OECD sets out elements established within the Responsible Business Conduct to achieve such a goal and other SDGs (OECD, 2022). The aim of this conduct is to ensure smooth operations for MNEs within where they are situated. By guiding their actions, any form of negative impact can be elimated as far as their business operations and external relations are concerned.
The term corruption has always been easily understood with reference to bad practices against the established conduct having received massive attention in various media. It may have been only limited to political structures but since it influences institutions and its quality, it is worthy of assessment under international business. Pulok and Ahmed (2017) identified that this awareness have got a lot of people to be much concerned about the happenings of corruption and how it affects their livelihood. Corruption have been identified as having a negative impact on the socio-economic aspect of individual as corrupt official are always at the receiving end at the detriment of the masses or simply put the people they serve (Francois et al., 2020; Cordero and Miller, 2019; Gossel, 2018).
According to Hanousek et. al., (2019) the existence of corruption within any system can contribute to a negative or adverse impact on overall growth, rule of law (ROL), poverty alleviation, stability within public and private sectors, level of foreign investment or investment attractiveness of a sovereign state among others. Corruption negatively affects institutional structures leading to a breakdown of processes and malfunction of systems that should have provided support and extensive functionality for the success of the business and political environment. The scope of this failure can lead to several consequences if institutional quality is not revived in addition to anti-corruption mechanisms and structures. Furthermore, foreign aid can be regarded as a direct support given to government with a possible onward support to MNEs, institutions and other businesses (Panibratov, 2016; Marinova et. al., 2014). Noticeably, specific forms of foreign aid or assistance were identified being bilateral aid, multilateral aid, grants, technological transfer or facilitation and debt or loan nullification. The last aid is normally common among developing economies were huge sums of loans or debts are written off as a way of providing aid to aid economic recovery and sustainability. These circumstances can help support a government’s agenda to invest in a particular sector whereas creating an enabled environment for the success of MNEs both locally and in host countries. In order to benefit from any form of foreign direct investment, MNEs and governments try to maintain a high level of effectiveness and efficiency in their processes to handle corruption as lower levels or perception of bribery and corruption will mean an attractive destination for investments. Arguably, MNEs resort to FDI and trade as a way of controlling or curbing corruption since seeking for such will mean they have a robust system in place to handle inappropriate practices while ensuring it follows the established Responsible Business Conducts (RBC) of the OECD.
Rationale and Relevance of the Study
The developments in various sectors within economies of various African countries can be attributed if not fully, partly to the massive attraction of foreign direct investments. Governments of African countries are able to leverage on their relationship with other countries mostly developed economies for support within specific sectors. Arguably, for countries to attract more of such foreign direct investments. there is the need to exhibit encouraging prospects in political stability and in dealing with one of Africa's if not the entire world's problem of corruption.
Admittedly, corruption in Africa and other continents has been a concern when dealing with both local and international relations. According to UNCTAD (2009), the last decade have seen a rise in the inflow of foreign direct investment which according to reports was US$ 9 billion in the year 2000 but rose to US $ 68.2 billion in 2007. For the year 2008 which was just a year after that significant rise, the level of FDI was a recorded US $88 billion acknowledged as the highest within the period understudy. In relation to recent information, the availability of abundant natural resources serves as a key element in attracting higher levels of FDI into the region - Africa. This accounted for the 11% increase in FDI as aid in 2018 with a corresponding figure of $46 billion. Furthermore, these natural resources in addition to recent discoveries made in oil by African countries keep motivating the inflow of FDI into the region (Aust, et. al., 2020).
As noted by Xu et. al., (2021) FDI inflows lays a good foundation for economic growth and expansion of the host or receiving country or region. Specific benefits such as the primary introduction or provision of capital. eliminating the balance-of-payment constraints, provision of employment and higher wages in some instance, promotion of exports capability and capacity of host country and noticeably the transfer of technology and management skills. (Xu et al, 2021; Aust et al., 2020).....
The term corruption has always been easily understood with reference to bad practices against the established conduct having received massive attention in various media. It may have been only limited to political structures but since it influences institutions and its quality, it is worthy of assessment under international business. Pulok and Ahmed (2017) identified that this awareness have got a lot of people to be much concerned about the happenings of corruption and how it affects their livelihood. Corruption have been identified as having a negative impact on the socio-economic aspect of individual as corrupt official are always at the receiving end at the detriment of the masses or simply put the people they serve (Francois et al., 2020; Cordero and Miller, 2019; Gossel, 2018).
According to Hanousek et. al., (2019) the existence of corruption within any system can contribute to a negative or adverse impact on overall growth, rule of law (ROL), poverty alleviation, stability within public and private sectors, level of foreign investment or investment attractiveness of a sovereign state among others. Corruption negatively affects institutional structures leading to a breakdown of processes and malfunction of systems that should have provided support and extensive functionality for the success of the business and political environment. The scope of this failure can lead to several consequences if institutional quality is not revived in addition to anti-corruption mechanisms and structures. Furthermore, foreign aid can be regarded as a direct support given to government with a possible onward support to MNEs, institutions and other businesses (Panibratov, 2016; Marinova et. al., 2014). Noticeably, specific forms of foreign aid or assistance were identified being bilateral aid, multilateral aid, grants, technological transfer or facilitation and debt or loan nullification. The last aid is normally common among developing economies were huge sums of loans or debts are written off as a way of providing aid to aid economic recovery and sustainability. These circumstances can help support a government’s agenda to invest in a particular sector whereas creating an enabled environment for the success of MNEs both locally and in host countries. In order to benefit from any form of foreign direct investment, MNEs and governments try to maintain a high level of effectiveness and efficiency in their processes to handle corruption as lower levels or perception of bribery and corruption will mean an attractive destination for investments. Arguably, MNEs resort to FDI and trade as a way of controlling or curbing corruption since seeking for such will mean they have a robust system in place to handle inappropriate practices while ensuring it follows the established Responsible Business Conducts (RBC) of the OECD.
Rationale and Relevance of the Study
The developments in various sectors within economies of various African countries can be attributed if not fully, partly to the massive attraction of foreign direct investments. Governments of African countries are able to leverage on their relationship with other countries mostly developed economies for support within specific sectors. Arguably, for countries to attract more of such foreign direct investments. there is the need to exhibit encouraging prospects in political stability and in dealing with one of Africa's if not the entire world's problem of corruption.
Admittedly, corruption in Africa and other continents has been a concern when dealing with both local and international relations. According to UNCTAD (2009), the last decade have seen a rise in the inflow of foreign direct investment which according to reports was US$ 9 billion in the year 2000 but rose to US $ 68.2 billion in 2007. For the year 2008 which was just a year after that significant rise, the level of FDI was a recorded US $88 billion acknowledged as the highest within the period understudy. In relation to recent information, the availability of abundant natural resources serves as a key element in attracting higher levels of FDI into the region - Africa. This accounted for the 11% increase in FDI as aid in 2018 with a corresponding figure of $46 billion. Furthermore, these natural resources in addition to recent discoveries made in oil by African countries keep motivating the inflow of FDI into the region (Aust, et. al., 2020).
As noted by Xu et. al., (2021) FDI inflows lays a good foundation for economic growth and expansion of the host or receiving country or region. Specific benefits such as the primary introduction or provision of capital. eliminating the balance-of-payment constraints, provision of employment and higher wages in some instance, promotion of exports capability and capacity of host country and noticeably the transfer of technology and management skills. (Xu et al, 2021; Aust et al., 2020).....
The study was aimed at examining how foreign direct investment (FDI) and trade can be used by multinational enterprises (MNEs) to mitigate corruption in Sub-Saharan Africa. The objectives of the study were crafted to address the research gap identified from conducting a proper empirical study on the subject being researched. First, the study was aimed at examining the trends in MNEs’ level of FDI, trade and the level of corruption in Sub-Sharan Africa. Additionally, it evaluated how MNEs can use FDI and trade to mitigate corruption within Sub-Saharan Africa. The study also by using a specific country within Sub-Saharan Africa, augmented the study findings with primary data by identifying the FDI and trade-linked strategies being used as a tool in the Republic of Ghana to control corruption. The international business literature have contributed to understanding the relationship between the relationship between corruption and MNEs location preferences and how they structure their trade and investments options. This has also shed lights the exit strategy of MNEs in the case of unbearable environmental and behavioural uncertainties that calls for an initializing of an MNEs exit strategy (Cooke et al., 2022; Hanousek et al., 2021; Cordero and Miller, 2019; Maggioni et al., 2019; Rabbiossi and Santangelo, 2019). The level of corruption within Sub-Saharan Africa have seen several winners and losers with nations putting in a lot to present themselves as a preferred location for investments and other benefits gained from the global trading system. The research gap identified indicating the relevance and contribution of this study was to address a knowledge and methodological gap in previous research and the IB literature. The study basically and specifically addressed a call for further research raised in the study by Rabbiossi and Santangelo (2019) noting the need for addressing any form of institutional weakness that could affect MNEs strategies. In the same way, the study filled the gap motivated by the study of Hanoisek et al., (2021) which expressed the need to go beyond how host market environment can affect post-entry strategy of MNEs towards a study that evaluates MNEs investment usage in controlling uncertainties and corruption in host market.
The made use of the interpretivism paradigm which supports the use inquiry approach and inductive style of interpreting information to meet the set research objectives. Using primarily secondary sources and primary data to extend the finding of the study, all the research questions were addressed. In relation to the trends in FDI, trade and corruption in Sub-Saharan Africa, the study identified trade and FDI to the region adhered to a relatively negative relationship with corruption perception after 2017. Hence, the more the Sub-Saharan African Region is regarded as “clean” the more MNEs engage in trade and enhance the levels of FDI. Overall, the Sub-Saharan African Region have benefited from the inflow of FDI and trade despite an unsystematic dynamics in corruption levels. Moving unto the utilization of FDI and trade by MNEs in controlling corruption, the study found out that since the region experiences both petty and grand corruption, MNEs can achieve this objective through a well-designed integrated-oriented strategy. Hence MNEs should use norms transmission where host institutions are regulated in terms of the expectations of their home institutions in addition to the regulation of agents’ behavior. Another important finding was that the MNEs in the Republic of Ghana maintained a good relationship with both foreign and local suppliers as a way to handle corrupt and behavioural uncertainties. It was also stated that an integration between a home country with zero tolerance for corruption weaken the relationship between host market and its subsidiaries as far as corruption is concerned thus MNEs in host market through using an integrative-responsive strategy that enhance both local responsiveness and home institution norm transmission.
Limitations
In acknowledging the limitations of this study as a practice in almost all research works, the primary data collected was country specific which although extended the findings of this study could lack its ability to generalize unto other countries in the Sub-Saharan Region. The collection of the primary data was expected to be from a larger population but due to the current geopolitical and COVID-19 restrictions, the researcher was not able to travel and engage with additional potential respondents. In all, this did not affect the ability to meet the objectives or aims set for this study.
Future Research
The opportunities for further research can be found in a continuation of a qualitative study within the Sub-Saharan Region however collecting primary data from participants within country’s MNE environment. An initial focus can be made on the sub-regions within Sub-Saharan Africa. Additionally. A study can be conducted to evaluate home market government and MNEs integration strategies and how they mitigate corruption with the aim of improving the level of FDI and trade into Sub-Saharan Africa. This study can then add additional elements being home government effort to support MNEs decision to mitigate corruption as evidenced in this research.
The made use of the interpretivism paradigm which supports the use inquiry approach and inductive style of interpreting information to meet the set research objectives. Using primarily secondary sources and primary data to extend the finding of the study, all the research questions were addressed. In relation to the trends in FDI, trade and corruption in Sub-Saharan Africa, the study identified trade and FDI to the region adhered to a relatively negative relationship with corruption perception after 2017. Hence, the more the Sub-Saharan African Region is regarded as “clean” the more MNEs engage in trade and enhance the levels of FDI. Overall, the Sub-Saharan African Region have benefited from the inflow of FDI and trade despite an unsystematic dynamics in corruption levels. Moving unto the utilization of FDI and trade by MNEs in controlling corruption, the study found out that since the region experiences both petty and grand corruption, MNEs can achieve this objective through a well-designed integrated-oriented strategy. Hence MNEs should use norms transmission where host institutions are regulated in terms of the expectations of their home institutions in addition to the regulation of agents’ behavior. Another important finding was that the MNEs in the Republic of Ghana maintained a good relationship with both foreign and local suppliers as a way to handle corrupt and behavioural uncertainties. It was also stated that an integration between a home country with zero tolerance for corruption weaken the relationship between host market and its subsidiaries as far as corruption is concerned thus MNEs in host market through using an integrative-responsive strategy that enhance both local responsiveness and home institution norm transmission.
Limitations
In acknowledging the limitations of this study as a practice in almost all research works, the primary data collected was country specific which although extended the findings of this study could lack its ability to generalize unto other countries in the Sub-Saharan Region. The collection of the primary data was expected to be from a larger population but due to the current geopolitical and COVID-19 restrictions, the researcher was not able to travel and engage with additional potential respondents. In all, this did not affect the ability to meet the objectives or aims set for this study.
Future Research
The opportunities for further research can be found in a continuation of a qualitative study within the Sub-Saharan Region however collecting primary data from participants within country’s MNE environment. An initial focus can be made on the sub-regions within Sub-Saharan Africa. Additionally. A study can be conducted to evaluate home market government and MNEs integration strategies and how they mitigate corruption with the aim of improving the level of FDI and trade into Sub-Saharan Africa. This study can then add additional elements being home government effort to support MNEs decision to mitigate corruption as evidenced in this research.
