Multinational corporations and host country institutions: A case study of CSR activities in Angola

Abstract

While institutions are important for economic development, particularly in resource rich countries, the interaction between multinational corporations and host country institutions is not well understood. This article presents an in-depth case study of multinational oil companies’ CSR activities in Angola. The results show that CSR is on the whole relatively unimportant for getting licenses and contracts in Angola. To the extent that CSR matters, it appears to be used strategically by corporations to increase their chances of winning licenses and contracts. Moreover, oil companies do not address governance problems in Angola. These results have implications for theories of the resource curse and of strategic CSR. By using CSR strategically, there is a risk that multinational corporations facilitate patronage problems in resource rich countries, exacerbating the resource curse. Furthermore, the standard assumption that ‘good’ institutions are in the interest of corporations ignores the distributive consequences of institutional reform. The failure to address governance problems may thus reflect collective complacency of corporations rather than collective actions problems.

Introduction

Countries rich in natural resources such as oil and gas tend on average to do worse in economic and social terms than countries without such resources. This so-called resource curse, where resources lead to reduced growth, reduced human development, and increased inequality, has been documented by a number of empirical studies starting with the seminal work of Sachs and Warner (1995). Recent studies have identified the institutions of a country as essential in determining whether it suffers from a resource curse or not. Countries with ‘good’ institutions of democratic accountability and rule of law tend to escape the resource curse, whereas countries with ‘bad’ institutions do not (Collier and Goderis, 2007, Mehlum et al., 2006, Robinson et al., 2006). In other words, countries fare better whose institutions prevent politicians from using resource rents to shore up power, and whose institutions discourage unproductive rent-seeking by securing entrepreneurs’ claims to returns from productive activities. While we know that institutions are important for economic development, particularly in resource rich countries, the interaction between multinational corporations and host country institutions is not well understood. This is unfortunate as multinational corporations are prominent and sometimes dominant players in resource rich economies. Do the activities of multinational corporations in resource rich countries contribute to or reduce the institutional problems underlying the resource curse?²

This article presents an in-depth case study of corporate social responsibility (CSR) activities of multinational oil companies in Angola. In addressing the interaction of multinational corporations and host country institutions, CSR is a natural area to focus on as it spans the intersection between corporate and government activity and responsibility. Moreover, as pointed out in the international business literature, CSR represents one “unique ‘lens’ through which to understand how [multinational corporations] influence and relate to their global economic and political environments” (Rodriguez, Siegel, Hillman, & Eden, 2006:733). There are also other lenses to this end, such as corporate political activity or lobbyism, which we address only tangentially. Being the second largest oil producer in Sub-Saharan Africa, while 70% of its population lives on less than USD 2 a day, Angola is a case in point when discussing the resource curse.

Based on interview data of government officials and multinational oil companies in Angola, the article has three main findings. Firstly, company CSR policies are on the whole relatively unimportant for getting contracts or licenses from the government compared to factors such as technological prowess and financial strength. Some dimensions of CSR matter more than others, however. These relate to local content requirements and the use of local staff and some environmental aspects, whereas human and labour rights and charitable activities do not seem important. Secondly, to the extent that CSR matters for getting contracts it appears to be used strategically by oil companies in that respect. In other words, influencing Angolan authorities to increase chances of getting contracts and licenses appears to be a major motivation for corporate CSR activities. Thirdly, multinational oil companies do not address the institutional (or governance) problems of Angola through their CSR policies.

These results have implications for theories of the resource curse and of strategic CSR. Political economy models suggest that the key problem behind the resource curse is patronage, i.e. that government officials use resource revenues to secure their hold on power rather than for economically profitable investment. By using CSR strategically to get licenses and contracts, there is a risk that multinational corporations facilitate patronage problems in resource rich countries, exacerbating the resource curse. The results also shed light on what strategic CSR implies in a context of poor institutions. The standard assumption that ‘good’ institutions are in the interest of corporations ignores the distributive consequences of institutional reform, which are highlighted by a resource rich context. If institutional reform shifts resource rents from oil companies to host country populations, institutional improvement may not be in the interest of corporations, individually or collectively. The failure to address governance problems may thus reflect collective complacency of corporations rather than collective actions problems.

The article is structured as follows. Section 2 presents the Angolan case study, its motivation and focus, the methodological approach, and the results. Section 3 discusses implications of the case study for resource curse theories, and CSR theory, in turn. In this way, we use the results from the case study to develop theoretical propositions which can be pursued in further work on the role of multinational corporations. Section 4 concludes with implications for policy and research.