This finding goes against the common presumption that multinationals bring professional skills and technical knowledge to their host country, says one of the study’s authors Francesco Prota, an economist at the University of Bari Aldo Moro, Italy.
Governments in Sub-Saharan Africa should keep this in mind when they seek to attract foreign investors in the hope that these would create “better” jobs for locals, he adds.
The study, published in the Journal of International Development last month, analysed data collected in 19 African countries by the UN’s Industrial Development Organisation (UNIDO) as part of its Africa Investor Survey 2010. Prota says his team’s analysis is stronger than existing papers on this subject because it relies on data collected at firm level rather than at country level.
The authors find that multinational enterprises in Sub-Saharan Africa are less likely to employ skilled workers than domestic firms across different types of industry — including construction, extractive industries, heavy manufacturing, and light manufacturing, such as textile or chemical production.
“Foreign firms who come to Sub-Saharan Africa are more productive in their use of modern technology, but prefer using a high ratio of unskilled labour. That's one of the reasons why they come to Africa — because labour is cheap.”
Jostein Løhr Hauge, University of Cambridge
Jostein Løhr Hauge, a PhD candidate in development economics at the University of Cambridge, United Kingdom, says his own study of a small sample of textile and footwear firms in Ethiopia came up with similar findings.
“Foreign firms who come to Sub-Saharan Africa are more productive in their use of modern technology, but prefer using a high ratio of unskilled labour. That's one of the reasons why they come to Africa — because labour is cheap,” Hauge tells SciDev.Net.
But, he adds, he has seen examples of Chinese and Turkish firms providing training programmes for local workers.
Prota’s study found that foreign firms paid lower wages than domestic ones. Chinese firms in particular pay their skilled workers 23.7 per cent less than domestic firms do, and about 50 per cent less than European and US firms do.
“Investors of Indian origin and those from other Sub-Saharan African countries pay higher wages to skilled workers [than local companies] but not to unskilled ones,” the paper says.
“Some people say foreign firms are technologically advanced and employ people, so it's good” for host countries, Prota says. “Other people say foreign firms use resources and don't give anything back to developing countries. These are ideological positions. When you look at the data you see things are more complicated.”
Not all jobs created by multinational firms are equal, so governments in developing countries should focus their efforts on attracting investments from sectors and countries that are more likely to generate better and higher-paid jobs, the study recommends.
For example, Hauge says, rather than attracting the extractive industry, agriculture or services, African economies need manufacturing to move towards high-tech and more economically advanced industries.
To do this, policymakers need to have a good idea about their country’s economic setup, Prota says. He says governments need to attract firms that are more advanced than those already established in the country, but not so distant in terms of technology that it would prevent them from building strong links with local companies and universities.
Ethiopia, for example, has set up institutes to provide training and research that matches the needs of businesses, such as the Leather Industry Development Institute, which aims to boost the development of the footwear industry while providing an outlet for the country’s abundant livestock products, says Hauge.
Governments can also ask foreign investors to start joint ventures with local organisations to make sure that innovation activities take place in the host country and result in transfer of technology, he adds.