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AQA GCSE Geography · 8035
AQA 8035 · Economic Development in LICs and NEEs Check the specification (PDF) (opens in a new tab)
A transnational corporation (TNC) is a business with operations in more than one country. The country receiving its investment is the host country. Nigeria, a newly emerging economy (NEE), hosts TNCs including Shell and Unilever.
TNCs can bring investment that helps industries expand: money for equipment and infrastructure, employment and staff training. Companies may establish operations abroad to access resources or take advantage of lower labour costs. This investment can increase production and connect the host economy to wider markets.
TNCs do not all carry out the same type of activity. Shell extracts oil in the Niger Delta, in southern Nigeria. Extraction belongs to the primary sector because it takes a natural resource from the environment. Unilever manufactures products such as soap and food, so these activities belong to the secondary sector, which processes materials into goods. Both can contribute to industrial development, but oil extraction is not itself manufacturing.
The most immediate benefit is employment. Unilever employs around 1,500 people in Nigeria in this case-study example. Paid work gives employees income that they can spend on goods and services. TNCs can also provide training, improving workers’ skills.
Benefits can spread to other businesses through a multiplier effect. For example, a TNC may buy supplies or services from Nigerian firms. These firms receive more orders and may employ more workers. Employees then spend some of their wages locally, supporting shops and other services. The original investment therefore stimulates further economic activity rather than benefiting only the TNC’s own workforce.
Local spending spreads the benefits of investment; profit leakage sends part of the income abroad.
Shell provides employment and pays taxes to the Nigerian government. Tax revenue can help fund public services and infrastructure, although the benefit depends on how the government uses it. TNC investment in infrastructure can also support production and transport. Unilever has helped improve healthcare and education in Nigeria, showing that benefits can extend beyond industrial output.
A TNC’s aim is to make a profit, not necessarily to maximise development in the host country. Companies may keep labour costs low, and some TNC workplaces have poor working conditions. Having a job is therefore an advantage, but its value also depends on pay and conditions.
Another disadvantage is profit leakage. When profits are sent abroad to the company’s headquarters or overseas owners, that money is no longer available for spending or reinvestment in Nigeria. Local wages, purchases and taxes can still benefit Nigeria, but the country does not retain all the wealth generated by production.
Shell’s operations illustrate why TNC investment can be controversial. Oil extraction creates employment and contributes tax and export revenue, supporting Nigeria’s economy. However, oil spills in the Niger Delta have polluted water and soil. Reduced fish yields and agricultural production harm people who depend on fishing and farming for their income.
Gas flaring—the burning of gas associated with oil extraction—also causes air pollution and releases greenhouse gases. Oil spills have several causes, including theft and sabotage, so not every spill should be attributed to the same cause. Nevertheless, pollution associated with the oil industry is a major cost for communities in the host country.
These effects are unevenly distributed: the government and industrial workers may gain income while nearby farming and fishing communities lose livelihoods. A rise in industrial output does not mean that everyone benefits.
TNCs can accelerate industrial development by supplying investment, jobs, skills and demand for local businesses. However, profit leakage reduces the money retained in the host economy, while poor working conditions and pollution can undermine benefits.
For Nigeria, a balanced judgement is that TNCs provide important economic opportunities, but their contribution to development depends on how much wealth stays locally and how effectively workers and the environment are protected. Employment and tax revenue need to be weighed against the severity and distribution of the costs, not simply counted against them.
Use named TNCs and locate their activities: Shell extracts oil in Nigeria’s Niger Delta; Unilever manufactures products such as soap and food.
Develop a chain of explanation: jobs provide wages, spending supports local businesses, and this can create further employment.
Evaluate benefits to the host country, not just profits for the company. Weigh jobs and tax revenue against profit leakage and damage to local livelihoods.
Distinguish Shell’s oil extraction, a primary-sector activity, from manufacturing in the secondary sector.
For an evaluative question, reach a supported judgement rather than simply listing advantages and disadvantages.
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Transnational corporation (TNC)
A business with operations in more than one country.
Host country
A country in which a foreign company establishes business operations.
Infrastructure
Facilities and networks, such as roads, electricity supplies and pipelines, that allow businesses and communities to function.
Multiplier effect
The process through which an initial investment creates further spending, jobs and business growth in an economy.
Leakage
Money leaving an economy rather than continuing to circulate within it, for example when a TNC sends profits abroad.
Put your knowledge into practice — try past paper questions for Geography
Transnational corporation (TNC)
A business with operations in more than one country.
Host country
A country in which a foreign company establishes business operations.
Infrastructure
Facilities and networks, such as roads, electricity supplies and pipelines, that allow businesses and communities to function.
Multiplier effect
The process through which an initial investment creates further spending, jobs and business growth in an economy.
Leakage
Money leaving an economy rather than continuing to circulate within it, for example when a TNC sends profits abroad.
TNCs can stimulate industrial development, but benefits are uneven. Their overall value depends on local spending and reinvestment, working conditions and control of environmental damage.