Negotiating with Foreign Investors

Abstract

The Volta Aluminium Company Ltd. (VALCO) owned by Kaiser Aluminium and Chemical Corporation (90%) and Reynolds Metal Company (10%) was established in Ghana in September 1959. Both these companies are U.S. based multinationals (MNCs) and specialize primarily in the metals industry. VALCO is one of the largest direct foreign investments in Ghana ($196 million in the early 1960s). In terms of size alone it was sure to generate controversy but the nature of its agreement with the Government of Ghana, as well as its operations, have combined to create an atmosphere of criticism against the company. The paper examines the nature of the relationship between VALCO and Ghana from the inception of the plant to the late 1980s, and attempts to identify the underlying causes of their respective behaviors. Two theoretical perspectives: dependency theory, and the bargaining power model, are used to analyze what transpired. The paper concludes that the VALCO smelter case exhibits aspects of both dependency theory and the bargaining power model. It seems that the two are not necessarily mutually exclusive.

Intermediate institutions and technology transfer in developing countries: The case of the construction industry in Ghana

“…Weak state bargaining in relation to investors was also a common complaint, echoing long-standing academic concern with the issue (see for example Irvin, 1981). Those who advocated government negotiating harder with investors echo Manu's (2003) In response to the second research question, respondents felt that policy lacunae alone were not solely responsible for poor T&K transfer. Up to this point, expert opinion essentially confirmed the institutionalist strand of academic thinking.…”

Newly independent nations and large engineering projects: the case of the Volta River Project

“…The interests of the US Government as well as their firms were paramount, and this is apparent in the financing of both the dam and the related aluminium smelter. The evidence shows that this increased the bargaining power of the US firms (Manu, 2003), which was reflected in extremely generous terms to the US firms Kaiser and Reynolds. Some of these terms were unfavourable for the host country: demonstrating the possible drawbacks when a country's development projects rely extensively on foreign capital.…”

“…The interests of the U.S. government as well as their firms were paramount and this is apparent in the financing of both the dam and the related aluminium smelter. The evidence shows that this increased the bargaining power of the U.S. firms (Manu, 2003), which was reflected in extremely generous terms to the U.S. firms…”

“…Nkrumah sought expertise from international agencies and professionals to help overcome the talent shortage experienced in the newly independent nation following the departure of many highly educated British nationals after independence. Although Nkrumah's policy was partly responsible for the departure of many British nationals after independence, it soon became evident that it was difficult to fill the skills gaps after their departure (Manu, 2003). Public-private partnerships, therefore, helped to fill the resource gaps.…”

“…The Kaiser corporation, therefore, used their huge bargaining power to get very good terms and a supply of cheap hydroelectricity for their operations. Kaiser could easily have gone elsewhere if the negotiations over the Volta River Project did not favour them because bauxite and hydroelectric potential were numerous worldwide Sources: VRA Annual Reports (1962)(1963)(1964)(1965)(1966)(1967); Hart (1980); Noer (1984); Manu (2003); Decker (2011) Table II.…”