Infrastructure Hopes: How Multinational Companies Can Exit Painlessly
An analysis of multinational corporations withdrawing from developing countries: why Shell is fleeing Nigeria, how Intel transformed Costa Rica, and what's working in Kazakhstan. Real-world examples of successes and failures.
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The article analyzes the experience of international companies exiting developing countries using examples from Nigeria, Costa Rica, Vietnam, South Africa, and Kazakhstan. Successful cases show that the key to a painless departure is creating educational infrastructure and developing human capital, rather than simply exploiting resources. Without investments in local communities, companies leave behind "scorched earth" with environmental and social problems.
Nigeria – An Abandoned Scorched Earth
In 2023, Shell announced it was winding down its operations in Nigeria. Following Shell's lead, Total Energies, along with several other extraction companies, announced its exit from the country this spring. In August, no agreement was reached between Shell and Nigerian authorities on the buyout of the company's stake and compensation for environmental and social damage inflicted on the country. The parties have entered a new round of negotiations.
Shell's history in Nigeria dates back to the 1930s, when extracting oil in the Niger Delta was profitable and straightforward, with virtually zero costs. Over nearly a century, a complex system of corrupt relationships developed between the extraction company and local authorities, who turned a blind eye to any violations, allowing the company to cut corners on everything. But times have changed, and oil spills, destroyed ecosystems,elevated cancer rates among the population, and damage civil society organizations and the international community have taken notice. A profitable asset turns "toxic." Declining well profitability and major media risks pushed Shell to wind down operations in the country, followed by other major energy suppliers.
Shell is trying to divest any "toxic" assets, concentrating extraction on offshore drilling platforms at sea, as far as possible from people and prying eyes. Environmental activists have long and consistently drawn attention to the consequences of Shell's activities. For example, in 2014 the oil company had to abandon its partnership with Lego under pressure from Greenpeace. Autonomous oil extraction in remote locations is the most common strategy for companies in 2024, as technology now makes profitable deposits that seemed astronomically expensive just 10 years ago.
What should be done about the damage left behind by oil extraction?
In international practice, there are no "standards" for how international companies should exit developing economies, which is why the court in London sides with Shell, despite the unfortunate circumstances of the case. If Shell were required to remediate the consequences, it would set a precedent showing that the relationship between a company and a country is regulated not by corporate goodwill but by law—because an international company's operations in a developing economy are more than just relocating production; they transform the entire country, and that transformation can be either negative or positive.
Costa Rica. When the stars aligned.
Intel's partnership with Costa Rica began in 1997. The processor manufacturer didn't just build factories in the country—it created a full-fledged ecosystem: schools, universities, and specialist training courses. Collectively, this enabled the country to develop a cadre of highly qualified specialists ready to work not only for Intel, but for any tech company. Local authorities supported the company at every stage, without chasing quick personal gains. As a result, Costa Rica transformed from a country heavily dependent on banana and coffee exports into Latin America's largest software exporter per capita. But in 2014, the company froze its operations due to a crisis in the PC segment and laid off 1,500 employees.
What happened when Intel halted operations at its facility? Costa Rica's goods exports in 2015 declined by 0.1%, while in 2016 it grew by 7.4%—all thanks to the recovery of agricultural supplies and manufacturing, as well as exports of medical equipment (which became the main export item after Intel's departure).
By creating a full-fledged ecosystem for training specialists, Intel changed the environment in the country—now it's possible to hire quality local specialists for high-tech manufacturing. And it's still cheaper than, say, building such plants in the U.S.—simply due to the difference in cost of living. This environment has also prompted other international companies to invest in Costa Rica. The New York Times wrote that the country is vying for the title of "Silicon Valley of Latin America." Intel itself at the end of 2020 announced its return to Costa Rica.
Vietnam. China 2.0
Vietnam is another example, though it's difficult to classify as successful just yet. The authorities of this communist country announced a course of economic reforms back in the mid-1980s, which became known as "doi moi" and envisioned a transition to a market economy and the attraction of foreign investment. Vietnam has everything that traditionally characterizes a developing region attractive for investment. Low labor costs, which admittedly cannot be called ethical (around $0.67-0.94 per hour), a climate without sharp temperature swings that eliminates heating expenses, fertile land, and geographic location—all creating a country nearly ideal for business.
The first major players like Cargill entered communist Vietnam in 1995, as soon as diplomatic relations with the United States were restored. Starting in the early 2010s, the Vietnamese government introducedtax incentives for foreign companies that don't simply conduct business on the country's territory, but work with local suppliers and transfer technological standards to them. The latest updates to the legislation in January 2024 allow the creation of companies in Vietnam with 100 percent foreign ownership. The list of "privileged" sectors makes it easy to understand exactly whom Vietnam wants to attract—virtually everything is connected to IT and telecommunications.
In recent years, Vietnam has been balancing between becoming China's partner and serving as an alternative to it. Unlike China, Vietnam is far less burdened by aspirations for an independent foreign policy, labor costs remain low for now, and the number of incentives for investors continues to grow. International companies are en masse relocating entire production facilities from China to Vietnam. Nike is transferring manufacturing capacity, as are Dell, Google, Microsoft, and Foxconn. Samsung is opening not only factories but also R&D divisions. In other words, they're transforming the technological landscape wherever they set up shop.
Admittedly, this has so far led to rising wealth inequality, with the social elite capturing most of the benefits from the influx of foreign investors. However, in regions with higher levels of human capital, inequality is declining thanks to improvements in surrounding technologies. Whether this corporate migration can produce the same effect as in Costa Rica remains difficult to predict, since companies are interested not only in tax breaks but also in Vietnam's cheap labor.
South Africa. It was over before it began.
In 1994, with the rise to power of the African National Congress (ANC) in South Africa—the continent's most developed country—an economic boom began. From 1994 to 2011, the country's GDP grew by 200%, and foreign investors flooded in. Yet despite this, roughly half of the 60 million people living in South Africa remained in poverty. The country was plagued by corruption scandals, and economic inequality grew alongside rising unemployment. In the second quarter of 2024, it reached 33.5%.
In the eyes of foreign investors, South Africa was transforming from a promising new market into a demonstrably troubled country—scorched earth. Which meant it could also become a decent testing ground for experiments. One of these was the project climate justice: the EU, USA, France, Germany, and the United Kingdom were supposed to invest in South Africa's transition from heavy coal use to green energy. However, instead of an inert guinea pig, they got a country with complex internal problems. Moreover, the coal industry remains one of the few stable sectors in the country. Green energy offered no alternatives, and the project ended before it could even begin.
Today, energy monopolist Eskom is losing around $52 million per month from systematic theft and corruption alone. Changing this through simple charitable investment is unlikely to work—what's needed is a gradual transformation of the principles by which existing corporations operate. Unlike Vietnam, which offers external partners potential buyers and tax incentives, South Africa can only offer obstacles and internal problems.
Any foreign investment project that fails to account for the region's socioeconomic aspects is essentially doomed to fail. And sometimes a seemingly normal country can turn out to be a swamp of corruption requiring deep cleanup.
Kazakhstan. How are things in the post-Soviet space?
The most striking case of international companies leaving post-Soviet countries is Russia and Belarus after 2022. Since for obvious reasons this case cannot be considered valid—because the exodus was emergency-driven, dependent on external circumstances, and not the companies' fault—we'll look at the closest comparable case: Kazakhstan.
The bulk of Kazakhstan's regional economy is oriented toward extractive industries: oil, gold, uranium, gas. Resources are running out and extraction is winding down, while former employees are left without work or means of subsistence. The problem is that even Kazakhstan's major cities represent structurally simple economies: one or two key industries around which everything else is built. They're essentially scaled-up company towns.
When a key employer exits the game, it can do more than simply leave a certain number of people jobless—it can threaten the entire urban economy. Is there a way to address this problem in advance? Take the example of mining company Eurasian Resources Group. It offers training programs for residents of the cities where it operates—for instance, entrepreneurship simulators developed jointly with universities using company funds, which teach people to create small businesses on their own, project development programs that are then financed from municipal budgets, and accelerators for regional universities to monetize scientific developments.
Research showsthat such programs, which have appeared in the Aktobe, Pavlodar, Kostanay, and Karaganda regions over the past 5 years, have already led to new small business projects emerging in regions where Eurasian Resources Group operates. We're talking about 5-7% of the total SME base, but that's a fairly high efficiency rate for single-industry towns.
A Pressing Question
Corporations are drawn to developing countries by natural resources, cheap labor, and accommodating local legislation—an attractive package for maximizing profits. But when natural resources run out or political instability begins (for any number of reasons), international business leaves.
And the search for real ways not to leave scorched earth behind is more than relevant. Especially since, according to data from the Brookings Institution, developing countries have faced an outflow of private investment over the past two years. Judging by real-world cases, the only effective recipe is cooperation between business and local government to create an environment specifically for developing people's skills where companies operate. Cheap labor and accessible natural resources are temporary drivers, while innovation potential is permanent.
