The attraction of direct foreign real estate investments into Sub-Saharan Africa

Direct Greenfield Foreign Real Estate Investment (FREI) has the potential to fulfil a positive role in the development of urban Africa, by enhancing economic growth, improving the built environment and by creating a relatively large amount of jobs (Tibaijuka 2009; Dasgupta et al. 2014; Harvey 2014; EY 2015). However, inappropriate urban planning regulations and inadequate urban service provision might be deterring economic growth and FREI attraction (Collier and Venables 2013; Collier 2013; Alterman 2013; Brueckner and Lall 2015; Castells-Quintana 2015). Although the interest in the ‘rising’ continent is increasing (Watson 2013; KnightFrank 2015; JLL 2015; PWC 2015), the amount of FREI attracted by Sub-Saharan Africa (SSA) is still very small. The determinants of Foreign Direct Investment (FDI) and indirect FREI have been researched quite extensively1, however Direct Greenfield FREI has received less attention (Rotherberger 2010). As many authors acknowledge (Laposa and Lizieri 2005; Holsapple et al. 2006; Rodríguez and Bustillo 2010; Rotherberger 2010; Fereidouni and Masron 2013; Salem and Baum 2016), direct FREI has both FDI and Foreign Portfolio Investment (indirect FREI) characteristics and especially the real estate specific locational factors are important differences from general determinants of FDI attraction. One real estate specific determinant that has been overlooked by international trade research thus far, is the impact that different legislative, regulatory and procedural aspects of urban planning2 have on Direct Greenfield FREI. This research tries to add to the body of knowledge on the attraction of Direct Greenfield FREI in general and in the context of SSA in particular. Additionally, this research tries to fill the gap of knowledge that exists between the impact of urban planning regulations on urban and economic development in terms of the attraction of foreign investments. In light of Africa’s urban challenges, this research is interested in capital attraction that may be beneficial for urban centres in SSA. Since FREI can be a beneficial source of foreign capital for cities in Africa, the external goal of this research is to investigate how municipalities, particularly in SSA, can attract more direct greenfield FREI. In order to achieve these goals, the internal goal of this research is to research what determines FREI attraction in general and in SSA in particular as well as to investigate how different aspects of urban planning regulations impact FREI attraction. This research uses Geographical Information System (GIS) and Zero-Inflated Negative Binomial Regression (ZINB) techniques on secondary quantitative data to obtain the determinants of the number of FREIs cities and countries attract. First a sample of 72 global cities is used to obtain the general determinants of FREI attraction and subsequently a sample of 31 African countries is used to obtain the region specific determinants of FREI. In all of the analyses the impact of different aspects of urban planning regulations will be investigated. The results show that urban planning does matter for FREI attraction. The global city analyses indicate that excessive population densities and inadequate basic urban service provision, apparent in many developing cities, deter FREIs.