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Chapter 6 The Attraction of Direct Greenfield Foreign Real Estate Investments into Sub-Saharan Africa

Investment in the construction sector can provide a relatively large amount of jobs in Africa because of its high multiplier factor
©Lcswart
Only when the majority of urban populations have access to water, electricity and sanitation can the benefits of agglomeration outweigh the costs
©Joshua Wanyama.

Many urban centres in Sub-Saharan Africa (SSA) currently do not function as the envisioned engines of growth (World Bank, 2008; UN-Habitat, 2012; Castells- Quintana, 2015). This is, at least partially, caused by “urbanization without growth” (Fay and Opal, 1999) and institutional failures that are associated with “poor country urbanization” (Glaeser, 2014). In these urban areas, the negative agglomeration externalities outweigh the positive (Castells-Quintana, 2015; Glaeser, 2014) and diminish the economic growth potential normally accompanying urban agglomeration. Because real estate plays a particularly crucial role in modern economies, this study argues that foreign real estate investment (FREI) may help to break through the negative urban dynamics. In many countries housing constitutes the largest share of national wealth, and real estate functions are an important countercyclical asset for the financial sector (Lowe, 2015; Harvey, 2014; World Bank, 2008).

The construction sector often also represents a significant part of GDP and due to its high multiplier factor, provides a relatively large amount of jobs, directly and indirectly (Tibaijuka, 2009). Therefore, although SSA currently suffers from severe deficits in urban housing and services provision while urbanizing at break neck speeds, urban development could offer great economic growth-enhancing benefits, besides providing extensive employment opportunities for many.

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About Cities Today

The State of African Cities 2018 is published by IHS-Erasmus University Rotterdam and UN-Habitat in partnership with the African Development Bank. The aim of the report is to contribute to development policies that can turn African cities into more attractive, competitive and resilient foreign direct investment (FDI) destinations. Attracting global FDI is highly competitive and crosses various geographic scales, therefore regional cooperation by cities and nations is critical. But FDI is not a panacea since it has both positive and negative effects and careful choices need to be made by cities in their pursuit of FDI, if it is to lead to inclusive economic growth. This report aims to provide guidance on these choices and to facilitate understanding of the complexity of global investment in Africa.