American Real Estate Firms’ Failure to Buy-in to Morocco’s Vision: Why American FDI in the Real Estate Sector Will Continue to Lag Breanne Henkelman Table of Contents I. Introduction ..................................................................................................................................... 4 II. Background Information on Morocco ................................................................................... 5 A. History of Morocco................................................................................................................................... 5 B. Current Political Climate ....................................................................................................................... 8 C. Structure of the Government............................................................................................................. 10 1. Executive and Legislative Branches ........................................................................................................... 10 2. Judicial Branch .................................................................................................................................................... 11 D. Socio and Economic Facts on Morocco .......................................................................................... 12 E. Diplomacy ................................................................................................................................................ 15 F. Morocco’s Economy .............................................................................................................................. 15 1. Overview ................................................................................................................................................................ 15 2. Foreign Trade ...................................................................................................................................................... 17 3. Foreign Investment Environment ............................................................................................................... 18 III. Tourism Sector in Morocco .................................................................................................... 24 A. Overview .................................................................................................................................................. 24 B. Major Tourism Initiatives .................................................................................................................. 29 1. Vision 2010 ........................................................................................................................................................... 29 a) Plan Azur ............................................................................................................................................................................... 30 b) Current Status of Plan Azur .......................................................................................................................................... 36 2. Vision 2020 ........................................................................................................................................................... 38 a) Overview ............................................................................................................................................................................... 38 b) The Territories ................................................................................................................................................................... 39 c) The Framework .................................................................................................................................................................. 41 d) The Fund ............................................................................................................................................................................... 41 C. Most Active Real Estate Developers ................................................................................................ 43 1. Moroccan Firms .................................................................................................................................................. 43 2. GCC Firms .............................................................................................................................................................. 44 IV. Main Reasons for the Absence of Western Foreign Direct Investment in the Lodging Real Estate Industry in Morocco ................................................................................... 46 A. Political Differences ............................................................................................................................. 48 B. Cultural Differences ............................................................................................................................. 50 C. Business Norms ...................................................................................................................................... 53 1. Materials, Technology, Equipment ............................................................................................................. 54 2. Corruption & the Foreign Corrupt Practices Act ................................................................................... 54 3. Bureaucracy ......................................................................................................................................................... 57 4. Nepotism, Cronyism and Clientelism ......................................................................................................... 58 D. Economic Reasons ................................................................................................................................ 60 1. Threat of Terrorism and Violence ............................................................................................................... 60 2. Overheated Market ............................................................................................................................................ 60 a) Lack of Successful Precedents ..................................................................................................................................... 62 3. Political Instability, Frequent Elections .................................................................................................... 63 4. State-Owned Airline .......................................................................................................................................... 64 5. Insufficient Judiciary ......................................................................................................................................... 64 6. Antiquated Legislation ..................................................................................................................................... 66 a) Lack of REIT Legislation ................................................................................................................................................. 66 2 b) Attaining Proper Security (Deeds) in the Land.................................................................................................... 67 V. Conclusion ..................................................................................................................................... 67 VI. Endnotes ....................................................................................................................................... 69 3 I. Introduction Globalization has broadened the mindsets of executives, extended the geographical reach of firms, and increased the visibility of international opportunities. However, the global financial crisis brought about the downfall of many real estate development projects and increased the risk aversion of those firms left standing. As the world emerges from the global financial crisis, real estate companies are beginning to redeploy capital. Morocco, hoping to capitalize on its geographical location, its diplomatic ties with both the Western world and the Arab world, and the lack of real estate investment opportunities in Europe, has stepped up efforts to attract investment to the country. The government is particularly focused on the lodging real estate market, as investment in this sector helps alleviate unemployment and social unrest, and significantly contributes to Morocco’s gross domestic product (GDP). While capital is flowing into Morocco’s real estate and tourism sector from other countries, there is a noticeable absence of American developers and real estate investors. The purpose of this paper is to provide an on-the-ground review of several recent initiatives in Morocco’s tourism and real estate sector, with an eye toward American foreign direct investment (FDI). This topic has important managerial implications and relevance for real estate organizations looking to invest in Morocco and other similar Arab countries. The paper strives to provide unique information on Morocco’s lodging real estate sector and the cultural and economic business context to allow managers to make informed decisions concerning expansion into the Moroccan real estate market. This paper is not comprehensive, as the majority of it is based on interviews conducted in-country, 4 focusing on the true state of Moroccan politics and society and the