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The Abyss of Africa in Dubai

Assefa A. Lemu

11-02-19

1.     Introduction

Few days ago, I had a flight from Dulles International Airport (IAD), Washington, D.C., to Dubai International Airport (DXB). The flight was long (12 hours and 45 minutes non-stop), but not boring because Emirates provides good inflight services including on the air internet. We arrived at Dubai International Airport in the morning at 0815 hours as scheduled. Unusually, there were few lines of passengers at the Passport Control/Immigration. The Immigration Officer checked my passport and travel documents and admitted me to the United Arab Emirates (UAE). My destination is Dubai, the largest and most populous commercial city of UAE. Dubai, the former fishing village is now more popular than Abu Dhabi which is the capital city of UAE.

As I passed the Passport Control area and heading to the baggage claim area, I saw a tall black lady waving hands to me.  She wore a budget and I thought she is one of the staffs of the Airport to tell me from which carrousel to collect my luggage.  She warmly greeted me and asked me from where I am and introduced herself to me: “My name is Uddy and I am from Nigeria. I work for The First Group that builds and owns luxury hotels in Dubai. We offer free tour in Dubai city. As my African brother, I want you to take this opportunity; it is hundred percent free”.  The saying “if it is for free, it is for me” clicked in my mind and I kept the conversation going. She gave me a handy brochure which says “Your opportunity to capitalize on the world’s most vibrant hotel market”. We exchanged addresses and she promised me to send a driver to pick me from my hotel at 1400 hours and take me to the office of The First Group (TFG) where I could learn more about what TFG is doing and visit luxury hotels built by TFG. I have been in Dubai several times and it is a very safe city. Therefore, I didn’t worry about my safety and scam.

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At 1300 hours Dubai time, Uddy called me and informed me that the driver will reach my hotel at 1400 hours to pick me up. At 1350 hours, the driver called me and informed me that he is waiting for me right at the main gate of the hotel. I asked him the plate number and the color of the car to identify the car waiting for me. When I saw the car, I said “wow”! It is a limousine! I regretted I didn’t put on my three pieces, but the weather is hot to do that. Different questions came to my mind: is this because I am staying in the high standard hotel? Is it because the Nigerian sister doing me a favor or TFG is a generous organization aimed at pleasing visitors?

On the way from my hotel to TFG’s office, I tried to squeeze information out of the Pakistani driver, but I was not successful because either he doesn’t understand English or intentionally behaving that way not to answer my questions. After 30 minutes of drive, we reached at the TFG office. One of the TFG staff approached my Limousine and opened a car door for me. Wow again! Now, I have to keep my head up and look like an important person. But, why are they treating me like a VIP? The individual escorted me into the elevator and took me to the 11th floor where the elegant black lady showed me where to sit and offered me orange juice.  The office is well furnished and has big screens every corner. The room was packed with visitors from different countries. TFG staffs with formal dresses, IPads, big cellphones and folders were having discussion with each visitor or group of visitors. The lady assigned to talk to me, sat in front of me and asked me few questions such as where I am from, why I am in Dubai, what I am doing for living, where I live, etc. Thanks to my security awareness training, I also got from her as much information she got from me by simply asking “what about you?” after every question she asked me. She is a Sudanese from Ethiopian origin. After she got basic information from me, she led me to the next section of the office and informed me that one of TFG staff will come and explain to me what TFG is doing and how I can work with TFG. Her role was screening the potential investor.

Then I met a TFG staff member assigned to me who introduced himself to me as Dhanraj. I told him my name and asked him if he minds calling him Raj because I have an Indian friend by the name of Raj and it would be easier for me to remember. He accepted that short name and told me that he too is from India but worked in Dubai for about 10 years. He told me TFG is an internationally known hotel and property development company headquartered in Dubai. TFG was launched in 2005 and has clients from more than 70 countries worldwide. He also told me that TMG has number of investors from Ethiopia. Raj also gave me some facts and figures to show me the high demand for hotel business in Dubai and the potential profit.

Raj told me that the current investment opportunity with TFG is to purchase hotel guestrooms and suits from CIEL Dubai Marina Hotel and asked me if I have an interest to invest in CIEL. I knew that he was doing demand assessment. I recalled the definition of demand which say demand is consumer's desire and ability to purchase a good or service and geared my response in that line. I showed interest in the investment opportunity and used that enthusiasm as bait to learn about TFG’s investment model. He repeatedly asked me if I am interested in the investment opportunity and if I have a financial ability to purchase one or two rooms. My response was positive. He asked me if I am interested to visit some of the hotels previously built by TFG and the construction site of CIEL Dubai Marina Hotel which will be the world’s tallest hotel with 360 meters high, has 1,042 rooms and suites, and will be a 4 Star Deluxe hotel class. I accepted the offer. We got into a limousine went to CIEL construction site. The construction site is located around Dubai Marina area and the status of the construction was at the level of laying the foundation of the building.  The purpose of this article is not to talk about what were constructed by TFG Real Estate L.L.C., what is under construction, and what will be constructed, but TFG’s investment model and its impact on investing in Africa/Ethiopia.

2.     The Investment Model of TFG Real Estate

From my five hours discussion with Raj and his colleagues, I learned that TFG uses crowdsourcing to mobilize funds from individuals and firms through an open call or invitations to finance its project. Crowdsourcing is a means of tapping money from different sources and it is an innovative way for the companies to turn to the crowd to raise funds or to help curb the rising cost. Some people mistake crowdsourcing with outsourcing, but they are different. Explaining the difference between the two, Larry Huston who was the Vice President of Innovation and Knowledge at Procter & Gamble Company (P&G) says, "Outsourcing is when I hire someone to perform a service and they do it and that's the end of the relationship. That's not much different from the way employment has worked throughout the ages. We're talking about bringing people in from outside and involving them in this broadly creative, collaborative process. That's a whole new paradigm”. By bringing in talents and other resources (crowdsourcing), the product and sales of P&G company increased at a faster rate (Jeff Howe, The Rise of Crowdsourcing, Wired Magazine, 2006, https://www.wired.com/2006/06/crowds/ ). In short, crowdsourcing is about working together by pulling resources together through an open call or network.

 Let’s get into the details and see how TFG uses crowdsourcing. Regardless of his or her citizenship, an interested individual can buy CIEL hotel rooms from TMG. The price of one CIEL hotel room is $585,711.00 ($545,000 cost of the room and $50,711 administrative cost and taxes). The entire payment must be completed within 24 months and the payment arrangement is as follows:

1.     30% ($163,500.00) of cost of the hotel room ($545,000.00) will be paid up front at the time of registration or completing the investment agreement. However, it is possible to pay $10,000 Reservation Cost at the time of completion of the investment agreement and the remaining $153,500 could be paid within 14 day of registration/signature.

2.     The remaining 70% ($381,500.00) $545,000 must be paid within 24 months of signing the investment agreement. This payment will be $15,896 per month.

3.     In addition to these payments, an investor is required to pay $50,711 for administrative purpose ($1,364), VAT (5%), and other fees.

4.     An investor who signed an investment agreement and paid $214,211 ($163,500 plus $50,711) will get title deed for the room he or she bought. Purchasing more than one room is possible. The TFG staff put all the pressure they have at their pressure to convince an individual to pay the $10,000.00 Reservation Cost and sign the agreement.

Once the construction work and furnishing are completed, the hotel will be operated by TFG’s partners called Wyndham Hotel Group or Millennium & Copthrone Hotels PLC. The profit distribution will be as follows: 40% of the profit will be taken by the hotel operator to use for staff salary and utilities; 40% of the profit will be given to the owner of the room; and the remaining 20% is kept for maintenance and up keeping of the room. I was told that the hotel room occupancy rate in Dubai is 80% and the profit is calculated annually by adding the lodging charges collected and dividing to the number of rooms. Therefore, the numbers of days one particular room is occupied doesn’t affect the amount of profit the owner of that particular room will get. To watch Ceil Dubai Marina hotel’s future building click here: https://www.youtube.com/watch?v=qGR8XcDC_eY . Below is the picture I took when I visited CIEL’s construction site:

 

3.     The Impact of TFG’s Investment Model on Africa/Ethiopia

According to the World Bank’s Ease of Doing Business Index 2019, United Arab Emirates is ranked number 11 out of 190 countries. Ethiopia is ranked number 159, Eritrea number 189, and Somalia number 190. UAE, particularly Dubai, is becoming an attractive place not only for ease of doing business, but also for its security.  Now a day, travelling to Dubai for leisure or business is popular in most of African countries including Ethiopia. Dubai is attracting from Africa not only travelers, but also capital.  According to Economic Commission for Africa (ECA), billions of U.S. dollars disappear each year from developing countries including Africa without a trace. Researches show that “the sum of capital that leaves developing countries each year as unreported financial outflows, referred to as illicit capital flight, amounts to as much as ten times the annual global aid flows, and twice the amount of debt developing countries repay each year” (https://www.uneca.org/stories/capital-flight-africa).  Where are these capitals going? Thanks to TFG, now I know where some portions of these capitals are going. One of the places where African corrupt officials and their cronies stash and invest the money they snatched from poor Africans is Dubai.

Bragging how many travels made to Dubai in a year, how many houses and cars one has in Dubai, and investment one has in Dubai is becoming common in Addis Ababa. Some African officials whose government claims doing everything to attract foreign investment are pouring illicit money into bottomless holes in foreign countries. Capital flight is a huge burden to African economies and must be controlled and stoped

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