Israel and the UAE: The Momentum Keeps Growing
Israel and the United Arab Emirates have always been fascinating places for the outside world. Lee Saunders looks at how the business momentum – and potential – continues to flourish.
Some still imagine Israel and the UAE as a land of falafel, sandstorms and magic lamps, while others know them as modern, innovative and sophisticated countries exemplified by the hi-tech start-up scene in Israel and the engineering marvel, the Burj Khalifa in Dubai.
The September 15 landmark agreement formalising ties between Israel and the UAE has investors and entrepreneurs flush with genuine excitement. The first investment by an Israeli VC fund has already taken place – with Maniv Mobility LP’s investment in Fenix, an Abu Dhabi-based start-up in the electric scooter field.
While, for a long-time, existing ties lay mostly beneath the surface, the transparency brought about by this agreement could be worth USD 350 million a year, according to Israel’s Economy Ministry. Dr. Fahed Al Meraabi chairman and chief executive of Zurich Capital Funds is even more optimistic, telling Khaleej Times in December that Israeli companies are expected to invest in various UAE sectors to the tune of US$500 million.
There are no official figures, but trade between Israel and the Gulf states, including the UAE, had probably reached at least USD 1 billion by about 2019, according to the Tony Blair Institute for Global Change, mostly through European and other subsidiaries.
Advancing cooperation in finance, investments and a new US$3 billion trilateral fund
So far, Israel and the UAE have signed a MoU to set up a joint committee to advance cooperation in finances and investments, lowering financial impediments for investors and promoting joint investments in the capital markets. Both countries have also reached a bilateral agreement that will give incentives and protection to investors who make investments in each other’s countries.
The Tel Aviv Stock Exchange and Abu Dhabi Securities Exchange have also been discussing an agreed framework for regional cooperation in various areas, among them the possibility of dual listing on the two exchanges, relaxations of company requirements for the purposes of dual listing, and much more.
Last October, Israel and the UAE announced the creation of a new trilateral fund with the U.S. potentially worth more than US$3 billion. According to the official statement, the Abraham Fund will bolster regional trade, enable strategic infrastructure projects, and increase energy security through providing reliable access to electricity. The fund also aims to improve agricultural productivity and facilitate reliable and efficient access to clean water in the region.
UAE is the tech hub for the Arab world
The UAE is best placed to welcome Israeli start-ups. In recent years, two unicorn companies valued at over US$1 billion each were created in the UAE: the e-commerce website Souq.com (acquired by Amazon in 2017) and the ride-hailing platform Careem (acquired by Uber in 2019). Another UAE-based e-commerce company, Noon.com, obtained USD 1 billion in funding in November 2016, and there are many more start-ups to watch.
Technology will feature at the heart of the relationship. “Utilising the benefits of Israeli innovation will serve as an engine of growth and as a basis for successful investments,” said Sharon Tzfoni, head of the Gulf Desk at Israeli law firm, Naschitz Brandes Amir.
Yair Geva, who heads the Hi-Tech Department at Herzog Fox & Neeman (“HFN”), recently returned from the first Israeli tech delegation to the UAE:
"We have had great discussions and met with ministers, investors, business groups and entrepreneurs. There is obviously a huge interest in Israeli technology and people are very happy and optimistic about potential future cooperation. Personally, I think this is the beginning of the Golden Triangle - Abu Dhabi-Dubai/Riyadh/Tel Aviv and we could see an opening up to other markets in Asia."
“Last year’s landmark agreement formalising ties between Israel and the UAE has investors and entrepreneurs flush with genuine excitement.”
Nathan Krapivensky, who heads the Israel Group at global law firm Taylor Wessing, added:
“On outbound investment into Israel the message was consistent – we want access to Israeli technology, but there must be a strategic angle. Passive investment into various start-ups will, of course, flow – but this is not the main game. They want Israeli expertise and know-how in exchange for their investment.” Asked which sectors were of particular interest, it emerged that “areas where Israeli expertise could make a meaningful difference to the UAE – defence, cyber security and healthcare were common themes.”
In the sweet spots where technology and traditional sectors mix, the potential looks hugely promising. One hot industry will be healthcare technology. As DLA partner, Jeremy Lustman points out:
“Specifically, at this critical time, the countries will be working together on research and technology to fight the COVID-19 pandemic. Between the UAE’s financial capabilities and Israel’s leading technology and healthcare capabilities, they recognize that if they work together, much can be accomplished."
Just days after normalization ties were announced, UAE-based public investment company, APEX National Investment announced plans to invest in applied research by Israeli tech company TeraGroup on Covid-19 and Israel’s Hadassah Medical Organization is reportedly in negotiations with medical organizations in the UAE to set up a branch of the Jerusalem hospital in Dubai. “In the field of food, agri-tech and desert agriculture, there will be interest in using Israeli experience and innovation to help the UAE develop independent food capabilities that will enable them to be less dependent on imported food,” Tzfoni said.
Advanced agriculture technology, including hydroponic systems that will allow almost any vegetable or fruit to be grown in the desert, are of obvious interest but the sector is wide. With some of the region’s biggest sovereign investment vehicles, Abu Dhabi has ambitions to create agri-tech and technology hubs in the Emirate. In smart transportation, Jerusalem-based Mobileye, which was acquired by Intel for USD 15.3 billion in 2017, has already announced a strategic partnership with the UAE’s Al Habtoor Group (AHG) to begin setting up the infrastructure to test autonomous vehicles in Dubai.
The plan is to roll out a full Mobility-as-a-Service (Maas) offering, including self-driving taxis and smart city solutions, by 2023. In aviation, Israel’s Ministry of Transport signed an aviation agreement with the UAE to allows 28 weekly flights in each direction between Tel Aviv and Abu Dhabi and Dubai. The Dubai-based NY Koen Group, owned by Israeli businessman, Naum Koen, is one of the bidders for the Israeli airline, Israir.
Early breakthroughs regarding oil and aviation
Even in the sensitive area of Middle Eastern oil, there has already been an early breakthrough. The Europe-Asia Pipeline Co. (formerly the Eilat-Ashkelon Pipeline Co.) (EAPC) has signed a binding MoU with the Med-Red company to operate a land bridge to transport oil between the Red Sea and the Mediterranean, providing both a cheaper alternative to the Suez Canal.
“The message is upbeat for doing business in the UAE”
Taylor Wessing’s Krapivensky added: “On inbound opportunities to the UAE for Israeli companies the message was upbeat, loud and clear: ‘Think bigger, the Gulf is bigger than the UAE.’ Seeing itself as the 'little brother' of its larger Saudi neighbour, the Emiratis are keen for Israelis to see beyond their own relatively small market and consider the opportunities further afield. Be it Saudi Arabia, the wider Arab world, the Indian subcontinent or even Southeast Asia, the opportunities for expansion have never been greater.
“A modern and business-oriented view to lawyering”
"Whilst both countries have their own history, culture and legal systems, there is clearly a modern and business-oriented view to lawyering. Many international firms, particularly the London firms, have a long-time presence in the UAE and they will form the bridge for clients moving in both directions. Additionally, there are large UAE firms, such as Al Tamimi, which have a broad and impressive international perspective," says partner Gil White at HFN.
DLA’s Lustman also sees the communality: “Israeli and UAE lawyers have a lot of experience working on global transactions and are very “western” in their approach to law and business. We also have the same working week – Sunday through Thursday – it already makes us more similar than different. UAE and Israeli lawyers understand that because they are doing business with the rest of the world who work Monday through Friday, they need to be available to an extent on Fridays so that they can properly service their clients.”
With cross-cultural issues to address, Krapivensky added: "Spend time on building relationships, without expecting immediate return" was the advice of one senior banker. It might seem tedious at the start, but it will pay dividends in the longer term. Arab culture favours long-term relationships of trust. Trust takes time, and effort. Put in the effort, and you will be rewarded. Israelis might take some time to understand this but rushing to feed your UAE business partners a host of various opportunities might not be the best way forward. Think long, in-depth, in-person conversations more than endless emails attaching slide decks.”
Lustman adds: “Both cultures thrive on in-person interaction from a relationship-building perspective. Travel restrictions and challenges during the pandemic could affect the pace, which will hopefully resume full force once travel opens up more freely.”
Joining the UAE in normalizing ties with Israel is Bahrain, which has signed several MoUs with Israel – covering trade, air services, telecommunications, finance, banking and agriculture, according to a list provided by a Bahraini official. With other countries – such as Morocco and Oman are also rumoured to follow suit, many investors will be closely following how these lucrative agreements and these exciting developments progress.
This article first appeared in the November edition of IsraelDesks magazine published by Nishlis Legal Marketing.