Exactly two years ago the Abraham Accords were signed, establishing full diplomatic relations between Israel and the UAE and Bahrain, and in directly with other Gulf states. The accords have had a deep impact in terms of the region's politics, economics and defense, and have been a game-changer for Israel's status.
Achieving the Abraham Accords was made possible due to Israel's economic and military strength, which led to the agreements even without the Israeli-Palestinian conflict being resolved. In addition, Iran's threat to the entire region pushed the Gulf states into Israel's arms.
To begin with, the Gulf countries, especially Saudi Arabia, signaled their readiness to draw closer to Israel. The UAE and Bahrain were the first to normalize relations. It is clear that Saudi Arabia, under the leadership of Crown Prince Mohammed bin Salman, although it did not officially join the accords, gave its consent to the step by the UAE and Bahrain.
An agreement unlike any known before
The agreement with the UAE brought Israel a peace deal with an Arab country unlike any it had known before. Warm, without past memories of wars, and with many common interests. Israel's ambassador in Abu Dhabi, Amir Hayek, defines the Abraham Accords as a meeting between cousins who have not seen each other for many years.
And it is not just a matter of feelings - the numbers speak for themselves. Trade between Israel and the UAE amounts to $1.4 billion, not including services which are worth an estimated $200-300 million and defense exports, which are classified information. Trade in goods amounted to $1 billion in 2021 plus services worth $200 million.
Ministry of Economy and Industry Foreign Trade Administration head Ohad Cohen says that exports have increased by 13% annually over the past two years. He adds that Israel and the UAE have met their expected targets in terms of trade. "A lot of people initially thought that money grew on trees on the streets of Abu Dhabi and Dubai and this would flood over to us. The number of delegations that went out was huge, and many that went out had no real connection to what the UAE had to offer."
Diversifying exports is important
Cohen stresses that diversification is important, with many sectors comprising exports and he hopes that after a trade representative is appointed trade will grow at an even after pace. He cites the free trade agreement, which is being ratified in Israel, and has already been ratified in the UAE, as also likely to contribute to growing trade.
A figure that cools the enthusiasm concerns the most significant branch of trade - diamonds, which makes up more than half of the volume of trade. UAE Minister of State for Foreign Trade, Dr. Thani Al-Zeyoudi, tells Globes that cultural differences have resulted in quite a few misunderstandings in the contacts between businesspeople from the two countries. "Israelis thought that money would flow easily from here, but business is business. You need to build trust, understand the local ecosystem and move forward in that way. For an investment, there needs to be a tangible product that has proven itself."
Indeed, UAE investment in Israel has been sluggish. Except for the huge investment of the Mubadala sovereign wealth fund in buying Delek Drilling's stake in the Tamar gas field for about $1 billion, there has been another $100 million dollars from the UAE invested in venture capital funds in Israel.
A $100 million R&D fund was recently established by the two countries, with each country investing half of the amount. "This fund is supposed to invest in the development of new products with the basic condition of inherent innovation and potential to make a real impact in fields that are important to us," explains Al-Zeyoudi.
The most famous fund of all that was set up as a result of the Abraham Accords worth $10 billion, which was promised by UAE President Mohammed bin Zayed to former Prime Minister Benjamin Netanyahu, has been kept on hold due to the political situation in Israel. In recent months it has indeed been thawing, but it has not yet begun the actual process of finding serious investments in Israel.
Hayek says that the UAE is dealing less with startups, and the big money will only be invested in large infrastructure projects. However, efforts so far have not been successful. UAE ports and logistics giant DP World enquired about the Haifa port operation tender as part of its privatization process, but withdrew. The explanation given was that it does not fit into its economic and strategic planning. However, those who were involved in the process say that they did not like the coercive behavior of its Israeli partner.
Israel's Ambassador to UAE Amir Hayek adds that Israel must act to shorten procedures and bureaucracy and help the UAE enter large infrastructure ventures. "They would be happy, for example, to build a large airport in the sea and they have experience with this, or to build palm neighborhoods, like in Dubai, offshore from Tel Aviv."
"Relations that have become a unicorn"
During his 10 months in the job, Hayek has already hosted two Israeli presidential visits to Abu Dhabi and two prime ministerial visits, as well as dozens of ministers. "Relations began as a startup and have become a unicorn," says Hayek. "By the end of the year, they will be in 15th place as a trading partner of Israel and in another two or three years in the top ten - with total trade of at least $5 billion."
And here he makes a far reaching declaration, "The UAE will become the number one engine of growth for Israel's economy and industry because they have R&D infrastructures that complement Israel and there is huge UAE and foreign capital earmarked for investment in R&D and innovation. There is also a workforce of every type. Another important statistic is they have the best prices for raw materials in the world because it is a global trading center. The last point is its access to many world markets."
Hayek adds that the growth in trade and cooperation provides good reasons for other countries who are following developments closely to join the agreements soon. "I want to think that this will motivate other countries from the Gulf to come to the table. We are building a new Middle Eastern economy - and whoever doesn't join now might miss the boat."
Al-Zeyoudi, who has already visited Israel, says that the momentum is enormous. He adds that the free trade agreement, which was signed in record time, will further speed up the pace of trade to $10 billion within five years. He reveals that there is a growing Israeli interest in the UAE's real estate sector, which has brought increasing amounts of investment. The Emirati minister mentions the success of the tripartite agreement with Jordan to build a huge solar farm in the Hashemite Kingdom that will produce electricity, which Israel will purchase, and in return will sell desalinated water to Jordan. "As a result of this agreement, we will see more countries wanting to copy this success."
Another horizon opened up by the Abraham Accords is the exposure to huge international companies, which until now were not interested in entering the Israeli market. Such an example is French supermarket giant Carrefour, which established a relationship with Israel through the UAE.
An additional flourishing field between Israel and the UAE is tourism. More than 500,000 Israelis have already visited the UAE, most of them as tourists. More recently, international travel agents in Europe and North America have begun marketing joint Israel, UAE packages. Tourists land in Tel Aviv and after six days seeing the main sites here they fly on to the UAE, and from there return home.
The major importance of the Saudis
But to realize the full potential of the Abraham Accords, the leaders must conclude more regional agreements. The key to this is in the hands of Saudi Arabia. As recently published in "Globes," Jerusalem and Riyadh have already moved towards warm business relations. In recent months, Saudi Arabia has been allowing Israeli businesspeople to visit, at the invitation of local associates.
Several Israeli companies are already involved in the building of the futuristic city of Neom. At the same time, a huge experimental agricultural project is managed by Israeli agro-tech companies. A senior Saudi official told Globes: "We are trying to do everything possible in the absence of official relations between the countries. There is indeed internal opposition, but much more support. The potential of trade and economic cooperation is enormous." He also estimates that if and when the Saudis will fully join the Abraham Accords, this will be a dramatic change. "When?" - "Inshallah soon."
As with the UAE, also with Bahrain - expectations have only been partially realized
The strength of the diplomatic-defense relationship between Israel and the Bahrain, which joined the UAE in signing the Abraham Accords on the lawn of the White House in Washington, is stronger than its bigger neighbor.
The main reason for this is the direct Iranian threat to Bahrain due to the Shia majority in its population. According to US estimates, 55%-60% of Bahrain's population is Shia, while King Hamad belongs to the Sunni minority. This has resulted in repeated attempts by Iran to incite riots, and provoke a rebellion against the government.
Another factor affecting the peace agreement between Israel and Bahrain is Saudi Arabia. Bahrain is a kind of protectorate of the Saudis, an island connected to the regional Sunni power. The policy of the Al-Khalifa family, which leads Bahrain, corresponds to that of the rulers in Riyadh. That is, the signing of the agreement with Israel was not only done by agreement, but by the direction of Saudi Crown Prince Mohammed bin Salman.
US Fifth Fleet Port
The military-defense importance of Bahrain is great, since the home port of the US Fifth Fleet is located there. During the visits of Defense Minister Benny Gantz and Prime Minister Yair Lapid to Bahrain, they met publicly with the commanders of the US forces, in what was more than an implicit threat to Iran.
In economic terms, Bahrain is a small country with a population of 1.5 million. Economic ties with Israel have increased greatly, but are still relatively small, with trade amounting to tens of millions of dollars. Similar to the UAE, here too diamonds occupy a considerable share of Israeli exports, while the share of metals and aluminum for construction stands out in imports.
The expectation that Bahrain would serve as a bridge to Saudi Arabia has, in the meantime, only partially been realized. One of the largest aluminum deals was indeed made with a Saudi company that has a branch in Manama, but nothing beyond that. However, the good news is that this has happened because Saudi Arabia itself has opened up to trade relations with Israel.
An interesting deal between the countries has been signed in the water sector. The water quality in Bahrain is poor, and in March 2021 a deal was signed between Israel national water company Mekorot and its Bahrain counterpart to provide planning, consulting and support services for projects to improve water quality, desalination and smart use.
Published by Globes, Israel business news - en.globes.co.il - on September 4, 2022.
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