The normalization agreement Israel reached with the United Arab Emirates last week after years of secret contacts is expected to bring a slew of bilateral business deals as well as tourism and investment.
The first of them was already announced on Sunday, less than two days after the White House announcement on normalization, after the Emirati APEX National Investment company signed a “strategic commercial agreement” with Israel’s Tera Group to cooperate on research and development related to COVID-19, including a testing device, the UAE’s state news agency WAM reported.
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It is considered the first business deal “to inaugurate trade, economy and effective partnerships between the Emirati and Israeli business sectors, for the benefit of serving humanity by strengthening research and studies on the Novel Coronavirus,” WAM quoted APEX’s chairman Khalifa Yousef Khoury as saying.
Normalization lifted the Tel Aviv Stock Exchange’s benchmark TA-35 index closed 1.4% higher on Sunday, even as the government reported that gross domestic product had fallen 28.7% on an annualized basis in the second quarter due to the coronavirus lockdown.
Until last week’s announcement, the two countries had been widely reported to have been doing business under the radar. In a rare deal that was made public, at the beginning of July, the UAE company Group 42 agreed to partner to develop technologies to help fight the coronavirus with the Israeli state-owned defense firms Israel Aerospace Industries and Rafael Advanced Defense Systems.
Normalization now opens up many more opportunities at a time when the UAE and the other Gulf Arab countries are contending with the challenges of the coronavirus and low oil prices.
A confederation of seven emirates, of which the biggest by area is Abu Dhabi, the UAE is the second-biggest economy in the Arab world. Abu Dhabi holds 6% of the world’s oil reserves, while Dubai has the biggest population, with 3.3 million residents. It’s also a center for tourism and finance, ranking 12th in the world in 2020, according to Global Financial Centers Index, down from eighth the year before.
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Until oil was discovered there in the 1950s, the economy of the emirates was based on date farming, fishing and pearl-diving. Today, the UAE is one of the world’s richest economies with a per capita GDP of $69,000 on a purchasing power parity basis (compared with about $42,200 for Israel).
Although Abu Dhabi boasts big oil reserves, the UAE economy is relatively diverse. In 2017, 30% of output was from oil and natural gas, and the rest was derived from financial services, real estate and construction, defense and the public sector.
The coronavirus pandemic has taken a toll on the UAE, but even beforehand economic growth had been slow. In 2018 and 2019, gross domestic product grew by just 1.7% annually. Home prices in the UAE were down 5% as of December 2019, compared with a year ago. Inflation was a negative 1.4%.
“This is a huge deal for symbolic reasons, but the real importance of this peace will be economic opportunity,” Ellen R. Wald, a senior fellow at the Atlantic Council who has written a book about Saudi oil, wrote in Forbes magazine over the weekend.
She said the first benefit for both sides is energy. In a world oil glut, the UAE suddenly has a new customer for its oil and one where it doesn’t have giant Saudi Arabia as a competitor. Israel will be able to source oil regionally from a reliable supplier.
Wald says the UAE could also emerge as a major source of foreign students for Israeli universities. As it is, 15% of students at Israeli universities are Israeli Arabs, so expat Emiratis would find the environment comfortable. Another benefit is Emirati investment in Israeli startups as local investors look for alternatives to the sagging UAE real estate market.
Normalization could also give a boost to the UAE’s key aviation sector, which has been brought low by the coronavirus, with the confederation serving as both a transit point to India and East Asia, and as a destination in its own right.
The UAE’s biggest carriers – Emirates and Etihad – could feed Israeli passengers through their giant airport hubs in Dubai and Abu Dhabi, respectively, a market that until now has been monopolized by Royal Jordanian and Turkish Airlines.
A lot of Israelis may choose the UAE as a destination, too. “The UAE could be a huge destination with Israelis finally able to experience a Persian Gulf country and Arabian culture after being forbidden for all of these years. And it’s practically next door,” said Wald.
Bloomberg News reports that Abu Dhabi, in particular, is keen on attracting Israeli high-tech companies to help it overcome the coronavirus downturn it has been suffering and the drop in world oil prices.
Officials want to develop “the knowledge sector and innovation by attracting technology companies to put down roots in Abu Dhabi,” Mohammed Ali Al Shorafa, chairman of the Abu Dhabi Department of Economic Development.
The government is spending on capital projects and investing in startups and strategic industries, especially agricultural technology, and wants to make the emirate more attractive to expats by lowering the cost of living, which today ranks 39th in the world for resident foreigners. Since the onset of the coronavirus, many expats have left, which is especially damaging for Dubai, where 90% of its population are expats.
Whether Israelis will find relocating to the UAE an option has yet to be seen. But already a handful have been working for the UAE company DarkMatter in the company’s Cyprus offices, according to a 2019 report by TheMarker. Formed in 2015, DarkMatter officially limits itself to cyberdefense, but according to a 2019 Reuters expose it also provides hacking services to the UAE intelligence agency against Western targets, journalists and human rights activists.
Reuters contributed to this report.