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As Israel, UAE ties come out of closet, businesses are abuzz with excitement

OurCrowd CEO Jon Medved says his email is ‘blowing up’ with messages from UAE potential partners; Vintage’s Alan Feld and UAE ‘brother’ exchange messages as trade potential looms

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Tel Aviv City Hall is lit up with the flags of the United Arab Emirates and Israel as the countries announced they would be establishing full diplomatic ties, on August 13, 2020. (AP Photo/Oded Balilty)
Tel Aviv City Hall is lit up with the flags of the United Arab Emirates and Israel as the countries announced they would be establishing full diplomatic ties, on August 13, 2020. (AP Photo/Oded Balilty)

In 2014 Itzhak Ayalon, an Israeli agricultural consultant, was contacted by phone by a US intermediary who said he was acting on behalf of authorities in Abu Dhabi. They wanted him to come to the UAE and advise them on how to set up two greenhouses to grow vegetables using Israeli technologies and know-how.

Careful not to embarrass his former hosts, Ayalon, who only had an Israeli passport at the time, told The Times of Israel by phone that he entered the country with his Israeli passport “in a way I cannot talk about.” In Abu Dhabi, he was hosted by representatives of the local authorities in a “very hospitable way.”

They knew he was Israeli, of course, he said. But he was politely asked not to advertise that fact to people he’d be working with on the ground. He was also asked not to speak Hebrew or make calls to Israel during his stay there. The projects were set up, and the Israeli equipment — pipes, communication and irrigation systems — transported in unmarked cartons, pallets and wooden crates, in trucks from Israel to Jordan. The equipment was then unloaded, moved to other trucks, and driven from Jordan to Abu Dhabi.

“Some of the pipes had the brand name of the Israeli manufacturer, which could not be removed from the product itself,” said Ayalon. But nowhere did the products say “Made in Israel,” he said.

Itzhak Ayalon, an Israeli agricultural consultant (Courtesy)

These James Bond-like undercover tactics will now disappear, as Israel and the United Arab Emirates normalize ties that will bring out of the closet the badly kept secret of economic relations between the so called Startup Nation and the federation of seven emirates that have the second largest economy in the Middle East, after Saudi Arabia.

“From now on, I’ll be able to call my contacts directly,” Ayalon said happily. “It will be easier to manage a conversation.” Economic relations will be able to expand much quicker, he said.

Israel and the United Arab Emirates reached a historic agreement on Thursday to set up full diplomatic relations between the two countries, the third such deal the Jewish state has struck with an Arab country after Egypt and Jordan. Egypt and Israel signed a peace agreement in 1979, while the peace treaty with Jordan was signed in 1994.

A White House announcement on Thursday said the leaders of the US, Israel and the UAE agreed on a “full normalization of relations” between the two parties, and that delegations will sign in the coming weeks bilateral agreements regarding investment, tourism, direct flights, security and the establishment of reciprocal embassies.

The announcement formalizes a warming in ties which has been happening already on the ground: Gulf states, including the UAE, Kuwait, Saudi Arabia and Qatar, have had no formal diplomatic ties with Israel, but had increasingly begun to cooperate openly after years of rumored back-channel discussions between them over the mutual enmity of Iran.

Prime Minister Benjamin Netanyahu (bottom left) at his office in Jerusalem on a phone call with UAE leader Mohammed Bin Zayed (bottom right) on August 13, 2020. (Above) US President Donald Trump. (Channel 12 screenshot)

While not acknowledging Israel diplomatically, Emirati officials have in recent years allowed Israeli officials to visit, and the Israeli national anthem was played after an athlete won gold in an Abu Dhabi judo tournament. Israel also has a small mission representing its interests at the International Renewable Energy Agency in Abu Dhabi.

In May and June, the UAE’s Etihad Airlines landed its first two direct flights from Abu Dhabi to Israel, carrying shipments of medical supplies to assist the Palestinians in coping with the coronavirus pandemic. And in June, the UAE’s Minister of State for Foreign Affairs Anwar Gargash called for increased cooperation with Israel.

In July, companies from Israel and the United Arab Emirates signed an agreement to join forces to research and develop technology in the fight against the coronavirus pandemic, while top representatives from Bahrain and the UAE have been in regular touch with Israel’s Sheba Medical Center since before the current health crisis, a representative of the Israeli hospital said. Israel was also due to take part later this year in Expo 2020, the world’s fair being hosted by Dubai. The event was postponed because of the coronavirus pandemic.

View of Abu Dhabi Skyline at sunset, United Arab Emirates (vwalakte; iStock by Getty Images)

“The official relationship between Israel and the UAE is new, but close relations took place a long time ago,” said Gil Feiler, a senior researcher at the Begin Sadat Center for Strategic Studies at the Israel’s Bar-Ilan University, who specializes in Arab markets and economies, and Mideast economic cooperation.

“The potential is huge,” he said in a phone interview, and trade between the parties could “double” in the next two to three years.

At the moment, Feiler estimated, trade between Israel and the Gulf nations totals some $720 million a year. This is made up mainly of the export of products from Israel in the fields of defense and security, high tech, agriculture, consultancy services or knowledge transfer, and joint ventures in the field of pharmaceuticals and health, he said. He knows of UAE investments in 25 Israeli startups, he said, declining to expand further.

Israel’s Economy Ministry has estimated that the normalization of ties between Israel and the United Arab Emirates could be worth hundreds of millions of dollars a year to Israel in trade and investments. According to figures compiled by the ministry, based on various scenarios, exports to the UAE, which are currently at around $300,000 a year, could jump to an annual $300 million-$500 million.

Illustrative image of oil pumps in the desert (solvod; iStock by Getty Images)

The era of “rich Arab countries” is over, Feiler said, as oil prices have plunged and other sources of energy like shale oil, natural gas and green energy are taking hold. “They need our technology to diversify their market.”

The UAE has a population of some 10 million people, of which just 15 percent are citizens, and the rest foreign workers. Two-thirds of its population live in Abu Dhabi and Dubai.

Per capita income in the UAE is the 11th highest in the world, at $70,000, and the nation has undertaken in recent years a program of economic diversification that has led it to develop sectors such as tourism, air transport, trade, financial services, manufacturing and alternative energy. The nation’s oil industry at the end of 2017 accounted for some 30% of the nation’s gross domestic product (GDP), still its largest economic sector, but down from 79% in 1980, according to the UAE website.

In 2017, the Emirates launched the UAE Strategy for the Fourth Industrial Revolution, setting up a strategy to become a global tech hub by boosting innovation. Its Blockchain Strategy 2021 aims to leverage blockchain technology to shift 50% of the government transactions onto the blockchain platform by 2021.

The UAE has the largest sovereign wealth fund in the Middle East and the fifth largest in the world, totaling $792 billion. According to the 2018 IMD World Competitiveness Ranking, the UAE scored seventh globally out of 62 global nations reviewed.

Abu Dhabi’s crown prince and de facto ruler of the UAE, Sheikh Mohammed bin Zayed Al Nahyan, during a meeting with US President Donald Trump at the White House in Washington, May 15, 2017. (AP/Andrew Harnik)

The UAE has “talented leaders,” highly educated, many of them with PhDs from US universities, who believe that a combination of East and West would be good for all sides, explained Bar-Ilan’s Feiler. They have close ties to US President Donald Trump and thus “common ground with Netanyahu,” he added, referring to Israeli Prime Minister Benjamin Netanyahu.

The economic ties between Israel and the UAE will definitely strengthen, Feiler said, even if the actual scope is limited. “There will be no boom,” he said. There is no real “void, or gap” that Israel can fill, as even without Israel the UAE can have access to everything it may need going forward.

What Israel and the UAE can do is develop things together, he said, and also fight together against Iran.

“We are only at the very beginning,” he said.

Meanwhile, the announcement of the normalization of ties has injected a buzz of excitement in business circles both in Israel and the UAE.

Jon Medved at the OurCrowd Summit (Courtesy)

“This has created so much enthusiasm, my email’s blowing up,” said Jon Medved, the CEO of the Jerusalem-based VC fund OurCrowd in a phone interview. “I cannot explain to you how many people are reaching out from there… asking to meet. We already had a bunch of interactions in progress, but everything is going to be accelerated.”

The requests Medved received in the 24 hours prior to his Times of Israel interview and since the normalization announcement, were for setting up joint seminars, tech hubs, finding investment partners, source cyber technologies and for joint investments. “It is pretty wild,” he said.

On Monday, President Reuven Rivlin invited the Crown Prince of the Emirate of Abu Dhabi, Mohammed bin Zayed Al Nahyan, to visit Israel.

A leading businessman from the United Arab Emirates, Khalaf Ahmad Al Habtoor said he was already in talks with Israeli airline Israir on establishing direct flights between Israel and the UAE, hailing the recently announced normalization deal between the two countries as a “great” opportunity for both nations.

Israeli singer Omer Adam performs live at the annual Kleizmer Festival in the northern Israeli city of Safed, on August 14, 2019. (David Cohen/Flash90)

Israeli pop star Omer Adam was reportedly in talks to perform in the UAE, while on Sunday the telephone service between the United Arab Emirates and Israel began working – with journalists in Jerusalem and Dubai able to call each other from landline and cellular phones registered to Israel’s country code +972.

Meanwhile, Dorian Barak, an investor and fund manager who has been active in the UAE over the years, entering with his US passport, told The Times of Israel he has set up the Gulf Israel Business Council, which aims to facilitate and boost commercial ties between the parties, focusing on the areas with most potential like health, agriculture and high tech.

The website will go live in the next few weeks, said Barak, who hopes to set up an office in Dubai soon.

A tour guide offering tourist camel ride on Jumeirah beach in Dubai, United Arab Emirates, in January 2016 (kasto80; iStock by Getty Images)

OurCrowd’s Medved, who is both a US and Israeli citizen, was in Abu Dhabi in December 2019, invited to speak at an alternative investments conference called SALT, sponsored by the government of the UAE. “I was sort of surprised” about the invite, Medved said, emphasizing that he made clear to them that he was also an Israeli. When he asked what they wanted him to speak about, he was told: “Israel.”

“I went out there and I was blown away by how many people were positive,” and interested in working in cooperation with OurCrowd, he said. OurCrowd has already co-invested with UAE investors in some deals, and the VC firm is working to introduce some of its portfolio startups to “various partners there,” Medved said.

“A lot of this stuff was going on under the radar,” he said. But the news about the normalizing of relations “changes everything.”

“You had to be a little brave and a little bit James Bondie, and out on a ledge,” to go ahead and do businesses with these countries, Medved explained. But now, people won’t want to be left behind. They will feel a need to also get in on the game and drum up business.

“On both sides, most Israelis and people from the UAE were not involved in this,” he said. “There was a lot, but it was still a very small minority of our business communities. And I think that the opportunity now is for everybody to get in on this, and for it to grow like a snowball, bringing in the other Gulf players as well as Saudi Arabia and even beyond.”

The Abu Dhabi Global Market financial center is seen in Abu Dhabi, United Arab Emirates, December 31, 2019. (AP Photo/Jon Gambrell)

The logic of cooperating together “is so great,” said Medved. “They need innovation, we need markets; they have investment capabilities, we have tremendous investment opportunities. They are interested in healthcare, green-tech energy, cyber-security, drones, transportation, smart cities, property tech: we have all that stuff.”

The message from the two governments in Israel and the UAE is “go for it,” Medved said. “Our jobs as individuals — business people — is to fill it with wonderful content. The more deals are done, that a good deals, the more businesses that are built together, the more jobs and value we create, that will ensure that it stays good.”

The cooperation will give Israeli tech firms the possibility to tap into new markets and test out their technologies in places other than New York, Tokyo or London, Medved said.

“What is wrong about working with Dubai and Abu Dhabi in your back yard? It saves you a lot of travel time and these are very advanced cities.”

With time, Medved hopes UAE investors will become yet “another pillar” of the Israeli tech scene’s already diversified investor base, working alongside investors from the US, China, Latin America and other Asian players in the local market.

The way ahead won’t necessarily be without hitches, he said. “There will be hiccups along the way, and Israelis will make mistakes,” he said. “It is not going to be a linear process, but I am hugely hopeful.”

The announcement is also a huge blow to the Boycott, Divestment and Sanctions movement, which aims to isolate Israel internationally, Medved said. “This is such a poke in the eye,” for BDS, he said. “How do they call for a boycott when these guys are making peace with you?”

‘You too brother’

Alan Feld, the Canadian-Israeli managing partner of the Vintage Investment Partners, Israel’s leading venture fund of funds, visited Dubai for the first time earlier this year together with nine other Israelis to speak at a conference.

“I had an amazing visit,” he said. “I did not hide that I lived in Israel – everyone knew was living in Israel. I spoke at the conference and they knew I was Israeli.”

Officials and business people he met with expressed an interest in investing in Israel or jointly investing overseas, he said, and they were very interested in Israeli technology in general.

They were just waiting for a formalization of relations to go ahead, he said, along with flights.

Alan Feld, general partner at Vintage Investment Partners (YouTube screenshot)

“I am very optimistic that there will be a lot of great stuff going on between Israel and the UAE,” he said. “Unlike what we have seen with Jordan and Egypt, I think this is going to be a warm peace,” promoted not just by the government but by the people and businesses.

Israelis must be careful not to be too jarring in their dealings with their Arab counterparts, he warned. “I am hoping people will be respectful of their ways.”
The UAE wants to be sort of a Singapore of the Middle East, a hub of business, export and innovation. “They are starving for innovation and they are looking for trusted partners that can cooperate and have the same approach to doing business with people from the region.”

“We have tech that is relevant to their direct domestic needs and for their financial services,” he said. And if there was cooperation before, this is set to increase “exponentially.”

On Friday afternoon, after the news had broken Thursday about the normalization of relations, Feld said he got an SMS from a senior economic figure from Dubai regarding setting up a Zoom meeting. When Feld wished him “have a good weekend” at the end of the messaging session, a moved Feld said the senior figure from Dubai answered: “You too, brother.”

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