In a period of just a few months, four Arab nations have agreed to normalize relations with Israel – Bahrain, Morocco, Sudan and the UAE. Although they do not resolve the ongoing conflict between Israel and Palestine, the Abraham accords create positive momentum for greater interaction, communication and stability in the Middle East. Apart from geostrategic considerations, there was initial optimism that the accords would lead to tighter economic relations and an increase in investment and trade. This is already manifesting itself in landmark investment deals, but in the longer term, more work may be required.
To be sure, there already have been remarkable events showcasing the changes in regional geopolitics and investment. Direct flights have taken place between Tel Aviv and Abu Dhabi, Dubai, Khartoum, Manama and Rabat. Thousands of tourists have flooded from Israel to Dubai, where the first public celebration of Hannukah was marked by the tallest building in the world, the Burj Khalifa, displaying a Hebrew message in front of a large graphic of a menorah. And in December, the UAE’s Sheikh Hamad bin Khalifa Al Nahyan bought 50 percent of the Israeli soccer club, Beitar Jerusalem, while an Israeli-UAE consortium agreed to buy Finablr, a London-based international payments and exchange company.
These are all developments to be applauded and celebrated, and there will be further progress in 2021, particularly involving the UAE, which is enthusiastically engaging in economic activity with Israel. DP World has expressed interest in investing in Israeli ports and logistics facilities, which will allow the firm to link up the Gulf to the Mediterranean. Emirati investors have also been assessing strategic investments in technology, agribusiness and financial services, while the ministries of energy in the two countries have discussed opportunities for cooperation.
But even with the flurry of initial investments and enthusiasm on both sides for deepening economic engagement, there are also barriers to trade and investment that may serve to limit the extent to which such opportunities can be realized.
As an example, Israel’s Trading with the Enemy Ordinance forbids Israeli companies from doing business with any person that has been “conducting business in an enemy state” or any entity that “conducts business under the supervision of an enemy state.” The definition of an enemy state is somewhat vague, but the finance ministry lists current enemy states as Iran, Iraq, Lebanon and Syria.
The UAE, to its credit, is a diverse society that has acted as a commercial magnet for people around the world, and in particular the Arab world. As such, the relationship some of its companies have had or continue to maintain with some regional firms and individuals could prevent them from doing business with Israel.
On the other hand, the inclusion of Lebanon on the Israeli list of enemy states might indicate there is substantial latitude in interpreting the law, given the wide range of international companies that invest in and trade with Lebanese companies and individuals, that also participate in the Israeli economy. Such companies range from those in finance to telecoms to motor vehicles to food and drugs and more.
Still, while the Abraham accords will likely deepen trilateral investment opportunities between the UAE, Israel and the US, it may do little to increase trade. The three countries already set up the Abraham Fund in October, with a goal of delivering a fund of $3 billion designed to promote regional economic cooperation. However, there is little that can currently be done to harmonize trade agreements. Even though the US has already signed free trade agreements with Bahrain, Jordan, Morocco, Oman and Israel (the latter way back in 1985), the US and UAE have not been able to conclude negotiations for a similar agreement.
Although there could be opportunities for the UAE to benefit from the US-Israel FTA by part-manufacturing products in the UAE and finishing them in Israel, the rules of origin clause in the agreement mean that 35 percent of the item’s value must be produced in Israel through value-added content, which might prove too great a challenge for most production processes.
Thus, it has yet to be seen whether the initial flurry in investments and activity in cooperation continues to deepen into a long-term partnership, and in particular whether goals such as reaching $4 billion in trade hold up. There is certainly much political will on both sides and there are also complementarities in trade: Israel imports almost all of its crude oil and could benefit from a further diversity of its supply from a regional exporter, while Israel’s high-technology export focus would benefit the UAE’s increasingly technological economy and manufacturing base.
Yet as the opening enthusiasm wanes and the wheels of commerce grind, it may take further artful diplomacy and a favorable economic environment to enable the solidification of ties. And for countries with less dynamic, less open and less complementary economies than the UAE – such as Morocco and Sudan – the path to greater trade and deep economic ties seems even more of an uphill struggle.
Christian Le Miere is the founder of Arcipel, a strategic advisory firm based in London and The Hague. Previously he was a senior advisor to an entity in Abu Dhabi and a senior fellow at the International Institute for Strategic Studies in London. @c_lemiere