CEO Middle East

ANALYSIS: THE ACCORD

What does the recent announceme­nt of re-opened trade borders with Israel mean for the UAE and wider Gulf region?

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WHAT ARE THE BROAD ECONOMIC OUTLOOKS FOR SEGMENTS INCLUDING OIL, RENEWABLE ENERGY, TRAVEL AND HOSPITALIT­Y, HEALTHCARE, PHARMACEUT­ICALS AND TECHNOLOGY? THE UAE-ISRAEL TEAM OF LEADING LAW FIRM BRYAN CAVE LEIGHTON PAISNER ANALYSES THE IMPLICATIO­NS AND OPPORTUNIT­IES

On 28 August 2020, UAE President Sheikh Khalifa Bin Zayed Al Nahyan issued Federal Decree Law Number 4 of 2020, abolishing a ban on business and trade dealings with Israel that had stood since 1972. In doing so, the UAE has become the first Gulf nation to normalise its relations with Israel and only the third Arab nation to do so, alongside Egypt and Jordan.

Although dwarfed by its neighbour, Saudi Arabia, the UAE is neverthele­ss considered an economic powerhouse in the Gulf region. Its diversific­ation away from a hydrocarbo­nbased economy was deliberate, wellstruct­ured and has been ongoing for decades.

By leveraging its strategic location between East and West and focussing on logistics

(for example, the developmen­t of free zone ports and the growth of its two principal airlines, Etihad and Emirates) coupled with a progressiv­e approach to foreign investment and the developmen­t of an extensive double taxation treaty regime, the UAE is now firmly establishe­d as a world-class hub for internatio­nal commerce. Today, while boasting the world’s eight largest reserves, only 30 percent of the UAE’s economic output is derived from hydrocarbo­ns, with the rest coming from sectors such as financial services, technology and innovation, real estate and constructi­on, and defence.

The elevation of the UAE’s global economic profile is perhaps most attributab­le to the creation of financial free zones that allow for 100 percent foreign ownership, with their own laws and courts based on English and common law, sitting alongside the “onshore” regime which has modernised in parallel in recent years. The Dubai Internatio­nal Financial Centre (DIFC), establishe­d in 2004, is now seen as one of the world’s leading financial centres, being ranked 12th in March 2020 by the Global Financial Centres Index, ahead of Frankfurt, Zurich, Paris, Chicago and Luxembourg.

As a result, internatio­nal investment in the region has long gravitated towards the UAE, with multinatio­nals looking at free zones such as the DIFC and the Abu Dhabi Global Market (ADGM) as both an entry point and a hub for their Middle Eastern

(and increasing­ly, continenta­l-African) operations. There is also, especially in Dubai, a plenitude of specialist free zones catering for sectors from logistics, healthcare, media, technology and others aimed at attracting commoditie­s trading and start-up entreprene­urship across a range of sectors.

The new relationsh­ip: Which sectors will benefit?

In practical terms, the ability for Israeli companies to establish openly now a presence in the UAE and/or team up on a joint venture basis (whether contractua­l or corporate) with counterpar­ts in the UAE represents a boon for both Israeli businesses looking to expand into the Gulf region and UAE entities seeking to grow their own trading networks. Early estimates indicate that the normalisat­ion of ties could see soon see bilateral trade in excess of $6bn.

In particular, the oil, tourism, medical equipment and pharma, and tech and innovation sectors are expected to flourish:

Oil

While its Leviathan and Tamar gas fields have afforded Israel a degree of increased energy security, the ability to purchase oil directly from a local and reliable partner will be welcomed.

For the UAE, it now has, almost uniquely, a new customer for its oil where Saudi Arabia isn’t competing in the same market.

Tourism and travel

Although Covid looks likely to continue having an adverse impact on tourism for the foreseeabl­e future, both nations are wellpositi­oned to take advantage of the warming of relations.

The UAE’s hub status between East and West is well-known, and the world-class reputation of its two principal carriers, Etihad and Emirates, is widely recognised. It seems inconceiva­ble, therefore, that the UAE won’t attract Israeli business transiting to elsewhere in the world. At the very least, Israeli travellers should benefit from lower fares resulting from the increased competitio­n for traditiona­l providers.

As an indication of just how quickly events are now moving, El Al operated its first flight from Tel Aviv to Abu Dhabi at the end of August, with Etihad and Emirates expected to reciprocat­e from Abu Dhabi and Dubai in the near future.

Tech and innovation

Israel’s reputation as the ‘start-up nation’ is well-deserved. With approximat­ely 80 companies listed on NASDAQ, Israeli tech companies rival their Chinese counterpar­ts as having the second largest number of listings on that market after US companies.

For the UAE, its recent focus on innovation and its desire to attract tech companies is well documented. Various innovation funds have been establishe­d (for example, the DIFC’s $100m Fintech Fund), along with other initiative­s, such as the creation of start-up ecosystems, including regulatory sandboxes, and incubation and accelerato­r hubs in the ADGM, the DIFC, and the Dubai Silicon Oasis free zone.

The opportunit­y for both countries to benefit from cross-border investment flows and broader technologi­cal cooperatio­n, as well as the developmen­t of their respective knowledge-economies, will be welcomed. Tech and innovation relating to irrigation, desalinati­on, agricultur­e, healthcare and cyber security are likely to be of particular interest.

Health and pharma

The two countries have reportedly been cooperatin­g in healthcare for some time. Even before the Abraham Accord, the UAE company, Group 42, signed a memorandum of understand­ing with Rafael Advanced Defence Systems and Israel Aerospace Industries for research collaborat­ion on the treatment of Covid-19.

The speed with which announceme­nts in this sphere have been made since the Abraham Accord has been remarkable. For example, the Abu Dhabi Stem Cells Centre has already announced an agreement with Israel’s Pluristem Therapeuti­cs for collaborat­ion in research into regenerati­ve medicine and APEX National Investment Company of the UAE has signed an agreement with Israel’s Tera Group to conduct research on Covid-19.

With shared interests in certain research areas such as genetics and diabetes, such cooperatio­n is expected to increase further.

The bigger prize: Entry to the Gulf markets?

The longer-term hope is that other Gulf nations will follow the UAE’s lead and move swiftly to regularise their relations with Israel.

Until then, the UAE’s bold decision can provide Israeli companies with a crucial bridge to the wider Gulf region, including, in particular, the giant Saudi Arabian market.

For the first time in nearly 50 years, Israeli and UAE companies can directly transact. Properly structured arrangemen­ts, utilising corporate service provider nominees in the UAE’s financial free zones, offer Israeli businesses a holding vehicle for the region – a route to market adopted by multinatio­nals from other jurisdicti­ons for many years. Further, in bypassing the need to structure through traditiona­l nominee jurisdicti­ons (such as the UK, Cyprus and Singapore) and, instead, utilizing UAE free zone holding vehicles for their GCC operations, Israeli companies may be able to realize significan­t tax benefits.

If this opportunit­y is grasped and the experience of multinatio­nals from other jurisdicti­ons is replicated, the Gulf region will become open not just to major Israeli global companies, but also to the country’s small and medium-sized enterprise­s. As a result, Israeli exports to the region, via the UAE, will grow exponentia­lly.

The members of UAE-Israel team that coauthored this report include: Nohar Bressler, Tel Aviv; Richard Davis, Abu Dhabi / Dubai; Kenneth Henderson, New York; Jonathan Morris, London; Greg Nixon. Dubai

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 ??  ?? ECONOMIC POWER The UAE’s decision can provide Israeli companies with a crucial bridge to the wider Gulf region
ECONOMIC POWER The UAE’s decision can provide Israeli companies with a crucial bridge to the wider Gulf region

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