September 8, 2020
In the quest for business opportunities, areas of potential cooperation include high-tech accessories, tourism and, of course, oil.
The landmark Israeli-Emirati normalization deal has created palpable excitement in Israel over new economic opportunities. On the surface, the combination of Israel’s culture of entrepreneurship and the UAE’s immense oil resources feels like a match made in heaven.
Yet a deeper examination of economic data reveals that the mutual benefit of the accord is not as clear-cut as it seems. The Israeli and Emirati populations are roughly the same size. Their UAE’s GDP is larger overall, but Israel has the advantage on a per capita basis, and the UAE’s per capita GDP actually declined 6 percent in 2019. However, the UAE leads Israel in the realm of trade balance, with exports far exceeding imports. Israel has a negative trade balance. Other data points reinforce the initial impression that Israel and the UAE are more or less economic equals.
It is important to note that, contrary to popular opinion, the UAE is not an economic giant that has tremendous opportunities to offer to Israel. Nor will the nations’ nascent relationship be a one-way street, with Israel benefiting from the UAE and the UAE receiving little if anything in return from Israel. For economic ties to flourish, these questions remain: What does Israel have to sell to the UAE, and what does the UAE have to sell to Israel?
On the first count, the UAE imported almost $12 billion worth of diamonds in 2018 (the last year for which full numbers are available), an area where Israel has a comparative advantage over Abu Dhabi’s existing trade partners. Further, about 40 percent of the UAE’s imports come from the U.S., Japan, and Western Europe, whose exports are similar to Israel’s. Israel, on the other hand, cannot compete with the exports of China, India, and Vietnam, the UAE’s other major trade partners.
Aside from diamonds, the UAE’s leading imports are in computer and automotive technology as well avionics. Those are also the leading areas of Emirati exports. Like Israel, the UAE imports raw materials and components for these product categories, and then exports the finished products. Accordingly, the Israel-UAE economic relationship could develop more in the area of cooperation than direct trade. The Emiratis may be interested in purchasing Israeli high-tech accessories to add to their finished products.
A major economic benefit for Israel could be access to another source of oil. Currently, the Baku-Tbilisi-Ceyhan pipeline (connecting Azerbaijan, Georgia, and Turkey) provides Israel with 40 percent of its oil. The Jewish state’s other suppliers include Mexico, Norway, Angola, Egypt, the Kurds, Russia, and Kazakhstan. But a closer source of oil would benefit Israel; the UAE could play that role.
However, the Emirates may have other ideas. In an effort to diversify its economy away from the current dependence on oil, the UAE is trying to develop its tourism industry. The country projects tourism revenue of $85 billion by 2027. Given Israelis’ affection for overseas travel, tourists might become the major benefit Israel offers the Emirates.
At the same time, the Emirates may supply Israel with tourists of their own, as they come to visit for both commercial and religious purposes. Here again, the advantage may belong to Israel.
How many times can people visit a country like the UAE whose major attraction is its oil industry? How many people would visit such a country even once? Alternatively, Emirati travelers can easily find motivation to repeatedly visit Israel’s Muslim holy sites.
Another economic factor that could mutually benefit Israel and the UAE is the currency exchange rate. The Emirati dirham currently trades at $3.67, while the Israeli new shekel trades at $3.40. This relative parity in exchange rates bodes well for Israel-UAE trade.
What is relatively certain is that Israel and the UAE can count on the hunger of entrepreneurs in both countries. As diplomacy winds its way through the obvious obstacles, Israeli and Emirati entrepreneurs will not hesitate to pursue new business opportunities.
While the fallout of this diplomatic breakthrough is more complex than meets the eye, Israel should be cautiously optimistic about the economic benefit that it stands to gain from its new friend in the Middle East.ABOUT
Michael Humphries teaches marketing and management at the Jerusalem College of Technology and is deputy chairman of the Business Administration Department at Touro College Israel, where he teaches finance.