In a historic move on 15 September 2020, the Abraham Accords was signed, marking a radical shift for Middle Eastern geopolitics. The Accords create room for productive interaction, communication, and stability in the region. On the day that the Israel-UAE Abraham Accord was signed, a second treaty was signed between Bahrain and Israel, which similarly aims to normalize diplomatic and other relations between Bahrain and Israel. The Accords were collectively known as the Abraham Accords. The significance of the Accords goes beyond geopolitical considerations and extends to the economic sphere, as it involves the potential for greater trade and investment between Israel and UAE.
Significance of the Accords
Reports suggest that there are many far-reaching economic implications for the signing of the Accords. The Israeli Ministry of Economy estimates that the signing of the Accords and the resulting normalization of relations between Israel and the UAE could lead to as much as $500 million in bilateral trade and investment. All indications point to the fact that the Accords are mutually beneficial. UAE and Israel are economic powerhouses in the region whose values are aligned with each other. Through increased dialogue and interaction, they have a lot to learn from each other. The Accords will give the relationship an institutional mechanism to coordinate and develop COVID response measures, reliable water, food sources, and living standards across the region. This will also result in an increased degree of entrepreneurship and development in the region.
Increased Trade and Investments
According to investment groups and financial advisors, the Accords are widely expected to create numerous and wide-ranging investment opportunities. The conclusion of bilateral agreements between the countries is a stated objective under the Accords. The UAE-Israel Accord explicitly mentions intended areas of cooperation, including finance and investment, healthcare, civil aviation, energy, telecommunications, food security, etc. The UAE is already known for its foreign investor-friendly environment and favorable tax regime. The Accord will open up lucrative opportunities for investors from both countries. Following the lowering of trade restrictions between the two countries, a steady stream of cross-border joint ventures between Israeli and UAE companies is expected. Export businesses and companies that focus on value-addition and retail are expected to boom.
The results are already starting to show. According to Dubai Customs statistics, Dubai’s trade with Israel reached AED 1 billion in value, of which imports were valued at AED 325 million (or 718 tonnes), exports totaled AED 607million (5.4k tonnes), and transit trade was at AED 98.7 million (52.4 tonnes).
Infrastructure and Energy
Infrastructure and energy cooperation will be an important area of concern. The energy sector will greatly benefit from the development. The countries across the Middle East are looking to diversify their renewable sector sources. The Accords will bring huge advantages to clean energy cooperation, especially solar power, in the region. Both Israel and UAE have a relatively diversified energy mix, and both have committed to clean energy in recent years. The UAE intends to increase the proportion of renewable energy for its total energy usage to approximately 44% by 2050. The exchange of knowledge and technology-driven by the Accord will be beneficial for the advancement of both countries. Specifically, both nations have announced their intention to work collaboratively with the private sector and financial institutions to “enhance international investment in research and development and the rapid adoption of new energy technologies.”
Through the establishment of the Abraham Fund, the UAE, Israel, and the US International Development Finance Corporation will mobilize over $3 billion in private sector-led investment and growth initiatives to encourage regional economic cooperation and ensure prosperity in the Middle East and beyond. The new projects and businesses will increase the number of potentially profitable investment opportunities in the region.
The commitment to enhance economic trade and diplomatic cooperation demonstrated by the Abraham Accords points to the beginning of promising development opportunities for each of Israel, the UAE, and Bahrain. It will be beneficial for investors to keep a close watch on the developments in the area, as they are expected to bring about a wide variety of investment opportunities.