Is Israel-Gulf business ready to take off?

Sep 17, 2020

Normalization between Israel and two Gulf Arab states, Bahrain and the United Arab Emirates, is bound to create some interesting economic opportunities for the broader Middle East. Defense sales will certainly be part of the dynamic, both to the Gulf as in the coveted F-35 program from the United States to the UAE, and in sensitive defense and security technology between the Gulf states and Israel already underway. Other state-to-state co-investments are likely in biotech and even in state financial vehicles. There are already lines of credit and banking ties growing between two partly government-owned banks in the UAE and banks in Israel. And Bahrain will certainly promote its growing financial technology centers for Israeli investment. Israeli investors and entrepreneurs seeking to reach broader markets in the Middle East will be able to base their operations in Dubai or Abu Dhabi.

But for smaller business owners and entrepreneurs, where will the opportunity be? In fact, in many of the sectors in which Israel historically has expertise, the Gulf states have already made significant inroads, so much that the Gulf may be a source of innovation and new business for Israel.

Take agriculture and food security, for example. The UAE has prioritized food security since the 2018 release of its National Food Security Strategy 2051. Since the COVID-19 pandemic, that effort has intensified. In June 2020, the UAE government approved a National System for Sustainable Agriculture to increase self-sufficiency in crops, reduce irrigation needs and increase the sector’s workforce. There have been advances in hight-tech vertical farming methods like hydroponics, aeroponics and aquaponics. The Emirates Group will launch the largest vertical farm in the world in a joint venture with US firm Crop One to build a 12,000-square-foot facility that will produce an output equivalent to 900 acres of farmland, using 99% less water. Aquaculture, or fisheries, is another key sector for investment with a number of local companies already active, according to a report by Emirates NBD.

Israeli agribusiness has been able to attract foreign investment, but perhaps at the expense of national food security. In Israel, much of the agribusiness sector has been bought up by Chinese investors. The Chinese state-owned Bright Food Group acquired control of Tnuva, Israel’s largest dairy concern, in a 2015 deal valuing Tnuva at approximately $2.5 billion. In 2011, the China National Chemical Corporation acquired Israel’s Makhteshim Agan Industries, the world’s largest generic agrochemical producer (now “Adama”).

As for foreign investment in Israel, there are restrictions on some Arab nationals who will not be allowed to own a business or invest in Israel, even if legal residents of the UAE. If their business or legal entity also conducts business in or was incorporated “under the supervision of an enemy state,” which includes Syria, Lebanon, Iran or Iraq, according to Israel’s Trade with the Enemy Ordinance of 1939, that business and investment would be illegal, according to current advice from Westlaw.