UAE - The normalisation of diplomatic and trade relations between the UAE and Israel will unlock mutual trade opportunities, propelling bilateral trade in the medium-term to anywhere between $4 billion and $6.5 billion, equivalent to about one per cent to 1.5 per cent of each country’s GDP.
Atradius, a global provider of credit insurance, said given the complementary nature of the two nations’ economies cooperation between the two nations is likely to intensify in the long-term despite potential regional geopolitical tensions.
The opening of direct air traffic and direct shipping lines between the two countries will help further boost the two-way trade. Another critical catalyst to the trade will be the “peace corridor” or direct land route between the two markets.
“The prospect of mutual benefit through a deepening trade relationship is evident,” said Schuyler D’Souza, managing director for the Middle East at Atradius.
Following the historic Abraham Accord signed on September 15, the prospects for increased bilateral investments have also been brightening. The UAE recently announced it was setting up a $10 billion investment fund aimed at strategic sectors in Israel. The decision, Wam said, was taken following a “constructive” phone call between His Highness Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, and Israeli Prime Minister Benjamin Netanyahu.
This is besides the $3 billion joint investment fund set up by the UAE, the US and Israel soon after the accord.
“Due to pandemic-induced constraints on local and global demand, we expect to see a more immediate impact on some sectors like healthcare and agriculture, while other sectors, for example leisure and hospitality, will take some time to see growth boosted by the peace deal. But, overall, the normalisation presents enormous opportunities for the business communities in the UAE, and we are fully prepared to help exporters explore trade opportunities,” D’Souza said.
With recessions in 2020 behind them, the report notes that the economic growth outlook for both is relatively strong. “Their economies are complementary in that they both have a GDP of around $400 billion and their relatively small populations enjoy high living standards. Both economies are well diversified, and the favourable business environment in each bodes well for developing an intimate trade relationship.”
Opportunities for the UAE include exports of perfumery, plastics, aluminium, cement and other construction materials. Israel has a strong comparative advantage in, medical electro-diagnostic devices, chemical products and unfermented fruit and vegetable juices.
“Through either trade or investment, the UAE could benefit from Israeli expertise in healthcare and agri-technology. The UAE is making a great effort to attract foreign investors and is already one of the largest recipients of FDI in the Gulf region. The Dubai World Expo later this year, where Israel will have its own pavilion, is a great opportunity for Israeli companies to showcase their innovations,” said the report.
Owing to Israel’s gas production expansion, Israel’s real effective exchange rate has already appreciated by almost eight per cent since 2016. With the dirham depreciating at the same time, Israeli goods became 20 per cent more expensive in terms of UAE goods. The shekel will continue to strengthen gradually, which at some point could price Israeli companies out of the UAE’s market.
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