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How the UAE-Israel deal could unlock the region’s digital potential

The UAE and Israel normalised trade relations in a historic deal last year and there are high hopes for its impact on the region's tech ecosystem.

In August 2020, the UAE took the historic decision to normalise its diplomatic relations with Israel in a deal brokered by the US. The Gulf country became the third Arab nation to make this move, after Egypt and Jordan signed peace treaties in 1979 and 1994, respectively.

Although the initiative has been highly controversial across the Middle East and among Muslim states, with many perceiving it as a forfeit of the Palestinian cause, it has also been hailed by businesses worldwide, who see it as an opportunity to unlock economic opportunities in both countries and the wider region.

There is particular excitement about the potential for technology-related trade. The combination of Israel’s vibrant start-up scene with the UAE’s status as a financial centre and gateway to MENA could unlock digitisation in markets that have so far been largely untapped.

As one interviewee told Tech Monitor, the two states are currently in their “honeymoon period”. Longer-lasting relationships might take some work, but they have the potential to be highly fruitful.

UAE Israel digital scene set for boost
Benjamin Netanyahu, Donald Trump, Abdullatif bin Rashid Al Zayani, and Abdullah bin Zayed Al Nahyan at the Abraham Accords ceremony in The White House on 15 September 2020. (Photo by Noam Galai/Shutterstock.)

Complementary ecosystems

At bird’s-eye view, the UAE and Israel are similar countries: both are small territories with more than nine million inhabitants. They also have small but strong tech ecosystems that attract foreign talent and investment.

“You really felt like someone had lifted the curtain and you could see someone so similar to you in so many ways,” says Fiona Darmon, general partner at JVP, an international venture capital (VC) fund. Each country is taking advantage of its own competencies and are complementing each other with their different skill sets and resources.

Israel has a global reputation as a robust technology hub, backed by commercial R&D, government investment and academic research. It also has the largest number of start-ups per capita in the world – around one start-up per 1,400 people – and a mature venture capital industry to support them.

“The high density of all these communities within the ecosystem brings a really massive energy of innovation, collaboration and the ability to take the technology of product to market,” says UAE-based Vijay Tirathrai, managing director at seed accelerator Techstars.

The UAE’s digital economy, on the other hand, is still behind when it comes to maturity, size and scale. But it offers three ingredients that make it desirable to Israeli businesses, Tirathrai argues: it draws talent from neighbouring countries, taps into the substantial capital within the UAE, and has access to markets that Israeli companies cannot reach. The UAE also offers first-class digital and telecoms infrastructure and tax benefits.

“Israeli investors are excited about investing in stocks based here because of the scale that they can reach to the wider region,” adds Tirathrai. “Because the two economies have been isolated and decoupled for decades, it’s only natural that there’s a lot of untapped demand on both sides.”

Looking for talent

Another highlight from Israel’s tech ecosystem is its technical talent, which is heavily backed by R&D and academia. Hilla Ovil-Brenner, managing director at Techstars Tel Aviv and colleague of Tirathrai, says she receives lots of enquiries from investors in the Middle East who want to learn from the Israeli ecosystem.

“Most of the big R&D centres are located in Israel. Alexa was developed here. Our engineers are considered really the best in the world,” says Ovil-Brenner. “I think this new environment and climate allow for both ecosystems that are very similar in that everybody is looking to learn from them actually to connect with each other freely.”

Asher Siddiqui, a Dubai-based tech investor, says this technology talent pool will complement the UAE’s business-savvy mindset. To date, UAE-based companies have looked mainly at India and Pakistan to fill its skills gap, he says, and “to some extent, Egypt and Ukraine”.

More than hiring or outsourcing, Siddiqui believes the most fruitful form of UAE-Israeli collaboration will be commercial and technical co-founders from either country jointly launching start-ups. “It’s a very a different ballgame to have a technical co-founder with you as opposed to outsourcing your tech,” he says. “As an investor in the MENA region, I might actually see interesting and exciting tech companies coming to play.”

What is also appealing to Israelis, continues Siddiqui, is the UAE’s international scene and modern lifestyle, which added to tax benefits, being a safe country and having a strong infrastructure, makes it an ideal business destination for Israelis.

An area where Israelis can learn from the Emiratis is marketing. UAE business culture is similar to the Californian, “very laid back and commercial”, he explains, which can be frustrating to many Israelis who are used to a more direct, quick approach. But first, both sides need to get to know each other and understand their ways of working.

“What I’m doing right now is letting the honeymoon period happen. Everyone’s very excited and all of that. But the reality is, neither side know what it is to deal with the other side – it takes time,” says Siddiqui. “We need to build relationships: it’s really about the relationship, more so than the opportunity. And if the relationship is good, then the opportunity is fantastic.”

The impact on Palestinian technology talent

Unsurprisingly, the normalisation of UAE-Israel relations was met with mixed reactions from states in the region and Muslim-majority countries. Palestinian political leaders unanimously rejected the deal as a “stab in the back”.

Tech Monitor approached Palestinians and Emiratis in the tech sector to comment on the deal, but none were willing to do so. It is, of course, a highly sensitive issue further complicated by the upcoming Palestinian general elections. And the UAE has a track record of persecuting dissidents, according to both Reporters Without Frontiers and Human Rights Watch.

Daniel Easterman is a former software developer and founder of Palestine Tech Jobs, an online platform that connects Palestinians in the tech industry with jobs in the UK and other international markets. He believes that the deal could offer an opportunity for Palestinians in the technology sector.

According to the World Bank, the State of Palestine (including the occupied West Bank and Gaza) produces 3,000 new engineering and computer science graduates each year. But unemployment remains high – 14.8% in the West Bank and 49.1% in Gaza –  so Palestinians are another source of untapped potential talent for the UAE. Palestinian citizens of Israel can also now travel to the UAE under an Israeli passport.

“Given that so many young Palestinians are studying these technical subjects, there’s an opportunity for a country like the UAE and many others around the world to hire those people and to fill those vacancies for all these new tech start-ups that are being created in the UAE,” says Easterman. “It makes sense for companies in the UAE to look at this as a new resource.”

For further reading on the UAE-Israel agreement, please visit ‘UAE and Israel take first FDI steps together’ at our sister site Investment Monitor

Cristina Lago

Associate editor

Cristina Lago is associate editor of Tech Monitor.