INTERVIEW: The investment logic of the Israel-UAE entente

INTERVIEW: The investment logic of the Israel-UAE entente
Illustration by Luis Grañena
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Updated 11 October 2020

INTERVIEW: The investment logic of the Israel-UAE entente

INTERVIEW: The investment logic of the Israel-UAE entente
  • Sabah Al-Binali on how a Dubai family business hooked up with OurCrowd, a $1.5 billion-dollar Israeli firm

Sabah Al-Binali has a reputation in the Arab world as a straight-talking deal-doer, with a long record of high-profile transactions in the UAE and Saudi Arabia on his CV. But his latest venture could be just about the most significant of the lot.

Al-Binali, a native of Abu Dhabi but with a solid family lineage in Saudi Arabia, was named head of Gulf region business for OurCrowd, a $1.5 billion Israeli venture capital firm, which has linked up with Al Naboodah, one of the best-known family business names in the region.

“If you look at my experience and what I’ve done in life, it’s been about building businesses and making investments — creating value. It’s not just been about harvesting money,” he told Arab News.

The OurCrowd-Al Naboodah link-up could not have been possible just a few short weeks ago. It is one of the first fruits of the normalization of relations between the UAE and Israel under the Abraham Accord, and the biggest so far in the financial sector.

An investment fund has been set up under the deal, initially with $100 million of capital injected by Al Naboodah and some other Gulf entrepreneurs. Al Naboodah’s business development unit, Phoenix Capital, will seek to create a two-way street in investment business between Israel and the UAE, and with OurCrowd’s 220 portfolio companies around the world.

“I think it says something that one of the first firms Al Naboodah looked to was OurCrowd. It’s a testament that the language of business is global. Both countries have been dealing with the world before — it’s not as if this is the first time that a market has opened from the UAE to the rest of the world.

“The entrepreneurial and business mentality is strong in both counties and once the political normalization happened, you saw how fast things can happen, because both sides are very experienced at striking cross-border deals,” Al-Binali said. 

He believes there are many opportunities for mutually profitable investment relations between the Gulf and Israel. “On all facets of investment, on business development, on research and development, on innovation and on trade, these opportunities exist both in Israel and the UAE. Both countries can be both the origin and destination of the investment,” he added. The eventual size of the fund could reach “multiples” of the initial $100 million, he said.

There are some fundamental synergies between the UAE and Israel that make the connection compelling. “The UAE and GCC governments have created great infrastructure for foreign firms to expand into the region. The Israeli government created a ‘startup nation’ with a leading edge in global technology. It is a natural match,” he added.

He is only a few days into the job, which was agreed within a month of the Israeli-UAE entente, and understandably there is much detailed work to do on where investment funds are directed. But already there are three main channels of focus.

One is into OurCrowd’s big international portfolio. “OurCrowd is a global platform — 40 percent of its investments are outside of Israel, in the US, Australia and Singapore. One of the largest recent unicorns was in Singapore,” he said.


BIO

Born: Abu Dhabi 1970

Education

  • Graduate Princeton University, New Jersey
  • Doctorate Columbia University, New York

Career

  • Head of treasury, Union National Bank
  • Managing director, Saudi Swiss Securities
  • Chairman, Zawya
  • Board director, Credit Suisse Saudi Arabia
  • CEO, Saffar Capital
  • Board director, Al Awael International Securities
  • Vice chairman, Gulf Finance
  • Chief investment officer, Shuaa Capital
  • Vice chairman, The National Investor
  • Chairman and CEO, Universal Strategy
  • Head of Gulf region, OurCrowd.

Then there is business expansion by OurCrowd’s current and future portfolio companies. “These are companies that want to expand operationally into the UAE, Bahrain and other countries if and when they normalize.

“It makes a lot of sense — there is no corporate income tax here in the UAE, while there is lots of tax in Israel. Our work and residence laws are very welcoming and open. We’re a hospitable nation that has experienced welcoming people from all over the world for decades. So that’s an easy one,” Al-Binali said.

“The third one is to back startups and entrepreneurs in the UAE, Bahrain and other places where things are normalized. You can see we’re looking at all opportunities and I’m sure there will be many of them,” he added.

Al-Binali reeled off the potential sectors for the new fund. He sees technology as an enabler in all sorts of areas: Medical, agriculture, national security including cyber, and financial technology. “Fintech in particular, because Israel has technology and the UAE is a financial hub,” he explained.

As an example of business “going the other way,” he cited DP World’s recent deal with Bank Leumi to develop port logistics in the country, but there are many other potential areas too.

In hospitality and tourism, he sees a big potential market in Western Christian travelers who want to undertake a Middle East tour through Jerusalem and Dubai, for example.

The defense business is complicated by the international laws and treaties covering the trade in arms, but, as Al-Binali pointed out, it is not just about weapons of war.

“Cyber technology doesn’t have to be part of the defense sector. It can be used by the financial sector or the telecoms companies. We’re not necessarily talking about the sale of weapons or arms, we’re talking about technology”, he said.

Drone technology is another example of multiple applications. “It can be used in terms of national security, but it can also be used for the maintenance of pipelines and geological surveying. There are lots of uses of drones that go beyond the military.

“Small drones can give civil defense an instant view of what’s going on in a large fire in a building. These technologies can be used in the military but can also be adapted to the civilian sector,” he said.

OurCrowd was founded by American-Israeli entrepreneur Jonathan Medved seven years ago, with a distinct technology edge. It lists Virgin Hyperloop One, the fast-transit technology being developed in the US, but it also has big plans in the Middle East, with one of its portfolio companies boasting an interest valued at $3.8 million.

Al Nabodah is one of the oldest family businesses in the UAE, with the traditional range of business interests in construction, real estate, logistics and transport. “In the investment world and the business world, Al Naboodah is very well known. Anybody wanting to know who to do business with in Dubai or the UAE would have put Al Naboodah on their list. They have deep contacts across the world,” Al-Binali said.

How does Israeli business culture compare and contrast with that of the UAE? 

“It’s similar in that it’s built on relationships and trust, and person-to-person contact — backed by legal paperwork of course — but you have that same initial contact culture. I call it Middle East-ism. In terms of communications style, I’d compare Israelis with Russians, who I’ve experienced before. The language is much more direct.

“But the Israelis understand us because they’ve dealt with a lot of other countries that have the same culture, and I understand the Israelis’ communications style. It’s similar to Russians, and quite similar to New Yorkers,” he said.

Al Naboodah also has an office in Riyadh and has done a lot of business in Saudi Arabia, and while Al-Binali believes it is too early to talk about a rapprochement between the Kingdom and Israel, he is sure there is plenty of business opportunity there too.

“We cannot talk in concrete terms until Saudi Arabia decides whether or if it wants to normalize. But I can say we’d see the same speed of business building that we’ve seen here, because the Saudis have the same characteristics.

“Saudi government institutions are worldly, they’re used to dealing with companies from around the world. Saudi business families are also very global. The same elements that make me see the first initial steps to success in the UAE-Israel partnership exist in Saudi too — except that the Kingdom has a much larger economy.

“If and when relations are normalized, from a business perspective, I can see tremendous value creation in Saudi and Israel, but also for the UAE and Bahrain. The more the GCC is seen as a big common market, the more interest there will be,” he said.

“Some of my business friends in New York are telling me they will deploy into anything between Israel and the UAE. They see this as a virgin business route that can pay huge dividends,” he added.


China economy grows in 2020 as rebound from coronavirus gains

China economy grows in 2020 as rebound from coronavirus gains
Updated 20 min 19 sec ago

China economy grows in 2020 as rebound from coronavirus gains

China economy grows in 2020 as rebound from coronavirus gains
  • Growth in the three months ending in December rose to 6.5 percent over a year earlier
  • China’s quick recovery brought it closer to matching the US in economic output

BEIJING: China eked out 2.3 percent economic growth in 2020, likely becoming the only major economy to expand as shops and factories reopened relatively early from a shutdown to fight the coronavirus while the United States, Japan and Europe struggled with rising infections.
Growth in the three months ending in December rose to 6.5 percent over a year earlier as consumers returned to shopping malls, restaurants and cinemas, official data showed Monday. That was up from the previous quarter’s 4.9 percent and stronger than many forecasters expected.
In early 2020, activity contracted by 6.8 percent in the first quarter as the ruling Communist Party took the then-unprecedented step of shutting down most of its economy to fight the virus. The following quarter, China became the first major country to grow again with a 3.2 percent expansion after the party declared victory over the virus in March and allowed factories, shops and offices to reopen.
Restaurants are filling up while cinemas and retailers struggle to lure customers back. Crowds are thin at shopping malls, where guards check visitors for signs of the disease’s tell-tale fever.
Domestic tourism is reviving, though authorities have urged the public to stay home during the Lunar New Year holiday in February, normally the busiest travel season, in response to a spate of new infections in some Chinese cities.
Exports have been boosted by demand for Chinese-made masks and other medical goods.
The growing momentum “reflected improving private consumption expenditure as well as buoyant net exports,” said Rajiv Biswas of IHS Markit in a report. He said China is likely to be the only major economy to grow in 2020 while developed countries and most major emerging markets were in recession.
The economy “recovered steadily” and “living standards were ensured forcefully,” the National Bureau of Statistics said in a statement. It said the ruling party’s development goals were “accomplished better than expectation” but gave no details.
2020 was China’s weakest growth in decades and below 1990’s 3.9 percent following the crackdown on the Tiananmen Square pro-democracy movement, which led to China’s international isolation.
Despite growth for the year, “it is too early to conclude that this is a full recovery,” said Iris Pang of ING in a report. “External demand has not yet fully recovered. This is a big hurdle.”
Exporters and high-tech manufacturers face uncertainty about how President-elect Joseph Biden will handle conflicts with Beijing over trade, technology and security. His predecessor, Donald Trump, hurt exporters by hiking tariffs on Chinese goods and manufacturers including telecom equipment giant Huawei by imposing curbs on access to US components and technology.
“We expect the newly elected US government will continue most of the current policies on China, at least for the first quarter,” Pang said.
The International Monetary Fund and private sector forecasters expect economic growth to rise further this year to above 8 percent.
China’s quick recovery brought it closer to matching the United States in economic output.
Total activity in 2020 was 102 trillion yuan ($15.6 trillion), according to the government. That is about 75 percent the size of the $20.8 trillion forecast by the IMF for the US economy, which is expected to shrink by 4.3 percent from 2019. The IMF estimates China will be about 90 percent of the size of the US economy by 2025, though with more than four times as many people average income will be lower.
Exports rose 3.6 percent last year despite the tariff war with Washington. Exporters took market share from foreign competitors that still faced anti-virus restrictions.
Retail spending contracted by 3.9 percent over 2019 but gained 4.6 percent in December over a year earlier as demand revived. Consumer spending recovered to above the previous year’s levels in the quarter ending in September.
Online sales of consumer goods rose 14.8 percent as millions of families who were ordered to stay home shifted to buying groceries and clothing on the Internet.
Factory output rose 2.8 percent over 2019. Activity accelerated toward the end of the year. Production rose 7.3 percent in December.
Despite travel controls imposed for some areas after new cases flared this month most of the country is unaffected.
Still, the government’s appeal to the public to avoid traditional Lunar New Year gatherings and travel might dent spending on tourism, gifts and restaurants.
Other activity might increase, however, if farms, factories and traders keep operating over the holiday, said Chaoping Zhu of JP Morgan Asset Management in a report.
“Unusually high growth rates in this quarter are likely to be seen,” said Zhu.