Inshallah, Hayom: Getting Down To Business After The Abraham Accord Between Israel And The UAE
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With the new openings of the Abraham Accord between Israel and the UAE, we are seeing the early stages of the Gartner Hype Cycle play out at the nexus of global diplomacy and business. With a flurry of travel by VCs and entrepreneurs on both sides to generate new business together, the possibilities for collaboration across all sectors are seemingly endless and expectations are high. It will take years, if not decades, to achieve a steady state of foreign investment and trade between the UAE and Israel.
There will be notable successes early on, likely followed by disputes over deals gone wrong, and followed by questions in the next three to five years over the right long-term partnership model. To achieve long-term success in the relationship and avoid the notorious “trough of disillusionment” in the coming years, the UAE and Israel should focus on a few fundamental principles of commercial diplomacy:
1. Let cultures meet in the middle For understanding cultural differences in business decision making, INSEAD professor Erin Meyer’s classic book The Culture Map provides a terrific resource. As complex negotiations begin, there may be differences in behavior on each side arising from cultures of communication. As with all good relationships, both sides must be prepared to meet in the middle, somewhere between inshallah and hayom. As Yagub AlSerkal, founder of YAS Investments, put it: “Ultimately, we will be guided in this relationship by new generations who want peace and prosperity, who see more commonalities than differences, and who take the time to understand one another.”Israeli negotiators are notoriously direct and blunt in their delivery. This is borne of a mindset from Israel’s founding that tomorrow is not a certainty, and therefore, to be productive today (hayom). This culture has benefitted the Israeli people and Israeli industry, though sometimes it can feel like you are negotiating with a bulldozer. Yoni Heilbronn, founder of IL Ventures, tells us: “While Israelis often can be overstated in respect of business opportunities, we will need to cut down on the ‘chatter,’ and demonstrate real value as we are cultivating new relationships.”
2. Find the “members clubs” to buffer new relationships It is a general rule of network science that there will be more trust in a bilateral relationship if there are more relationships in common and stronger relationships in common. For this reason, a UAE-Israel Chamber of Commerce has already been announced, to bring together leading businesses from both sides and facilitate a community with a higher basis of trust.
The analogous UAE-India Business Council, which was set up in 2015 when the bilateral partnership between the two countries was renewed under Abu Dhabi Crown Prince H.H. Sheikh Mohamed bin Zayed and India Prime Minister Narendra Modi, has since helped to open channels of communication for new business, regulatory advocacy, and addressing problematic business cases between the nations.Other investor forums with a track record in the UAE and relationships in Israel may play a prominent role in creating mutual networks of trust. The Milken Institute has held very high profile conferences in Abu Dhabi in the past three years, and it is known to have terrific connectivity in Israel as well, so that may also be a natural forum for new business.
3. Structure partnership incentives, not just transactions As evidenced in the UAE’s strategic partnerships with India and China, resilience is built not by focusing on one transaction, but by creating long-term partnerships that will include various deals over time. The partnership approach creates opportunity cost to subverting the terms of earlier deals, in that future value will be lost. A long-term view similarly helps to de-risk new investments or relationships, because it allows more time to get comfortable with the new partner. Being in a rush leaves room for cutting corners and further disputes, which can place a damper on the whole bilateral relationship. Observing the UAE’s strategic partnership with India, the interest to see growth in trade and investment across a range of sectors has incentivized both sides to take on the hard issues when certain deals inevitably do not go as planned, as seen in the telecommunications and real estate sectors. It takes long-term commitment to work through the ups and downs.
4. Trust but verify: deploy virtual due diligence to check hidden risks Because the track record of UAE/Bahrain and Israel firms working together is in its infancy, conducting due diligence on a potential partner will lack certain comparators that might already exist for example in the UAE-India or UAE-China relationships. Therefore, it is worth investing time and resources into virtual due diligence, to understand whether your experience of the prospective partner or deal comports with other forms of data that can be aggregated. “Trust but verify” are words to live by, particularly in new and unfamiliar circumstances; corporate intelligence will help to reduce uncertainty and risk.
5. Use strong “prenuptial agreements” to encourage strong “marriages” It is an adage that “good fences make good neighbors,” and so do clear agreements make good business partners. Particularly when dealing across borders and native languages, it is as important to know how the parties would unwind a relationship as it is how a relationship would grow. Having clear, respectful conversations about exit clauses and dispute resolution clauses sets clear expectations for what happens in the event that one side is not happy. Having a business plan of action in the event of dispute helps investors to reduce risk and uncertainty.
Importantly, dispute resolution clauses should call for governing law and jurisdiction outside the UAE or Israel. For example, the London Court of International Arbitration, International Chamber of Commerce in Paris or Bahrain Chamber for Dispute Resolution are all high quality institutions. A progressive dispute resolution clause will also require a period of commercial diplomacy or direct negotiations prior to commencement of any legal proceeding.
Beyond hype, the sectors for collaboration are seemingly endless at the moment, with entrepreneurs on both sides wanting to partner across technology-focused “4.0” industries, all the way through to expanding trade in dates, a most ancient food of the region. While there is considerable excitement, a flurry of cross-border Zoom calls, and a surge in visits from Herzliya to ADGM, the real fulfillment of the Abraham Accord will take many, many years to see its potential realized. The success of the commercial aspects of the new opening with Israel will rely on long-term commitments to effective commercial diplomacy, with investors and their emissaries ensuring best practices for partnership development. This way, we will get beyond the Hype Cycle, and make real long-term progress.