Tradewind: How Trade Finance Is Set To Help UAE Business Capitalize On The Abraham Accords

In early September, history was made as a peace deal was brokered involving the UAE and Israel. Known as The Abraham Accords, the new treaty represents a significant geopolitical statement, which economic experts predict could result in USD 4 billion of worth of additional trade.

The new relationship includesa USD 3 billion investment fund to facilitate bi-lateral trade. As well as symbolizing renewed peace, prosperity, order and security, the move also brings greater stability to the region, with significant opportunities for bi-lateral trade across multiple sectors expected to follow.

Commenting on the new relationship, Maham Siddique, Regional Marketing Director and Vice President, UAE Commercial at Tradewind Middle East Limited said, “Israel is home to a creative, entrepreneurial, multicultural and educated workforce. Being one of the healthiest and most secure economies in the world, it enjoys a high concentration of engineers and PhDs and like the UAE, is a powerhouse of innovation.”

She added, “The UAE is traditionally considered as the gateway to the Middle East. Its unique geographic position provides a trade bridge to the Indian subcontinent, which is useful when you consider that there are over 100,000 Indian-owned and operated companies in the UAE.”

In Israel, many multi-national banks, such as Citibank, JP Morgan, HSBC, Santander and Sumitomo, already have fully operational innovation centers. Consequently, there is great potential for immediate collaboration and support in the fintech space, as well as the trade and corporate finance sectors. On 18 November, it was announced that the Abu Dhabi Global Market Financial Services Regulatory Authority (ADGM FSRA) and the Israel Securities Authority (ISA) entered into a fintech cooperation agreement, with the aim of providing a framework for information sharing, and for facilitating the movement of start-ups, knowledge and talent. In terms of cementing the opportunities for trade, fintech would seem to be leading the charge with the ADGM and Israel’s Bank Hapoalim, signing a Memorandum of Understanding (MoU) earlier this month. This MoU will see the two institutions jointly promote and develop fintech innovation, ecosystems, and market opportunities that will support the digital transformation of the financial services sector and connect the economies of the two countries.

Additionally, it’s in the interest of both markets to expand their economic reach. For Israel, this means a gateway to new regions, including the Gulf Cooperation Council (GCC), Commonwealth of Independent States (CIS) countries, Central Asia, Africa, and the Far East. Also, opening the doors to a regional powerhouse like Israel would complement the UAE’s vision towards its Dubai Industrial Strategy 2030.

The additional tag of ‘Made in the UAE’ would be a significant bonus for ease of conducting business. In fact, it was COVID-19 that pushed the UAE’s ranking to one of the best places for doing business, particularly in the sphere of commodities trade. Many companies will be able to dive into the economy based on various tax and logistical benefits, resulting in increased trade, academic, medical, and scientific collaborations, manufacturing and technology partnerships, and new opportunities in fintech.

The latest trends in trade finance show that traditional trade products, such as letters of credit, are shrinking as big buyers have articulated suppliers for themselves and built up open account solutions. This trend will continue to rise across the Middle East. Furthermore, the new agreement will also benefit buyers from both countries. Buyers who do not have vendor financing programs in place, who wish to diversify sourcing in new markets, or perhaps seek to procure larger order volumes that the supplier may be hesitant to agree on, will likely seek support from specialized trade finance companies. This can include assistance with payment term extensions, increasing days payables outstanding, as well as assisting suppliers with being able to conduct trade on open-account terms.

Commenting on the potential areas of growth, Siddique continued; “I expect to see a shift in mind-set within the UAE with e-commerce anticipated to grow significantly, and so will e-commerce opportunities between Israel and the US. In my opinion, cross-border e-commerce will form the next phase of expansion and will open up more opportunities to purchase goods from across the region,rather than just domestically.”

“The rise in e-commerce will also play a vital role in supporting trade volume. Because of its ability in promoting an open environment that enables customers to transact digitally, it is likely that UAE and Israeli banks will be keen to finance this industry. Banks have historically been comfortable taking risk in this sector, as it offers transparency and visibility.”

“Both governments will need to, alongside various fiscal incentives, encourage and facilitate the creation of liquidity that SMEs desperately need via amendments in regulatory framework. In addition to traditional methods such as bank lending, which is predominantly supplemented through insurance, there is scope for change. When the insurance companies pull back coverage due to adverse market developments, banks follow suit and scale back immediately. Should there be government backing or guarantees provided to credit insurance providers, we will likely see a surge towards greater circulation in the market. An example of such a development is the ICIC (Israel Credit Insurance Company) giving their approval to conducting business in the UAE.”

Currently, the UAE is the leader in the financial sector, as well as in the re-export sector, and businesses will largely benefit from this expertise. Israeli government-backed credit insurance has already given the green light to the UAE, indicating that this is a solid, safe and stable market to operate in. Initially, it is expected that both business communities will take a curious, yet innovative approach, and look for support in import and export opportunities, and other key areas of trade and trade financing.