The Economist - USA (2021-01-30)

The EconomistJanuary 30th 2021 Business 53

1

I

srael and the United Arab Emirates

(uae) have maintained unofficial rela-

tions for a while, despite a half-century

boycott in much of the Arab world of the

Jewish state in its midst. So, too, with com-

mercial ties. Goods moved between the two

economies, but only by passing through

intermediaries in third countries first. This

made sense for high-margin products like

technology, an Israeli forte, or diamonds,

where the rigmarole could tack on a week’s

delay and a surcharge of 1% for extra bank

fees and insurance. Trade was pointless for

most other businesses.

No longer. On January 24th Israel

opened an embassy in Abu Dhabi, the uae’s

capital, as part of the Abraham accords, a

diplomatic deal brokered by America and

signed in September. The outpost has sym-

bolic value. It is also a beachhead for Israeli

and Emirati bosses and investors keen on

doing business. And there is plenty of busi-

ness to be done “now that the relations be-

tween the two countries have come out

into the open”, says David Meidan, a former

senior spy at Mossad, Israel’s intelligence

agency, who advises Israeli companies op-

erating in the Arab world. Boosters talk of

up to $6.5bn in annual bilateral trade—

equivalent to 5% of Israel’s current total

and 1% of the uae’s—within a few years,

and billions in investments.

In the past six months Frost & Sullivan,

a consultancy, has been pitching deals with

its Israeli clients to Emirati firms in indus-

tries from carmaking to food. Until No-

vember, half rejected the advances out of

hand. Now only a third do, says Subhash

Joshi, head of Frost & Sullivan’s Middle

Eastern practice in Dubai. He expects the

share to keep falling. On February 7th-8th

Abu Dhabi will host a high-profile uae-Is-

rael investment summit.

A commercial love-in is in the air. Two

port operators, Israel Shipyards and Du-

bai’s dp World, are planning a joint bid for

Israel’s newly privatised Haifa Port. The Ba-

rakat Group, the uae’s largest fresh-pro-

duce importer, is offering Israeli fare to the

Emirati hotels and markets it supplies. Its

managing director, Kenneth D’Costa,

praises Israeli avocados, which he expects

to take market share from pricier European

fruit and poorer-quality Kenyan ones.

That is just the start. Spending by Emi-

rati farmers on Israeli agricultural kit,

seeds and know-how (responsible for

those avocados) is expected to balloon, as

the uae tries to decrease its reliance on for-

eign food, which makes up 80% of Emirati

diets. Israel, for its part, will gain access to

Emirati oil and gas, petrochemicals, build-

ing materials and other bulky goods, where

thin margins made circuitous channels

unprofitable. A recent study by the cham-

bers of commerce of Dubai and Israel iden-

tified “potential” for Emirati exports of ce-

ment, ceramics and metals, which Israel

now gets from farther afield at higher cost.

Direct travel between the two countries

will also boost business. Before the latest

covid-19 lockdown as many as 25 flights a

week ferried travellers between Tel Aviv

and Dubai. There were none before the ac-

cords. In December alone more than

40,000 Israelis flew to Dubai. Israeli-pass-

port holders are at last able to get on the

ground in the uae to drum up investment

for Israel’s tech-startup scene, says Sharon

Daniel, a venture capitalist in Tel Aviv.

The Emiratis understand the Arab re-

gion “much better than we do”, says Erel

Margalit of Jerusalem Venture Partners, a

big venture-capital firm. They are also a

gateway to the Far East, he adds. Asaf Azu-

lay, marketing chief of Bank Hapoalim, a

big Israeli lender, likewise spies “a double

opportunity”: to gain access to the Arab

world and Africa, and to invest jointly. His

company has already signed co-operation

agreements with two Emirati banks.

Dan Catarivas of the Manufacturers’ As-

sociation of Israel expects unfettered busi-

ness travel to boost trade in sensitive areas

like security software and advanced equip-

ment for health care, defence and energy

production. It makes sense for the two

most technologically advanced countries

in the Middle East to “work together as

hubs and research centres”, says Yoaz Hen-

del, who until recently served as Israel’s

communication minister.

It isn’t all plain sailing. Emiratis, taught

to view Israel as evil, need time “to absorb

this new reality”, says the boss of a big Emi-

rati food importer. He has decided to steer

clear of Israeli suppliers for now. After de-

cades of animosity, some friction is inev-

itable. But signs of warming relations

abound—literally in the case of Hebrew

script popping up on Dubai streets. Jews

walk about in religious garb. It is “almost

like everything Judaism became trendy”,

says an Emirati official. And for Israelis

willing to move domicile, adds Mr Meidan,

there is the added bonus of doing business

in a country with no income tax. 7

DUBAI AND JERUSALEM

Emirati and Israeli bosses cannot wait

to do business

Middle Eastern commerce

Abrahamic profits

Ripe for a thaw

H

oward schultz, former boss of Star-

bucks, used to imagine its coffee shops

as a “third place”: a spot to hang out, as you

do at home or in the office. Yet even free

Wi-Fi persuaded only one in five Ameri-

cans to stick around; the rest ordered to go.

Then covid-19 collapsed the distinction be-

tween hearth and work. Being a two-and-a-

halfth sort of place was not all bad in a

plague. On January 26th Kevin Johnson, Mr

Schultz’s successor, reported Starbucks’s

best quarter of the pandemic so far. But glo-

bal same-store sales, a benchmark metric,

still fell by 5%.

Recovery is furthest along in China, the

firm’s largest international market, which

got the pandemic under control faster than

the West. Same-store sales in China grew

by 5% last quarter, year on year (possibly

helped by the downfall of Luckin Coffee, a

local rival embroiled in a fraud). Including

the nearly 600 new outlets, too, total China

revenues rose by 22%, to $911m.

The pace of new openings slowed from

the previous quarter, when a new Chinese

outlet opened every eight hours or so, but it

remained faster than before the pandemic.

In November Starbucks broke ground on a

Coffee Innovation Park in the province of

Jiangsu, which will roast and distribute

beans to the 6,000 coffee shops the com-

pany plans to run in China by 2022.

Chinese coffee-drinkers have been lap-

ping up its app-based loyalty programme,

which now has 15m members in China, up

from 10m at the start of 2020. That bodes

well for future sales in a traditionally

undercaffeinated market where the bever-

age is winning over ever more converts.

The app propped up sales in America,

too. Those fell by just 5% year on year, de-

WASHINGTON, DC

The caffeine-peddler bets on China,

cyberspace and suburbia

Starbucks

Espresso lane