How Saudi Arabia and Israel are Building Tech Cooperation?

If you feel like you’re hearing a lot about Saudi Arabia and Israel signing investment agreements and striking economic partnership deals these days, it’s because you are.

Ties between Israel and Saudi Arabia have been warming for years but got a huge boost in 2022. The reason is that until the Abraham Accords – a set of diplomatic agreements signed between the UAE, Bahrain and Morocco and Israel in 2020 - these commercial ties happened behind the scenes, mostly through companies registered with European or other countries, and deals were signed there.

In 2022, cooperation in tech and investment areas is moving forward at an unprecedented speed. In May, the Israeli media revealed that Israeli businesspeople had, for months, been flying to Saudi Arabia on special entry visas at the invitation of Saudi entities. What is more striking is that they entered the Kingdom using their Israeli passports – something absolutely unimaginable before. As unimaginable would have been to hear about the Saudi and Israeli companies signing dozens of agreements with each other, and if earlier they did it through European intermediaries, now they do it directly.

In July Saudi Arabian company Mithaq Capital, controlled by the Alrajhi family, Saudi banking tycoons, increased its small holding in Israeli autotech company Otonomo Technologies up to 20.4 percent. In doing so, Mithaq became entitled to discuss strategy, governance and business with the Israeli company's representatives. “We like the innovation and the technology culture that Israel has, and we try to find ways to benefit from that,” says Muhammad Asif Seemab, managing director of Mithaq Capital.

Already being the biggest shareholder in Israeli ad-tech company Tremor International with a 22% stake. Mithaq says it may further increase its stake in Otonomo in the future.

The news came weeks after Saudi Arabian sovereign wealth fund PIF allocated millions of dollars in a private equity firm run by former Trump adviser Jared Kushner, which specializes in investments in Israeli tech companies. It should be mentioned here, that Kushner is considered to be the main architect of the Abraham Accords.

Earlier, Riyadh invested in Israeli startups operating in the US using an investment fund run by another former Trump official, Steven Mnuchin, as the intermediary.

Despite these intense economic ties, officially, relations between Israel and Saudi Arabia are still quite cool. Saudi Arabia defends the right of the Palestinians to their own state, while Israel continues building settlements on the West Bank.

But still, this economic cooperation would have been impossible without Saudi Arabia and Israel seeing eye to eye with eath other on many other political matters. Saudi-Israeli relations have been developing since the mid-2000s against the background of the Iranian nuclear program. Both countries perceive Iran as a threat to their national security and seek to prevent it from obtaining nuclear weapons.

In the 2010s, cooperation reached a new level – countries no longer made serious efforts to hide contacts, and coordinated their efforts on a wide range of regional issues: the fight against terrorism, Iran's influence in the Middle East, the Palestinian issue. Riyadh and Tel Aviv also exchanged intelligence information.

But these were all political ties, not the economic ones. The difference is that the political ties happen through governments, while economic ones are established by private companies led by common people. Now, the private sector on both sides is rushing to build relations. Dr. Nirit Ofir, the CEO of the Israel-GCC Chamber of Commerce, believes that businesspeople are not limited by diplomatic issues and that when the personal encounter and interests combine, they move forward.

The number of requests from Saudi businessmen for entry visas for Israelis steadily increases, and the interest for knowledge about Israeli technologies is rapidly growing among Saudi entrepreneurs. If not on the Saudi soil, businessmen can now meet in the neighbouring UAE or Bahrain.

Both Saudi Arabia and Israel have common challenges to address, ranging from agriculture and water management technologies to cybersecurity and fintech. Being home for 55 unicorns, Israel is the biggest VC and startup center in the Middle East. And Saudi Arabia desperately needs technologies.

The main aim of the Vision 2030 programme is to drive the Saudi economy away from oil, with an emphasis on digitalization and knowledge-based industries. To achieve this, the Saudis need three conditions to be present: significant financial resources, which act as investment capital; a large number of skilled labor, especially in IT (this can be either migrants or citizens, which requires a high level of education); good business climate and good regulation for startups.

The Saudi government sees the potential of cooperation with Israel, and this fits with the plans and big reforms advanced by the Crown Prince , says a senior Saudi official.

With 620$ billion in its PIF sovereign wealth fund, Saudi Arabia has an enormous amount of investment capital, and it is only now that this money starts to be poured into domestic market.

Talent, however, is a huge problem. A way to circumventit is to buy technologies and some of the skills coming with them from other countries. Like Israel.

Some entrepreneurs are already trying to build the necessary infrastructure to advance economic and investment ties between the countries. Bruce Gurfein, an American entrepreneur, who’s Jewish and has family in Israel, is working on a business accelerator called Future Gig, that will connect Israeli startups to the Saudi market and vice versa, with a focus on renewable energy, water scarcity and desert agriculture.

However, despite mutual interest, Riyadh does not rush to establish diplomatic relations. The current level of informal cooperation with Tel Aviv suits Riyadh both economically and politically, despite US attempts to bring the positions of the two countries closer.

Saudi Arabia seeks to maintain its status as the leader of the Arab world, which implies support for Palestinian statehood. The Kingdom also realisies that the majority of the Arab population still has a negative attitude towards Israel, including inside Saudi Arabia itself, where any rash foreign policy decision can increase the number of opponents to the radical modernization programme advanced by the Crown Prince.