This is a best prospect sector industry for this country. Includes a market overview and trade data.
Last Published: 8/7/2019

Overview

The United Arab Emirates (UAE) ranks among the top 15 defense spenders in the world according to Business Monitor International (BMI).  Defense expenditure as a proportion of GDP has remained comparatively high in recent years in response to rising Islamist extremism in the region, persistent tensions with Iran, and the UAE’s participation in the Saudi-led coalition’s military efforts in Yemen.  While the UAE government has continued to procure high-priority defense articles and services, it has focused recent purchases on urgent operational requirements in support of Yemen operations, and has delayed procurement of other lower-priority defense items. 

Accurate information pertaining to UAE defense expenditure has been very scarce since 2016. According to BMI and GlobalSecurity.org, the UAE’s 2016 defense expenditures stood at approximately $23.4 billion.  GlobalSecurity reported that the UAE registered a compounded annual growth rate (CAGR) of 4.5 percent during 2016 and projects the country’s defense expenditure will grow at a CAGR of 6.5 percent to value $31.8 billion by 2021.  On a cumulative basis, the country is expected to invest $140.8 billion for defense purposes, of which $53.1 billion is earmarked for capital expenditure to fund defense procurements. 

Key Stakeholders 
In December of 2014, the UAE government combined several defense and aerospace companies owned by Mubadala, Tawazun Holding, and Emirates Advanced Investment Group (EAIG) into a single entity, Emirates Defense Industries Company (EDIC).  EDIC’s role is to drive the UAE's defense industry by providing manufacturing, training, mapping, logistics, technology development and communications as well as maintenance, repair and operations services for air, land and sea platforms. 

According to multiple sources, at the 2019 International Defense Exhibition and Conference (IDEX), the UAE signed contracts worth an estimated $4.5 billion.  Domestic manufacturers won many of those contracts which is a sign the indigenous defense industry is growing.  Although “buying local” is hardly unique to the UAE, prioritizing domestic manufacturers nevertheless provides some interesting insights into the current state and possible trajectory of its defense industry.

By investing in the UAE’s indigenous defense sector, Abu Dhabi seeks to advance the country’s interests while creating lucrative commercial opportunities outside of the oil and gas sectors for UAE nationals.  The establishment of the EDIC in 2014 was a milestone in the UAE’s efforts to “localize” its defense expenditures, a pillar of the country’s economic diversification agenda.  EDIC came out of the integration and consolidation of defense industry companies previously under the umbrellas of Mubadala Development Company, Tawazun Holding, and EAIG. 

Offset Program
The Tawazun Economic Program, which is overseen by the Tawazun Economic Council, is the UAE’s industrial participation program that seeks to derive economic value from the country’s extensive defense procurement program.  The key objectives of the program include: build critical national defense sectors, create a knowledge-based economy, diversify the UAE economy by growing the country’s industrial base, create business opportunities for the UAE private sector, generate high-value exports, and produce employment opportunities for UAE nationals in high-tech fields. Changes in the new Tawazun guidelines that were issued in 2019

While the focus will continue to be on development of the Defense and Security industry in the UAE, Tawazun will also consider projects in strategic industries like: aerospace, infrastructure & transportation, communication technology, education technology, sustainability, environment & climate change, and food & water security. 

A company incurs offset obligations if the value of the supply contract is equal to or more than $10 million, and if the value is less than $10 million, but the company, or a parent company, already have active offset obligation.  Other changes to the new policy guidelines were changes to project process.  The project duration and milestones for investment and contractual engagement project categories are, by default, set at seven (7) years commencing from the effective date, unless otherwise agreed.  For the capability development project category, the project duration is, by default, set at three (3) years commencing from the effective date, unless otherwise agreed.  Additional information can be found at: Learn more at https://www.tawazun.ae/.

Foreign Military Sales (FMS) and Direct Commercial Sales (DCS)
The UAE is one of America’s largest customers under the FMS program.  At the end of FY 2018, UAE had 104 Open/Implemented Cases with a total case value of approximately $24,666,499,835.  The UAE ranked 6th overall and 4th in CENTCOM in terms of open case value, and had sales of $3,217,014,778, ranking 5th overall and 3rd in CENTCOM. 
Many sales of defense articles and services contain both large DCS and FMS components.  Integrating those two approaches into a coherent solution for the customer can prove challenging without close cooperation between U.S. industry and the U.S. Government. 

The U.S. and the UAE enacted a Defense Cooperation Agreement in 2019, which updated the 1994 defense accord.  The agreement will enhance the robust military-to-military cooperation that the UAE and United States already enjoy.  The agreement also enhances cooperation between the two nations at critical times and allows the United States to send more troops and equipment to the UAE.  There are currently 5,000 U.S. military personnel stationed at UAE military facilities. 

Leading Sub-Sectors

The UAE is a net importer of military assets, and the country is open to all suppliers; however, the government is working to reduce its dependence on defense imports through the development of its own defense manufacturing capability.  The UAE Air Force and Air Defense traditionally receive the lion’s share of the UAE’s total defense procurement dollars, followed by the Joint Aviation Command, Land Forces, the Presidential Guard, and the Navy. 
The UAE’s procurement priorities include missile defense; precision fires; intelligence, surveillance and reconnaissance (ISR); command and control, expeditionary logistics; and maintenance, repair, and overhaul.  The UAE GHQ Critical Infrastructure & Coastal Protection Authority (CICPA) is also expanding rapidly and is tasked with protecting key infrastructure such as water desalinization plants, oil and gas platforms, pipelines, and the Barakah nuclear site. 

Opportunities

To support Abu Dhabi’s emirate-wide strategic framework plan – Abu Dhabi Vision 2030 – the Abu Dhabi government is focused on importing knowledge to strengthen the Advanced Military Maintenance, Repair, and Overhaul Center (AMMROC).  AMMROC is a joint venture between Mubadala, a strategic investment arm of the Abu Dhabi government, and the U.S. firms Sikorsky Aerospace Services and Lockheed Martin.  AMMROC aims to provide innovative platform solutions for all fixed and rotary-wing aircraft operated by the UAE Armed Forces and other customers in the region. 

Over the last few years, the UAE has forged a number of partnerships to develop its local capabilities.  Recently, Tawazun announced the establishment of another two business lines: Advanced Pyrotechnics, which will be focusing on the manufacturing of non-lethal ammunitions; and Al Hosn Armored Systems, which will produce protective personal gear. 

Lockheed Martin partnered with Sweden-based Exechon and Abu Dhabi-based Injaz National to establish a machining center in the UAE. 

Canadian WESCAM announced a partnership with ADASI to open a center in Abu Dhabi for the maintenance and repair of its imaging and targeting systems. 

U.S.-based Orbital ATK formed a subsidiary in the UAE with Al Tuff. 

Indian Reliance Defense Limited reportedly signed a cooperation memorandum of understanding with EDIC. 
The UAE Armed Forces currently outsources a number of non-core military service activities, such as aircraft and equipment maintenance and military training to UAE and non-UAE-based private and government contractors.  This arrangement underlines the UAE Armed Forces’ focus on professionalizing its “core” units to ensure they are well adapted and able to face and counter any threat. 

Challenges

While the UAE defense sector is quite promising and a great opportunity.  U.S. companies face several challenges in the market.  Defense tenders in the UAE often lack transparency and clarifying information is often difficult to ascertain.  Procurement requirements may be withheld or changed with minimal or no notice.  In addition, negotiations and requirements can be quite challenging. 

Trade Shows and Exhibitions
Dubai Airshow
Date:  November 17 – 20, 2019
Venue:  DWC, Dubai Airshow Site - Dubai, UAE
Website:  https://www.dubaiairshow.aero/

International Defense Exhibition and Conference (IDEX)
Date:  February 21-25, 2021
(Check with the Association of the U.S. Army for updates)
Abu Dhabi, UAE
Venue:  Abu Dhabi National Exhibition Center - Abu Dhabi, UAE
Website:  https://www.idexuae.ae

Web Resources

Emirates Defense Industries Companies
Tawazun Holding
Advanced Military Maintenance Repair Overhaul Center
International Defence Exhibition & Conference
Dubai Airshow
Critical Infrastructure & Coastal Protection Authority


 

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