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UAE Leads Gulf Arab Push to Build Up Domestic Defense Industry

Visitors walk past a stand for Italian defence group Finmeccanica during the International Defense Exhibition and Conference (IDEX) at the Abu Dhabi National Exhibition Centre, February 19, 2013.

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Reuters

February 19, 2013

ABU DHABI — The United Arab Emirates (UAE) is at the forefront of a regional push to build up domestic defense manufacturing capability to reduce reliance on imports that come with too many strings attached, analysts say.

Wary of non-Arab adversary Iran in a competition for regional predominance, and seeing an increased security threat from Islamist militants, Gulf Arab monarchies have some of the fastest growing military budgets in the world.

The UAE has established a small defense industry that includes maritime security and defense-related services such as maintenance and repairs over the past two decades.

Now, the UAE has begun to pursue more sophisticated, high-tech capabilities in a strategy combining joint ventures with foreign firms and a programme in which deals commit companies to transfer technology and skills to the Emirates.

"The point of the UAE having an indigenous defense industry is to become self-sufficient and break away from the stranglehold of particular countries," said Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis.

"The United States has some of the most advanced technology capabilities but because of technology transfer restrictions to other countries, the UAE wants to find solutions to those problems from elsewhere."

The UAE and Saudi Arabia are among several states, according to diplomatic cables released by WikiLeaks, that have asked U.S. officials to buy armed drones but which have been rebuffed. The Gulf Arab state this week awarded a contract to buy an unarmed version of a Predator drone from U.S. firm General Atomics.

"The aim is both to be defense-capable and part of the diversification of the economy," UAE military spokesman Obeid al-Ketbi told a news conference at the biennial International Defense Exhibition and Conference (IDEX) in Abu Dhabi.

"We are working hard through joint ventures on this strategy of defense capabilities and industry."

The UAE is forecast to spend up to $12.9 billion per year on defense over the next three years, compared with $9.3 billion in 2011, said David Reeths, director of aerospace and defense consulting for Europe, Middle East and Africa at IHS Jane's.

Funded from huge oil and gas revenues, Gulf Arab states are on pace for an overall 4.6 percent yearly growth in defense spending over the next few years, Reeths said.

In contrast, the global annual rate is forecast at 1.3 percent over the same period. China's defense budget is expected to rise 9 percent in the same time.

High Tech, Small Scale

High-tech and small scale is the best way forward for the UAE's local defense manufacturing, according to Ali al-Dhaheri, general designer at the privately-owned, Abu Dhabi-based ADCOM Systems, which makes and exports drones.

"We don't care about larger-scale industry, the country is small. We don't want to fool ourselves. We are small and all our manufacturing will probably be hi-tech and small-scale. And services will also be part of it."

A recent joint venture between Abu Dhabi government-owned Tawazun and Sweden's Saab AB to build advanced radar systems in the UAE highlights the strategy.

"That's really a very high-technology capability so that's a first for the UAE," Reeths said.

The UAE already has several joint venture defence deals with global players including Boeing and Lockheed Martin.

Abu Dhabi's investment vehicle Mubadala is expanding on the services side of the sector, running seven local companies in defence-related operations such as maintenance and repairs.

On Tuesday, Ketbi announced that over 2 billion dirhams ($544.5 million) worth of deals had been awarded with Mubadala's Advanced Military Maintenance Repair and Overhaul Centre (AMMROC, winning a 1.8 billion dirham aircraft maintenance contract.)

Analysts and industry players said Gulf Arab countries would need to coordinate if they wanted their region to develop a broad industrial defence base. But mistrust and rivalry among Gulf states was preventing any such coordination, Karasik said, and for now the UAE was leading the pack.

"In the short term I don't see unity or alignment in the defense industry [in the Gulf], but I do see a lot of countries mimicking the UAE,'' he said. "You see Saudi trying to do this, and also Oman and Kuwait but it's on a much smaller scale. They don't have the Mubadalas and Tawazuns."

ADCOM's Dhaheri agreed that any coordination among the Gulf states - which maintain a loose economic and political bloc as well as a Gulf defence pact - on this front was a long way off.

"We would love to see that but given the turbulence in the region we have to be realistic. I don't think we are ready yet for integration."