The United Arab Emirates (UAE) defence market increased at a compound annual growth rate (CAGR) of 3.4% over the past four years, hitting a market value of approximately $9.3 billion in 2012.
The UAE's defence expenditure is primarily driven by its focus on the protection of critical infrastructure, its territorial dispute with Iran and its peacekeeping initiatives in the Gulf.
In order to ensure the protection of the country's most important infrastructures, the UAE has established the Critical National Infrastructure Authority (CNIA), which is forecast to spend approximately US$11 billion by 2021 in order to achieve this goal.
In addition, the UAE fears that issues over the territorial claim on the Strait of Hormuz could lead to attacks from Iran. This fear led the country to increase its defence procurement.
The ability to comply with the UAE's stringent offset requirements is one of the key challenges faced by foreign OEMs. The offset obligation, which can be the equivalent of to up to 60% of the contract value, must be invested in the form of a profitable and sustainable non-oil related joint venture in which the foreign OEM can own a maximum of 49%.
However, to minimise the difficulties faced by foreign OEMs, the UAE has established Abu Dhabi Investment Company (ADIC), which facilitates offset participation.
During 2007-2011, the UAE's defence imports primarily comprised aircraft, which held a share of 60% of the country's total defence imports. Other major categories of defence imports include missiles, air defence systems, sensors and ships.
In 2011, the share of aircraft in UAE defence imports increased to 61% with missiles, air defence systems, sensors and ships accounting for 36%. This was the result of the government's military modernisation program, which aims to improve the country's air defence capabilities.
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