The United Arab Emirates defence market expenditure reached a value of approximately $9.3 billion in 2012, growing at a CAGR of 3.4% between 2008 and 2012. The growth in the United Arab Emirates defence market can be attributed to a number of key factors, including a modernization initiative. The UAE defence market is proving attractive to foreign companies, with a number of deals being signed by foreign OEMs at biennial international defence expositions.
With substantial financial resources, minimal indigenous defense capabilities and a growing threat from Iran's advances in ballistic missile technology, the UAE is investing heavily in defense, with a particular focus on fighter jets, anti-missile systems and homeland security. The country is expected to spend US$52.5 billion on defense during the forecast period.
The UAE's defense 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. Oil and gas industries contribute a third of the country's GDP, making it of the highest priority for the UAE to protect its reserves which in turn are expected to drive the demand for homeland security systems in the forecast period, such as border patrol and surveillance systems.
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 minimize the difficulties faced by foreign OEMs, the UAE has established Abu Dhabi Investment Company (ADIC), which facilitates offset participation.
- The UAE's preference for the transfer of technology as part of defense deals poses another significant challenge to foreign OEMs wishing to enter the market. To enhance its indigenous capabilities, the UAE often requests external firms to share proprietary information with domestic defense firms. Although a small number of OEMs that complied with these requests, the majority of firms remain reluctant to share this information, especially as these companies are not permitted to hold a majority share in the joint venture.
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