Abu Dhabi strengthens defence industry while focusing on cybersecurity

The UAE continues to spend heavily on its military capabilities, while at the same time pushing to expand its domestic defence-related manufacturing industries, as a means both to better protect its own national security and to contribute to diversifying its economy away from oil and gas.

Significant agreements point to the long-term success of the goal of developing a domestic industry, even as deals continue to be signed with international arms manufacturers for military equipment for the UAE’s armed forces. In recent years a core focus in Abu Dhabi has been on the commercial development of the emirate’s own aerospace, defence and security industries, with the sector constituting a key pillar of the Abu Dhabi Economic Vision 2030 long-term strategy.

Expanded Role

Speaking at a defence conference in Abu Dhabi in December 2017, Fahad Al Yafei, chief programmes officer at Tawazun Economic Council (TEC), the Abu Dhabi body leading the development of the emirate’s defence industry, pointed to the need for more domestic defence capabilities, and underlined how a domestic industry could help the overall economy grow in new ways, particularly in relation to the shift to a knowledge-based economy. This comes at a time when the federal government is aiming to play a larger role in security operations across the region. In a speech delivered in London in July 2018, Anwar Gargash, the UAE’s minister of state for foreign affairs, said that given how US and European involvement in the region is changing, the UAE is ready to deploy more troops. The UAE has already extended its influence by placing troops and resources across parts of the Middle East and Africa.

Defence Spending

Defence-related spending across the broader Middle East has seen a steep increase in recent years. In 2016 the UAE was the 14th-largest military spender in the world, and between 2012 and 2016 it was the world’s third-largest arms importer after India and Saudi Arabia, according to the Stockholm International Peace Research Institute. Nearly two-thirds of its imports came from the US, followed by France with 12%. This has helped the UAE develop significant military capability. Increasingly, however, the country is prioritising the creation of a local defence industry as it seeks to meet more of its security needs domestically, while also diversifying its economy and enhancing its knowledge base.

The UAE’s military spending reached $22.8bn in 2017, about 5.7% of GDP. According to a 2018 report published by consultancy firm GlobalData, between 2013 and 2017 the UAE’s annual defence expenditure stood at an average of $23.4bn a year, with that number expected to increase to an average of $35bn between 2018 and 2022. It is set to invest approximately $174bn over that period for defence purposes, with around $66bn earmarked for capital expenditure to fund defence procurement.

Meanwhile, according to market research firm Frost & Sullivan, the Middle East’s homeland security market – which includes monitoring and surveillance systems, restricted entry systems and perimeter security solutions – is expected to more than double over the next five years, from $9.6bn in 2017 to $19.7bn by 2022, with the UAE making up 16.6% of the region’s total market in terms of spending, second only to that of Saudi Arabia at 44.8%.

Security Apparatus

Defence spending in the UAE in recent years has been driven by modernisation programmes, as well as moves to better protect infrastructure, manage territorial disputes and participate in peacekeeping initiatives.

On a federal level, the Ministry of Interior is charged with maintaining domestic security in the UAE, with specific directorates focused on civil defence, citizenship, residence, ports, traffic, crime and policing. Alongside this, in 2012 the government established the Signals Intelligence Agency (SIA), which is tasked with addressing cybersecurity threats and the rise of cybercrime.

The UAE Armed Forces General Headquarters (GHQ) oversees the country’s growing land, air and naval forces. The GHQ has played a more prominent role in recent years, with the UAE involved in military campaigns in Libya, Bahrain, Syria, Iraq and Yemen. According to military data analytics firm Global Fire Power, in 2018 the UAE had 464 tanks, 2204 armoured fighting vehicles, 177 self-propelled artillery pieces, 105 towed artillery pieces and 54 multiple-launch rocket systems. The air force consisted of 540 aircraft, including 97 fighters, 175 transport aircraft and 206 helicopters, of which 30 are attack helicopters. The navy consisted of two corvettes, 12 patrol crafts and two mine warfare vessels.

In 2014 the UAE federal government introduced compulsory military service for male Emiratis between the ages of 18 and 30. In July 2018 the length of compulsory service was extended from 12 to 16 months for individuals who have high school diplomas or equivalent, while those who do not are required to serve for two years. University and college students are allowed to complete their education before they begin their national service. Women in the same age group may volunteer, though they only serve for nine months.

Within the emirate, law enforcement is undertaken by the Abu Dhabi Police. As part of its 60th anniversary in 2017 the police force received an updated emblem and changed the colours of its uniforms and vehicles to blue and white.

Main Players

The UAE’s defence sector is for the most part dominated by three large companies: Mubadala Investment Company; Tawazun Holding; and Emirates Defence Industries Company (EDIC), which Mubadala also owns a 60% share in.

Mubadala, founded in 2002 and headquartered in Abu Dhabi, is active in 15 sectors, among them aerospace and defence. Over the years the company has formed international partnerships to promote the aerospace industry in the UAE, with major partners including Rolls-Royce, GE, Boeing and Airbus. A merger in January 2017 between Mubadala and International Petroleum Investment Company, another Abu Dhabi government-owned investment fund, saw the creation of a new aerospace, renewables and ICT platform, tasked with overseeing investments and assets in those strategic sectors. The company’s total assets stood at $225bn after the Abu Dhabi Investment Council joined in March 2018.

“Having operational assets in aerospace and ICT allows us to build stronger synergies between both industries, as it is otherwise very hard for an ICT company to understand how to use artificial intelligence in a manufacturing environment,” Badr Al Olama, director of aerospace at Mubadala, told OBG.

Tawazun Holding was established in 2007 to develop business ventures through industrial partnerships and strategic investments in areas such as defence and aerospace, automotive, munitions and metals. The holding company is part of the long-established TEC, which was created in 1992 as the UAE Offset Programme Bureau, then rebranded in 2012.

TEC oversees the Tawazun Economic Programme, the UAE’s industrial participation programme that awards credits to foreign investors operating in sectors including aerospace and defence. Foreign defence suppliers with over $10m in UAE contracts over a five-year period must participate in the programme, which has as its key objectives the building of a national defence sector, diversifying the local economy, and creating business opportunities and skilled job openings for the private sector.

Between 2007 and 2015 Tawazun Holding launched more than 40 joint venture companies operating in the defence, munitions, aerospace, automotive and metals-orientated sectors, with most operating out of Tawazun Industrial Park, located part way between Abu Dhabi and Dubai.

EDIC

Considered one of the most significant developments in the security and defence industry in the UAE, the formal establishment of EDIC took place in 2014 through the partial merger of the defence portfolios of Tawazun, Emirates Advanced Investments Group (now known as Yas Holding) and Mubadala. The company, the fruit of efforts to combine the UAE’s main defence industries into a single entity, initially comprised 11 firms operating in the sector, with five more companies added in the two years after operations began.

With its broad portfolio of companies, EDIC is a key component of the growth of the domestic defence industry. Among the companies now operating under EDIC’s umbrella are: NIMR Automotive, a producer of all-terrain military vehicles; EDIC Caracal, a small arms manufacturer; and EDIC Barij Dynamics, the first facility in the Middle East for the development, manufacture and assembly of precision-guided systems for conventional air munitions, 49% owned by South Africa’s largest government-owned defence manufacturer, Denel Dynamics; Global Aerospace Logistics, an Abu Dhabi-based company providing professional aerospace services; EDIC Horizon International Flight Academy; and the Advanced Military Maintenance Repair and Overhaul Centre, a leading regional service provider.

Shipbuilding

Shipbuilding and repair is growing strongly in the emirate, and received a boost in 2016 when Abu Dhabi Ship Building Company (ADSB), which is now part of EDIC, opened its first floating drydock facility with adjacent repair quay at Port Zayed. The facilities have enhanced the company’s service capabilities by allowing it to work on vessels that had previously been too large for the company’s main facilities at its Mussafah base. The new facility is capable of docking vessels of up to 10,000 tonnes, and which are 180 metres long by 30 metres wide.

ADSB, which is 40% owned by Mubadala, 10% by Abu Dhabi’s government and 50% publicly traded on the Abu Dhabi Securities Exchange, specialises in the construction, repair and refit of naval, military and commercial vessels. The company, which is one of the leading shipyards in the region, was established in 1996 and currently has a workforce of over 1000.

ADSB plays a role in improving the UAE’s naval defence capabilities, while the company has also expanded its focus in recent years. ADSB reported net profits of Dh104.8m ($8.5m) in 2017, up 70% on 2016, marking its second-best year to date. This was as the company continued to expand its customer base and move from traditional naval construction and repair businesses into new sectors like commercial shipping and the oil and gas industry. ADSB currently has a three-year marine support services contract with the UAE Navy, which runs until 2020.

Recent Acquisitions

The UAE continues to spend heavily on expanding its military capabilities. At the Dubai Airshow in November 2017 the emirates signed a contract worth around Dh2.51bn ($683.2m) with US-based Raytheon for the acquisition of GBU-12 and GBU-10 laser-guided bomb units.

It was also announced that Abu Dhabi Aviation (ADA) had purchased two additional AW139 intermediate twin engine helicopters, further expanding ADA’s fleet of 15 helicopters, which are primarily used to support the oil and gas sector.

The UAE Armed Forces also announced that it was to buy five C295 MW transport aircraft from Airbus Defence and Space. The C295 is a new generation of versatile tactical airlifters in the light and medium segment. Meanwhile, US unmanned aircraft systems manufacturer Insitu, a subsidiary of Boeing Defence, Space & Security, was awarded a $12m logistics support contract for unmanned air vehicles operated by the Emirati armed forces.

In November 2017 the UAE also signed an agreement with Lockheed Martin for the upgrading of its fleet of 80 F-16 fighter aircraft, at an estimated cost of Dh6.05bn ($1.7bn). The contract involves upgrading the aircraft’s on-board equipment, including specialised processors and computers.

Cybersecurity

Of course, defence is no longer solely a question of hardware. As the UAE transitions towards a knowledge-based economy, cybersecurity needs will continue to rise to meet the growing threat of cyberattacks on firms, individuals and state infrastructure. The establishment of the SIA was an important step, yet according to the “2017 Norton Cyber Security Insights Report”, the total financial cost of cybercrime to the UAE was Dh3.86bn ($1.1bn), with 3.72m people thought to have been affected. In recent years cybersecurity companies have grown their presence in Abu Dhabi and the other emirates in response to this threat (see ICT chapter), and in 2018 the UAE Cybercrimes Law was strengthened, with deterrents of jail terms of as long as 25 years and fines of up to Dh4m ($1.1m).

Satellites & Space

In the area of high-tech investments, the UAE launched its first government-owned satellite, the DubaiSat-1, in 2009. The authorities have significant ambitions in the space sector, including sending an unmanned mission to Mars, which is currently scheduled to launch in July 2020. In 2014 the federal government established the UAE Space Agency (UAESA), an independent body responsible for developing and regulating the UAE’s space sector, in addition to encouraging the development of space science and technology. Its projects include MeznSat, announced in February 2018, which is being developed in partnership with Abu Dhabi’s Masdar Institute of Science and Technology and the American University of Ras Al Khaimah, and will involve a 3U CubeSat being used to study the earth’s atmosphere.

Following a national workshop in Abu Dhabi in July 2018, Mohamed Al Junaibi, the executive director of the space sector at UAESA, said that the UAE had invested more than Dh22bn ($6bn) in space projects to date, and had established a strong and diversified space sector. He also pointed to the presence in the UAE of pioneering institutions in the field of satellite communications and broadcasting, such as Yahsat and Thuraya, as well as four research centres specialising in space science and technology.

In October 2015 the UAE became the first Arab country to join the International Space Exploration Coordination Group, while in June 2016 a new partnership was announced between the UAESA and the National Aeronautics and Space Administration in the US. In June 2018 it was announced that the first Emirati astronaut would travel to the International Space Station in April 2019.

Human Resources

The UAE continues to face challenges when it comes to the establishment of a domestic defence industry, linked to its limited pool of trained manpower and its still nascent domestic defence industrial infrastructure. Human capital is at a premium in the UAE, but the country is making strong progress to address this. BAE Systems, for example, has a five-year agreement with Mubadala whereby it takes six graduates annually for an 18-week internship. Andy Crisp, UAE country director at BAE, points to positive developments. “We are already seeing investment in schooling and universities with graduates undertaking industrial internships. This is paying dividends and the quality of the Emirati students that take up an internship with BAE Systems is extremely high,” Crisp told OBG.

In November 2017 it was announced that French aerospace and defence company Thales would establish the dedicated UAE Defence Service Centre in Abu Dhabi, in order to provide training and the transfer of knowledge to the UAE Armed Forces, with the centre set to serve all divisions of the military.

One important human resources gap is in the cybersecurity field. “Cybersecurity talent is an industry challenge globally, but it is particularly severe in the UAE. In recognition of this we are both recruiting for existing cyber capabilities, and growing organic and innovative national capabilities across Emirati citizens of all ages who are joining the cybersecurity field,” Eric Eifert, senior vice-president of managed security services at Abu Dhabi-based cybersecurity firm DarkMatter, told OBG.

Outlook

With defence spending in the region continuing to rise, and more and more foreign firms establishing operations or partnerships in the UAE, the growth of Abu Dhabi’s aerospace, defence and security sector looks set to continue expanding. Strong governmental support on a strategic level, as well as through partnerships with private entities and investments, should help to further boost local defence- and aerospace-related manufacturing capabilities over both the short and long term, while the need for advanced cybersecurity will continue to create opportunities for specialists in the field.

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The Report: Abu Dhabi 2019

Security, Aerospace & Defence chapter from The Report: Abu Dhabi 2019

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