Abu Dhabi is restructuring the UAE’s blossoming defence industry, placing many state-run companies within a single organisation and striking up alliances with various countries across the historical East-West military divide in moves that should nurture homegrown tech innovation.
For the past century or more, political instability has convulsed the Middle East and North Africa (Mena), and its governments today are embroiled in an arms race. The region’s military spending equated to 5.5 per cent of gross domestic product (GDP) in 2018, the highest globally by that metric, according to the World Bank.
Historically, that has meant huge profits for the world’s major arms manufacturers such as the United States, Russia and Britain, but the UAE is increasingly taking defence spending in-house.
“The UAE wants to diversify its economy and build a local industry that decreases its dependence on oil,” says Jean-Loup Samaan, Associate Professor in Strategic Studies at the UAE National Defense College.
“There’s also the idea of building a knowledge-based economy – to localise the defence industry you have to get the in-country know-how to train future generations of Emirati engineers specialised in this field, for example.
“Ultimately, it’s also about strategic autonomy – the UAE probably looks at how other mid-ranking powers like Singapore have created a local defence industry that’s not completely autonomous, but which can play a role in some significant niches.”
In November, Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, inaugurated EDGE, an Abu Dhabi-owned company that consolidates around 25 already-established businesses within a single conglomerate. These include Abu Dhabi Ship Building (ADSB), and Advanced Military Maintenance Repair and Overhaul Center (AMMROC), a joint venture with Lockheed Martin Corporation and Sikorsky, a Lockheed Martin subsidiary.
EDGE aims to attract “elite industry experts and talent from around the globe, to help on a wide spectrum of modern product development,” according to a press statement announcing the company’s launch. EDGE, whose workforce numbers 12,000, has five core specialities - Platforms and Systems, Missiles and Weapons, Cyber Defence, Electronic Warfare and Intelligence, and Mission Support.
The fledgling conglomerate represents the latest in a series of industry reshuffles. In 2014, Abu Dhabi-owned Mubadala and Tawazun Holding launched Emirates Defence Industries Company (EDIC), which consolidated around a dozen government-owned companies within a single entity and is now part of EDGE.
“EDGE isn’t yet about new tech projects, but about the governance of multiple entities in the UAE that were focused on the military industry,” says Samaan.
“EDGE is an effort to streamline, to rationalise, to create one key actor that would be a world class player. Within EDGE’s sub-entities, none have yet to create any major platforms or weapons systems on their own – their projects were initially designed through cooperation frameworks with mostly Western companies.”
Abu Dhabi Ship Building (ADSB), for example, partnered with Constructions Mécaniques de Normandie to build six corvettes – the first was built in France, with the remaining vessels manufactured in the UAE.
“Maybe in the long term, EDGE will allow for indigenous products that will be based on true, localised innovation, but so far it’s more about governance,” says Samaan.
Some major UAE defence firms remain independent of EDGE. These include Calidus, which manufactures light-attack aircraft, and Aquila Aerospace, which modifies aircraft for spying, according to a report by the International Institute for Strategic Studies (IISS).
Abu Dhabi has also invested in foreign defence contractors. EDIC bought French ammunition maker Manurhin in 2018, while Mubadala raised its stake drone maker Piaggio Aerospace to 100 per cent in 2015, although the Italian company went into receivership after Mubadala last year withdrew its support and the UAE scrapped an order for eight drones.
“Another important element in the development of the UAE’s defence industry has been an increase in exports in order to try to achieve economies of scale,” Lucie Béraud-Sudreau, a
Research Fellow for Defence Economics and Procurement at IISS, wrote in a report.
This notes the UAE’s biggest arms export markets are Egypt, Jordan and Libya.
As well as acquiring foreign expertise, the UAE is seeking to nurture homegrown innovation. In February, Tawazun Economic Council launched a Dh2.5 billion ($681 million) Defence and Security Development Fund, which will focus on strategic technology investments and intellectual property, strengthening innovation and industrial capabilities, and developing SMEs and local companies. The fund will provide both investment and financing for third parties.
This “is significant, because it shows the UAE is really serious about deepening its role as a credible player in the military industrial field”, says Samaan.
The UAE strategy also tallies with a 2019 report by PwC highlighting how artificial intelligence, novel power systems, virtual reality, and robotics are becoming increasingly important to military innovation.
“Many of these latest breakthroughs and the most adaptable advances in these technologies are driven by and available not from aerospace and defence (A&D) companies, but from the innovation clusters that are expanding their influence in virtually every large global seat of power,’ PwC wrote.
“Over the foreseeable future, defence companies will continue to face increased competition from non-traditional commercial entrants, particularly in instances involving dual-use technologies. (A) pattern of newcomers slicing off pieces of business normally monopolised by defence contractors is not likely to abate anytime soon.”
Should the UAE succeed in creating military-first tech innovations, these could also have secondary commercial uses, much like how the US defence department entities created the internet, GPS, and the computer mouse.
“One of the UAE’s priorities is artificial intelligence, so things the country does in AI for military purposes could eventually have civilian uses as well,” says Samaan. “But the scale of the US military ecosystem can’t be replicated in the UAE.”
More pertinently, the model of government-led inventions becoming commercialised for civilian use is outdated, says Samaan, noting that the US public sector largely abandoned research and development (R&D) in the 1990s – today, the private sector is the main source of innovation in the US defence industry.
“Startups and small companies might initially lead innovation in new technologies like AI,” says Samaan. “But we could also reach a moment when the big corporations reorganise and restructure the market, merging and buying others so that the smaller independent companies become sub-entities within a larger organisation.”
The UAE, long allied to the West, has nonetheless sought military partnerships straddling the historical Cold War divide. In 2017, Russia said it planned to develop a fighter aircraft in conjunction with the UAE, the same year that Danny Sebright, president of the US-UAE Business Council and a former Pentagon official, told Defense News of the United States’ plans to conduct joint research and development (R&D) with the UAE.
Sebright, who declined to comment to Wamda, cited US ties with Israel as a model that could be emulated with the UAE, although crucially it would be the Emiratis footing the bill, unlike the perks Israel enjoys in terms of multibillion-dollar military aid.
Meanwhile, in November Abu Dhabi’s Tawazun Economic Council announced a partnership with French procurement agency Direction Générale de l'Armement (DGA) to foster defence R&D, Jane’s reported.
In September, Roman Golovchenko, the chairman of Belarus’s State Military Industrial Committee, told the state news agency that the country’s military relationship with the UAE was “moving from simple sales to joint research and development”. The two countries are collaborating on various technologies including radio-electronic warfare, radiolocation, and special software, Golovchenko said.
Samaan said it was difficult to draw conclusions from the UAE’s tie-ups with various other governments for military R&D such as Belarus, France and the US.
“Some are just announcements so far – signing an MoU with a foreign company or the MoD of an ally is not binding it’s much more significant if you can find substantial work being done together as a consequence,” adds Samaan.
The UAE may be betting big on creating a truly innovative homegrown military sector, yet for all the vast sums of money governments spend on what’s euphemistically called “defence”, surprisingly little goes on R&D.
According to research by PwC, military R&D spending among the world’s top defence industry corporations in 2018 was the equivalent of just 3.9 per cent - or $22.0 billion - of their combined sales revenues. That compares with 11.4 per cent in the healthcare sector and 14.0 per cent in the software and internet industry.
Global military spending in 2018 was $1.8 trillion, according to the Stockholm International Peace Research Institute (SIPRI), so where does all that money go if such a small percentage is devoted to R&D?
Well, a curious – and hotly disputed – aspect of the defence industry is that in reality, product development has very little to do with creating superior weapons and military capabilities but is instead focused on maximising profits. For instance, the US Airforce was found to have paid $10,000 per toilet seat cover for its C-5 aircraft, one of many examples of extravagant over-spending.
Harpers’ journalist Andrew Cockburn has detailed profiteering in the US defence industry, which he argues has left the country with a military not suited to modern warfare amid widespread corruption among military personnel and corporate executives.
“Advanced” equipment and technology are more complex yet often materially inferior to their predecessors despite the US military budget increasing by an average of around 5 per cent annually since the 1950s.
Yet the nascent nature of the UAE’s defence industry should enable the country to install governance structures that prevent it replicating such mistakes, creating a sector that nurtures local talent and innovation.