Defence industry landscape shifting amid uncertain oil outlook

Defence consultancy IHS Jane said in December that the high dependency of the Gulf States on energy revenue would impact defence spending in those countries, especially with oil prices ebbing below $65 per barrel.

The UAE has integrated its defence industry assets under one entity called Emirates Defence Industries Company to create 'synergies and cost effectiveness'. Delores Johnson / The National

Even as a slump in oil revenue threatens to rein in defence spending in the Middle East, the UAE’s leading firms in the sector are collaborating to market their products, systems and technology to military customers across the region.

The defence consultancy IHS Jane said in December that the high dependency of the Gulf countries on energy revenue would impact defence spending in those countries, especially with oil prices ebbing below US$65 per barrel.

Saudi Arabia ranked seventh in the world in defence spending last year with $48.45 billion while the UAE ranked sixteenth with $15bn spent, according to IHS Jane’s annual defence budgets review.

The UAE has integrated its defence industry assets under one entity called Emirates Defence Industries Company (Edic) to create “synergies and cost effectiveness”. Edic is made up of 11 companies worth Dh3.2bn and accounting for 4,800 workers, that were formerly the subsidiaries of Mubadala, Tawazun and Emirates Advanced Investment Group (EAIG), including Al Taif Technical Services, Tawazun Dynamics and Global Aerospace Logistics.

After the completion of the first stage of the merger last month, the second is under way, with a further four companies to be integrated.

“The second phase will involve four companies. We are working on the final details. There may be another phase at a later stage, a third one,” said Homaid Al Shemmari, the Edic chairman, yesterday. He did not disclose the firms’ names but said they included “companies in services, aviation, and some defence capabilities companies”.

“The management team will be very busy for the slim-lining of the business for the next year and a half,” Mr Al Shemmari said, adding that jobs losses could occur.

“Will there be job losses? Maybe, I am not saying we are actually doing it because of cost-cutting,” he said. “I’m hoping that the business will be sizeably bigger. I am hoping that we can rotate and assign people – without having to terminate a lot of people, especially UAE nationals.”

Edic, together with Mubadala and Tawazun, will exhibit at the International Defence Exhibition and Conference (Idex) in the capital next week. The combined marketing effort includes 29 companies promoting military hardware, vehicles and systems.

“By combining forces in the Edic platform, Mubadala and Tawazun are focused on enhancing performance and efficiency, increasing capacity and benefiting from economies of scale to better serve the armed forces of the UAE and the wider region,” said Mr Al Shemmari.

A total of 1,154 international and local exhibitors will attend Idex this year, up from 1,112 in 2013, organisers said. Forty-two countries will have pavilions. About 80,000 visitors attended Idex in 2013.

The US consultancy Avascent forecasts that defence spending in the Middle East’s will grow at roughly 5 per cent annually through 2020.

“Bearing in mind the increased threat of ISIL, coupled with a continued concern about Iranian intentions, defence spending will be unaffected by oil price fluctuations in the short to medium term,” said Aleksandar Jovovic, the principal at the aerospace and defence consultancy. “The leading Arab countries in the Gulf, notably KSA and UAE, have ample financial reserves, can afford to borrow if needed, and are unconcerned about a few years of modest budget deficits.”

On Saturday, Saudi Arabia’s King Salman appointed Mohamed Al Mady, who had been running Sabic, to head up the country’s General Organization for Military Industries, which works to develop military factories in the kingdom.

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