Dh77bn boost for economy

Foreign arms suppliers will pour 'phenomenal' sums into UAE over five years in 'offset' deals, analyst says.

ABU DHABI // The economy is in line for a US$21 billion (Dh77.13bn) boost over the next five years thanks to investments by foreign companies in return for major defence contracts. Under rules in place for two decades, defence and aerospace companies with business in the UAE must help to build ventures in other sectors of the economy worth 60 per cent of the value of their contracts. The investments are expected to soar over the next few years because the Government is making major outlays in military aircraft, missiles and ships.

"It is a phenomenal sum," said Grant Rogan, the chief executive of Blenheim Capital Partners, a UK-based firm which provided the forecast. "As a consequence, offsets are now in the spotlight like never before." US companies will make up two thirds of these obligations, according to the Blenheim forecast, which was presented to an offsets conference in Budapest this week. Such a significant amount of spending could provide a big stimulus to diversifying the economy of the UAE and other Gulf nations with heavy defence spending linked to offset systems. Some of the largest infrastructure projects in Abu Dhabi, such as the Al Raha Beach property development and the Dolphin natural gas pipeline, got their start through the offsets system.

In the future, the UAE will look increasingly at ways to use offsets to further its strategic goals in the 2030 plan, such as transferring technology and industrial know-how, raising the skills and the employment levels of Emiratis and boosting exports, Mr Rogan said. The Blenheim study estimates that the UAE Armed Forces will spend $35bn over the next five years, including $25bn by the UAE Air Force and Air Defence, and the rest from its naval and land divisions.

According to the UAE's offset rules, defence companies must create partnerships with local firms to build businesses that generate profits equal to 60 per cent of the overall defence contract over a seven-year period. If they fail to do so, they can incur large financial penalties. The Emirates ranked as the fourth-largest importer of arms worldwide between 2005 and ilast year. [e-mail]