New rules for defence firms on offsets

The UAE has a huge offsets system as a result of its status as one of the world's top arms importers.

The Government will use its enormous purchasing power in arms sales and guide foreign arms suppliers to take increasingly active roles in reshaping the Abu Dhabi economy under rules issued yesterday. The guidelines will steer foreign defence companies to help realise the goals of the 2030 plan and its emphasis on creating high-value engineering and technical jobs for UAE nationals as well as establishing joint ventures that help transfer intellectual property and other technology to the Emirates.

At a conference in Paris yesterday, the Offsets Programme Bureau (OPB) said it was revising its 18-year-old rules governing offsets, which require defence companies to contribute to the economy in exchange for arms contracts. The new rules were guided by the goals of a "diversified and knowledge-driven economy, industrial partnerships, capacity building, technology and knowledge transfer and creation of jobs for the UAE citizens," said Saif al Hajeri, the chief executive of OPB yesterday. "We intend to focus on, and invest in skilled and dedicated people, leading-edge science and technology."

The UAE has a huge offsets system as a result of its status as one of the world's top arms importers, with recent contracts for advanced military aircraft including antisubmarine aeroplanes, heavy-lift aircraft and F-16 fighter jets. Existing rules required arms suppliers to satisfy offset obligations by creating new businesses in the Emirates. Forecasts called for defence companies being obliged to generate economic output worth US$21 billion (Dh77.13bn) in the UAE over the next five years in exchange for an estimated $35bn in arms contracts.

The new formula takes a step away from a strict focus on economic output and allows for more credit to be given for less calculable benefits such as training, transferring know-how and other forms of "input". "A hybrid input and output credit contribution model was introduced to enable defence contractors who are dealing with UAE Armed Forces to capitalise on their existing strengths," said Matar al Romaithi, the director of the Offset Unit at the OPB.

Observers said that as concrete details began to surface about the plan, more would be known about how the rules would be embraced by the defence community. The old rules had been seen as overly stringent, with a focus on creating companies that needed to deliver profits regardless of the economic environment. Firms that failed to deliver the required profits were subjected to financial penalties.

At the presentation yesterday, it was also announced that a committee comprising representatives of the OPB and the General Headquarters of the UAE Armed Forces would be created to act as a bridge between the two agencies. In addition, a "Defence Contractors Council" would be set up to facilitate dialogue between the defence community and the Offsets Bureau. [e-mail]