Offshoots from arms contracts

Defence deals sealed with suppliers making input to economy including setting up a fish farm

Fish farms, date palm research centres and language schools have been created in Abu Dhabi due to one of the least known forces shaping the emirate's economy, the Offsets Programme Bureau (OPB). Through the OPB, weapons and aerospace suppliers lend financial and technical resources to form companies in accordance with their defence contracts in the UAE.

These requirements, known as offsets or counter-trade, stipulate that defence companies offset the high cost of arms and materials by helping to fill gaps in the customer nation's economy. Although rules now being released promise a new era of co-operation between arms companies and the Government, for the past 18 years foreign contractors sought to fulfil their obligations through starting businesses.

By 2008, about 50 companies had been set up with the help of foreign defence contractors and Dh8 billion (US$2.17bn) has been funnelled into the UAE economy as foreign direct investment, the OPB says. The exact value of the programme is unclear because some offsets are defence-related. This is the case with the country's largest offset, resulting from a $6.8bn contract with Lockheed Martin for 80 F-16 fighter jets.

It has led companies better known for high-tech weaponry to spawn the unlikeliest of ventures in fields as diverse as finance, agriculture and industry. The French aerospace firm Dassault created Asmak, a fish farm in the Emirates raising sea bream, after the sale of its Mirage fighters, as well as firms specialising in cut flowers, fire extinguishers and company relocations to the UAE. After the UAE bought Giat's Leclerc battle tank the French company set up Tabreed, the country's first district cooling company, and Al Wathba Marionnet, a biotechnology company that focuses on developing new types of date palm.

Elettronica, which builds electronic warfare systems, last year agreed to create a gold and silver refinery in Abu Dhabi to satisfy its offset obligations. Some of the most well-known start-ups from foreign defence firms were not offsets, but created to pre-qualify offset credits for arms sales that never materialised. Berlitz language school was set up by McDonnell Douglas (now Boeing) in advance of a fighter jet campaign it did not win. The Gulf's largest naval builder, Abu Dhabi Ship Building, was created by the Newport News (now owned by Northrop Grumman) in anticipation of winning deals for fast patrol vessels it was never chosen for.

And British Aerospace (now BAE Systems) helped start Waha Leasing, the first aircraft leasing company in the UAE, also as a pre-credit for a deal that did not go ahead. After years of learning the basics of setting up and incubating new companies into viable businesses, in 2007 the OPB created a commercial investment arm to accelerate the pace of new start-ups. The company, Tawazun, has gone on to create a number of firms without the help of foreign companies and their obligations.

They include Al Burkan Munitions Factory, the country's first munitions maker, which was set up by Rheinmetall Munitions Systems and the locally based Al Jaber Group. Tawazun also owns Abu Dhabi Autonomous Systems Investments, which is developing unmanned systems for land, sea and air. Tawazun helped set up Transcontinental Industries, in Musaffah, which is the UAE's first bus maker. [e-mail]