The UAE is suspending discussions with the US government to acquire F-35 fighter jets over “sovereignty operational restrictions”, an Emirati official said on Tuesday.
Speaking on condition of anonymity, the UAE official said discussions over the sale, part of a $23 billion deal that also includes drones and other advanced munitions, are on hold as the country reassesses requirements.
“The UAE has informed the US that it will suspend discussions to acquire the F-35,” the official said.
“Technical requirements, sovereign operational restrictions and cost-benefit analysis led to the reassessment.”
The official, however, remained cautiously optimistic before a US-UAE defence dialogue on Wednesday that these issues can be resolved at a future date.
“The UAE and the US were working towards an understanding that would address mutual defence security conditions for the acquisition. The US remains the UAE’s preferred provider for advanced defence requirements and discussions for the F-35 may be reopened in the future,” the official said.
The outstanding issue, a person with knowledge of the deal told The National, is not related to the UAE’s ties with China but rather to sovereignty matters in the deal that the UAE has raised and that the two sides are trying to resolve.
A US State Department official said President Joe Biden's administration remains committed to the sale.
“The Biden-Harris administration remains committed to the proposed sales of F-35 aircraft, the MQ-9B [drone] and munitions even as we continue consultations to ensure that we have a clear, mutual understanding of Emirati obligations and actions before, during and after delivery,” the official told The National.
“We are hopeful that we can work through any outstanding issues and we look forward to the US-UAE Joint Military Dialogue later this week.”
Pentagon spokesman John Kirby emphasised the strategic nature of the US-UAE relationship.
“The US partnership with the UAE is more strategic and more complex than any one weapons sale. We are committed to working with the UAE to address their and our questions with respect to this sale,” Mr Kirby said.
He added, however, that the US insists as a matter of statutory requirements and policy on a variety of end-user requirements.
“That's typical. And these end-user requirements and protection of US defence equipment are universal, non-negotiable and not specific to the UAE,” Mr Kirby said.
Asked if the issue will come up at Wednesday's dialogue, Mr Kirby said that is not the intent of the meeting.
“It was designed to talk about the broad scope of our defence relationship with the UAE. But I would anticipate that this would be something that we would take advantage of, the opportunity to talk with them about their concerns, as well as sharing our concerns about the sale.”
Last year, the State Department announced its intention to sell up to 50 F-35 jets to the UAE, setting the nation on its way to becoming the first Arab country to acquire one of the most advanced weapons systems ever built.
Manufactured by Lockheed Martin, the F-35 is America's next-generation stealth fighter jet. The sale of these 50 jets is valued at $10.4bn.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
