Will a new domestic defence giant give the UAE an edge in the global market?
In an effort to wean itself from Western dependence the UAE has folded together 25 companies into one domestic defence giant, EDGE. Harry Lye explores the strategy behind the new company and asks whether the Middle East’s homegrown powerhouse can crack the international defence market.
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The creation of the EDGE conglomerate, announced at the end of last year, marks the UAE’s first attempt to establish a homegrown defence company with the potential - in terms of size and funding - to break into the global defence equipment market largely dominated by Western companies. If successful, the venture could help the country to reduce its dependence on foreign military equipment.
EDGE brings together subsidiaries of Emirates Defence Industries Company (EDIC), Emirates Advanced Investments Group (EAIG), Tawazun Holding, among others. It has the potential to shake up the traditionally Western-dominated defence sector, so what’s the strategy behind this new business, and how much can we expect it to disrupt the global market?
Research first, profits later
The new company’s focus is on five ‘clusters’ covering platforms and systems, missiles and weapons, cyber defence, electronic warfare, and intelligence and mission support. The early focus of the business, as an EDGE representative told us, is not to drive revenue, but diversification and rapid expansion.
“Its priority will be diversification and growth - not numbers,” the representative said. “EDGE’s KPIs will be measured by innovative research, growth in partnerships and export potential.”
EDGE was launched with a combined revenue of more than $5bn brought in by its participating companies. A lot of money for a new company, but a far cry from the revenues of leading companies such as Boeing ($110bn), Airbus ($75bn), United Technologies ($66bn) and Raytheon ($27bn). Of course, these companies all have a long history, but the UAE’s new player will have to work hard to make a splash in such a high-value market.
EDGE CEO and managing director Faisal Al Bannai aims to do exactly that. At the launch of the company Bannai said: “EDGE will invest extensively across R&D, working closely with front-line operators to design and deploy practical solutions that address real-world challenges.”
“EDGE will ultimately ensure a more secure future by reimagining capabilities and challenging the status quo.”
It is not unheard of for defence contractors from relatively small countries to have a significant footprint in the global market: Israel’s Elbit and Rafael are prime examples. If EDGE can tap into the unique market they sit in, these companies could be a model of success to follow.
A spokesperson for EDGE told us how the company wants to establish itself at the heart of a technology-driven defence sector: “EDGE will ultimately ensure a more secure future by reimagining capabilities and challenging the status quo,” they said. “It will invest extensively across R&D to develop advanced technologies such as autonomous capabilities, cyber-physical systems, advanced propulsion systems, robotics and smart materials, with a focus on artificial intelligence that will cut across all products and services. This will assist the UAE and other countries to respond more effectively to threats in a volatile regional landscape.”
EDGE can succeed if its push to be at the cutting edge of technology is successful, according to the chief executive officer of Tawazun Economic Council, the UAE’s defence enabler, Tareq Abdul Raheem Al Hosani. “We are invested in managing the uncertainty that technology brings by adapting our focus and capabilities towards a sustainable defence and security industry,” he said. “EDGE will help us transform our domestic capabilities, while growing our engagements on defence and security exports.”
Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces (centre), and Faisal Al Bannai, CEO and MD of EDGE (right). All images courtesy of EDGE.
Breaking the import mould
According to data from GlobalData, in 2018 the UAE was in the top ten for arms importing countries, spending over £1bn on foreign equipment, mostly in the form of US vehicles and systems. This alone was a 20% increase on the year before and a trend that has continued into 2019.
In November 2019, the UAE agreed a potential $830m purchase of US Chinook helicopters. It also signed $2bn worth of contracts for defence equipment at last year’s Dubai Air Show, covering equipment support for Mirage fighters, equipment for F-16s and a slew of other contracts with the likes of Global Aerospace Logistics, MBDA and regional companies including Abu Dhabi Autonomous Systems Investments Company.
“Under its Qualitative Military Edge policy the US is obligated to maintain Israel’s military advantage in the Middle East, which limits the UAE’s access to some equipment from the US that other nations can buy more freely.”
The UAE’s reliance on foreign military sales, particularly those from the US, means it also permanently perched on a regional back-foot. Under its Qualitative Military Edge policy the US is obligated to maintain Israel’s military advantage in the Middle East, which limits the UAE’s access to some equipment from the US that other nations can buy more freely. This has created a market gap offering significant business potential to EDGE and its subsidiaries.
It is still early days for EDGE, but the company’s outlook is positive. In late November 2019, EDGE signed a $1bn contract with the UAE’s armed forces to deliver Desert Sting lightweight precision-guided missiles designed by EDGE subsidiary Halcon.
This deal was followed by EDGE subsidiary Global Aerospace Logistics (GAL) signing a contract with Kenya’s Ministry of Defence to support the African nation’s air force. This, according to GAL chairman Tareq Abdul Raheem Al Hosani, marked “the start of a long-term relationship that will see GAL play a critical role in Kenya Air Force’s primary mission of securing Kenyan airspace.”
GAL also signed a $3.5bn support contract with the UAE’s Joint Aviation Command. While the company was already a large regional player before being folded into EDGE, its recent success illustrates the rapid pace of EDGE’s expanding footprint, mere weeks after its official inauguration.
So what does this potential power shift in the Middle Eastern market mean for the established global players in the defence space?
“Today’s announcement on EDGE is indicative of the growth and future of the aerospace and defence industry in the UAE,” Lockheed Martin’s lead for the Middle East region, Bob Harward, said the inauguration of the company, adding that it could open up the region’s potential.
The emergence of a powerful regional company could also open up the potential for new business partnerships for established players, as well as presenting an incentive for investment.
EDGE hit the ground running with a solid funding and industrial base and a number of deals signed in its early days, but one important factor it needs to establish to break into the international market is trust.
Defense News reported from the Dubia Air Show that the US is ready to work with EDGE, but wants assurances on the company’s ability to satisfy US security concerns.
Assistant secretary of state for political military affairs, R. Clarke Cooper, reportedly told the press: “Their aspiration is to get beyond providing, say, nuts and bolts, to significant platforms or equipment. They want to move into more of a research and development space, which we would certainly welcome. The caveat to that is that as they move forward to a research and development space is seeking additional assurances on tech security and seeking additional manifestations or evidence of refined procurement processes.”