Even as a slump in oil revenue threatens to rein in defence spending in the Middle East, the UAE’s leading firms in the sector are collaborating to market their products, systems and technology to military customers across the region.
The defence consultancy IHS Jane said in December that the high dependency of the Gulf countries on energy revenue would impact defence spending in those countries, especially with oil prices ebbing below US$65 per barrel.
Saudi Arabia ranked seventh in the world in defence spending last year with $48.45 billion while the UAE ranked sixteenth with $15bn spent, according to IHS Jane’s annual defence budgets review.
The UAE has integrated its defence industry assets under one entity called Emirates Defence Industries Company (Edic) to create “synergies and cost effectiveness”. Edic is made up of 11 companies worth Dh3.2bn and accounting for 4,800 workers, that were formerly the subsidiaries of Mubadala, Tawazun and Emirates Advanced Investment Group (EAIG), including Al Taif Technical Services, Tawazun Dynamics and Global Aerospace Logistics.
After the completion of the first stage of the merger last month, the second is under way, with a further four companies to be integrated.
“The second phase will involve four companies. We are working on the final details. There may be another phase at a later stage, a third one,” said Homaid Al Shemmari, the Edic chairman, yesterday. He did not disclose the firms’ names but said they included “companies in services, aviation, and some defence capabilities companies”.
“The management team will be very busy for the slim-lining of the business for the next year and a half,” Mr Al Shemmari said, adding that jobs losses could occur.
“Will there be job losses? Maybe, I am not saying we are actually doing it because of cost-cutting,” he said. “I’m hoping that the business will be sizeably bigger. I am hoping that we can rotate and assign people – without having to terminate a lot of people, especially UAE nationals.”
Edic, together with Mubadala and Tawazun, will exhibit at the International Defence Exhibition and Conference (Idex) in the capital next week. The combined marketing effort includes 29 companies promoting military hardware, vehicles and systems.
“By combining forces in the Edic platform, Mubadala and Tawazun are focused on enhancing performance and efficiency, increasing capacity and benefiting from economies of scale to better serve the armed forces of the UAE and the wider region,” said Mr Al Shemmari.
A total of 1,154 international and local exhibitors will attend Idex this year, up from 1,112 in 2013, organisers said. Forty-two countries will have pavilions. About 80,000 visitors attended Idex in 2013.
The US consultancy Avascent forecasts that defence spending in the Middle East’s will grow at roughly 5 per cent annually through 2020.
“Bearing in mind the increased threat of ISIL, coupled with a continued concern about Iranian intentions, defence spending will be unaffected by oil price fluctuations in the short to medium term,” said Aleksandar Jovovic, the principal at the aerospace and defence consultancy. “The leading Arab countries in the Gulf, notably KSA and UAE, have ample financial reserves, can afford to borrow if needed, and are unconcerned about a few years of modest budget deficits.”
On Saturday, Saudi Arabia’s King Salman appointed Mohamed Al Mady, who had been running Sabic, to head up the country’s General Organization for Military Industries, which works to develop military factories in the kingdom.
selgazzar@thenational.ae
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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.”
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UAE currency: the story behind the money in your pockets
The Farewell
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The National Archives, Abu Dhabi
Founded over 50 years ago, the National Archives collects valuable historical material relating to the UAE, and is the oldest and richest archive relating to the Arabian Gulf.
Much of the material can be viewed on line at the Arabian Gulf Digital Archive - https://www.agda.ae/en
