Desert Dealer: Oil Wealth Helps Gulf Nation Build Domestic Arms Industry

Article excerpt

ABU DHABI, United Arab Emirates -- On the sandy shore of this Persian Gulf nation, the Abu Dhabi Ship Building facility features five wet berths, a climate controlled composite molding facility the size of a football field, eight open air dry berths and a syncrolift capable of handling corvette-class ships.

Hundreds of workers from South Asian nations swarm over the Mussafah Channel facility in the afternoon sun where they refurbish coastal patrol boats from neighboring nations, retrofit others and bend metal in the steel production shop.

In the dry docks, work is ongoing on the largest project the yard has taken on so far: the building of six corvette-class ships for the United Arab Emirates navy.

And virtually none of this was here 12 years ago.

The relatively rapid rise of the Abu Dhabi Ship Building facility is indicative of this small Gulf nation's aspirations to become not only a consumer, but a producer of military and security hardware.

Driving the effort is a goal being pushed by the nation's leaders to diversify the oil-based economy.

They are carrying out this vision with strategic partnerships with global arms manufacturers, tax free zones where international firms can set up shop, offset programs--which demand that contractors reinvest some of their profits back into the local economy--and inexpensive foreign labor.

And one other important factor: lots of cold, hard cash.

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Years of high energy prices have left the UAE flush. And the recent dip in the cost of a barrel of oil has not slowed down the nation's push to modernize and diversify.

In the past, the government took oil revenues and sank them into overseas companies, said Martin Bennett, regional vice president and general manager of BAE Systems' Abu Dhabi regional office. Now, instead of saying, "'Let's buy a hotel in London,' they're getting away from that and saying 'let's build a factory in Abu Dhabi.'"

Although the nearby city of Dubai's economy has slowed down considerably since the worldwide credit crunch began, skyscrapers are still going up all over the confederation's capital city of Abu Dhabi.

The government has signed contracts with U.S., French and Japanese concerns to build nuclear reactors to supply its growing economy with energy from a power source other than petroleum.

A local trading company is partnering with a European firm to build a state-of-the art space center that will monitor a constellation of four remote sensing satellites.

Another partnership will build military trucks locally.

All these deals come with technology transfer agreements.

Offset requirements are one way the government ensures that foreign suppliers not only sell their goods and services, but return something to the Emirates, explained Mohamed Al Mosa, a junior projects analyst at the government-run Offset Program Bureau.

"The objective of creating such a joint venture is to transfer the technology and the know-how ... and another objective is creating jobs for locals."

It's not an easy process and it usually involves long negotiations, he said, acknowledging the reluctance of some companies to share proprietary information.

The bureau looks for strategic partnerships and serves as a facilitator. The venture has to be potentially profitable and fill a niche that isn't already oversaturated in the market, he said.

Offset monies don't necessarily have to go toward manufacturing equipment locally, Al Mosa said. If the foreign firms wish, they can simply invest in local companies. But it's understood that the foreign company will act as a mentor to the local concern, he added.

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U.S. and European defense industry representatives here at the IDEX show privately said they normally avoid setting up manufacturing facilities in countries with offset requirements. …