UAE defense sector investment drive gains momentum with plans for new funding platform

Emirati players are shifting their focus (and funds) onto the defense sector, with officials eyeing a funding vehicle for the sector and a raft of agreements aimed at localizing defense systems and equipment.

Why now? Defense and local manufacturing are two themes du jour here in the Emirates at the moment. The war triggered a rethink of defense systems, as incoming Iranian Shahed drones costing as little as USD 20k-100k apiece to manufacture were requiring USD 3-12 mn interceptors to take them down. Disruption to logistics through the Strait of Hormuz has also reinforced the need to use local manufacturing to reduce reliance on imports.

The result? UAE officials are now considering establishing a dedicated defense-focused investment platform, Bloomberg reports, citing people familiar with the matter.

The pitch: The idea centers on building a structure that can take stakes in international defense manufacturers, including in the US, Europe, Ukraine, and Turkey, while also ramping up local production capacity. If established, the vehicle would sit outside the existing sovereign wealth framework.

Step back: The idea is still in the early stages and unconfirmed, but it all points to a more coordinated and efficient approach to defense-linked investments. It also fits into a similar consolidation drive that saw the UAE establish Judan, L’imad Holding, and consolidate IHC’s subsidiaries.

On the ground, the UAE’s defense and security authority Tawazun Council has been expanding its role in enabling domestic defense manufacturing. In a recent agreement with South Korea’s LIG Nex1, Tawazun outlined plans to explore a UAE-based defense manufacturing hub under a locally incorporated structure, covering R&D, production, maintenance, and supply chain integration, state news agency Wam reports.

It’s also teaming up with US defense and aerospace firm Lockheed Martin to set up a cybersecurity center of excellence in the UAE, alongside Abu Dhabi-based project management and cybersecurity firm Data7, Wam reports. The platform will aim to localize advanced technologies and boost local talent, after government officials warned of rising cases of cyberattacks during the regional war.

Plus: State defense firm Edge is expanding its localization push via an MoU with France-based electronic parts manufacturer Icape to localize printed circuit boards, electronic components, and turnkey subsystem solutions to use within Edge’s local manufacturing operations, according to a press release. Its data protection arm is also planning to localize production of sovereign encryption systems, according to a separate press release.

BACKGROUND- The UAE’s recent push on defense saw it buy USD 147.6 mn worth of defense systems from the US, as part of a wider USD 8.6 bn military sales package to countries in the region. Meanwhile, state defense firm Edge is continuing to deepen industrial cooperation with partners in Spain and Latin America, while Abu Dhabi-based Remah signed an agreement with a US defense firm last month to explore introducing autonomous aviation capabilities in the Emirates. Just earlier this week, Tawazun tapped Brazilian aerospace manufacturer Embraer for aircraft.