|Large numbers of defense suppliers have signaled their long-term commitment to supporting the United Arab Emirates' plans to develop an industrial manufacturing base by signing new long-term agreements according to the UAE's new offset policy guidelines. |
Commenting on the response of defense contractors to changes to the UAE's policy, Saif Mohamed Al Hajeri, the CEO of the Offset Program Bureau, said: "Over 70 per cent of defense contractors with offset obligations have transmitted their commitments to the new policy, among them Boeing, Raytheon, EADS, Fincantieri, Nexter, MBDA, Lockheed Martin and Rheinmetall".
In June 2010, the UAE launched an updated set of offset guidelines to support its plans for an industrial base that delivers sustainable economic and social development through industrial partnerships, capacity building, technology and knowledge transfer and creation of jobs for the UAE citizens. A two-year timetable was established to enable defense suppliers to bring over their offset commitments to the new framework.
Approvals from defense industry Gwen Kopsie, Director of International Strategic Partnerships for Boeing Defense, Space and Security: "Boeing supports the UAE's new offset policy which sets out to build a strong framework for long-term co-operation with its defense contractors to build a 'home-grown' industrial base. The new policy provides flexible fulfillment criteria and facilitates the implementation of projects through active engagement by defense contractors at an early stage. We believe we can create strong and sustainable partnerships with UAE companies to deliver the objectives of the offset program." G rard Griseri, Chief Executive Officer of Nexter, the French arms manufacturer, said "We really see this new offset policy as an opportunity for new businesses and success for Nexter. For us a key benefit of the new offset policy is the possibility to fulfill our offset obligations through joint-venture partnerships with local companies in our core business in the defense arena. We have already built a long-term partnership with the UAE Armed Forces. The new offset policy will help us improve this relationship and contribute to the local economy through the transfer of technology and know-how to UAE companies." Joost van Gemert, Head of Corporate Offset at Rheinmetall AG of Germany said: "We are very pleased to be able to work with the UAE so closely and are very positive about the new offset policy. It is much more open and very similar to the offset policies from European countries in terms of timings and milestone fulfillments. The main change for us is that we have much more flexibility in the programs that we propose. Offset credit is now given for a range of elements, not just the cash investment or the profit made. Knowledge transfer, training programs and technology transfer are now recognized as valuable instruments as well. This certainly plays to our strengths." Alberto Maestrini, Executive Senior Vice President Naval Vessels Business Unit of Fincantieri, said: "The signature of the new offset agreement by Fincantieri with the United Arab Emirates confirms our willingness to honor our offset obligations pursuant to the two Naval Vessels Programs with UAE Navy. The recent creation of the joint venture Etihad Shipbuilding, with the aim of creating important business opportunities, both in the defense and commercial sectors, is a further testimony that our company fully supports the new offset policy which was recently implemented in the UAE".
Guy Fr mond Head of Offset and Industrial Cooperation at MBDA, the missile systems group: "MBDA has already clearly expressed its willingness to create in the UAE a new world centre of excellence in missile systems activities. The signature of a new offset agreement with the United Arab Emirates is a further testimony that MBDA fully supports the new offset policy implemented by the UAE Government" Matar Ali Al Romaithi, Director of Industrial Development at OPB, said: "The UAE offset policy has become more flexible for defense contractors and easier to implement, allowing greater involvement from an earlier stage in the planning process. The new framework aligns more closely with the UAE's long-term economic vision to achieve growth through a knowledge-driven economy, industrial partnerships, transfer of technology, capacity building, and creation of jobs for UAE nationals. We are confident that our new policy enables our defense partners to develop strong, long term and jointly beneficial partnerships with the UAE." The new offset policy at a glance The new UAE offset guidelines were developed following extensive research to identify the challenges defense contractors faced in implementing their obligations under the UAE offset program. The new policy promotes greater partnership with defense companies, through long-term planning and increased customization in programming to maximize the fulfillment of offset obligations.
Key updates to the previous offset policy focus on areas of activity, planning and timings of commitment and performance milestones.
Areas of focus The new guidelines tighten the area of focus for programs to reflect defense contractors' expertise and attract defense-related technologies and know-how. These centre around building capabilities in two areas: the manufacturing of end-user products (such as strategic technical systems, infrastructure systems, transportation equipment and oil and gas systems) and components (such as advanced materials and electronics, precision manufacturing and technical services).
Performance guidelines A hybrid input and output credit contribution model has been introduced to enable defense contractors who are dealing with the UAE Armed Forces to capitalize on their existing strengths while emphasizing the need to partner with the local private sector in profitable and commercially viable ventures.
The new policy introduces clear distinctions between "input contributions" and "output-generated results". Input-contributions include "industry enablers", "knowledge-empowerment" projects and equity contributions. Examples of projects include IP contributions, team start-ups, apprenticeship programs, cash contributions and investment or contribution of specialist equipment.
However at least 70% of the obligation is delivered through "output-generated results" projects. These are calculated based on two criteria: net profits and proportional salaries of UAE Nationals. In particular, higher credit multipliers are applied to profits due to export sales.
Timing Earlier planning is a key feature of the new guidelines. An offset fulfillment plan must be developed in tandem with the procurement process with the UAE Armed Forces. This will enable earlier rollout of joint-venture projects. Flexibility has been introduced into joint-venture timelines through the introduction of a �grace period'.
This allows defense contractors to complete the setting up of the joint venture in terms of infrastructure, construction setting up of machinery, training etc. The grace period could be up to 3 years depending on the complexity and the size of the project. This grace period rewards early planning, allowing contractors to maximize credits though input contributions and to over-achieve milestones in the early years of operations.
Milestone fulfillment Annual milestones over the 7-year period of the offset obligation have been introduced to commit defense contractors to their plans and to secure their active involvement for the duration of the program.
The annual milestone target for each of the 7 years is 5, 10,10,15,15, 20 and 25% of the total obligation. Penalties for non-delivery remain as before, at 8.5% of the obligation. However, this fulfills only 50% of the obligation with, the remaining 50% rolled over to a default account that will be carried to the next obligation or reduced depending on the overall performance of the contractor.