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C O N F I D E N T I A L SECTION 01 OF 06 ABU DHABI 003851 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR NEA/ARP, PM A/S HILLEN, PM/DTC 
STATE PLEASE PASS TO USTR 
 
E.O. 12958: DECL: 10/01/2016 
TAGS: MCAPS PREL MASS MOPS BEXP AE
SUBJECT: UAE DEFENSE SPENDING 
 
REF:  A) ABU DHABI 3753, B) ABU DHABI 2782, C) 04 ABU DHABI 
2930 
 
ABU DHABI 00003851  001.2 OF 006 
 
 
Classified by Ambassador Michele J. Sison, reasons 1.4 (B) 
and (D). 
 
Summary 
------- 
 
¶1.  (C) Estimates of the cumulative value of defense 
procurements by the UAE in recent decades reach well over 20 
billion dollars (although the UAE does not publish its 
overall defense and security expenditures).  Funded 
essentially by the Emirate of Abu Dhabi, that money has been 
spent on sophisticated weapons and defense systems from many 
countries, with no obvious master plan for an integrated 
defense network.  UAE defense experts, including contractors 
and military advisors, say that only the best will do for 
this demanding customer, and that even the best technology 
must compete through a protracted and vigorous negotiation 
process.  A UAE penchant for wanting only top-of-the-line 
capabilities often includes reaching into the future for 
systems still under development.  "Spiraling" requirements 
can drag out negotiations almost endlessly, according to 
veterans of the military sales process. 
 
¶2.  (C) Beyond seeking world class capabilities, the UAE also 
actively divides up its procurement game between key 
international players; one contact called it "security 
council procurement."  As the UAE seeks to diversify sources, 
it has often viewed sales procedures on U.S. goods, whether 
through Foreign Military Sales (FMS) or by direct commercial 
contract, as cumbersome; several key deals have gone to 
foreign competitors.  One of the costs to the UAE of this 
"diversification" strategy is low interoperability between 
the various systems in its arsenal, and even the risk of 
incompatible defense systems failing to identify one another 
correctly as "friend or foe."  Yet, a strategy of spreading 
the wealth usefully bolsters alliances with the UAE's various 
source countries.  End summary. 
 
Defense budget opaque but large 
------------------------------- 
 
¶3.  (C) The overall size of UAE defense expenditures is 
difficult to determine; the budgeting process is extremely 
opaque, with considerable revenue and expenditure activity 
being handled "off-budget."  Complicating the picture, the 
federal budget (arguably the least opaque) makes up only 
about 23% of total UAE spending.  The Emirate of Abu Dhabi, 
on the other hand, chips in about 65%.  Over the last 6 
years, security spending has made up an average of 41% of the 
total federal budget.  According to Ministry of Finance 
officials, aside from paying the salaries at the small 
Dubai-based Ministry of Defense, the Federal Government does 
not control defense spending.  The Emirate of Abu Dhabi tells 
the federal government how much it will spend and funds 
defense-related items directly and "off-budget."  IMF reports 
on the UAE (which contacts at Abu Dhabi's Department of 
Finance tell us are relatively accurate) note that Emirate of 
Abu Dhabi spending on federal services (mainly military and 
internal security expenditures not included in the federal 
accounts) have averaged about $5.4 billion per year since 
2000, with 2005 spending at just over $6 billion. 
 
Only the best will do 
--------------------- 
 
¶4.  (C) Contacts uniformly noted that the UAE desires the 
best defense technology on the market, with the most capable 
upgrades; the shinier the better.  GHQ personnel are very 
savvy about haggling over technical details, according to 
many who have negotiated with them, and GHQ frequently sets 
up a technical committee to explore the outer limits of 
 
ABU DHABI 00003851  002.2 OF 006 
 
 
possibility.  Senior UAE military leaders also reach beyond 
existing technology and inquire about items still under 
development.  More than one contact suggested that a 
conceptual layout of a new system in Defense News could spark 
inquiries, with the GHQ only later learning that the 
technology had not yet been invented, let alone proven 
effective.  The UAE's technical teams know that they want the 
best and are always pushing the limits of what represents the 
top of the line. 
 
¶5.  (C) One consultant noted that GHQ technical committees 
are effective because they are "protected" from political 
pressure created by the strong business interests involved in 
defense procurements.  Theirs is a technical task and they 
are able to focus on capabilities and requirements.  That 
protection allows them to reach for the "next level" of 
capability without interference.  A wise defense contractor 
will, according to this observer, be very responsive to any 
and all requests from this technical team and treat them to 
top notch product demonstrations at every opportunity. 
Others have commented that forward-leaning UAE demands have 
actually accelerated U.S. research and development on some 
programs and led to enhancements of value to the USG. 
 
¶6.  (C) Comment:  A governing axiom driving the desire for 
more and better technology has its roots in the shallow 
talent pool available for the military to draw upon.  The UAE 
population is slightly over 800,000; attracting qualified 
personnel to man the national defenses is a perennial 
challenge.  Replacing human capital with equipment is thus 
seen as inherently positive.  Although more technology leads 
to greater maintenance needs, many of those needs are met by 
foreign nationals, who represent a problem solved by budget 
resources, not Emirati human resources.  (Note:  Third 
Country Nationals, whether functioning as contractors or 
commissioned into the uniformed services, still present a 
Third Party Transfer barrier for high technology U.S. defense 
articles.  End note.) 
 
Multi-pronged "defense diplomacy" 
--------------------------------- 
 
¶7.  (C) While top-line technology is a must, cost and 
distribution of sources are also critical.  The UAE political 
leadership balances sources to ensure a diversity of defense 
relationships; lower echelons in the defense procurement 
chain therefore keep all avenues open as they pursue new 
technologies.  Diversity of sources has always been a 
political imperative in the UAE, a small country perceived as 
difficult to defend militarily.  (Some contacts suggest that 
President Khalifa bin Zayed Al Nahyan, UAE Armed Forces 
Supreme Commander, feels the UAE has no prospects to "win" a 
military engagement with the big regional (let alone the 
larger international) players at any rate, and is therefore 
skeptical of the utility of a robust defense network.  As the 
steward of Abu Dhabi's purse strings -- and very engaged in 
the revenue-earning oil side of Abu Dhabi finances -- Khalifa 
reportedly questions large expenditures on defense. 
Personnel identified as Khalifa loyalists are also in charge 
of the all-important Abu Dhabi Department of Finance, which 
controls the Emirate's expenditures.) 
 
¶8.  (C) Keeping multiple allies in the procurement game 
boosts economic ties as well as military cooperation with a 
broader range of potential partners.  The UAE is 
strategically disinclined from consolidating its purchases. 
A long-time observer of Abu Dhabi Crown Prince and UAE Armed 
Forces Deputy Supreme Commander Mohammed bin Zayed Al Nahyan 
(MbZ) reiterated that avoiding "all eggs in one basket" was 
an imperative for the UAE leadership in spite of the desire 
for the best quality product.  The operating principle is 
that the UAE must have "tentacles" in multiple international 
arenas, he argued. 
 
 
ABU DHABI 00003851  003.2 OF 006 
 
 
¶9.  (C) Another noted that MbZ's "defensive" procurement 
strategy goes well beyond "defense spending" and includes 
commercial contracts of all sorts.  Playing host to a 
significant U.S. investment in the oil sector can, for 
example, "keep the attention of the White House" and ensure 
increased U.S. interest in UAE security.  A diverse 
investment portfolio can therefore be a core strategic asset. 
 
You've got to shop around 
------------------------- 
 
¶10.  (C) The U.S. may be the strongest player in the defense 
arena and arguably offers the best technical solutions; the 
UAEG clearly seeks to nurture our military relationship.  We 
offer high quality defense systems and the benefits of 
potential interoperability should a coalition operation 
become necessary.  At the same time, however, the UAE is by 
no means a U.S.-only (or even a U.S.-dominated) defense 
market.  While a large F-16 purchase represents a significant 
Air Force relationship, other nations also play key roles in 
that game and the U.S. is actually under-represented in the 
Army and Navy procurement arenas. 
 
¶11.  (C) Cooperation with the French (with the LeClerc tank, 
Mirage fighters, and Baynunah corvettes constituting major 
UAE purchases) is also seen as critical to the UAE's 
defensive engagement strategy.  The UAE also dabbles in 
procurements with the British, which has a major stake in UAE 
military and police training programs.  The UAE is reportedly 
in discussions with Russia about air defense systems still 
under development (ref A).  Abu Dhabi's defense shopping 
habits are referred to by one long-time participant in the 
process as the "security council procurement policy."  The 
UAE wants to show that it is a meaningful global player by 
engaging with the "big five" and spreading its wealth around 
within this influential group.  That explanation rings true, 
even if it does not account for the relative insignificance 
of defense purchases from China (possibly due to China's 
generally inferior offerings in the defense arena, or the UAE 
may see other commercial avenues as more effective in 
bolstering ties with Beijing).  Beyond the "P-5," the UAE 
also has significant defense business with Germany (NBC 
armored reconnaissance vehicles, mine hunting ships, military 
communications, missile patrol boats), Sweden (co-production 
of 12 fast troop-carrying ships, radars for new Baynunah 
corvettes), Italy (systems integration for Baynunah corvettes 
via joint venture, possible future contract on maritime 
patrol aircraft), and South Korea (has the inside track on 
contract for an advanced jet trainer).  South Africa, 
Pakistan, and India also have pieces of the pie. 
 
¶12.  (C) The delicate balance of sources is much more complex 
than simply deciding which system to buy, and raises 
troublesome issues about mixing bits and pieces of diverse 
systems.  In one case, the UAE reportedly clung tightly to 
the LU-2 French communications systems in spite of the 
obvious benefits (quality and interoperability) available 
with U.S. LINK 16 technology.  Undaunted, the UAE sought a 
mix-and-match solution and began asking whether U.S. 
communications systems could be integrated with the French 
Mirage.  System compatibility issues carry attendant dangers 
-- especially in communications and air defense networks 
which rely heavily on identification of friend or foe -- and 
can expose a military to the hazard of shooting down the 
wrong plane. 
 
¶13.  (C) The complex task of tying diverse systems together 
militarily is daunting.  One expert called it "an operations 
officer's nightmare come true."  Nonetheless, the UAEG is not 
-- and never has been -- willing to tie its international 
cooperation to any one nation; the UAEG willingly faces the 
dilemma of assembling a coordinated defensive capability with 
the inherent complexities of a diverse and often 
mutually-conflicting array of weapons systems.  It chooses, 
 
ABU DHABI 00003851  004.2 OF 006 
 
 
according to one analyst, to "close no doors." 
 
U.S. rules hard on customers 
---------------------------- 
 
¶14.  (C) While keeping all avenues open in engaging with its 
large western allies, especially given the uncertain 
neighborhood in which the UAE is located, the nation often 
finds non-U.S. sources more user-friendly than the 
complicated procedures and caveats imposed by the United 
States.  With intricate Foreign Military Sales (FMS) and 
commercial regulations, coupled with politically-charged 
Congressional attitudes always looming in the background, the 
UAE often shops elsewhere for reliable and timely 
procurements.  The UAE frequently cites concerns over export 
control stipulations and end-use monitoring, occasionally 
evidencing an attitude of "we paid for this, it's ours." 
Representatives of a large U.S. concern said that French 
industry cooperates with government such that a French 
weapons proposal is, from the beginning of negotiations with 
the UAE, a vetted offer that is clearly feasible and 
coordinated.  Industry representatives complain that the 
U.S., on the other hand, often introduces complications into 
discussions late in the game and U.S. industry must lobby the 
USG to make its proposals feasible. 
 
Interest in local production 
---------------------------- 
 
¶15.  (C) The UAE is also moving to set up local production of 
defense articles, both as a means of avoiding export 
restrictions and cumbersome end-use caveats imposed by 
foreign suppliers, and for promoting local industry as the 
nation seeks to diversify its economy.  Examples of systems 
being pursued include UAVs (including a helicopter version 
being tested by UAE troops deployed in Afghanistan), ships 
(the first of six "Baynunah" corvettes for coastal patrol is 
being produced in France, with the remainder scheduled for 
production in the UAE), rockets (180 cm rockets for 
helicopters developed by the Advanced Institute for Special 
Operations), swimmer delivery vehicles (coordinated by 
Emirates Marine Technologies as delivery vehicles for special 
operations), and interest in satellite imagery systems. 
Local production has the advantage of local control over the 
production process; many projects would also involve a 
foreign partner and thus fit well into the UAE's 
share-the-wealth strategy of bolstering potential defensive 
alliances. 
 
A billion here, a billion there: One dirham at a time 
--------------------------------------------- -------- 
 
¶16.  (C) In the high-stakes financial quest for defense, 
experts suggest that the GHQ has a spending threshold of 15 
million dollars beyond which it must gain higher level 
approval.  Few major systems fall within that threshold, 
thrusting the decision upward to the level of Abu Dhabi's 
ruling Al Nahyan brothers.  The Al Nahyan do not necessarily 
share views on defense, however (see paragraph 7 above). 
President Khalifa bin Zayed reportedly keeps tighter control 
of the purse strings than did Zayed, his father.  Khalifa's 
half brother MbZ, who has played a central role in the 
defense arena under both Zayed and Khalifa, might have been 
able, contacts suggest, to talk his father into an "off 
budget" requirement whenever the need arose.  Under the 
fiscal discipline (at least in defense) of Khalifa, however, 
experts suggest MbZ has a harder time arguing that expensive 
new systems are right for national security. 
 
¶17.  (C) Note:  Khalifa has put extensive resources to bear 
in seeking to enhance critical infrastructure protection, 
having reportedly been convinced that oil revenues are 
vulnerable when related infrastructure is overly exposed (see 
ABU DHABI 2782 and previous). 
 
ABU DHABI 00003851  005.2 OF 006 
 
 
 
¶18.  (C) Note continued:  No contacts interviewed suggested a 
significant role for Dubai ruler and nominal UAE Minister of 
Defense Mohammed bin Rashid Al Maktoum in the defense 
procurement arena.  End note. 
 
¶19.  (C) The UAE has no published defense procurement budget. 
 Some argue that "there is no defense budget" at all, 
suggesting that large expenditures are particularly prone to 
senior leadership perspectives -- including the President's 
views.  (Others cite a nominal percentage of GDP established 
to cover salaries, exercise costs, logistics, uniforms, etc., 
but not major purchases.)  At present, GHQ is reportedly 
aggregating its known major purchase projections and lobbying 
to have these included in a formal budget process to seek 
greater clarity regarding what large purchases are likely to 
get funded in advance.  End note.)  Price is indeed a concern 
at this senior level, a reality which forces GHQ to put the 
squeeze on costs at all stages of negotiation. 
 
¶20.  (C) The offsets program is indicative of a significant 
attempt to ensure maximum economic benefit from defense 
dollars spent.  Purchases (particularly those over $10 
million) require an offset investment, in areas not directly 
related to the purchase/project itself, which generates an 
"economic value" of 60% of the worth of the contract over a 
seven-year period.  The result has arguably stimulated 
economic expansion in non-defense areas.  As an example, the 
Gulf Diagnostic Center, a medical clinic frequented by 
expatriate residents in Abu Dhabi, began as an offset 
requirement for a defense sale, yet has since been sold and 
has no current ties to the contractor which set up the 
original offset.  Some argue that offsets are subject to 
extensive political maneuvering -- where there is money there 
are politics; nonetheless, the effort exemplifies a strong 
UAE desire to gain more from its defense dollars. 
 
Spiraling requirements -- the elusive end game 
--------------------------------------------- - 
 
¶21.  (C) Defense contractors speak of a UAE penchant for 
constant modification of requirements.  GHQ continues 
negotiations throughout this "spiraling" discussion of UAEG 
demands.  Price may not enter into the discussion at first, 
as the UAEG's technical appetite reaches ever higher, but 
clearly complicates the discussions as senior decision-making 
levels become engaged.  Price and technical requirements, 
therefore, can be debated endlessly.  One astute observer 
noted that "the wind is always blowing, but the dunes shift 
slowly." 
 
¶22.  (C) Citing the F-16 deal as an example of 
ever-increasing UAE demands, parties involved in that 
transaction say it was still being negotiated "at the altar." 
 Requirements spiraled at each stage of negotiations.  No 
final conclusion was reached until the contract was signed -- 
and even that reportedly involved MbZ calling off "parallel 
negotiations" being held elsewhere even as he prepared to 
sign the final document.  For the contractor, balancing the 
increasing technical demands with increased cost pressure is 
indeed a delicate juggling act. 
 
¶23.  (C) One UAEG goal appears to be, according to a number 
of contractors, to keep multiple competitors in the game as 
long as possible.  One stated that "three competitors" is a 
rule of thumb.  Thus, even as a firm senses it may be winning 
a bid -- as it is asked for further information -- the 
reality may be that the customer is only pressing for a 
better deal and giving a similar impression to multiple 
bidders so that each will refine its offer.  A proposal must 
indeed be in the "top three" to pass muster with the 
technical committee, according to one observer. 
 
Conclusions: Shifting predictability 
 
ABU DHABI 00003851  006.2 OF 006 
 
 
------------------------------------ 
 
¶24.  (C) Political considerations are, by definition, a 
moving target.  The criteria guiding decisions at the ruling 
levels of the UAE are no exception and shift with the times. 
Nonetheless, UAEG desires for good relations with key states, 
the U.S. first and foremost, form consistent political 
imperatives which underpin a dynamic decision-making process. 
 The U.S. contractor community, for its part, has shown its 
staying power in pursuing contracts with an often difficult 
negotiating partner, reaping significant, if not ideal, 
results. 
 
¶25.  (C) Other "constants" in the UAE defense procurement 
game include a desire for the best -- constant pursuit of 
ever-more-modern results.  The goal of "best and newest," 
however, does not suggest that the UAE has money to burn, and 
the GHQ will squeeze out the best deal it can muster in an 
extended negotiating process.  After hard bargaining at the 
GHQ level, senior level politics invariably intervene to 
ensure careful stewardship of UAEG resources and a balancing 
of relations with key international players. 
 
¶26. (C) Comment:  While UAE procurement decisions are not a 
predictable process, they play out in an arena reasonably 
familiar to the USG and American suppliers, whose self 
interest will keep them actively engaged in the high stakes 
world of security assistance for the foreseeable future.  End 
comment. 
SISON