The UAE: A Revolution in Defense Industries or a Concealed Monopoly over Domestic Markets

How did the United Arab Emirates manage to achieve defense exports worth 2.3 billion dollars, which is roughly fourteen times Egypt’s defense exports? And when it comes to defense revenues, the UAE generates about thirty times that of Egypt.

So, is the Emirati defense model truly as successful as it is claimed to be?

The UAE represents a unique case in defense economics; it is a country that combines success in numbers with significant underlying challenges, to the point that there are widespread campaigns to boycott Emirati defense products. These boycotts are not due to ethical concerns, but rather market-related reasons, with accusations that the UAE’s practices have harmed several companies and industries in countries that entered the same market.

Let’s take a comprehensive look at the story of the UAE in the defense industries.

The UAE stands out as one of the few nations that decided to build its defense sector not from the standpoint of “an army that needs weapons,” but from the standpoint of “an economy that seeks industry.” In other words, it approached defense industrialization through a purely commercial and strategic lens, seeing it as an opportunity to assert regional and international influence.

Put differently, the defense industry in the UAE is not merely an arm of the military; it can also be viewed as a tool within a broader strategy to diversify the economy beyond oil. This represents a fundamental and important distinction in the administrative and economic philosophy driving the UAE’s defense industrial sector.

The story of the UAE’s defense industries began only about a decade ago, more precisely eleven years ago. If we look at the sector’s development from 2014 to today, we can understand why the Emirati experience deserves serious study.

In 2014, the country established the EDGE Group, which is not a single company as many might think, but rather an umbrella organization bringing together more than twenty-five firms working in defense, security, and advanced technology fields.

This group can be viewed as a holding company managed with an investment-oriented mindset and funded by sovereign wealth funds - meaning it is not affiliated directly with the military, nor was it established to fulfil its immediate needs. This becomes clear from its civilian and technical management structure, which includes a board of directors featuring financial and industrial experts from outside the military field. The UAE follows a clearly commercial model, based on Performance Indicators (KPIs) and annual budgets subject to rigorous financial audits, without any direct military intervention in management.

What followed was one of the fastest institutional transformations in the Arab world - perhaps even globally.

Companies such as Tawazun, NIMR, Industrial Offset, ADASI, Yahsat, and HALCON were merged into a single entity operating according to global market logic - focusing on development, manufacturing, and export, following the same approach as major international firms like BAE Systems (UK) and Leonardo (Italy).

This consolidation moved the UAE from the stage of importing ready-made weapons to the stage of possessing operational knowledge in fields such as satellites, aerial munitions, and command-and-control systems. It is important to emphasize that what is meant here is “operational knowledge ownership,” not “technological ownership” or “advanced manufacturing” - as the UAE has not yet reached that stage.

Economically, the Emirati experience is significant because the country did not try to compete with the United States or France in the same technologies. Instead, it focused on market gaps and worked to exploit them - such as short-range air defense systems, light drones, smart munitions, and tactical electronics. These are precisely the areas that major companies often consider “minor details” not worth dedicating their resources to - and they are exactly the niches the UAE chose to target.

Thus, the UAE has advanced according to a “niche specialization” strategy, with a clear and deliberate approach: to offer a product tailored for a specific market, of medium quality, providing high returns and fast delivery.

What makes the UAE’s model distinct is that the EDGE Group did not operate as a closed government defense company, but rather as an open international partnership platform. Its logic is simple: “I am here, I have vast financial resources, and if you wish to collaborate on producing a specific product, you will find me ready to participate.”

Companies like BAE Systems, Raytheon, Leonardo, and Baykar have all entered into partnerships with the UAE for joint development, component production, or system testing - and these, by the way, are some of the largest defense industry corporations in the world.

In 2024, the value of Emirati defense exports reached around 3 billion dollars. This figure might seem modest when compared to global defense markets, yet it is remarkably large considering that the sector itself is barely ten years old.

Here’s an interesting fact - though it may seem anecdotal, it’s noteworthy: EDGE’s exports are now more diversified than the UAE’s oil exports, when measured by the number of importing countries.

But beyond the numbers, what truly matters is that the UAE is building its defense sector as a knowledge-producing industry. The country uses defense not merely as an instrument of military power, but as a technological laboratory that supports fields like artificial intelligence, robotics, aviation, and space in the civilian economy. This is what economists call the dual-use spillover effect, a concept I have previously explained in depth.

From a governance standpoint, the UAE has managed to achieve a balance that many nations have failed to strike: executive civilian leadership, sovereign control by the state, corporate-style financial governance, and a reward culture based on innovation and quality execution.

In other words, the UAE has succeeded in establishing a quasi-market management system within a sovereign framework - something rarely accomplished elsewhere.

This has made it one of the few cases to realize that defense power is not measured by the number of tanks, but by the number of engineers who test those tanks and create patents that benefit other industries.

However, the UAE is not a defense paradise; there are three main challenges.

First, developing local capabilities takes decades, not years, especially given the clear shortage of Emirati engineers in advanced technology fields. Despite intense campaigns to “Emiratize” the workforce (similar to “Saudization” in Saudi Arabia), the proportion remains limited: only 20% of the workforce in the sector are Emiratis, and about 50% of the engineers are Emiratis - while the rest are foreigners.

Second: Despite this great leap, the UAE still depends on imported critical components such as microchips, advanced sensors, and software coming from the United States, Europe, and South Korea. There is no announced plan to localize the production of these components.

Economically, this situation is known as the technological dependency trap, where most Emirati products are assembled or superficially developed goods, not fully sovereign innovations. Therefore, in the event of sanctions or a trade war, production could stop immediately.

This limits the resilience of the industry and makes the actual value of its exports low-to-mid tech, rather than truly high-end technology.

Third: The biggest and most serious issue concerns international accusations directed at the UAE for engaging in monopolistic behaviors and interference or manipulation in foreign markets.

The UAE is accused of posing a threat to the economic sovereignty of countries in which it operates, as it imposes contractual terms that reduce local companies to secondary suppliers under its control, often involving partial technology transfers to the UAE.

In markets such as Kenya, Poland, Brazil, and Spain, EDGE faces accusations of market distortion, due to its governmental backing, which is said to suppress local competition.

This has taken place through exclusive contracts and acquisitions that weakened smaller companies in those countries, sparking international boycott campaigns against the group, which is described as a state-backed entity dominating supply chains and threatening the economic sovereignty of importer nations.

Economically, this allegation rests on a model known as predatory acquisition. Critics argue that the group is sovereignly funded, with annual revenues of about 5 billion dollars, and backed by sovereign wealth funds such as ADQ. This gives it the ability to acquire companies at very high prices without needing short-term profits, and to rapidly attract expertise.

As a result, the situation is not considered a level playing field, because this model reduces local innovation in the countries it enters - especially in those where small and medium enterprises rely heavily on limited defense contracts.

Since 2023, the UAE has acquired significant stakes in European and South American companies, such as Milrem Robotics in Estonia, which, by the way, was the largest investment in the history of Estonia’s defense industry.

The European Union launched a five-month investigation fearing that EU-funded technology might leak to the UAE, similar to what happened earlier in the iMUGS project for robotic tanks.

The UAE also purchased a large stake in Anavia, a Swiss company specializing in drone manufacturing, and acquired 50% of SIATT, a Brazilian company working in precision munitions. It also bought part or all of Flaris, a Polish company specializing in light aircraft, and took over Condor, another Brazilian defense firm.

Several reports indicate that while these acquisitions are effective in the short term - mainly for technology transfer - they tend to cause problems in the long run. In many cases, the Emirati company withdraws after achieving its objective, repatriating the technology and sometimes even absorbing engineers from the acquired firm. This often leaves behind a country that gains little genuine benefit from the deal.

This issue has also emerged within the UAE itself, not just abroad.

The EDGE Group dominates the Emirati defense market almost entirely, which reduces competition, puts pressure on small and medium local companies, and creates what could be described as an innovation bubble - innovation driven by government support that is unsustainable in the long term.

Based on these facts, it can be said that the Emirati model is brilliant in terms of speed, but fragile in terms of dependability and the balance between profitability and autonomy.

From an economic perspective, the model remains successful so far, but if international campaigns intensify or if the European Defence Agency tightens legal restrictions on the UAE’s activities in Eastern Europe, EDGE could lose everything it has achieved so far.

This offers an important lesson for the UAE itself and for other countries such as Saudi Arabia: rapid growth is not always an advantage, because real growth requires balance between capabilities and objectives, and the building of international trust and partnerships that yield mutual benefits for all parties involved.