What's up Defence. Total defence spending by the Gulf states is expected to cross the $100bn milestone in 2014.
Investors might like to go on the offensive
Total defence spending by the Gulf states is expected to cross the US$100 billion (Dh367.3bn) milestone in 2014, the consulting company Frost and Sullivan forecasts. What does this bonanza mean for investors? It could make for a compelling investment opportunity in the military sector for firms based in the US, Europe, and even Abu Dhabi. In the US, Boeing, Raytheon, Lockheed Martin and Northrop Grumman have a long history of deal-making in the region, ranging from attack helicopters, radar systems, fighter jets and battle management systems.
That presence is expected to grow in the next few years as the UAE and its Gulf neighbours consider a raft of new purchases to build up their threat deterrent as a way to deal with the region's instability. These firms are vying for new deals, particularly in the UAE. Boeing is in negotiations on a $2bn contract for heavy-lift transport helicopters, communications equipment, parts and training, while Lockheed Martin could reap $7bn in orders from the Emirates for a proposed defensive missile system called THAAD.
The European heavyweights EADS and Dassault Systemes are also well established in the Gulf, and one deal to watch out for is a proposed sale to the UAE for up to 60 Rafale fighter jets. There is at least one local investment opportunity on the Abu Dhabi Securities Exchange with Abu Dhabi Ship Building. The company is the prime beneficiary of a $1bn contract to build six 73-metre corvettes for the UAE Navy and is gearing up to supply a range of services and support to other navies in the region.
Any investor should approach the European and US firms with a degree of caution, however. The upsurge in Gulf spending comes at a time when the rest of the world is still climbing out of recession and military spending is in a down cycle. The real question is whether any deals in the Gulf could offset such a larger trend. @Email:firstname.lastname@example.org