Building Local Defense Capabilities: Offset Programs
The U.A.E., like many countries around the world, has introduced an “offset” program to translate its extensive defense-related procurement into industrial participation by defense contractors, thereby generating “high economic value, social and strategic benefits to the U.A.E.”
The U.A.E.’s offset program, known as the Tawazun Economic Program (TEP), is specifically focused on achieving the following stated objectives:
- Enabling the growth and development of the defense and security industry in the U.A.E.
- Supporting the establishment of projects that provide sustainable economic benefit to the economy of the U.A.E.
- Targeting new capability development, technology transfer, and accelerated adoption of new technologies in both the defense and security sector and in the broader industrial sector
- Supporting innovation and R&D in the U.A.E.
- Encouraging the participation of SMEs as suppliers or local partners on major procurement contracts
- Increasing competitiveness, productivity, and export market access for U.A.E.-based suppliers
- Generating knowledge-based employment opportunities and capability development for U.A.E. nationals
The TEP seeks to achieve the above objectives by imposing offset “obligations” on any defense contractor that directly or indirectly sells or supplies goods or services to the U.A.E. government of a particular value over a specified period of time. Defense contractors must fulfill these offset obligations by generating offset “credits” amounting to a percentage of the value of the supply contract. Defense contractors can generate these offset credits through investments, signing work packages with local U.A.E. suppliers/manufacturers, or providing knowledge, technology, and/or capabilities to local entities or U.A.E. nationals. The U.A.E. has set up the Tawazun Economic Council (TEC) to coordinate and collaborate with companies in this regard.
Since its creation, the TEP has continually evolved so as to meet the U.A.E.’s strategic objectives as well as incorporate the feedback of defense contractors. As such, the TEP now offers more ways for defense contractors to earn offset credits and to efficiently and effectively fulfill their offset obligations. At the same time, the TEP has become much more narrowly focused on promoting key sectors or capabilities directly related to defense and security.
As this program has evolved, the Business Council has played an important role in creating engagement opportunities for U.S. industry with leadership from the TEC. For instance, in October 2018, the Business Council hosted a private dinner in Washington, D.C. in honor of His Excellency Tareq Al Hosani, the current CEO of TEC. Such engagements have been a staple of the Business Council’s event calendar since at least 2010, when the Council hosted His Excellency Saif Al Hajeri, the CEO of TEC’s predecessor, the Offset Program Bureau (OPB), for an event with industry in Washington, D.C.
At the same time that the Business Council has provided opportunities for U.S. industry to engage directly with the TEC, the Business Council has also played a critical role in providing U.S. defense contractors, big and small, with information about this program as well as advising them on how best to approach and navigate its requirements.Back to Policy Initiatives