Economic Development Program Overview
The Tawazun Economic Program, which is overseen by the Tawazun Economic Council, is UAE’s industrial participation program that seeks to derive economic value from the country’s extensive defense procurement program.
Since 1992, Tawazun Economic Program has worked actively to diversify the UAE economy by creating new ventures in sectors of national importance. The program has partnered with international contractors, brought investments and latest technologies into UAE, generated knowledge based jobs for UAE nationals and created business opportunities for UAE companies.
The program has six key objectives:
- Build critical national defense industry
- Create knowledge based economy
- Diversify UAE’s economy by growing the country’s Industrial base
- Create business opportunities for UAE private sector
- Generate high value exports
- Produce employment opportunities for UAE Nationals in high-tech field.
A foreign defense contractor supplier to UAE, with over USD 10 million in contract value over a five year period, must participate in the Tawazun Economic Program. The foreign contractor generates obligations as a result of sale of goods and services to UAE. Tawazun Economic Program has established formal guidelines that outline the focus areas, mechanics and process to fulfil these obligations. The aim of Tawazun Economic Program is to continue to catalyze new projects that fulfill the objectives listed above.
Economic Development Program Guidelines
This Guideline should be read in conjunction with the Tawazun Economic Program Agreement (TEPA). Unless the context indicates otherwise, terms not otherwise defined in this Guideline shall follow the definitions given to them in TEPA.
The government defense procurement and Tawazun Economic Program processes start in parallel. A defense contractor is informed of the requirement to enter into a Tawazun Economic Program Agreement during the bidding process.
The contract award process is linked to the signing of a Tawazun Economic Program Agreement. This ensures that defense contractors are aware of the Industrial Participation requirements and have sufficient time to plan the identification and execution of an adequate project to fulfill potential obligations. A contractor needs clearance from Tawazun Economic Program before a government defense contract can be awarded.
Sector and Capability Focus
Tawazun Economic Council has identified key sectors and capabilities of development with potential for future growth, which Contractor’s should focus on for generating Credits. Any project suggestions not falling within these sectors or capabilities will typically be rejected. Within the sectors, the project may focus on final system, sub-assembly, major components or key technical services.
- Autonomous systems
- Cyber Security
- Software Engineering and Programming
- System integration
- Testing & qualifications
- Program Management
- MRO (Maintenance Repairs and Overhaul)
Obligations and Credit Generation
Threshold: Supply contracts of a cumulative value exceeding USD 10 million in a consecutive five year period have an obligation and must fulfil Tawazun Economic Program requirements. If cumulative value is below USD 10 million, no obligations are incurred.
Obligation %: Defense contractor has Tawazun Economic Program obligations equal to 60% of the supply contract value
Time period to fulfil obligations: All defense contractors must fulfill their obligations over a period of seven years. Certain projects may be granted a discretionary grace period depending on the required lead time due to complexity, sophistication and infrastructure requirements.
Milestones: A certain level of obligation is expected at the end of each year of a program. These levels have been carefully assessed and linked to the expected growth cycle of a project. Percentage achievements expected are 5%, 10%, 10%, 15%, 15%, 20%, 25% for each year respectively.
Credits required: The obligor can fulfil obligations by earning Input as well as Output credits. Input credits are limited to maximum 30% of total obligations. Output credits must be a minimum of 70% of total obligations.
Credit earning activities: Overall, two broad mechanisms are available for defense contractors to fulfil credits (i.e. generate both input and output credits):
Joint venture: Establish a 51%-49% (Local-Foreign) JV that generates profits and hires UAE nationals. Input credits are based on cash, assets or capabilities transferred to JV. Output credits are earned by generating profits and creating UAE national jobs.
Work package: Provide capabilities and supply contract to an established UAE company. Input credits are based on cash, assets or capabilities transferred to the UAE company. Output credits are based on value of contract provided to the UAE company.
Liquidated damages: Upon signing of the Tawazun Economic Program Agreement, defense contractor must submit a bank guarantee equivalent to 8.5% of overall outstanding obligation. Liquidated damages of 8.5% will be imposed on the unfulfilled portion of the obligation calculated at each milestone. Payment of liquidated damages fulfills 50% of the obligation due. The remaining portion is carried forward, to be settled through future milestones. If the carry forward portion is not cleared by the last milestone, a new program must be initiated to clear the unfulfilled credits. If the defense contractor fails to initiate a project, liquidated damages applied do not fulfil any obligations due and 100 % of the obligations are carried forward.