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The US defense industry does not face a shortage of capital, but structural barriers that prevent investment from reaching critical areas, according to a report by Bain & Company and the Aerospace Industries Association (AIA).
While focused on the US, the findings offer lessons for Middle Eastern governments and investors seeking to strengthen domestic defense industries, attract long-term private capital and expand their presence in international markets.
“The UAE has built a sovereign defense industrial base faster than any comparable nation in history, and its export trajectory in recent years is one of the most evident proof points globally that the report’s primary recommendation actually works: the UAE designs its programmes <a href="https://menainsights.com/qashio-launches-global-pay-with-visa-offering-rewards-across-50-travel-partners/”>with export markets in mind from the start, to grow international sales and make them sustainable and economically viable” said Samer Bohsali, Senior Partner at Bain & Company in the Middle East.
The report, The State of Investment in Defense: Unlocking Growth, draws on 50 stakeholder interviews conducted between April and August 2026, an AIA member survey and supporting data analysis to examine investment barriers across the US defense industrial base.
Capital is available, but critical gaps remain
The research finds that private capital is not scarce overall, but investment remains unevenly distributed across the defense value chain. North American venture capital investment in majority-defense companies increased from approximately $1 billion in 2019 to $10 billion in 2025. However, significant funding gaps persist in critical raw materials, lower-tier manufacturing, technology development and production scaling.
In the AIA survey, 72% of respondents identified Tier 2 and Tier 3 precision and electronic components as areas where non-government investment is most scarce or expensive relative to strategic need, followed by raw materials and critical inputs at 61%.
The report also highlights the challenge of transitioning promising technologies from prototype development to full-scale production, where investment models often fail to match the capital requirements and extended development timelines of defense manufacturing.
“The harder challenge ahead is the one the report identifies as most acute globally, scaling from prototype to production and building the supply chain depth to deliver without dependency on foreign sole-source suppliers. That is where the UAE’s next chapter of defense industrial leadership need to focus” said Cyril Gourp, Partner at Bain & Company in the Middle East.
Long-term demand uncertainty is the biggest barrier
The report identifies limited long-term demand visibility as the most significant constraint on defense investment, with 83% of survey respondents citing insufficient long-term funding or demand certainty as a critical barrier to expanding industrial capacity.
Annual government funding cycles, complex procurement processes and lengthy defense development timelines make it difficult for manufacturers and investors to justify major capital commitments. These challenges are compounded by constrained financial returns and mismatches between defense production cycles and private investors’ investment horizons.
Six priorities to unlock investment
The report identifies six priorities to improve investment conditions: strengthening long-term demand commitments, better aligning investment risks and rewards, reducing procurement complexity, expanding international market opportunities, developing more flexible financing models and improving industrial performance.
These measures emphasize the importance of coordinated action between governments, defense manufacturers and investors to create sustainable investment conditions and strengthen supply chain resilience.
For Middle Eastern economies, the findings reinforce the value of export-oriented industrial strategies, predictable procurement commitments and continued investment in domestic manufacturing and production capabilities.
The full report, The State of Investment in Defense: Unlocking Growth, is available on Bain & Company’s website.