Denel is on the receiving end of yet another gloomy forecast at the same time as its shareholder representative, Public Enterprises Minister Pravin Gordhan, maintains “decisive steps” are being taken to recover assets, money and intellectual property stolen from State-owned enterprises (SOEs) in South Africa.
The gloomy outlook comes from Victoria Bosomworth, associate aerospace and defence analyst at GlobalData. The London-based data and analytics company says its mission is to help clients decode the future to be more successful and innovative across a range of industries, including defence.
“Denel’s financial woes are not only due to reported financial mismanagement, allegations of which are under investigation at the ‘State Capture’ Commission of Inquiry, but should also be viewed in the wider context of South Africa’s deepening recession – resulting in the country’s downgrade to sovereign ‘junk status’ by Moody’s in 2020 and exacerbated by the impact of the COVID-19 pandemic.
“The South African defence budget, as a percentage of GDP (Gross Domestic Product), has also been shrinking, with domestic orders falling as the majority of Denel orders stem from exports to countries such as the UAE (United Arab Emirates) and Malaysia,” she said in a statement.
Gordhan, in a Daily Maverick opinion piece, notes “in recent years SOEs have been honey pots of State capture, largely because of their large procurement spend”.
He goes on to write: “This year we will witness changes to the architecture of SOEs and the direction being taken. A set of structural reforms is being introduced to ignite growth in the economy and to address our capacity challenges which have been compounded by the Covid-19 pandemic”.
Denel, along with Eskom, SAA and Transnet is identified by the Public Enterprises Minister as SOEs set to recover from “ruthless looting and destruction”. Mandates will be reviewed, lost funds recovered, procurement policies changed and “localisation policies” implemented.
Of the State-owned defence and technology conglomerate, Gordhan writes its success is dependent on “a clear national vision of the role and place of defence and related industries in a changing globalised world”.
Denel’s new business model must, he states, respond to these challenges.
This will see Denel restructured to become “fit for purpose, commercially sustainable and not dependent on the fiscus”.
“We anticipate that Denel will enter into strategic partnerships with original equipment manufacturers (OEMs) to add value to the local economy while benefiting from a growing and untapped international market,” Gordhan writes in the digital daily.
On the other side of the ledger, Bosomworth’s forecast has it Denel’s survival is in question and it “may prove difficult to recover financially, even with requested state approval of additional funding”.
A GlobalData report analysing South Africa’s defence budget with as forecast for the 2020 financial year has it that Denel was the primary South African exporter of defence equipment, accounting for 21 of 36 contracts executed between 2015 and 2019.
“The two main export categories during this period were missiles and armoured vehicles, with Denel offering products such as the Umkhonto-IR surface-to-air missile (SAM), the ZT3 Ingwe anti-tank missile, Casspir and Mamba APCs and the RG-31 Nyala armoured vehicle,” according to GlobalData.