Save Denel to ensure local defence industry’s future

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If Denel goes down, Parliament’s Joint Standing Committee on Defence (JSCD) is concerned that South African defence technology development could grind to a halt.

After hearing presentations from the troubled State-owned defence and technology conglomerate and Armscor, the JSCD pointed to risks posed by the current and seemingly ongoing parlous state of affairs at Denel as potentially impacting on the operational capability of the SA National Defence Force (SANDF), according to a Parliamentary Communication Services statement. The statement makes a point of stressing the importance of defence technology and its applications in the national interest.

Cyril Xaba, committee co-chair along with Mamagase Nchabelang, reacted to presentations from State-owned Denel (in the Public Enterprises Ministry) and Armscor, which resorts under Thandi Modise’s Department of Defence and Military Veterans (DoDMV).

A Parliamentary Communication Services statement has the pair saying risks posed by continued challenges on the Denel front could impact on the operational capacity of the SA National Defence Force (SANDF).

“Appreciation” was expressed for work done to resolve Denel “challenges”. At the same time, according to the statement, Armscor needs alternatives to ensure continued component and spares supply to Denel. “This is to ensure sustainable supply of required material, but its adverse effect is a financial risk as alternate suppliers are potentially costlier given the reduced defence budget.”

Speaking on behalf of the committee, Nchabeleng and Xaba said a situation where the SANDF “loses sovereign capability and strategic independence as a result of over-reliance on the international market” did not augur well.

“We are of the view development of defence technology domestically is critical in protecting the national interest. The loss of this capability, the reduction in the defence budget and resultant decline in defence equipment spending has seen significant reductions in capacity in the local defence industry, which necessitates heightened efforts to ensure the survival of Denel to secure our defence industry.”

The JSCD is also concerned by a continued loss of critical skills in Denel which poses a risk to Intellectual Property (IP) held by the company and its ability to service contracts. The committee welcomed assurances that the country’s IP remains largely protected with reviewed protection processes, it  is cognisant that the IP is not only developed and stored in documents and data banks but also that the most effective IP memory is retained in people who Denel continues to lose in numbers.

Regarding protection of IP, the committee called for the review of the Intellectual Property Rights Act with the aim of entrenching Amscor as custodian of Department of Defence (DoD) IP capability seemingly being lost as a result of the Act. The committee awaits a report in this regard “within a reasonable time”.

Personnel and skills losses at Denel are “disturbing” according to the JSCD. It said 36% of Denel engineers, 39% of production technicians and 45% of design and development technicians left the Centurion headquartered SOE. This will have “a direct negative impact on the drive to salvage the company”.

Denel lost a thousand staff over the last year, bringing the head count down to 2 185. The technical workforce is particularly badly hit, with production technicians going from 1 193 in December 2020 to 761 in December 2021; engineers going from 367 to 198 and design and development technicians dropping from 292 to 240 in the same period.

This is affecting its ability to deliver on SANDF projects – Armscor recommends cancelling the Project Hoefyster contract with Denel Land Systems for Badger infantry combat vehicles. The defence materiel agency last month revealed Denel Dynamics cannot deliver A-Darter air-to-air missiles to the SA Air Force (SAAF) and other Denel contracts are in jeopardy.

The JSCD “acceded to a request from Public Enterprises Minister Pravin Gordhan that Denel’s viability be deferred to give “time and space to see if interventions bear fruit”.

Gordhan last week revealed Denel will receive nearly R1 billion from a medical savings trust that can be used for obligations including paying outstanding tax – the R3 billion allocated to Denel this financial year by National Treasury is only for servicing debt.