Secretary for Defence Dr Sam Gulube says state-owned defence conglomerate Denel and the Department of Public Enterprises (DPE) have responded positively to suggestions of moving the lines of control for the state owned company to the Department of Defence (DoD).
Speaking at a function for the 25th anniversary of the South African Aerospace, Maritime and Defence Industry Association (AMD) in Pretoria yesterday, Gulube noted that Denel was originally reporting to the Department of Defence and that the DoD is its main client. Denel’s core business is not to sell to the private sector or public but to serve the government and in particular the South African National Defence Force (SANDF), he said.
The Department of Defence is from time to time called on to pay Denel up front for goods and services and the Department would like to provide oversight of the usage of funds allocated to the company, Gulube said in explaining the reasoning behind the suggestion. Discussions are currently underway at pre-Cabinet level about moving Denel from the DPE and involve the ruling African National Congress and various stakeholders.
The proposal will be discussed at the ANC’s policy conference later this month, reports Business Day.
News of the possible Denel move emerged on Sunday during a briefing by the ANC’s subcommittee on peace and stability. Subcommittee chairperson and defence minister Nosiviwe Mapisa-Nqakula said “We are suggesting that because of the challenges we have had at times, that perhaps we should consider going back to the old and bring back Denel to the department of defence.”
A concern with the possible move is that if Denel requires a bailout, the Department of Defence may struggle to provide funds given the shrinking defence budget, which is already badly stretched. Denel has struggled with cash flow problems of late.
Moving Denel back to the DoD may alleviate fears of state capture, as the involvement of the politically connected Gupta family in Denel, through VR Laser, has hurt the company’s reputation. VR Laser is owned by Gupta associate Salim Essa and through VR Laser Asia entered into a joint venture with Denel to create Denel Asia. The new venture went ahead without proper approval from Treasury in violation of the Public Finance Management Act (PFMA).
The creation of Denel Asia was pushed through by the Denel board appointed by Public Enterprises Minister Lynne Brown in 2015. The chairman of the board, Daniel Mantsha, was struck off the attorneys’ roll in 2007 before being readmitted in 2011 and, according to leaked e-mails, apparently fed sensitive classified company information to the Gupta family regarding the establishment of Denel Asia.