Denel has announced that it has exited the controversial Denel Asia joint venture with VR Laser Asia, citing negative impact on its reputation.
This was announced by Denel Acting Chief Executive Zwelakhe Ntshepe today. “Since its establishment, Denel Asia has not traded due to differences of opinion with National Treasury, which have been widely covered in the media, at times based on perceptions and not fact. The Denel Asia JV became the focus of negative attention from the media to the detriment of the Denel brand, both locally and internationally,” he said.
“Denel also conducted continuous assessments of the untenable atmosphere caused by the establishment of this JV; and took a resolution to exit the Denel Asia JV and explore alternative marketing approaches to access the Asia Pacific market.
“This therefore brings us to a point where we can officially report that Denel SOC has ended its involvement in the Denel Asia Joint Venture. We have exited the Joint Venture,” Ntshepe said.
However, Denel believes that the Asia-Pacific market is key to Denel’s growth, along with the Middle Eastern market, and will find other avenues to pursue opportunities there. It is, for instance, looking at selling artillery to Pakistan, and has a multi-billion rand contract with Malaysia for vehicle turrets and weapons.
“This market [the Asia-Pacific] continues to be a focus area for Denel because of its demand for defence equipment which has seen year-on-year increases in spending – in excess of 20% – making it one of the top spending regions on defence equipment in the world,” Ntshepe said.
“It was the gradual decline on local defence spend in recent years that forced Denel to look to global markets if the company was to survive into the future as a business. Local defence spend currently sits at less than 1.3% of GDP, compared to international benchmarks of 2 to 5%.
“For Denel’s commercial mandate to be sustained into the future there is no other way but to look beyond the borders of our country. Our business strategy was thus designed at the back of a decline in the local market,” Ntshepe said.
As a result of exiting Denel Asia, the court case for Denel to acquire approval for the establishment of the joint venture has been withdrawn. Treasury had opposed the formation of the venture as it said proper processes had not been followed.
The Denel Asia joint venture was controversial due to the involvement of the politically connected Gupta family in VR Laser. Salim Essa, a business associate of the Gupta brothers, is the sole shareholder of VR Laser Asia. Ntshepe said that, with regard to the Guptas, “we were dealing with companies not individuals.”