Denel fails to pay senior staff in reform setback

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South African state-owned arms manufacturer Denel did not pay senior staff their salaries in full in September, the company said, in a setback for President Cyril Ramaphosa’s drive to turn around struggling state-owned companies.

Denel has been grappling with a liquidity crunch after becoming embroiled in corruption scandals during Zuma’s scandal-plagued tenure.
“In September management salaries were not paid in full,” Denel spokeswoman Vuyelwa Qinga told Reuters on Friday, adding the cuts were due to “liquidity challenges”.

Executives were paid 80 percent of their salaries while specialists were paid 85 percent, Qinga said.

Qinga said regular employees were paid in full and that the company was working with the government to find a solution to its funding challenges.

Ramaphosa has made improving governance and stabilising the finances of state firms a priority since replacing Jacob Zuma as head of state in February. South Africa’s economy fell into recession in September.

In April, Ramaphosa oversaw the appointment of a new board at Denel and the company subsequently suspended its chief financial officer over misconduct allegations.

Labour unions say it is critical that Denel receives financial support – either via additional government guarantees or a capital injection. There could be more details when Finance Minister Nhlanhla Nene delivers the budget this month.

Last month Business Day reported that Denel had not received the additional R1 billion guarantee it had asked government to deliver – Denel already has state guarantees covering R2.7 billion. It needs money to pay staff and suppliers – Denel owes hundreds of millions of rands to suppliers and this is affecting production.

The cash crunch at Denel is so severe that some divisions are unable to supply basic items like coffee and toilet paper. On 26 September Denel issued a memo reading: “We regret to inform you that due to the current financial situation we are unable to continue providing toilet paper and tissues to Denel Aeronautics. We will re-evaluate this decision when the situation improves.”