Gordhan optimistic about Denel

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Public Enterprises minister Pravin Gordhan gave the nation an insider’s look at the effects of state capture when he presented his departmental budget to Parliament and gave three pointers on improving matters at the troubled State-owned defence and technology conglomerate, Denel.

He told the National Assembly Denel was “a case study in damage visited on a State-owned enterprise by state capture driven corruption and thievery”.

This was evidenced, in part, by Denel revenue declining from R8.2 billion four years ago to a projected R3.2 billion in 2018/19 – a 60% decline.

“The impact of Denel’s decline on the local industry is immense as Denel procures more than 50% of its inputs from suppliers, of which 75% are located in South Africa,” Gordhan said.

The new Denel board will concentrate on implementing a recovery plan developed during the 2018/19 financial year to position the business for recovery and growth.

The Irene, Centurion-headquartered conglomerate will also, according to the Minister, introduce strategic equity partners (SEPs). This will maximise the business potential or core businesses and see non-core businesses exited to enhance financial sustainability and business focus.

“Rheinmetall, Turbomeca, SAAB, and Hensoldt have been introduced into Denel subsidiaries with commendable commercial results. Indigenous products were introduced to SEPs’ international value chains and introduced world class management and manufacturing capabilities into the business,” Gordhan said, adding a radical improvement in production and sales of Denel’s various defence products would also be forthcoming.

Speaking on the impact of state capture on South Africa’s more than 300 SOCs he said his department had collected about three thousand forensic reports with an estimated R600 million identified as collectable.

“The department is collaborating with law enforcement authorities to ensure criminal actions are reported and civil recoveries undertaken.”

His frank assessment of the state of SOCs was that “after a decade of mismanagement negligible board and executive fiduciary accountability for poor performance, malfeasance that enabled state capture and rampant corruption at the biggest SOCs, many are in deep financial difficulties and will be unable to trade their way out of difficulty”.

Earlier this week Finance Minister Tito Mboweni said R13 billion of contingency reserves would be used to rescue state owned enterprises including the SABC, SAA and Denel.

SABC needs R3.2bn urgently while SAA said it required R4bn to survive the current financial year. Denel requires more than R2.8bn to meet liquidity challenges.

Denel said it has an order book pipeline of R30 billion and the bailout would help conduct business.

Mboweni said the bailouts would come with the caveat of chief restricting officers being appointed to struggling state owned companies.