Denel endeavours to re-establish itself in East Asian market


Denel has noted the recent media reports on the National Treasury’s (NT) former Director General Lungisa Fuzile’s court papers regarding the establishment of a joint venture company Denel entered into as a vehicle to penetrate the Asia-Pacific markets.

Denel would like to reiterate again the fact that this Asia-Pacific market is critical for any progressive global defence company. The defence competitive international landscape requires, among other elements, that companies such as Denel maintain the highest degree of agility. With this in mind, Denel conformed to all governance and statutory prescripts leading up to the formation of the Denel Asia joint venture.

The selection of a partner to this joint venture followed a rigorous process, which started with two major defence businesses that unfortunately had already committed themselves with exclusive partnerships with other competing global defence businesses.

VR Laser Asia’s proposition was found to be the next best opportunity, given the financial commitment made, risk-free, to Denel, a demonstrable defence adjacent industry network, as well as direct links to defence capabilities.

Zwelakhe Ntshepe, acting group CEO of Denel, says the financial commitment was adequately embedded into the shareholders’ agreement with the necessary default clauses to deal with the unlikely event of the commitment not being fulfilled.

He added that since its inception, Denel Asia has not traded, and this was on instruction from the public enterprises minister and the Denel board to allow the engagement process with National Treasury, which is currently under way.

Given the competitiveness of the environment, this delay and negative publicity around Denel Asia has cost the company some valuable time in positioning Denel appropriately for export opportunities that would have been of huge advantage to its developmental agenda. There are, however, still a number of opportunities opening up in this market, which the company is resolute in chasing.

“The East-Asia market, in particular, India, is the fastest growing defence market in the world. This is an important region for Denel to expand its business and find new markets for our world-class products, especially in the fields of artillery, armoured vehicles, missiles and unmanned aerial vehicles,” says Ntshepe.

Research shows by 2018, the Asia-Pacific nations will command more than half of global defence procurement outside of the United States and two-thirds of non-US defence markets.

Denel submitted a pre-notification pack, detailing, among other things, which company the potential partner was, rationale for selecting the partner, business opportunities in that market and the draft agreements with the partner to both the Department of Public Enterprises (DPE) and National Treasury on 29 October 2015; and until 29 January 2016, the date of incorporation of the JV, no response had been received from National Treasury. This process was not the first of its kind, as Denel had incorporated a joint venture in a Middle Eastern market in 2012, which still today has never been expressly and formally approved/rejected by National Treasury.

Denel believes that Denel Asia was duly established after following and complying with all the relevant prescripts of the PFMA. It acted in accordance and in compliance with the provisions of sections 51(1)(g), 54(2)(b) and 54(3) of the PFMA in concluding and forming the joint venture.

“We need a firm foothold in this region and the establishment of Denel Asia was meant to give us a strong presence and the ability to pursue the desperately needed opportunities in that region,” says Ntshepe. Denel Asia would have focused its marketing attention in the Asian region as most countries there have announced their intentions to embark on major new defence acquisitions and grow their research and development budgets into the future.

Denel has several equity partnerships, joint ventures and co-operation agreements with various companies in the global defence industry. All these joint ventures were established following the same process used in establishing Denel Asia. Denel’s partnerships give the company the ability to penetrate new markets which are important for the company’s future success.