/ 4 October 2018

Cash-strapped Denel denies being approached by Saudi government for arms deal

Denel, which is struggling under dire financial constraints, has denied knowledge of the talks.

State-owned arms manufacturer Denel has denied it is in talks with the Saudi Arabian government over a procurement deal despite reports the public enterprises department has confirmed the discussions.

Saudi Arabia, which has been heavily criticised for its role in the war in Yemen, has said that it is in talks with “all major South African companies”, according to news agency Reuters.

“We are in discussions with the South African government in order to identify opportunities to set up strategic partnerships which could include an equity investment from our side into Denel. It’s not decided yet, but it’s one option,” Andreas Schwer, chief executive of Saudi Arabian Military Industries (SAMI) told Reuters.

The department of public enterprises has said that the discussions were preempted by President Cyril Ramaphosa’s visit to Saudi Arabia earlier in July, where the Saudi government had committed to invest $10-billion in “various economic initiatives”. 

Saudi Arabia has been forced to rely on arms imports to beef up its military resources, but it has now sought to independently arm itself by strengthening its local manufacturing capacity. The Paramount Group — a group of companies operating in the global defence, internal security and peacekeeping industries which was founded in South Africa in 1994 — according to Reuters, has confirmed it is in talks with the Saudi government.

Denel, which is in dire financial constraints, has denied knowledge of the talks. However, Pam Malinda, the company’s spokesperson, said Denel would be willing to participate in such discussions.

“I am not aware of that Denel has been approached for such talks, however, Denel would welcome any country that looks at South Africa for procurement of defence material; particularly countries that we enjoy good diplomatic relations with, and we are allowed to sell to by our National Conventional Arms Control Committee,” Malinda said.

Although Malinda said that there was not yet knowledge of the talks, she added that Denel and the Saudis have had a business partnership for many years.

“Saudi Arabia has been one of the client countries for Denel’s products and solutions for a number of years; and we continue to enjoy a good business relationship with the country, over and above the diplomatic relations,” Malinda said.

In a notice of termination to an employee dated September 14 2018, which was seen by the Mail & Guardian, the company admits it is “currently facing a serious financial crisis and liquidity challenge”.

“One of the measures (amongst other things), that the company is looking at is reviewing of all positions in the company with the view to identify those positions and the roles the company cannot afford to have currently, given the company financial status,” the letter, written by Thulani Mahlinza, Denel’s acting human resources and transformation head, says.

Currently, more than 60% of the company’s revenue is derived from foreign sales. But after being implicated in allegations of state capture during former president Jacob Zuma’s presidency, Denel has grappled to keep itself afloat.

Saudi Arabia’s interest in Denel would involve importing the company’s technology to the Gulf state and working closely with Denel to strengthen its local engineering and building capacity, Schwer said.

Public enterprises spokesperson Adrian Lackay confirmed to Reuters that discussions about the Saudis’ interest in defence technology are underway. Lackay added however, that details of an agreement would be “premature”.

Labour unions, meanwhile, have applied pressure on the company after workers were were not paid salaries in full in September. They say  it is critical that Denel receives financial support — either through additional government guarantees or a cash injection.

Saudi Arabia aims to conclude partnership agreements in South Africa by the end of the year.

The Yemen war

The Saudi government has been involved in the Yemen war since 2015. The war began as a civil outbreak of violence when the Houthi movement in the country ousted the government of Yemeni President Abdrabbuh Mansur Hadi, and took control of Yemen. The government of Hadi is internationally recognised, but locally controversial.

After Hadi made calls for international military support, a Saudi-led coalition of African and Gulf states began a bombing campaign on the Houthi forces.

The Saudi intervention has however been mired in human rights violations, which have been investigated by Human Rights Watch (HRW). In one investigation, HRW found that 10 Saudi-led coalition airstrikes — which took place between April 11 2015 and August 30 2015 and killed at least 309 civilians — had no identifiable military targets nor did they differentiate between civilians and military targets.

The United Nations has accused the Saudi-led coalition of violating international law in its airstrikes on Saada city in Yemen.

The situation in Yemen, which is the poorest country of all the Arab states, has deteriorated and the airstrikes have caused considerable alarm. In 2016, Amnesty International said it believed that the Saudi-led coalition was intentionally targeting civilians after it investigated 30 airstrikes in the region.

With Iran backing the Houthis, the Yemen war has been seen as proxy conflict between Saudi Arabia and Iran.