/ 19 October 2018

Denel lands deep in Gulf crisis

Saudi Arabia is not the sole bidder for a stake in Denel.
Saudi Arabia is not the sole bidder for a stake in Denel.(AFP)

The supermarket shelves in Doha, the capital of the tiny, gas-rich state of Qatar, are filled with Turkish goods. Until 16 months ago, they would have been filled with Saudi goods. But relations between Qatar and its neighbours, Saudi Arabia, the United Arab Emirates (UAE) and Bahrain have broken down entirely. The Saudi and UAE bloc have enforced a blockade cutting Qatar off from much of the peninsula.

Saudi Arabia recently put out a $750-million tender for digging a 60km canal to turn the Qatar peninsula into an island. Qatar has responded by buying the state-of-the-art Russian S-400 air defence system.

Now South African military technology and defence company Denel has landed in the middle of the Gulf crisis. In recent weeks Saudi Arabia’s interest in Denel has caused distress in the state-owned entity, which is on the brink of financial collapse.

But Saudi Arabia is not the sole bidder for a stake in Denel. News of government’s intention to sell a stake in Denel attracted huge interest in the Middle East, with Saudi Arabia, Qatar and the UAE vying for a stake in the cash-strapped arms manufacturer.

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

Irate Denel board members believe “mischievous” behind-the-scenes lobbying and pressure through the media, by prospective investors Saudi Arabian Military Industries (SAMI), are being put into place to push Denel into a deal.

Insiders, speaking on condition of anonymity, said Denel’s precarious financial position — employees were asked to bring their own toilet paper to work and salaries and working hours have been cut — should not be used to push the company to ignore processes.

Whatever negotiations take place should follow proper procedures, underlined by diplomatic protocol, between governments and not Denel itself, they insisted.

This process involves concurrence from Denel’s government shareholder representative, the department of public enterprises, treasury, and the National Conventional Arms Control Committee. It would also require bilateral agreements between the two nations concerned, they added.

The committee is the statutory authority responsible for controlling South Africa’s trade in conventional arms and rendering foreign military assistance.

A Denel insider, who asked not to be named, said: “One thing that is clear for us and that is for us to survive into the future we do need partnership where there will be technology exchange and investment into Denel. We will be guided by National Conventional Arms Control Committee. There are people who want to put everyone under pressure and pretend it’s a done deal.

READ MORE: Government  ‘uncomfortable’  with Zuma meeting Qatar emir

“During bilaterals, issues such as IP [intellectual property] and others will be ironed out, and one cannot discount the role of Armscor [the owners of Denel’s IP]. We are all aware that they [SAMI] are interested. But in terms of sitting down and working on the detail and technicality that has not happened and cannot happen. It has to be a country to country kind of discussion.”

Another senior insider said: “SAMI can come and sit with us for discussions but can’t bully their way into Denel. There is an impression created that Denel is for sale, but that is not the truth; there is no way we can sell our national asset. The board must be properly informed if there is any transaction that is proposed.”

The source of the discontent inside Denel is an article by Reuters, which quoted SAMI chief executive Andreas Schwer as saying he hoped to conclude the first partnership deals with South African arms manufacturers by the end of year. Denel was reported to have said it was ready to talk to any interested party.

In response Denel issued a statement explaining its position. “With regard to the Saudi Arabian Military Industries company, because Denel is state-owned, with the shareholder representative being the department of public enterprises [DPE], if they wanted to have any talks it would have to be on a country-to-country basis. I understand they are also state-owned, so that suggests that the two countries would lead in such talks,” the statement, penned by Denel spokesperson Vuyelwa Qinga, read.

“The South African government’s regulatory framework would therefore dictate that approach and Denel’s response would then be guided by its board, the DPE and possibly national treasury, among relevant state institutions.”

Qinga on Thursday referred the Mail & Guardian to the statement.

Public enterprises spokesperson Adrian Lackay said there have been discussions “between the Saudi Arabian Military Industries ‎and various organs of state in South Africa about the company’s interest in South Africa’s domestic defence technology. At this stage it would be premature and speculative for the department of public enterprises to attempt to provide details of any specific transactions as none have been formally proposed, entered into or concluded.”

Paramount group communications head Nico de Klerk said the global defence and aerospace business — had no relations or business with Qatar, and never had any business with that country.

“Any suggestions that we do are simply malicious. It is in the public domain that Paramount Group has been in discussions with the Saudi authorities regarding potential projects,” De Klerk said.

International Relations Minister Lindiwe Sisulu was quoted last week, confirming the Saudi’s interest in Denel, but added that this would need to follow proper process. Yesterday, Denel chairperson Monhla Hlahla declined to comment.

A Denel insider said there has not been any engagement with the board about selling Denel since it took office early this year. “I have no idea why there is such a belief that there is an agreement. I have heard of a draft agreement with SAMI, but it has not been tabled before the board. Maybe that was done with the previous board.”