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South Africa’s Denel: anonymous loan flagged as privatisation by stealth

By Crystal Orderson, in Cape Town
Posted on Friday, 28 June 2019 12:49

Denel headquarters in Pretoria. REUTERS/Siphiwe Sibeko

Arms manufacturer Denel is the latest South African state-owned company to hit the buffers.

This week the company admitted it was unable to pay full salaries, receiving a last-minute reprieve when a “good Samaritan” stepped in to loan money.

Denel was once the jewel in the crown for the apartheid state of South Africa. Established towards the end of the apartheid regime, in 1992, Denel came to life when the arms manufacturer Armscor was split in two. Armscor remained the arms procurement agency, while Denel was the main supplier to the then-apartheid defence force. When democracy dawned the company, with around 15,000 workers, became a successful exporter of military and aeronautical equipment to the rest of Africa.

Twenty-five years later, Denel is a shadow of its former self, employing only 3,500 people and struggling financially. The company gave workers less than 24 hours’ notice that they would receive only 85% of their wages on pay-day.

State capture

On 25 June, with social media awash with complaints from Denel employees and unions, public enterprises minister Pravin Gordhan told Parliament an anonymous lender had come forward to enable the payment of full salaries.

Gordhan was unambiguous about who was to blame: “Denel, our producer of military and aerospace equipment, is a crucial and strategic state entity that was substantially harmed by state capture.”

Major General (retired) Bantu Holomisa, president of the United Democratic Movement, is scathing about the latest state-owned enterprise (SOE) in trouble. The Africa Report asked the Transkei Defence Force veteran what went wrong:

  • “It’s embarrassing to say the least,” says Holomisa. “It’s clear that at all these institutions people have no clue how these industries work. It doesn’t’ matter if its Eskom or Denel, the ANC has put in people at these institutions to use them to channel funds to Luthuli House.”

A senior defence committee member, MP Sarel Marais, told The Africa Report: “What’s happening with Denel is a consequence of state capture and the inefficiency of the SOEs.”

  • Marais, who has an intimate knowledge of the sector, said over the past few years basic equipment like infantry transport vehicles that were supposed to be delivered by Denel simply never arrived. “Denel can’t deliver and they have lost contracts to the private sector,” Marais says.

In recent weeks the Zondo Commission investigating state capture heard evidence from former Denel CEO Riaz Saloojee that the politically connected Gupta family had tried to bribe and influence him on decisions regarding the company.

According to IOL: “National Treasury moved to block a joint venture between Denel and associates of the Gupta family.”

Backroom privatisation?

Gordhan told Parliament that the company is getting back on its feet and has potential contracts worth more than R30bn ($2bn).

But for the trade union federation Cosatu the news of yet another SOE falling apart is a sign of backdoor manoeuvring to privatisation.

  • Cosatu’s Sizwe Pamla told The Africa Report: “From our view it seems this is their strategy: push them to the edge, including workers not getting their salaries. Putting workers under pressure. There is no room except for privatisation. They are happy with the crisis to let the SOEs fail.”
  • The federation says no one has presented a funding model of how any of the companies should be managed.

Not so says the President, who again has reiterated in Parliament that his government will help the ailing entities and that there are no plans to privatise any of them.

For veteran politicians like Holomisa, Cyril Ramaphosa is again passing the buck. “Debt remains a major issue,” he says, and he wants Ramaphosa to tell the nation how the government will be dealing with the huge debt. “People are not told the truth […] the rhetoric is creating more confusion,” he adds.

Bottom line: A serious plan and money will be needed to save South Africa’s SOEs. And money is something that South Africa doesn’t have at the moment. The P word (privatisation) is something that will have to be considered if some of them are to be saved.

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