South African’s arms company needs partners soon to survive

South Africa’s armoured vehicles. Photo: RR

NEWSROOM (ADV) – South Africa’s defense industry is facing a crisis as the state-owned arms maker Denel struggles to survive, and rapidly agreeing equity partnerships is the only way to save it, one of the country’s top defense officials told Reuters.

Denel’s woes put at risk an industry estimated to directly employ around 15,000 people and which is one of the most advanced sectors of Africa’s most developed economy, said Kevin Wakeford, CEO of Armscor.

Armscor is responsible for procuring military hardware for South Africa’s armed forces. It also serves as custodian for South African defence-related intellectual property.

“The defence industry is the beachhead for high-level engineering and technological jobs in the South African economy,” Wakeford said. “We are at an inflection point. If Denel collapses those capabilities could be lost forever.”

Denel has been plagued by years of mismanagement and exposure to a far-reaching influence-peddling scandal that led banks to cut off lending. It recorded a 1.7 billion-rand ($125 million) loss – its first in eight years – in the financial year that ended in March.

Its cashflow crisis has led to delays in paying suppliers and left some assembly lines idle. Many smaller companies producing sub-systems and components for Denel products have folded.

“For us, the operational readiness of the South African National Defence Force is a top priority,” Wakeford said. “The situation has never been more severe than it is now.”

Saudi Arabia, the world’s third-largest defence spender, has approached South Africa, seeking to partner with Denel as part of efforts to establish its own defence industry. One source familiar with the offer said the bid – which would include acquisition of Denel’s stake in a joint venture with Germany’s Rheinmetall – was worth around $1 billion.

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