Denel dilemma on Saudi arms deal
LOSS-MAKING South African arms maker Denel’s potential saviour is Saudi Arabia, now drawing fierce criticism following the murder of journalist Jamal Khashoggi. But after being mismanaged for years and tainted by a far-reaching influence-peddling scandal, state-owned Denel now needs the kind of help that the deep-pocketed Saudis can provide.
Saudi Arabia and its allies account for almost half of South Africa’s recent arms exports and a significant portion of future orders. So rejecting Riyadh’s $1 billion (R14bn) offer could severely hamper efforts to save Denel, which relies on foreign sales for more than 60% of its revenue.
Saudi Arabia is seeking a broad partnership with Denel that would include acquisition of the company’s minority stake in a joint venture with Germany’s Rheinmetall.
The Saudis – on a drive to build a domestic arms industry as traditional suppliers worry about its human rights record – are keen to close the deal by the end of next month. A source said the kingdom could take its business elsewhere if that does not happen.
Some Denel employees see it as the only way to rescue the firm, which is struggling to pay salaries. But some officials are concerned about doing business with Saudi Arabia.
“The entire industry depends on the deal,” said Helmoed Heitman, a defence analyst. “The pragmatists want to go in, but the Khashoggi thing is bad PR.”
As President Cyril Ramaphosa and the ANC face elections next year, it promises to become a political issue.
The DA says the Saudi offer should be rejected. “Putting our state defence firm at the disposal of a murderous despot would make the whole nation complicit in the human rights atrocities,” said DA MP Stevens Mokgalapa.
Saudi Arabia denies that the crown prince ordered Khashoggi’s killing.
Denel owes its existence to South Africa’s own dark past. Its forebear, Armscor, was forced to produce nearly all its own defence and security hardware amid sanctions against the apartheid government. It’s that expertise that is so attractive to Saudi Arabia as it seeks to build its own industry, said Andreas Schwer, head of Saudi state defence company, SAMI.
Foreign Minister Lindiwe Sisulu said any deliberations over a potential deal would be based on South Africa’s values. But Khashoggi’s death has created a dilemma.
Meanwhile, Saudi Crown Prince Mohammed bin Salman will start a regional tour on Friday before heading to Argentina for the G20 summit. This will be his first trip outside the kingdom since Khashoggi’s assassination at the consulate in Istanbul in October.
He will visit the United Arab Emirates, Bahrain and Egypt to discuss Yemen, the fight against terrorism, and bilateral relations. Mohammed is expected to hold bilateral meetings with US President Donald Trump and Russian President Vladimir Putin on the G20 sidelines. The CIA has concluded Mohammed ordered the assassination of Khashoggi, a sharp critic.