War Profiteer of the Month: Denel

During apartheid, the South African regime desperately needed arms to suppress resistance within the country and to destabilise neighbouring countries opposed to its rule. To curb the Pretoria desperados, the United Nations imposed an arms embargo in 1963. Pretoria’s response was the development of its own arms production industry (now Denel) coupled with a cloak-and-dagger sanctions-busting procurement agency (now Armscor). These two agencies have undergone various splits and amalgamations, but they share a history of involvement in an underground arms industry supported by unquestioning funding by the state. But now both Armscor and Denel have been recognised as problem organisations and are currently undergoing reconsideration.

History

In 1938 the South African Royal Mint is converted to an ammunitions factory. This is the start of the Pretoria Metal Pressings division. In 1948 the South African Department of Defence (DoD) establishes an advisory committee on the equipment requirements for the Union Defence Force. From 1949 to 1951 the DoD establishes a defence production office and resources board to cater for its defence production and resource requirements. From 1961 to 1977
There is a substantial effort in South Africa to set-up an indigenous state-owned and private defence industry. A munitions production board is established, reporting to the Minister of Defence. In 1968 it is established for Armscor to act as the manufacturer and procurement agency of defence equipment for the DoD. From 1990 to 1992 the position of Armscor as the manufacturer and procurement agency is reconsidered, with a decision to separate production and procurement functions. 1 April 1992 – Denel (Pty) Ltd is established to take control of all previous Armscor production facilities. The manufacturing business units within Armscor are transferred to Denel (Pty) Ltd.
From 1992 to 2000, some facilities are closed. There are unsuccessful attempts to enter commercial markets with non-military products. The 1998 White Paper on Defence is promulgated with the aim of directing the restructuring and equipping of the South African National Defence Force (SANDF). In this era, approximately 70% of South Africa’s defence acquisitions are imported. Loss-making contracts are entered into, resulting in legacy obligations that continued to impact Denel’s business into the 2010 financial year.

Denel divisions

• Denel Aviation: Previously Atlas Aircraft Corporation, which included at its inception gearbox and engine activities, now assigned to the associated company, TMA, as well as the aerostructures manufacturing subsidiary, DSA.
• Denel Dynamics: Previously Kentron, and later Denel Aerospace Systems, with ground-based air defence activities initially included and now split off into DISS.
• Denel Land Systems: Previously Lyttelton Engineering Works, which separated into LIW and Vektor for some time before amalgamating again into DLS.
• PMP: a division of Denel
• Mechem (Pty) Ltd incorporated into Denel
• OTB:a new test range facility was established in the early 1980s. With the demise of the-then space programme OTB was transferred to Denel
• Denel Munitions (Pty) Ltd: previously comprising the individual Swartklip, Somchem, Wellington, Naschem and La Forge facilities

Merchant of war

In 2005, Denel was in financial difficulty. Finance minister Trevor Manuel granted it guarantees of R1,6 billion. In addition, he announced a R2 billion ‘lifeline’ during his budget vote in February 2006, as a first phase ‘recapitalisation’ of Denel to ‘refocus’ the business. This ‘lifeline’ has since been increased to R3,5 billion. In return, Johan Liebenberg, then CEO of Denel, promised a fix-it plan. But the fix-it plan meant that Denel would need ‘privileged access’ to South African defence spending. In other words, the state would continue to subsidise Denel by buying from it at uncompetitive prices. It also meant that Denel would be gradually privatised, and the state would lose control over the arms industry. This tends to play into the interests of BEE intermediaries (typically not broad-based) that stand to gain from further arms deals.

The arms industry is notoriously capital-intensive. Denel is no exception. During the last financial year (2009) it employed an average of less than 7300 employees, while its assets at the year-end exceeded R5,1 billion. This means that, for every employee, Denel required assets of more than R700 000. For cost-efficient employment, the state could deploy its assets far more effectively than this.

The South African fiscus has wasted far too much money on an unworkable recovery plan for Denel. Payments for ‘recapitalisation’ have merely been subsidies for a loss-making enterprise. Furthermore, reports by Denel lack the transparency that should be expected of a state-owned enterprise. In particular, details of the projected improvements supposedly flowing from the recovery plan have not been disclosed, nor have details of sales of weapons.

The arms industry is also notoriously secretive. Undemocratic purchasers are in it to maintain their oppression: they don’t want the world to know what they are buying. Sellers are in it for a profit: they don’t want to be subject to scrutiny regarding the human-rights records of their purchasers. Intermediaries promote the interests of both in return for bribes cloaked as ‘commission’. One of the last bastions of hope that South Africa would take a responsible line on arms sales was the National Conventional Arms Control Act. Unfortunately, the responsible Arms Control Committee has failed to implement that Act. They have sold arms to repressive regimes. They have granted permits for arms to be transported across South African soil to Zimbabwe. They have failed to report on arms sales approved. Now there’s a bill before parliament that proposes to increase the secrecy surrounding arms exports by South Africa. Increasingly the public will be kept in the dark. One of the major proponents is Denel.

The truth is that, if the National Conventional Arms Control Act were to be properly implemented, the failure of Denel would have to be accepted. South Africa does not need an industry that will continue to cause it embarrassment, that will continue to drain its finance, that will waste resources on capital-intensive production and that will undermine the transparency that lies at the root of democracy.

Campaign

Over the years the Ceasefire Campaign has worked to closed down Denel, work on this has included ongoing media advocacy pushing for responsible closure and greater transparency while highlighting the waste of taxpayers' money. They have held regular seminars and even tried engaging with the CEO at times. Unpacking the various components of the company and making the information accessible to people has also been part of the. The arguments that the closure of Denel could lead to job losses and the fact that the government sees the company as a strategic asset, have been difficult to counteract. This is despite the fact that Denel has very little regard for the environment, the concomitant pollution it generates its poor employment practices. Some workers having suffered long-term health consequences with very little compensation. Ceasefire has also written to various ministers and provided them with the information they have managed to collect.

For more information:
http://www.denel.co.za/
http://en.wikipedia.org/wiki/Denel
http://www.ceasefire.org.za/