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Defence industrial group increasing focus on exports

12th February 2021

By: Rebecca Campbell

Creamer Media Senior Deputy Editor

     

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During the 2019/20 financial year, exports accounted for 42% of State-owned defence industrial group Denel’s business, with Asia being the single biggest export market, taking 24%. Perhaps surprisingly, Europe and North America came in joint second place, with 5% each. Africa and the Middle East each accounted for 4% (but Denel also has a number of joint ventures in Middle Eastern countries). South Africa itself was responsible for the remaining 58%.

In its annual report for 2019/20, released at the start of the month, Denel observed that, due to the low level of the South African defence budget and the consequent lack of major new projects, it, like the South African defence industry (SADI) in general, had to increasingly focus on exports. It further noted that it and the rest of the SADI had traditionally focused on niche customers who would not buy from European, Israeli or US companies.

However, Denel expected greater competition from European and US companies in its markets, because it anticipated defence spending cuts in these countries as a consequence of the Covid-19 pandemic. (In reality, owing to the deteriorating international situation, some of these countries were actually increasing their defence spending, while then President-elect Joe Biden stated in September that he did not expect any major cuts to the US defence budget.)

The South African group also expected customers to change their priorities from acquiring the best possible performance systems to more affordable systems. Further, the depressed prices for oil were likely to reduce the cash reserves of some client countries and change their spending priorities over the next few years.

“Despite these factors, Denel is experiencing strong demand for its products in the growth markets of Asia-Pacific and the Middle East,” it affirmed in its annual report. “These markets are currently the main export customers for Denel’s products. There are a number of new business opportunities expected to be concluded and executed in the short to medium term.”

However, there was a caveat to this. “Denel, however, has too much reliance on the Middle Eastern countries and should further expand and spread the risk by expanding to the Far East, South Asian and Latin American markets.” Despite defence cuts, Latin America continued to offer opportunities for the group, as countries in that region were continuing with weapons system acquisitions.

“Business opportunities on the African continent remain largely untapped due to ill-defined user requirements, funding constraints and other hindering dynamics, most of which are political,” it explained. “There are, however, gaps to fill and opportunities to pursue, specifically in the West African region.”

Finally, there was the United Nations (UN). Denel was in good standing with the global body, giving the group access to tenders for peacekeeping and humanitarian operations. Denel was indeed implementing several such UN contracts.

Regarding the South African market, its 58% share in the company’s revenues for 2019/20 was a significant increase over the 49% it contributed during 2018/19. Moreover, the group’s main local customer, the South African National Defence Force (SANDF), helped in the development of improved and new products and systems, which Denel could then market abroad. The group had always seen its main function as being to support the SANDF. “By supporting the SANDF and capitalising on the global growth in demand for defence systems and products, Denel is confident that it will retain its position as a strategic national asset,” affirmed interim CEO Talib Sadik in his statement within the report.

He also cited a number of operational highlights achieved by the group’s business divisions. Denel Dynamics successfully completed the scheduled development work for that year on its Cheetah counter-rocket, artillery and mortar missile system, including completion of the System Requirements Review. Denel Land Systems delivered the 100th modular turret to Malaysia, for installation on new armoured vehicles being built for the Malaysian Army. In addition, Denel made possible the installation of a thermal imager test and repair facility at a Malaysian company, Defence Services; this was the first such facility in that country. And, later in 2019, Denel Vehicle Systems won a contract from the United Arab Emirates for 33 RG31 4X4 mine-resistant, ambush-protected vehicles.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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