Loss-making South African arms maker Denel has a problem as it fights to survive. Its potential saviour is Saudi Arabia, now drawing fierce criticism following the killing 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.
Reuters analysed five years of South African arms export data, spoke to former and current Denel employees and obtained internal Denel presentations on plans to rescue the company.
What emerged is that 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 offer could severely hamper efforts to save Denel, which relies on foreign sales for more than 60 percent of its revenue.
Saudi Arabia is seeking a broad partnership with Denel that would include the 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 with knowledge of its offer said the kingdom could take its business elsewhere if that does not happen.
Some Denel employees are also keen on a tie-up, seeing it as the only way to rescue the firm, which is struggling to pay salaries. But some South African officials are concerned about doing business with Saudi Arabia.
“Denel depends on the deal. The entire industry depends on the deal,” said Helmoed Heitman, a defense analyst. “I think it’s 50/50. The pragmatists want to go in, but the Khashoggi thing is bad PR.”
With President Cyril Ramaphosa and the ruling African National Congress facing an election next year, the deal promises to become a political issue.
South Africa’s main opposition party, the Democratic Alliance, 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 of the regime of Saudi Crown Prince Mohammed bin Salman,” said DA lawmaker Stevens Mokgalapa.
“That there are negotiations to consider this at all is an indictment of the approach of the Ramaphosa government to international human rights violations.”
Saudi Arabia denies that the crown prince ordered Khashoggi’s killing.
