Denel could be dealt another blow were the new court bid to stop weapons exports to Saudi Arabia and the United Arab Emirates (UAE) prove successful – if the embattled state-owned arms manufacturer survives its current crisis, that is.
“In the short term, it’s unclear how badly a successful court case to force the National Conventional Arms Control Committee (NCACC) to halt the granting of export permits will hurt Denel, as the company is unable to deliver orders or win new business in its present state,” defence expert and director at African Defence Review Darren Olivier said.
“However, should Denel survive this crisis, a permanent ban will likely have a substantial negative impact on it, both directly and through its part-ownership of Rheinmetall Denel Munition (RDM), over the medium term.”
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Open Secrets and the SA Human Rights Litigation Centre (SALC) are taking the NCACC to court to stop arms exports to Saudi Arabia and the UAE, which have both been accused of war crimes in the Yemen conflict. Olivier said “it may well be the morally correct decision to end exports to Saudi Arabia, at least”.
“The UAE is a bit murkier, as it has now left Yemen,” he said.
“In that case, though, the ban should be enacted publicly, transparently and with clear guidelines from the NCACC on what needs to happen and what timelines for a ban to be lifted. That would at least give the industry enough certainty and clarity to redirect their marketing and investment into other areas.”
Denel is already in the grips of financial turmoil and has been struggling to pay its staff for the past year. It is also facing a liquidation bid by one of its creditors, Saab Grintek Defence.
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History showed how stopping weapons exports to Saudi Arabia and the UAE would affect Denel, Olivier said.
“We can measure the impact by looking at temporary pauses on exports to both countries that were enacted by the NCACC over the past few years, which sometimes lasted for months, as well as the effective halt to exports caused by the adoption of new end user certificate requirements in 2019.
“Both were extremely harmful to Denel and RDM, coming at a time when Saudi Arabia and the UAE were ramping up their acquisitions of high-tech, high-value systems such as [unmanned aerial vehicles] and missiles, and no doubt played some role in helping cause Denel’s cash crunch”.
He said the impact would be especially severe because the UAE and Saudi Arabia presented a “unique opportunity”.
“Both are investing heavily in their defence industries.”