Department of Public Enterprises & Denel briefings: Winter School 2009
Meeting Summary
The Department of Public Enterprises and Denel outlined their role and the nature of their business in an information sharing session with the Portfolio Committee. Though there were not many members present at the workshop, the members who were present interrogated the department and the parastatals on their business. The members asked questions around the role that the department played with regard to influencing infrastructure development plans.
The Director General of the Department of Public Enterprises gave a presentation painting a picture of the country’s position with regards to infrastructure development during the recession. She warned that the country would find itself facing an infrastructure bottleneck at the end of the recession as the cumulative under-investment would ultimately constrain growth. She also noted that even though South Africa was aiming to create jobs, the country was not creating jobs in the right fields, one of which was manufacturing which could absorb high levels of unskilled and semi-skilled workers.
Denel told the Committee that the company has posted losses year on year since 1998 except in 2001 when it posted profits of R40 million. Since 2005, it had involved itself with a turnaround strategy. The company’s traditional markets remained under threat as spend on military equipment was down world-wide.
Meeting report
Department of Public Enterprises briefing
Ms Portia Molefe, Director-General: Department of Public Enterprises, told the Committee and the delegates from the various departments and parastatals attending the meeting, that Post Apartheid South
The cumulative under-investment was going to ultimately constrain growth. Key sectors that had been weak during the period of sustained growth were agriculture, mining and manufacturing. Mining and manufacturing were weak despite the fact that there had been a global boom in those sectors.
Even though
Global developments in finance and capital markets also presented SA with additional challenges and opportunities. The operation of a global capital market and its volatility could generate macro-economic instability in national economies.
However the global crisis was also putting
And thus the challenge was for the state to coherently and systematically leverage both its own and the markets capacity to drive the process.
A developmental state was characterised by the ability to plan, invest and form strategic economic partnerships. Ms Molefe added that a South African developmental state needed to undertake the following key economic initiatives to strategically intervene in the economy:
▪ policy and regulation,
▪ direct agency investment and partnerships in infrastructure and
▪ strategic procurement and investment partnerships to promote manufacturing.
The developmental state needed a vehicle able to drive investment and partnerships, and State Owned Enterprises as such a vehicle had a number of relevant advantages. Some of the advantages were:
▪ They were able to enable consistency of strategic intent;
▪ Were able to charge a commercial tariff thereby insuring that the sector paid for its development.
▪ They can leverage broader capital markets
▪ Were able to partner the private sector while using an established legal framework.
However for the SOE to play that role they needed an enabling environment to be put in place.
Discussion
Mr M Oriani- Ambrosini (IFP) stated that 15 minutes was not enough to discuss the points that Ms Molefe had raised. However, he believed that how they reacted depended on how they looked at the global crisis. The crisis was going to destroy
Ms Molefe said that people tended to look at countries as moving at the same pace. That was not true, there were countries that were moving at a faster pace and were sometimes using the recession to develop and move faster. This meant that if
Mr P Van Dalen (DA) said that they were focusing on the wrong places sometimes. They as taxpayers wanted value for their money. They wanted to know that their money was not wasted. And thus the state had to get people with skills to run the companies that it owned. The state needed to spend money in building confidence.
Mr L Greyling (ID) asked if the country was sufficiently interrogating the kind of plans it was coming up with regarding infrastructure development. The question was in line with choice of technology used in the power stations that were going to be built by Eskom. To what extent did the Department of Public Enterprises (DPE) assess the choices made by parastatals when it came to technology choices?
Ms Molefe said that the Department did not run nuclear stations and they could not tell the parastatals about which technology they could use. The choice of what technology to use was up to these enterprises.
Denel briefing
Mr John Morris, Head: Strategy and Commercial, Denel, in his overview, explained that Denel had decentralised and thus Denel was a holding company. The reason for decentralisation was to drive accountability.
The company was divided into Denel Dynamics, Denel SAAB, Denel Land Systems, OTB (
Mr Morris told the Committee and the delegates present at the
Denel played a major role in technology development. The company’s Research and Development (R&D) spend totalled R1, 2 bn in 2008/09. This was because there was a need for strategic spending on new products to maintain competitiveness.
However Denel was facing difficulty in getting into certain markets such as the
Due to the nature of the business, Denel had had to form or enter into partnerships to gain access into markets that it would have never had seen itself in. The company had a major market in
In 2005, Denel ran into financial difficulties. The company had also posted loses year on year since 1998 except in 2001 when it posted a R 40 million profit. The losses from 2005 to 2008 were caused by loss of export market, inadequate orders resulting in under-utilisation of labour and facilities, and high interest costs resulting from loans.
The changing nature of conflict has somehow given the company hope,
Denel had adopted a turn around strategy in 2005 and has made significant progress in implementing it. All of Denel’s business’s have turned around except for missiles and Denel Saab Aerostructures (DSA).
However Denel’s traditional markets still remained under threat. Of the 2008/09 sales 65% were made in South Africa, 8% in Africa, 1% South America, 4% Asia Pacific and the Middle East consumed 8% of the total products sold by Denel with Europe accounting for 15% of the total sales.
Denel’s major priorities were to achieve transformation goals and reduce working capital requirements.
Discussion
Mr Gerhard Koornhof (ANC, NCOP) asked if there was not risk in all of Denel having minority shares in the equity partnerships that were outside the country. Further, had there been any discussion to market the Rooivalk so that it could be produced at an optimal level?
Mr John Morris said that one needed to understand how those partnerships were structured. There were no risks since the government had a golden share in those partnerships. The Department of Defence’s security had never been compromised; instead quality and production time had been improved.
Mr Morris said that Denel had delivered five of the upgraded Rooivalk to the South African Airforce and the remaining six aircraft will be retro-fitted. There were a number of countries that were showing an interest in the Rooivalk.
Mr Koornhof asked Denel to explain why the Department of Defence (DOD) was not purchasing all of its requirements from Denel.
Mr Morris replied that he believed that this was a consequence of the fact that
Ms Molefe added that the DoD might have been buying from other companies locally.
Dr M Mangena (AZAPO) asked if Denel had been approached by other departments such as those dealing with the marine environment and the Department of Sport. Maybe the UAVs that Denel manufactured could be used at stadiums. And they could be used to monitor the country’s coastline to try and minimise poaching.
Mr Morris said that it would be dangerous to have UAVs at stadiums and international laws did not allow that. If a AUV fell from the sky, it would cause an awful disaster.
A Committee member noted that Denel was still lagging behind with regards to transformation in the company. He asked how Denel was planning to address this problem.
Mr Morris admitted that 57% of Denel employees were white; they were however trying to deal with the problem. A major cause for this was the fact that Denel was not seen as an attractive place to work due to the nature of their business. Many people preferred to work for sexy technology companies rather than for an arms company. However, they were trying to meet their transformation agenda by providing bursaries and putting people through their training programs to try and meet transformation targets.
Mr M Nhanha (Cope) asked why was Denel not marketing its products in
Mr Zwelakhe Ntshepe, Denel Goup: Marketing Director, said that the company’s products were present in
Mr V Dalen (DA) asked the company to explain what had happened in
Mr Morris replied that a newspaper article alleged that there had been bribes involved in Denel’s contracts with
Briefing on Advanced Manufacturing
Mr Mehleli Mpofu, Deputy Director General: Advanced Manufacturing (DPE), spoke on the topic of Advanced Manufacturing (see document).
The session was adjourned.
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