As the Department of Public Enterprises has ceased to exist, state-owned defence conglomerate Denel is being moved into the Department of Defence (DoD), and over the next three years, R66.5 million of the defence budget has been allocated to cover costs related to 13 staff members overseeing Denel.
This is according to the latest defence budget vote, which was delivered by Finance Minister Enoch Gondogwana on Wednesday 12 March.
“Over the next three years, R66.5 million is allocated to cover costs related to the 13 staff members overseeing Denel, which shifts from the abolished Department of Public Enterprises to the Department of Defence as part of the national macro organisation of government,” the defence vote read.
Denel was the responsibility of the then Department of Public Enterprises until its dissolution post South Africa’s national and provincial elections in June last year. President Cyril Ramaphosa’s Minister in the Presidency, Khumbudzo Ntshavheni, took on Department of Public Enterprises authority until financial and human resources are “appropriately transferred”.
Democratic Alliance (DA) National Council of Provinces (NCOP) public representative, Nicholas Gotsell, in a Parliamentary question to Defence and Military Veterans Minister Angie Motshekga was told that “the Ministry of Performance Monitoring and Evaluation (DPME) is still responsible for Denel until the end of the current financial year, 31 March 2025”.
Denel will be officially transferred to the Ministry of Defence and Military Veterans with effect from 1 April 2025.
The 2025 Estimates of National Expenditure (ENE) document states that Denel’s focus over the medium term will be on implementing its turnaround plan, which entails rolling out its new operating model, restructuring, and optimising its cost structure.
The plan has a funding requirement of R5.2 billion, of which the company committed to raise R1.8 billion by disposing of non-core assets. The remaining R3.4 billion was allocated to Denel through the Special Appropriation Act (2022). The cash injection was intended to implement the turnaround plan, settle legacy obligations and address the company’s liquidity requirements to support operations and execute its order pipeline.
“However, the company’s financial challenges remain, prompting an independent review to be conducted over the next three years. The review will, among other things, focus on the company’s strategy; operations; funding model; and balance sheet optimisation, including capital structure and assets,” the ENE stated.
Denel has been blocked by the Department of Defence from selling its stakes in Rheinmetall Denel Munition (RDM) and Hensoldt Optronics SA, which has stymied efforts to raise the R1.8 billion by selling off non-core assets. Nevertheless, the company is bullish as it pursues R36 billion in order opportunities.
Denel’s expenditure is expected to amount to R2.6 billion in 2024/25 and increase to R3.5 billion in 2027/28, “because of the expected improvement in business activity and the intensified implementation of the turnaround plan,” according to the ENE.
Revenue is projected to increase at an average annual rate of 14.5%, from R2.6 billion in 2024/25 to R3.8 billion in 2027/28, also due to the implementation of the turnaround strategy. The company expects to derive 96.3% (R10.8 billion) of its revenue over the period ahead through the sale of defence and security equipment and the services that it provides, the ENE stated.
The defence budget vote document stated it expects Denel to generate R206 million in 2024/25 through its aerospace programme (R111 million achieved in 2023/24); R664 million through its aviation programme (R619 million achieved in 2023/24); R1.3 billion through its land solutions programme (R1.1 billion achieved in 2023/24); and R185 million through its integrated systems solutions programme (R125 million achieved in 2023/24).
Denel currently employs 1 791 staff and expects to keep this number static over the next three years.
