Public enterprises minister Pravin Gordhan. Picture: TREVOR SAMSON
Public enterprises minister Pravin Gordhan. Picture: TREVOR SAMSON

Public enterprises minister Pravin Gordhan announced on Tuesday that Denel’s 3,500 employees will receive their full salaries for June.

Earlier on Tuesday it emerged that Denel could only pay 85% of salaries for June due to cash-flow problems. Denel group CEO Daniel du Toit had said in a statement that management was working “tirelessly” to pay the rest of the salaries.

On Tuesday evening, however, Gordhan said during a debate on the state of the nation address that a lender had come to the assistance of Denel “and full salaries will now be paid”.

Gordhan’s spokesman Adrian Lackay said the terms of the loan, which was granted by a commercial bank, are confidential. 

Denel, one of several state-owned enterprises (SOEs) mired in allegations of corruption and state capture, found itself in a deep financial crisis, needing a government guarantee to enable it to pay salaries and suppliers. Other SOEs facing major financial problems include Eskom, SAA and the SABC. 

Denel recorded a loss of nearly R2bn in the past financial year. In the 2017/2018 financial year it suffered a net loss of R1.8bn on a 38% decline in revenue to R5bn from R8bn the previous year.

Econometrix chief economist Azar Jammine said on Tuesday that the salary problem highlighted the government's inability to any longer run SOEs. 

 “Either it has to bail these SOEs out ... [a move that could] cause our credit ratings to be downgraded. Or we need to get outside shareholders to run these companies,” Jammine said. 

“In other words, we need to get them partially privatised, but this has been resisted by government.”

Solly Mbatha, the acting CEO of Armscor, the arms procurement agency of the defence department, said it was “sad to see Denel collapsing”.

 Nedbank chief economist Dennis Dykes said SOEs had come under a lot of pressure and had been run in a “nonbusiness” manner for some time.

“All their balance sheets are looking weak as a result. While I think it’s a very difficult industry [defence], I think it will be good to innovate in certain areas,” he said.

Cosatu spokesperson Sizwe Pamla said Denel’s challenges represented the continued and “alarming meltdown of the SOEs”.

“What is even more disturbing is that some of the people who were the architects of this mess are being sent back to the corridors of power instead of being relocated to prison,” said Pamla.

Law enforcement agencies have yet to attach the assets and prosecute the people implicated in state capture, he said.

“Workers are being victimised and made to pay with their livelihoods to cover for the sins of politically connected crooks.”

Security and defence analyst Helmoed Heitman told Business Day that “the government either has to find R10bn a year for the defence department to buy equipment or the defence industry, including Denel, will die”.