News ID: 232272
Published: 1220 GMT October 04, 2018

Exclusive: Saudis seek wide-ranging deals with South African arms firms

Exclusive: Saudis seek wide-ranging deals with South African arms firms

Saudi Arabia is in talks with South Africa’s major arms manufacturers and is considering taking an equity stake in the struggling state-owned defense firm Denel, the head of the Saudi state defense company told Reuters.

Saudi Arabian Military Industries’ (SAMI) chief executive Andreas Schwer said he expected to conclude the first partnership deals with South African companies by the end of the year, though he would not identify those initial partners, according to

South Africa’s Department of Public Enterprises, which oversees Denel, acknowledged the talks with SAMI but said it was too early to give details of any potential partnership arrangement.

The Paramount Group, a privately held South African company, has already said it is in talks with SAMI. South Africa’s defense industry once played a major role in the country’s economy, but more recently it has suffered from the impact of a squeeze on defense spending globally and a weak home market.

Saudi Arabia is the world’s third largest defense spender behind the United States and China with an estimated military budget last year of nearly $70 billion. The Saudi government is now seeking to develop its own domestic defense industry with the goal of localizing half of its military spending by 2030. Schwer said SAMI aimed to have all its foreign partnerships in place by the end of next year.

Over 60 percent of Denel’s revenues come from exports. But the company has been grappling with a liquidity crunch after becoming embroiled in corruption scandals during the presidency of Jacob Zuma.

He said those same conditions would apply to all of SAMI’s partners, and in return Saudi Arabia would offer preferred or exclusive market access to companies.

Denel did not pay senior staff their salaries in full this month. Labor unions say it is critical that Denel receives financial support - either via additional government guarantees or a capital injection.

A Denel spokeswoman said she was not aware of the discussions with SAMI and the Saudi government. President Cyril Ramaphosa visited Saudi Arabia in July and subsequently announced that the Saudi government pledged to invest at least $10 billion in South Africa.

Department of Public Enterprises spokesman Adrian Lackay said there had been discussions between SAMI and various state bodies about Saudi Arabia’s interest in defense technology.

A United Nations arms embargo imposed on South Africa’s apartheid government in 1977 forced the country to produce all its own military hardware.

By 1994 when Nelson Mandela was elected president, the industry employed over 100,000 people. But defense spending has steadily declined and just 15,000 work in the sector today, a trade association official said earlier this year.

Schwer said even though the Saudis were pursuing the partnership to build their own domestic industry, the end result for South Africa would be a much bigger defense industry.

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