State-owned arms procurement agency Armscor has taken the lead in exploiting “several substantial export opportunities” as arms manufacturer Denel struggles to burnish its reputation in international markets following years of underperformance.
Armscor’s primary clients are SA’s department of defence, the police and the Border Management Authority. Denel was spun off from Armscor in the early 1990s as a state-owned aerospace and military technology and arms manufacturing company under the department of public enterprises.
Armscor’s 2025 annual report, released last week, conceded that Denel’s continued loss of capacity and capability has resulted in suboptimal performance against contractual obligations, with Denel managing to invoice for only 8.65% of the total value of orders for the 2024/25 financial year.
“In response to the declining international image of Denel as a reliable supplier of defence systems, Armscor is capitalising on its good reputation in the international marketplace as a reliable, professional and capable state entity and intends to act as an interface and main contractor to foreign defence forces and to consolidate capabilities in the domestic defence industry to provide integrated and comprehensive solutions to those potential foreign clients,” Armscor said in the report.
“In this regard, Armscor has had promising interactions and has strengthened relations with several potential foreign clients who have indicated an interest in working with Armscor to obtain niche defence systems from SA.”
Denel has been loss-making for about a decade, with taxpayers bailing it out to the tune of nearly R9bn over that period. However, in June its leadership painted a picture of a resurgent organisation that expects to make an operating profit by 2028.
Armscor, which manages logistics and research for the SA National Defence Force (SANDF), also noted that austerity measures implemented by the government, which have resulted in a real decrease in the SA defence budget, have had an adverse effect on the domestic defence industry, with several companies forced to downscale capacity and, in some instances, close shop.
“This downscaling, as well as a shift in focus, has had a marked impact on the ability of the industry to meet contractual commitments for the [department of defence], and the reduction in capacity is continuing to negatively impact Armscor’s ability to meet [the department’s] cash flow expectations for the financial year,” the annual report reads.
“The decline in the capital budget over the past number of years has precipitated a shift in focus away from traditional capital acquisition projects and more towards maintenance and support and the life extension of existing products and systems of the SANDF.”
Armscor also gave an update on key projects, which have faced several multi-year delays. One of these is the project to provide new-generation infantry combat vehicle product systems to replace the Ratel infantry combat vehicles, which have been in service since 1976.
It said this programme had been plagued by delays over the past six years due to both technical and financial challenges within Denel Land Systems (DLS), as well as suppliers and subcontractors not supplying the required subsystems and services due to nonpayment by DLS.
“DLS experienced capacity and capability challenges due to experienced personnel who left the organisation … Denel is busy with implementing a turnaround strategy and is slowly recapacitating projects and the organisation with personnel,” Armscor said.
Another delayed project is the development of a new-generation short-range air-to-air missile system for the SA Air Force. The full complement of contracted missiles was scheduled to be delivered by October 2017.
However, Armscor said the project experienced “significant delays because of some technical challenges encountered by Denel, but primarily as a result of the financial challenges experienced by Denel, which resulted in non-delivery of components and sub-systems by suppliers”.
It added that the project almost came to a complete stop during the previous financial year. “A significant portion of the capital acquisition order book (R9bn) comprises order values for the new-generation infantry combat vehicle and new air-to-air missile projects at Denel, where unspent order values from previous financial years have been accumulating due to delays and underexpenditure on these projects, which reflect the extraordinarily high order values in the current financial year,” it said. “As during the past three years, these programmes have shown very little progress during the reporting period.”
The cash crunch facing the department of defence is well documented, with the air force facing a severe operational crisis due to budget cuts and maintenance backlogs, which have led to a significant decline in aircraft availability and overall operational readiness.
Defence minister Angie Motshekga said in her budget vote speech in July that about 64% of the department’s R58bn allocation had been set aside for compensation of employees, leaving less than R12bn for operational deployment, equipment maintenance and capital acquisitions.
One positive development for Armscor, announced by CEO Solomzi Mdaba, is that the SA army is now in possession of a new “cutting-edge sniper rifle system” delivered through Project Tedu. “This capability is a force multiplier and will provide the SANDF with a competitive advantage during the execution of operations,” Mdaba said in the report.
“Armscor overcame obstacles, including supplier disruptions and budget pressure, to ensure timely delivery of the new sniper system,” he said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.