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Home Blog Saudi Arabia makes bid to partner with South Africa defence group Denel for USD 1 billion

Saudi Arabia makes bid to partner with South Africa defence group Denel for USD 1 billion

  • Published | 26 November 2018

Saudi Arabia made a bid of USD 1 billion to partner with South Africa’s defence group Denel that is state owned. This partnership is expected to boost the defence market for both the countries.

South Africa: Saudi Arabia has made a bid of USD 1 billion for an extensive partnership with South African defence group Denel which state-owned. It would also include acquisition in a joint venture of a minority stake with Germany's Rheinmetall. Saudi Arabia, which is the third-largest defence spender in the world, is at present heavily dependent on imports. It is seeking partnerships to advance its own domestic defence industry as a part of their goal of localising half of its military spending by 2030. This is expected to highly boost the defence industry of Saudi Arabia as well as South Africa. Saudi Arabian Military Industries (SAMI), the state defence company of the kingdom, told Reuters last month that it has been in discussions with all major firms of South Africa and aims to come to a conclusion about the first deals by the end of this year. Saudi Arabia has been targeting Denel's stake of 49 percent in Rheinmetall Denel Munition (RDM). RDM is a joint venture that is South African-based and was formed in 2008 between Rheinmetall Waffe Munition GmbH and Denel. Rheinmetall holds the remaining 51 percent stake and specialises in the design, development, and manufacture of medium and large-calibre ammunition which includes artillery shells. According to the Industry sources RDM operates independently and thus, is subject to South African law. This means exports that take place from the unit are not subject to German government oversight. Under this Saudi offer, SAMI will also be financing research and development in other divisions of Denel which includes Denel Dynamics that develops and manufactures tactical missiles and precision guided weapons.  According to BlueWeave Consulting, Saudi Arabia is already a top customer of Denel for artillery munitions, military vehicles, and radar equipment. They will be purchasing a certain amount of the group's production. According to CEO of SAMI, "Saudi Arabia has made a unique business proposition to the South African government. As our discussions are not finalised yet we cannot provide any comment.” But if the partnership finalises Denel and SAMI will be sharing intellectual property and with a new joint venture will be targeting defence export markets in the Middle East as well as North Africa. Denel is struggling with a severe liquidity crunch and is struggling to pay salaries along with delivering around 18 billion rand (USD1.29 billion) of outstanding orders. Thus, finding an equity partner is crucial and essential for Denel’s survival. According to the South African Foreign Minister Lindiwe Sisulu human rights will be considered in any kind of deliberations over a potential Saudi deal. Thus, the partnership is expected to rejuvenate the condition of Denel and boost the Saudi Arabia defense force. According to the report by BlueWeave Consulting on “Global Defense Market, By Component, By Type, By Equipment, By End-User, By Region- Industry Analysis, Size, Share, Growth, Trends & forecast by 2018-2025”, Saudi Arabia is among the very few Arab countries that have remained comparatively untouched internally. Thus, naturally Saudi Arabia has been purchasing tremendous amount of equipment for the country’s military force and this has created great opportunities for the defense sector. Increasing security concerns among various nations and rising expenditure by governments in research and development activities is likely to drive the industry growth. Assessment of its security by nations is largely responsible for shaping its security system. As the economy of a country grows its security expenditure also increases. Nations are now reconstructing their fighting abilities towards more reasonable and advance technology.