During the 2019/20 financial year, exports accounted for 42% of Denel’s business, with Asia being the single biggest export market, taking 24% of the South African State-owned defence industrial group’s business. Perhaps surprisingly, Europe and North America came in joint second place, with 5% each. Africa and the Middle East each accounted for 4% (but Denel also has a number of joint ventures in Middle Eastern countries). South Africa itself was responsible for the remaining 58%.

In its annual report for 2019/20, released on Monday, Denel observed that, owing to the low level of the South African defence budget and the consequent lack of major new projects, it, like the South African defence industry (SADI) in general, had to increasingly focus on exports. It further noted that it and the rest of the SADI had traditionally focused on niche customers who would not buy from European, Israeli or US companies.

However, Denel expected greater competition from European and US companies in its markets, because it anticipated defence spending cuts in these countries as a consequence of the Covid-19 pandemic. (In reality, owing to the deteriorating international situation, some of these countries were actually increasing their defence spending, while then President-elect Joe Biden stated in September that he did not expect any major cuts to the US defence budget.)

The South African group also expected customers would change their priorities from acquiring the best possible performance systems to more affordable systems. Further, the depressed prices for oil were likely to reduce the cash reserves of some client countries and change their spending priorities over the next few years. 

“Despite these factors, Denel is experiencing a strong demand for its products in the growth markets of Asia-Pacific and the Middle East,” it affirmed in its annual report. “These markets are currently the main export customers for Denel’s products. There are a number of new business opportunities expected to be concluded and executed in the short to medium term.”

However, there was a caveat to this. “Denel, however, has too much reliance on the Middle Eastern countries and should further expand and spread the risk by expanding to the Far East, South Asian and Latin American markets.” Despite defence cuts, Latin America continued to offer opportunities for the group, as countries in that region were continuing with weapons system acquisitions.

“Business opportunities on the African continent remain largely untapped due to ill-defined user requirements, funding constraints and other hindering dynamics, most of which are political,” it explained. “There are, however, gaps to fill and opportunities to pursue, specifically in the West African region.” 

Finally, there was the United Nations (UN). Denel was in good standing with the global body, giving the group access to tenders for peacekeeping and humanitarian operations. Denel was indeed implementing several such UN contracts.