Months of delays in export approvals will hurt Rheinmetall Denel Munition’s (RDM) turnover this year and could force the South African defence firm to halt production this month, its chief executive told Reuters.
RDM, a joint-venture between German industrial group Rheinmetall and South Africa’s state arms firm Denel , has been a stand-out performer in a struggling industry since it was established in 2008.
Its roughly 200 million euros ($223 million) in annual sales of large-calibre ammunition, propellants and missile components make up nearly 7% of Rheinmetall Defence’s total turnover. Some 90% of that is exported outside of South Africa.
But new export authorisations have been held up since before elections in May, said Norbert Schulze, who is wrapping up a decade at RDM’s helm.
“It will impact this year,” he said in an interview at RDM’s headquarters in Cape Town. “The stores are actually full at the moment, so in actual fact we have to stop producing.”
The hold-up, which has affected South Africa’s entire defence industry, is largely due to the post-election reconstitution of the National Conventional Arms Control Committee (NCACC), which regulates exports.
Schulze said RDM believed the NCACC had also placed a hold on exports to Saudi Arabia and the United Arab Emirates, which are involved in a conflict in Yemen.
“We do not have any official statement. The thing we know at this time is that we do not get any export licences for Saudi Arabia or the UAE,” he said.
Around 60% of RDM’s exports go to the Middle East with Saudi Arabia and the UAE among its biggest customers.
Schulze said RDM had met public enterprises minister Pravin Gordhan about the issue and told him an official decision to ban exports to the two Gulf states would hurt the company.
“We (would) have to rethink what we are going to do with our workforce, with our costs,” he said. “The only thing (Gordhan) said is that he understood the thing fully, and he will be discussing with his colleagues in the NCACC.”
Government authorities have made no official announcement of a suspension of exports to the two countries. An NCACC spokesperson could not be reached for comment.
Almost a third of South Africa’s defence exports, worth nearly R1.5 billion ($98 million), were shipped to Saudi Arabia and the UAE last year, according to NCACC data obtained by Reuters.
An export ban on the two countries could also hurt Denel, which is already struggling to pay salaries and has made a pivot to Middle East markets as part of its turnaround strategy.
Denel is also looking to exit unprofitable business and forge new partnerships.
Schulze said RDM was in talks with Denel about a partnership on weapons manufacturing, and Rheinmetall was interested in collaborating with missile development unit Denel Dynamics.
Rheinmetall would welcome any opportunity to increase its stake in RDM to as much as 80%, he said, from 51% now.
Denel CEO Danie du Toit told Reuters the company was open to new partnerships but had no plans to sell equity in the venture. “We are not planning to dilute our stake in RDM,” he said.