India looks forward to re-engaging their relationship with South African defence companies this following a decade after the previous Sonia Gandhi led UPA government blacklisted Denel SOC, South Africa’s largest state-owned aerospace and defence technology conglomerate.
Pretoria has hosted visits from officials of the Indian defence ministry to introduce South African arms companies to the new Modi government’s defence regime that has been in action for the past two years which is being seen as a liberal one.
Prior to Modi visiting South Africa this past July, the first delegation met in Pretoria. The second team accompanied Modi here to seal the deal as told to an Indian news source who wished to not be identified.
State Capture VIA Denel Asia
In the past several months there has been a rift between Treasury and Denel over the legality of the establishment of Denel Asia, a joint venture between Denel and VR Laser Asia, a company owned by a close associate of the Gupta family, Salim Essa. The newly created joint venture company is registered in Hong Kong, reported by BDlive.
The Guptas branched up with state-owned arms manufacturer Denel to profit from the sale of its products in the East. Denel announced the formation of joint venture company Denel Asia last week but did not identify the controversial family as shareholders by name, as reported by the Mail & Guardian.
This has been seen as another ‘state capture’ of appropriating state opportunity that had arisen amid a revolt in the ruling alliance about their influence in high places.
Following the ANC executive’s annual lekgotla earlier this year, party secretary general Gwede Mantashe reportedly said that a “warning came out very strongly” against the “capture” of state-owned enterprises by “people outside the state”.
Denel Asia would “focus its marketing attention on countries such as India, Singapore, Cambodia, Indonesia, Pakistan, Vietnam and the Philippines who have all announced their intentions to embark on major new defence acquisitions”.
What caused Denel to be blacklisted?
Denel SOC had been blacklisted in India over allegations of kickbacks and corruption BUT now the Indian defence ministry are on a mission to take SA company executives through a schema of engagement rules that will allow firms to hire 3rd party agents to help secure contracts.
Are Denel Asia and its partners the ‘3rd party’ agents?
According to one defence analyst who was present at the second delegation meeting in July, Indian government officials indicated how blacklisting will be applied and any violations will be met with a graded penalty system.
“There are both pluses and minuses to this sort of outreach and sensitization. On one hand, when you talk to many South African officials and sometimes companies, the elephant in the room is Denel. It was blacklisted in 2005 by the UPA government and then the Central Bureau of Investigation (CBI), India’s premier law enforcement agency for the investigation of corruption cases. spent eight to nine years in trying to prove the allegations of corruptions. The agency could not prove this, finally filed a closure report in late 2014 and Denel was taken off the blacklist by 2015,” said a senior defence analyst who accompanied a few defence ministry officials to South Africa.
The Indian Defence arm has been impacted negatively by the Denel (SOC) blacklisting. Some analysts agree that it has been warranted in some cases, in others it has led to delays in the strengthening and progress of the Indian military.
“For instance, Denel was confronted with allegations of bribery in securing its India contract and was accordingly blacklisted. But the contract for artillery guns, which Denel specialises in, was not replaced and has left the Indian military lacking to this date. And ultimately, the case against Denel could not be proved,” said defence analyst Pranab Chakroborty.
Other commentators in the defence conversation are of the opinon that the Indian government should always remain vigilant of corrupt activities bearing in mind the recent Embraer controversy.
Investment from South Africa
Over the last decade, there have been a handful of South African investments, either directly or indirectly through technology partnerships with Indian companies. The most notable partnership happened in 2010, when Ashok Leyland and defence systems manufacturer Paramount Group decided to set up a joint manufacturing assembly plant that would build mine-protected, armoured vehicles for the Indian military and for export markets.
Last year, Hindustan Aeronautics Limited (HAL) and South Africa’s Saab Grintek (a joint venture between Sweden’s Saab and SA’s Freetel) signed a relatively small ($80 million) deal for “integrated self-protection systems” for India’s Dhruv Advanced Light Helicopter. These systems will however not be produced in India, but will be made out of Saab’s subsidiary in Johannesburg.
These small, made-outside-India deals are something the Modi government is hoping to change this week. According to people with direct knowledge of the matter, defence secretary Mohan Kumar is leading yet another delegation to South Africa this week to the Africa Aerospace and Defence Exhibition.
“At the exhibition, the Make-in-India pitch will be strong. It presents an opportunity to follow-up on some of the promises and ties forged during the prime minister’s visit in July,” a senior defence ministry official told The Wire.
Other officials and experts dismiss the Modi government’s South African outreach as genuine, and point more towards the upcoming BRICS summit as a possible reason for the repeated visits.
“It’s true that in the last year, there has been a pronounced tilt towards the US when it comes to defence ties and generally American companies,” said Chakroborty.
According to two defence experts The Wire spoke with, the last two years in general and the last six months in specific (when it comes to matters of defence) have seen a pronounced tilt towards the US and American defence companies. The bilateral LEMOA pact and companies such as Boeing and Lockheed Martin have dominated headlines over the last six months even though prickly issues of technology transfer cast a long shadow on the timeline of any proposed deal.
“If you look at the South African defence market, there’s not much there. There may be small sub- $100-million FDI deals or a few partnerships that could help Indian companies, but nothing that could only be gotten from South Africa. Denel’s guns and ammunition could have helped at one point, but that’s no longer there. So why so much fuss,” the head of a German defence think-tank, who declined to be identified, told The Wire.
Ahead of the BRICS summit in October, and in the run-up to the signing of the LEMOA pact, defence ministry officials have also reassured their Russian counterparts that the strategic defence partnership between both countries has not weakened or become any less significant. For instance, in the last month, the groundwork for a number of mega defence deals has been laid, the two most important of which are negotiations for a future fifth-generation fighter aircraft and a number of defence purchases including the Rs 40,000 crore acquisition of five S-400 Triumf advanced air defence missile systems.
“Many of the promises given to Russian officials are very forward-looking and are just simple reassurances. The fifth-generation fighter aircraft, for instance, is many years away and the Triumf missile acquisition still has hurdles. But this kind of posturing is important when you don’t want to disturb any defence partnerships, especially with the BRICS summit coming up. It could be possible that Modi’s South Africa venture is along similar lines,” said a senior defence analyst.