Can Denel Be Regarded as a Monopoly in South Africa
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There are many companies operating in South Africa’s security sector. Some of these companies specialize in a particular niche, and others operate across industries. One such company that has recently captured the attention of South African security analysts and practitioners is Denel, an arms manufacturer based in Pretoria. Denel operates as a subsidiary of the Namibian military and builds small arms, ammunition, and armored vehicles for the Namibian Defense Force (NDF). Denels operations outside of Namibia are limited to its manufacturing facilities in Midrand. Despite this limitation, there is no denying that Denel is one of the leading players in South Africa’s defense industry. The company was founded by De Wet Roos Beukes and Louis van Moerkerke in 1936. Its name comes from the Dutch words denken (to think) and lent (army). The company has grown steadily since then and now operates as an independent company within the armaments industry chain. In 2019, it had a staff strength of 3,500 employees and reported annual revenues of over N$1 billion (about $60 million USD). Some analysts have raised questions about whether or not Denel is trying to monopolize the market through its dominance as a proprietary supplier or partner provider. This piece aims to explore both sides of this debate before making any recommendations on what should be done with respect to the company’s future role in the security sector.
What Does Denel Do?
Denel is a leading manufacturer of small arms, ammunition, and armored vehicles for the Namibian Defense Force (NDF). In 2015, it signed a contract to build a fleet of 40 six-wheeled armoured vehicles for the NDF at a cost of $100 million. The NDF uses an array of small arms manufactured by Denel. For example, the SA Special Forces and Navy use the Denel Rooikat Mk1 assault rifle which was designed and manufactured in Namibia. The company has also entered into partnerships with local firms to manufacture ammunition and small arms for the South African Defense Force. This is one of the oldest and best-known companies in the arms and ammunition sector in South Africa. It is registered as a private limited company under the laws of the Republic of Namibia and is controlled by the Namibian government. Denelia does business in Namibia, but also has a presence in South Africa.
Denel in South Africa: A Proprietary Provider or Partner Provider?
Denel is best known for its role as a proprietary supplier, or a company that is wholly owned by the state. Proprietary suppliers are only allowed to supply a single state or military with equipment. The Namibian government and Namibian military are the only forces that have used Denel products. This is quite different from Denel’s status as a partner provider, where it operates as a private company with a commercial focus. Outside of Namibia, it operates as a manufacturer of small arms, ammunition, and armored vehicles. The majority of South African operations are a commercial entity. The company was established in the Republic of South Africa in the 1940s and has since grown to become one of the leading manufacturers in the security sector.
The Debate: Is Denel Trying to Dominate the Market?
Denel has been accused of trying to dominate the market by operating only as a proprietary supplier. In its home country, Denel’s products are used only by the Namibian military. This is despite the fact that there is a domestic market for small arms in Namibia. In South Africa, however, the domestic market for small arms dwarfs the sub-Saharan one. The overwhelming majority of South Africans have access to firearms, with only about 13% not owning any. This is in contrast to countries like Botswana or Namibia where there are much smaller percentages of people who have access to firearms. If Denel were to move into the small arms manufacturing sector in South Africa, it would have to contend with many domestic manufacturers. While it may find success in Namibia as a proprietary supplier, this is unlikely to occur in South Africa as the market is too diverse.
Denel’s Dominance and Violation of the Competition Act
Denel is accused of violating the Competition Act in its pursuit of dominance as a proprietary supplier in South Africa. The Competition Act was passed in 1999 to prevent companies from entering into monopolistic agreements with one another. It was meant to prevent such practices as price-fixing, market dominance, and market allocation. The Competition Act states that it is illegal for any two or more companies to agree to divide up a market or to fix prices or wages. This conduct is considered unlawful and can result in fines and prison sentences.
Should Denel Be Consolidated?
Denel is accused of violating the Competition Act because it has sought to become a monopoly supplier in South Africa. Those who accuse Denel of monopolism suggest that the company should be consolidated. This means that Denel should be merged with a bigger company in order to curtail its market dominance. The argument for consolidation is that Denel would be more efficient as a single entity than as a collection of smaller companies. There are concerns, however, that consolidation would result in the Namibian government controlling a bigger share of the South African defense industry. This would be an undesirable outcome as it would reduce the national security benefits that come from having independent companies.
Final Words
Denels dominance as a proprietary supplier in South Africa is quite controversial. Its opponents argue that the company should be consolidated and merged with other companies in order to level the playing field. The Namibian government, however, disagrees with this approach, arguing that the company should be allowed to operate as a proprietary supplier in South Africa. This will likely be a major issue as Denel moves forward. If the company is forced to operate as a commercial entity, it will likely suffer as it will be operating in a more diverse market.
