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28 Oct 22. Iraq: New cabinet likely to drive domestic unrest calling for elections. On 27 October, Iraqi lawmakers gave a vote of confidence to the Cabinet put forward by Prime Minister Mohammed Shia al-Sudani, ending the 13-month political deadlock. The Cabinet is the first since 2005 that does not include seats for the Sadrist bloc, led by influential Shia cleric Moqtada al-Sadr, whose supporters have called for new elections during protests in recent months. Parliament also approved a programme to amend election legislation within three months of ministers being sworn in, in preparation for early elections within a year. Government priorities are set to include addressing endemic corruption and approving a 2022 state budget. However, persistent intra-governmental divisions will slow progress in meeting these priorities, further fuelling protests, particularly by Sadrist supporters, in the coming months. Unrest is expected to concentrate on the Iraqi parliament and Baghdad’s fortified Green Zone, elevating bystander risks and generating disruptions to inner-city travel. (Source: Sibylline)
28 Oct 22. Haiti: US and Canada studying possibility of military intervention, increasing likelihood of armed conflict. Canada’s Minister of Foreign Affairs confirmed on 27 October that a high-level delegation was in Port-au-Prince consulting with Haitian officials on efforts to restore access to essential goods and services amid escalating gang violence. The comments come after the US Secretary of State arrived in Ottawa to reportedly broker a deal that would see Canada head a military aid mission to Haiti, with the support of the UN and other nations. Haiti’s interim government recently requested the deployment of a foreign military contingent to break up local criminal groups. A gang alliance known as the G-9 Family and Allies has blocked the country’s main fuel terminal since mid-September, leading to healthcare service disruptions that may exacerbate an ongoing Cholera outbreak. A possible military intervention would likely increase the risk of an armed conflict. (Source: Sibylline)
28 Oct 22. North Korea: Provocative military actions likely to persist, but pose limited risks to businesses. On 28 October, North Korea fired two short-range ballistic missiles (SRBMs) from Kangwon province landing close to Japan’s exclusive economic zone (EEZ). The launches occurred on the last day of South Korea’s Hoguk annual military drills and ahead of the US-South Korea ‘Vigilant Storm’ five-day joint air exercises between 31 October-4 November. The SRBM launches also occurred days after the publication of the US 2022 National Defense Strategy, in which Washington vowed to ‘end’ the North Korean regime should it attack the US or its allies with nuclear weapons. Similar military provocations by North Korea are expected to continue, which will sustain elevated regional tensions as well as minor safety risks to commercial aircraft and vessels (see Sibylline Daily Analytical Update – 24 October 2022). Meanwhile, a North Korean nuclear test may occur in the days prior to the US midterms election, but this will unlikely cause risks to regional businesses. (Source: Sibylline)
28 Oct 22. Saudi Arabia-China: Deepening of bilateral ties likely to inflame US tensions but security pacts will maintain partnership. On 27 October, Saudi Arabia’s Foreign Minister Prince Faisal bin Farhan confirmed that Chinese President Xi Jinping will attend three high-level summits to be held in Riyadh in the near future. Prince Farhan added that the summits will involve Gulf partners as well as wider Arab leaders, consolidating economic and diplomatic relations within the region. In tandem, China and Saudi Arabia have agreed to focus investment on countries in the Belt and Road Initiative, focusing on greater cross-sectoral cooperation in energy, security, aviation, and technology. The deepening of Sino-Saudi bilateral relations aligns with 30 years of strategic partnerships but threatens to exacerbate tensions between the Kingdom and the US. The consolidation of bilateral ties with Beijing increases the likelihood of the US Congress threatening to freeze arms sales to Riyadh in the short term, but disruptions to US business operations in the Kingdom will be minimal. (Source: Sibylline)
28 Oct 22. Moldova: US sanctions on pro-Russian actors will likely have limited impact on Moscow’s attempts to undermine key political institutions amid energy crisis. On 26 October, the US Treasury imposed sanctions against nine individuals and twelve entities in Moldova in an attempt to counter Russian influence campaigns and systemic corruption. The entities and individuals have been targeted for allegedly corrupting Moldova’s key economic, judicial and political institutions, and include former pro-Russian government officials. This latest package of US sanctions highlights the extent to which pro-Russian actors are continuing their attempts to undermine government stability in Moldova. As the popularity of the nation’s pro-West president Maia Sandu begins to decline amid weekly anti-government protests and an imminent energy crisis, Russian attempts to subvert the political landscape will likely continue to find fertile ground and will risk destabilising Moldovan politics over the winter. (Source: Sibylline)
28 Oct 22. Kazakhstan: Parliament approves mass amnesty in attempt to curb domestic unrest, although further protest remains possible amid worsening socio-economic conditions. On 27 October, the upper chamber of Kazakhstan’s parliament approved a bill granting mass amnesty for individuals who participated in the January 2022 anti-government protests, which led to 238 dead. The bill still requires a signature from Kazakh President, Kassim-Zhomart Tokayev, in order to become law. Those found guilty of terror and extremism-related offences will not be included in the amnesty. The bill likely represents an attempt by the administration to mitigate the potential for any further unrest and protest action ahead of next month’s presidential election, during which Tokayev is hoping to re-establish his legitimacy and distance himself from the Nazarbayev-era power structures which in part triggered the January protests. However, given deteriorating socio-economic conditions, which recently led to a sharp rise in interest rates, further unrest remains possible over the winter. (Source: Sibylline)
27 Oct 22. Godongwana allocates defence minimally more money. The defence component of Thandi Modise’s Ministry was on the receiving end of a small funding increase by Finance Minister Enoch Godongwana during yesterday’s (Wednesday, 26 October’s) medium term budget statement (MTBS). Not as fortunate was the military veterans part of her portfolio where the over R666m allocation was cut by R9.8m.
The defence budget for the 2022/23 financial year is just short of R50.8bn, up from the previous allocation of R49.09bn. By far the majority of the National Treasury (NT) allocation will go to transfers and subsidies. This broad category includes salaries as cost of employees (CoE) and funding for, among others, Armscor, the Castle of Good Hope, Military Ombud Office and the Reserve Force Council.
CoE is given as R30.9bn making it the single largest expenditure item in the defence budget at over 60%. Next biggest is landward defence, primarily the responsibility of the SA Army, at R15.6bn (30%) with the combined air and maritime defence spend totalling R11bn plus and the SA Military Health Service (SAMHS) receiving R5.5bn.
Justifying the allocation, NT notes throughout the year the SA National Defence Force (SANDF) provided support to two external operations and four internal commitments. They are the United Nations (UN) Mission in Democratic Republic of Congo (DRC) – Operation Mistral; combatting terrorism in Mozambique as part of a Southern African Development Community (SADC) mission – Operation Vikela; border safeguarding (Operation Corona); as well as police support, and humanitarian and search and rescue missions (operations Chariot and Prosper).
Corona, as per the Estimates of National Expenditure (ENE), saw 15 “landward sub-units (companies)” deployed to execute border protection and ensure territorial integrity in Limpopo, Mpumalanga, KwaZulu‐Natal, Free State, Eastern Cape, Northern Cape and North West.
The ENE also notes that by mid-year one inter-departmental, inter-agency or multinational military exercise was completed against an annual target of four “typically achieved in the fourth quarter”.
According to the ENE in the first half of the year, the SA Navy (SAN) spent 1 571 hours at sea against an annual target of 12 000. “This under-achievement was due to delays in repair and maintenance of vessels. The department is on track to achieve the target by the end of the financial year as targets for operational tasks at sea are typically achieved in the fourth quarter.”
The ENE lists unforeseeable additional expenditure of R193m for the deployment of SANDF personnel in response to flooding in KwaZulu‐Natal. These funds were used for operational expenses including food rations, fuel and logistics.
Under the force employment programme, R755m was transferred from the Department of Social Development for the extended deployment of the SANDF in Mozambique. “These funds will be used for compensation of employees and for items such as food rations, fuel, ammunition and transport.”
As regards self‐financing expenditure, revenue of R760m was generated from United Nations (UN) reimbursements for South Africa’s contribution to peace support operations in Democratic Republic of Congo (DRC) and from the sale of equipment and spares procured through the special defence account. “These funds will be used for operational expenses related to continued deployment of two Oryx and three Rooivalk helicopters in DRC and provide for the critical elements of the 2015 South African Defence Review such as upgrading prime mission equipment.” (Source: https://www.defenceweb.co.za/)
27 Oct 22. Treasury grants Denel R3.4bn for restructuring on the road to profitability. A single sentence in Finance Minister Enoch Godongwana’s medium term budget policy statement (MTBPS) would surely have put a smile – at minimum – on the faces of Denel employees at all levels and Public Enterprises Minister Pravin Gordhan.
Addressing risks to State-owned enterprises (SOEs) in Parliament’s temporary home in the Cape Town City Hall yesterday (Wednesday, 26 October), Godongwana said “Denel is allocated R3.4bn to support recent progress made to stabilise the entity”.
This amount was mentioned by Gordhan at last month’s Africa Aerospace and Defence (AAD) exhibition at Air Force Base (AFB) Waterkloof when he spoke about the future of the State-owned defence and technology conglomerate, which he once called “an example of State capture”.
The R3.4bn will come to Irene, Centurion-headquartered Denel to implement a turnaround plan estimated to need R5.2bn in total. This is being funded by R990m from the Denel Medical Benefit Trust (DMBT) with R1.8bn to come from the sale of non-core assets and along with government’s injection put the restructured defence and technology conglomerate on the road back to profitability, albeit with a leaner workforce.
In September organised labour was informed of possible retrenchments totalling around 30% of its reported 1 807 employees by then newly named interim chief executive Mike Kgobe. All told, 663 Denel employees could be retrenched in five categories. They are senior officials and managers, professionals, technicians and associate professionals, clerks and “crafts and related trades”.
The last word on Denel specifically in Godongwana’s statement was that the R3.4bn will be augmented by the non-core asset sale “unlocking a committed order book of R12bn awaiting execution”.
The Denel funding, along with funds for Transnet and SANRAL (SA National Roads Agency), will be made available using a Special Appropriation Bill allowing the three entities “to adjust their business models and restore their long-term financial viability”.
In response to Godongwana’s announcement, Denel said the injection will revitalise the business and move it to the next phase of a strategic drive to create a long-term, sustainable future based on improved business efficiencies and growth.
Interim Group CEO Mike Kgobe said “this will enable us to streamline the business and establish a base from which we can significantly grow our order book and access new revenue streams.”
Kgobe said the decision to recapitalise Denel was a vote of confidence in a credible process to stabilise the company as it emerges from a sharp downturn, caused by mismanagement, state capture and governance failures.
“Government, as sole shareholder, recognises the strategic importance of Denel as a commercially-driven aerospace and defence company and the immense value we can add to the economy in terms of innovation, creation of intellectual property and export revenue generation to contribute to the balance of payments,” Kgobe said.
The R3.4bn allocated to Denel comes with conditions and will be monitored by Treasury, the Department of Public Enterprises (DPE) and Denel’s directors. Denel sees it as a lifeline to implement priority measures to sustain the business.
“Immediate actions by management with board oversight will be to exit non-core assets and realise cash inflows toward the R1.8bn Denel will contribute to its turnaround plan additional to the R3.4bn allocation. In line with the turnaround plan, Denel is proceeding with actions to align costs of running the business with the current revenue base while retaining core capabilities for growth.”
“The focus now shifts to a critical stage where we need to sustain the new emerging business model,” said Kgobe. In this phase, Denel will implement steps to restructure the company and reduce current operating divisions from six to four – these will cover land, sea, air and cyber/civil security.
Kgobe said it became quite clear that the previous business structure of Denel was not sustainable. It required a fundamental restructuring and a reduction of the cost base to affordable levels.
The company will now start to reduce its geographic footprint, rationalise facilities and implement a shared services model in areas such as supply chain management, human capital and development, information and communication technology as well as finance and public affairs.
“I am confident a sustainable business model will enable us to focus on growth. There is still significant global interest in our battle-proven products in artillery systems, infantry weapons, small to medium ammunition and infantry systems as well as aeronautical solutions of manned and unmanned aircraft and landward combat vehicles with armoured protection.
“Our reputation for excellence and quality has not been dented and there is still an appetite for partnerships with local and global companies in the aerospace, defence and technology sectors,” he said.
In the coming months, Denel aims to identify new revenue streams and explore further market opportunities for its existing product range as well as the advanced technology sectors of systems integration, command and control and cybersecurity. (Source: https://www.defenceweb.co.za/)
27 Oct 22. Pakistan: Long March.
EVENT
Ex-Prime Minister and Chairman of the Pakistan Tehreek-e-Insaf (PTI) party Imran Khan will lead a protest rally, dubbed the ‘long march’, starting on 28 October. The first day will be spent in Lahore, starting from Liberty Chowk (square) at 1100hrs local time. Departing from Lahore on 29 October, the march is expected to reach Islamabad on 4 November.
SIGNIFICANCE
- The route largely runs through the Punjab province. This is a deliberate move by the PTI as it forms the government there, which will likely result in a greater turnout from its supporters with little pushback from the authorities. Disruptions will be particularly severe in Lahore and Rawalpindi as the march will likely see significant participants in these key cities. In Lahore, the march on 28 October will start at Liberty Chowk (square), and move onto Ferozepur Road through Ichhra, Mazang, Data Darbar, and finally end at Azadi Chowk. The cross-country leg will start on 29 October.
- The Islamabad Capital Territory (ICT) region is the most vulnerable to violent clashes as the Shahbaz Sharif-led Pakistan Democratic Movement (PDM) government has invested most of its resources to ensure the march does not enter Islamabad. Hence, authorities are likely to use force, including teargas and water cannons in and around the ICT region, with the red zone within the capital being the most fortified. Detailed security measures in place include over 13,000 security personnel, road blockades, and intelligence-gathering exercises to conduct arrests.
- The long march will likely be attended by tens of thousands of PTI supporters over the course of the week. PTI activists living in other areas of the country will make their way to join the march at various points. The PTI has managed to entwine the event of the mysterious death of senior journalist Arshad Sharif in Kenya into the long march narrative. Arshad Sharif was known for being critical of the army and the PDM, and the PTI is propagating that his death proves that the government silences any opposition. This has struck a chord with the masses with thousands attending his funeral today (27 October). Mourners will likely join the march in solidarity with Arshad Sharif.
FORECAST
While the PTI has marked out the march route, organisers will likely monitor the reaction of authorities resulting in possible last-minute changes to the route, particularly once the rally reaches the last leg starting from point 13 on the map. The PTI has also requested to stage a sit-in within Islamabad between H-9 and G-9 areas. An indefinite sit-in indicates the long march is not just a short-term movement, but instead has the potential to extend into medium-to-long term, with the goal of maintaining a physical presence in the capital to put pressure on the government. Imran Khan has said that the march will be peaceful, though clashes between PDM and PTI supporters as well as between the PTI and security forces are likely. Both the PTI and the PDM have been preparing for the march for weeks, suggesting both groups have high stakes in its outcome and impact. It is highly unlikely that the PDM will allow PTI supporters to remain in the capital for extended periods of time. Hence, there remains an elevated threat for bystanders, particularly in and around the ICT region.
The blockage of key roads, highways and even junctions by security personnel will cause significant operational setbacks for companies. While this will be most severe between points 13 and 15 on the map, the movement of PTI supporters from other parts of the country to participate in the march will cause traffic disruption on key highways, while also congesting cross-country public transport. This will likely restrict the movement of employees planning to travel around Pakistan next week.
Further, the government will resort to mass arrests, curtailment of the media from covering the long march and even possible internet blackouts. Retaliatory episodes of vandalism between rival party supporters are also possible. There will also likely be enhanced security checks of pedestrians in the ICT.
It is unlikely that the government will cave into Khan’s demand for an early election which, would drive the likelihood of a scenario in which the PTI and the PDM are at a protracted stalemate either in or near Islamabad. This will increase government instability in the short term, while sustaining risks to supply chains over the coming weeks. Without the army’s support, the PTI will face significant challenges in arranging a no-confidence motion on the lines of the one in April that resulted in Imran Khan’s ouster. (Source: Sibylline)
27 Oct 22. China-Netherlands: Investigation into ‘overseas police stations’ will worsen perceptions of Chinese operations abroad, elevating policy, regulatory risks. On 27 October, China’s Ministry of Foreign Affairs (MFA) rejected accusations that Beijing operates ‘illegal’ and ‘unlicensed’ police stations in the Netherlands. Despite the MFA describing the facilities in question as ‘overseas Chinese service centres’ and ‘online licensing platform[s]’, they are likely to be viewed with suspicion by the Dutch and other European governments. The Dutch government’s investigation will elevate anxieties about Chinese political influence, espionage and repression abroad. More than 50 Chinese ‘service stations’ reportedly operate in around 30 countries worldwide. In addition to worsening China-EU relations, the investigation into these facilities will likely elevate policy risks for European businesses with supply chains in China, increasing regulatory framework scrutiny over Chinese investments in Europe.
27 Oct 22. Iran: State will use shrine attack to justify more forceful response to unrest, sustaining security risks. On 26 October, at least 15 people were killed and 40 others were injured in a shooting at the Shah Cheragh Shrine in Shiraz (Fars province, see Sibylline Alert – 26 October 2022). The incident marks an escalation in Iran’s worsening security environment; it comes amid increasing unrest following large protests marking 40 days since the death of Mahsa Amini, who died in hospital in the capital Tehran after she was arrested for not wearing the hijab. The extremist Islamic State (IS) group claimed responsibility for the attack, which President Ebrahim Raisi promised would ‘not go unanswered’. Additionally, the foreign ministry claims the attack was part of a foreign plot to undermine Iran’s stability. There is a realistic possibility that IS will capitalise on the incident to elevate instability and inflame ethno-religious tensions in Iran. Moreover, the government will use the attack to justify its increased use of force to repress further demonstrations. The volatility of the security environment will sustain security risks for business personnel and assets in the coming days and weeks. (Source: Sibylline)
27 Oct 22. US to withdraw permanent F-15 fighter force from Okinawa. Shift to rotational model criticised as sending wrong message to China. Two squadrons of ageing F-15 Eagle fighters are scheduled to be retired from Kadena air base in Okinawa, Japan, next year. The US air force plans to replace its entire fleet of F-15 fighter jets based in Okinawa, Japan, with a “rotational” force, a shift that some American and Japanese officials worry will send a dangerous signal to China about deterrence. The air force intends to retire two squadrons of ageing F-15 Eagles that have been permanently based in Okinawa, according to six people familiar with the situation. The decision has triggered alarm in some parts of the Japanese government and the Pentagon because the air force does not intend to replace them with a permanent presence in the near term. The move will involve half of the roughly 100 air force fighters in Japan and is part of a modernisation programme. Critics are concerned about possible gaps that could weaken the ability to deter China. “The message to China is the US is not serious about reversing the decline in its military forces,” said David Deptula, a retired F-15 pilot and former vice-commander of US Pacific Air Forces who blamed years of under-investment for a lack of aircraft. “This will encourage the Chinese to take more dramatic action.” The air force plans to send fifth-generation F-22 fighters from Alaska to Okinawa’s Kadena, a critical air base in the region, for a six-month rotation after the F-15s’ departure from the base next year. But several people said the force had not worked out future rotations, which raised concerns about possible gaps. The air force said it could not discuss the plan for security reasons, but Ann Stefanek, the air force’s spokesperson, said it would “continue to maintain readiness in support of our US-Japan alliance, which is a cornerstone for security in the Indo-Pacific”. US Indo-Pacific Command, which oversees US forces in Asia, did not comment. Japan’s defence and foreign ministries did not comment. Critics said the move appeared to undermine the Pentagon’s mantra that China is the “pacing threat”. Eric Sayers, an Asia expert at the American Enterprise Institute, said it was “alarming” that the air force was ending the permanent presence with no clear long-term plan. He said part of the problem was that the Pentagon was sending advanced fighter jets to Europe and providing them to national guard and reserves in the US. (Source: FT.com)
27 Oct 22. Analysis: China Xi’s new generals offer cohesion over possible Taiwan plans. Chinese President Xi Jinping’s new generals may have been selected for their political loyalty to him, but those ties could serve at least one vital military purpose in any Taiwan invasion plan: ensuring cohesion and decisiveness.
Although the Politburo’s seven-man Standing Committee would make the ultimate decision on any Taiwan action, the Central Military Commission would forge and execute the battle plan, eight Asian and Western military attaches say.
Three new generals were appointed to the top command body on Sunday after the Communist Party’s five-yearly congress – an event at which Xi said China would “never promise to give up the use of force” to take control of the self-ruled island.
Four security analysts and four military attaches say Russia’s Ukrainian quagmire has shown how vital speed – both in build-up and execution – would be to any Chinese plan, in part to prevent Taiwanese forces and international support from mobilising.
“If Xi Jinping is going to the pull the trigger on Taiwan, then he can’t afford any dissent from the Central Military Commission,” said Singapore-based strategic adviser Alexander Neill.
“To secure any kind of advantage they would have to move fast, lightning fast,” Neill added. “There is no room for dithering. That has always been Chinese thinking on Taiwan, and the Ukraine stalemate has confirmed the need to avoid getting bogged down in a slow logistical build up.”
In his first two terms, Xi purged thousands of officers on corruption allegations and has attempted to tighten the party’s control over the military.
Xi further strengthened his grip on his military command, with three new generals appointed to the seven-person commission and an extension beyond retirement age granted to his closest military confidante, General Zhang Youxia.
“This breaking of precedent is being used to his advantage to achieve two aims at once,” said James Char, a military scholar at Sinagpore’s S. Rajaratnam School of International Studies, referring to keeping Zhang in his post past retirement. “To ensure the PLA’s top soldier is someone well-versed in operational command and is politically reliable.”
The Chinese Defence Ministry did not respond to questions from Reuters.
Some analysts and attaches described the commission as a tightly interconnected group that blends operational experience and political loyalty while maintaining a link to China’s last shooting war, against Vietnam.
Zhang, 72, is described in the Pentagon’s 2021 report on China’s military modernisation as a People’s Liberation Army “princeling” whose father served with Xi’s father at the end of the Chinese civil war in 1949.
One of Zhang’s proteges, General Li Shangfu, was also promoted to the commission. Crucially, Li has experience with the People’s Liberation Army’s digitised strategic support forces, a body that covers electronic, cyber and space warfare.
General He Weidong will serve as the second vice-chairman below Zhang. He was promoted to the position after his command of the reformed Eastern Theatre Command, which is responsible for Taiwan operations.
He oversaw the unprecedented military drills and missile tests surrounding Taiwan in August that Beijing unleashed to protest the visit to Taipei by U.S. House of Representatives leader Nancy Pelosi.
General He is widely known to be connected to Xi through his service in the former 31st Group Army in Fujian during Xi’s time in that province, which faces Taiwan.
It is a background He shares with leading political commissar Admiral Miao Hua, who remains on the commission.
The new line-up straddles a military generation, given the promotion of General Liu Zhenli, who has been in command of forces around Beijing and has experience in the People’s Armed Police, China’s internal security forces.
Liu, 58, along with Zhang, has combat experience dating to the ill-fated conflict with Vietnam, which rumbled on to the late 1980s.
“That link to the problematic Vietnam campaign is a reminder that for all of the PLA’s advances in recent years, there is a glaring lack of modern combat experience,” said one Asian military attache, speaking on condition of anonymity.
“All the drills, exercises and parades can’t replace that. As cohesive as this team might be, there are glaring questions about the PLA’s ability to wage war – for them, and for those of us on the outside looking in,” added the attache, speaking on condition of anonymity because of the sensitivity of the matter.
Which member of the commission will serve as Defence Minister, replacing the retiring Wei Fenghe, will emerge when the National People’s Congress confirms a new governing team in March.
The position, which includes an extensive military-diplomatic role, is seen as less crucial than the work of the commission itself, which operates amid strict secrecy out of an imposing command centre in western Beijing. (Source: Reuters)
27 Oct 22. South Africa: Terror Threat Remains.
EVENT
On 26 October, the US South African Embassy released an alert warning that it had received information that terrorists may be planning to conduct an attack targeting large gatherings at an unspecified location in the greater Sandton area of Johannesburg on 29 October. The US Embassy has subsequently advised staff to avoid crowds in the Sandton area over the course of the weekend of 29-30 October.
SIGNIFICANCE
- The threat of terror attacks in South Africa is low. The US has previously warned of terror attacks in South Africa, issuing such warnings in 2009, 2010 and 2015, all without incident. Additionally, South African police have previously successfully disrupted extremist plots and made several arrests on terrorism offences. South African government officials have stated that they have not received any evidence of an attack, but that security organisations are investigating the claim.
- There are several events in the Sandton area this weekend where such an attack would be consistent with jihadist ideology. The first is the LGBTQ+ event, the Johannesburg Pride parade, due to take place on Rivonia road between Sandton Drive and Fifth Street between 1000-2200 hours.
- Additionally, following years of delay due to the pandemic, the African Centre for the Study of the United States at the University of the Witwatersrand is set to hold its inaugural U.S Business in Africa Awards event at the Sandton Hilton Hotel, on the evening of 28 October. This will then be followed by a conference on “U.S. Businesses Doing Well by Doing Good in Africa” at the Wits Business School on 29 October, located just south of Sandton around the Johannesburg city centre. The dinner on the 28 October is due to be attended by the U.S Consul General in Johannesburg Vincent Spera, potentially prompting the US embassy to adopt a heightened sensitivity to potential threats.
FORECAST
While it remains advisable to comply with US safety directives and a heightened security presence will likely be in place, an attack in the Sandton area this weekend remains unlikely as local jihadist groups have not demonstrated the intention or capability of conducting such an attack. Al-Shabaab is believed to utilise South Africa as a logistics hub, but previously the group has not conducted attacks in South Africa. This is both due to the heightened security capabilities of local agencies and because such a move would likely prompt a far greater crackdown on their local activities, disrupting supply chains that are necessary for their primary objective, securing political power in Somalia.
Additionally, while South Africa is contributing to operations combating IS-aligned insurgents in neighbouring Mozambique’s northern Cabo Delgado region, insurgents have not demonstrated an interest or capability to conduct high-profile suicide attacks in cities, either inside or outside the conflict zone. The group’s attacks are designed either to secure territory or resources or to undercut local government or military assets in Cabo Delgado, with some cross-border operations into the Niassa and Nampula provinces and border regions of Tanzania.
There were concerns that following the loss of the Mocimboa da Praia in 2021, the insurgent’s primary territorial holding in Cabo Delgado’s coastal region, fighters would leave the group and return home. Many were from Tanzania and it is possible that some may have been from South Africa. However, since this time no attack in Tanzania has been attributed to a returning fighter. In August 2021 a gunman in Dar es Salaam killed four people near the French Embassy and while police claimed he was motivated by Islamic extremism, no connection was established between him and Cabo Delgado. (Source: Sibylline)
26 Oct 22. Iran: Government Response To Attack.
EVENT
Earlier on 26 October, state media reported that a ‘terrorist attack’ took place at the Shah Cheragh Shrine, a Shia Muslim pilgrimage site in Shiraz (Fars province) in south-central Iran. At least 20 people were killed and ten others were wounded after an armed man opened fire on worshippers. The perpetrator was reportedly arrested and is being questioned by the authorities.
SIGNIFICANCE
- Shiraz has been a hotspot for ongoing anti-government protests since mid-September (see Sibylline Situation Update Brief – 12 October 2022). Large numbers of residents have conducted protests on an almost daily basis. In addition to these demonstrations, critical workers (including doctors) have taken part in strike action. The security forces have employed harsh measures to counter the protests, including tear gas.
- The attack underscores the increasing volatility of Iran’s security environment as the government seeks to enforce order amid an uptick in unrest. It took place exactly 40 days after the death of Mahsa Amini, a common commemoration anniversary. Amini died in hospital in the capital Tehran after she was arrested for not wearing the hijab. The attack also follows the death of two Islamic Revolutionary Guard Corps (IRGC) members and a paramilitary Basij member on 25 October during an attack by unidentified militants in the south-eastern city of Zahedan (Sistan and Baluchestan province). Sunni ethnic Baluchis face ethnic and religious discrimination in Sistan and Baluchestan, one of Iran’s poorest provinces
- Iranian news outlets reported that the perpetrator of the most recent attack is a ‘takfiri terrorist’ seeking to exploit Iran’s volatile security environment. This term is predominantly used by Iranian officials to refer to armed Sunni Islamist groups or extremist elements. However, information broadcast by state-backed media cannot be verified at this time. There is therefore a realistic possibility that the attack was a false-flag operation intended to justify further crackdowns on protesters by the security forces.
FORECAST
In the immediate term, the security forces will maintain a heightened presence in the vicinity of the Shah Cheragh Shrine. They are also likely to strengthen their posture in the coming weeks at other significant, primarily Shia, religious sites in Shiraz (including the Nasir al-Mulk Mosque) to mitigate the threat of further attacks. There is a realistic possibility that enhanced security measures will extend to significant Shia holy sites elsewhere in Iran, such as the Imam Reza Shrine in the north-eastern city of Mashhad (Razavi Khorasan province). These measures are likely to include stationing armed guards and erecting roadblocks outside religious sites, as well as possibly stopping and searching worshippers.
Further anti-government demonstrations will likely take place on 30 October and 2 November to mark the 40-day anniversaries of the deaths of the protesters Nika Shakarami and Sarina Esmail Zadeh. In addition, there is a realistic possibility that the government will attribute the recent terrorist attack to foreign Sunni extremists in order to justify bolstering security measures to repress demonstrations in the coming weeks. In this case, there will be a heightened risk of violent confrontations in cities with sizeable Sunni populations in Golestan, Kurdistan and Sistan and Baluchestan provinces, as well as in major urban centres such as Tehran. Further terrorist attacks will possibly take place in the coming weeks amid a likely escalation in domestic unrest. (Source: Sibylline)
26 Oct 22. Pakistan: High threat of disruptions and clashes likely in the near term, due to Imran Khan’s long march on 28 October. On 26 October, Imran Khan announced that he will hold his long march to Islamabad on 28 October. Khan said the march will commence from Lahore’s Liberty square at 1100 hrs (local time) and will move along Grand Trunk (GT road) to the capital. The nearly 380km (236 miles) long march between Lahore and Islamabad will cause widescale transport disruptions, particularly on national highway five. Travel disruptions however will likely commence before Friday as supporters make their way to Lahore beforehand. People will likely also join the march from different parts of the country as it proceeds to Islamabad. Though Khan has said the march will be peaceful and he would not enter the red zone in Islamabad, the likelihood of clashes between supporters and security personnel remains high around Islamabad sustaining high threat levels for bystanders.
(Source: Sibylline)
25 Oct 22. Australian Government lays out defence strategy in new federal budget. The Albanese government has handed down its first federal budget, which includes its investment plan for the defence and security portfolio. Commonwealth Treasurer Jim Chalmers has tabled the Albanese government’s 2022-23 federal budget, reporting defence spending would increase 8 per cent over the financial year, rising above 2 per cent of gross domestic product (GDP) over the forward estimates.
The budget includes new measures aimed at shoring up Australia’s relationships with its Indo-Pacific partners and enhancing the nation’s cyber resilience, including:
- Investing $13m to deepen engagement with South-east Asia, including appointing a special envoy to South-east Asia and establishing an Office of South-east Asia within the Department of Foreign Affairs and Trade.
- Earmarking $22.3m to establish a network of Australian Border Force officers across the Pacific.
- Committing $31.3m to extend the Australian Public Service cyber hubs pilot.
However, the 2022-23 budget excludes new spending on key capabilities for the Australian Defence Force (ADF), with the government awaiting the recommendations of the Defence Strategic Review, due in March 2023.
Spending on Defence has also been flagged as adding to budgetary pressures, “growing faster than the economy”.
Defence spending is tipped to grow at an average annual rate of just under 6 per cent over the next 10 years.
This comes just weeks after the Albanese government released data from the Australian National Audit Office (ANAO), which identified issues relating to a number of key Defence capability projects, valued at a combined $69bn.
At least 28 projects are behind schedule by a cumulative 97 years and at least 18 projects are over budget, with variations totalling at least $6.5bn.
Projects listed by the government in a statement to the media include:
- $44bn Hunter Class Frigate program — construction delayed by four years and expected cost is $15bn higher than initially anticipated.
- $1.4bn C-27J Spartan Battlefield Airlifters — delivered four-and-a-half years behind schedule and unable to be deployed into battlefields.
- $3.7bn offshore patrol vessel project — running one year behind schedule.
- $356m Evolved Cape Class patrol boats — running nearly a year behind schedule.
- $970m Battlefield Command System — three years behind schedule.
- Defence SATCOM projects worth $906m — running between two and four years behind schedule.
According to the Albanese government, these “significant and systemic issues” are the result of mismanagement from the former Morrison government.
Meanwhile, the Albanese government’s budget has also noted spending to support implementation of recommendations of the Royal Commission into Defence and Veteran Suicide, which include:
- Investing $233.9m to recruit 500 additional staff in the Department of Veterans’ Affairs.
- Providing $87m in funding to help reduce processing times in the claims system.
- Committing $9.5m to develop and consult on a pathway to simplify and harmonise veteran rehabilitation and compensation legislation.
Further, the government has pledged a $1,000 increase in the annual rate of the Totally and Permanently Incapacitated Payment for eligible disabled veterans to offset cost-of-living pressures; and $46.7m for 10 Veterans’ and Families’ Hubs across Australia.
Reflecting on the defence and security commitments announced in the 2022-23 budget, Deputy Prime Minister and Minister for Defence Richard Marles said it delivers on the government’s election commitments and “reinforces Defence’s readiness and capability” to support Australia and “promote stability and prosperity” in the region.
“As we face the most challenging geopolitical circumstances since the Second World War, the Albanese government is committed to properly managing every dollar of defence spending, and ensuring Defence can deliver the capabilities ADF personnel need, when they need them,” he said.
“This is in stark contrast to the decade of wasteful mismanagement by the former Coalition government.
“The 2022-23 budget will strengthen our regional partnerships and build our shared resilience to meet future challenges, delivering the capability needed to keep Australians safe.” (Source: Defence Connect)
27 Oct 22. Australia updates ‘projects of concern’ list. The Commonwealth government has added a defence capability program to the “projects of concern” list, just weeks after publicly lamenting cost blowouts and delays associated with a raft of programs.
The Albanese government has listed the Thales Australia-led Civil-Military Air Traffic Management System project as a “project of concern”, citing “significant schedule, technical and cost challenges”.
The project aims to deliver a joint Civil-Military Air Traffic Management System to support civil and military operations, including at 12 ADF air bases around Australia.
According to the government, the project has experienced a two-year delay in forecasting initial and final operational capability.
“It is my expectation that this listing brings more high-level attention, resources and energy — from both Defence and our industry partner Thales Australia — to the task of remediating this project,” Minister for Defence Industry Pat Conroy said.
Conversely, the government has removed the Deployable Defence Air Traffic Management and Control System project from the list, lauding Indra Australia’s work remediating the project.
Indra Australia is reportedly on track to deliver the third and final mission system to Defence in October 2022. (Source: Defence Connect)
25 Oct 22. Nicaragua: Risk of further US sanctions remains elevated ahead of municipal elections. On 24 October, the US Treasury imposed sanctions on Nicaragua’s General Directorate of Mines, a unit of the Nicaraguan energy ministry. Visa restrictions for over 500 individuals were also announced. The sanctions come after exiled political parties called on opposition supporters to boycott the upcoming municipal elections on 6 November, describing them as a ‘farce’. The sanctions package will impact Nicaragua’s domestic gold industry. Gold was Nicaragua’s main export in 2021, earning the country around USD 867 m. The move follows previous sanctions and legislation targeting state sources of revenue, including the military investment and pension fund (IPSM), and hindering the ability of global entities to lend to the government. The risk of further sanctions targeting officials and state institutions remains elevated.
25 Oct 22. Paraguay: Killing of guerrilla leader will raise risk of retaliatory attacks in the near term. A key Paraguayan People’s Army (EPP) guerrilla leader, Osvaldo Villalba, was killed on October 23 in a shoot-out with the security forces in Amambay region. The move follows several confrontations between the security forces and guerrillas due to the latter’s recruitment of indigenous children. The EPP is a relatively small guerrilla group, and is largely dedicated to the extortion and abduction of rural landowners. In September 2020, the group kidnapped the former vice president, Oscar Denis, who is still thought to be in captivity. The government has offered guarantees of due process to those who lay down their arms and surrender. Nevertheless, immediate retaliatory attacks, including kidnappings and shootings, are likely in the near term. (Source: Sibylline)
25 Oct 22. What does Xi’s tighter grip on power mean for China?
Insight: What are the consequences of Xi Jinping’s break with tradition at the helm of the Chinese Communist Party?
The 20th National Congress of the Chinese Communist Party (CCP) concluded as anticipated — with the re-election of General Secretary Xi Jinping for a third term in power.
This represented a break in precedent after term limits were abolished in 2018, uprooting a long-held succession process.
Xi also used this year’s National Congress — which took place from Sunday, 16 October to Saturday, 22 October — to promote loyalists within the CCP to his inner circle.
Xi’s power play seemingly served as a demonstration of his domestic authority as he looks to assert China’s presence internationally.
According to Richard McGregor — senior fellow for East Asia at the Lowy Institute — the Congress has “drawn a line in the sand”, dispensing with the “old factional system”.
“He has crushed expectations that he would nurture a successor. He has ignored the informal age caps on officials serving in top positions,” he writes.
McGregor cites Neil Thomas, a China specialist at the Eurasia Group, who noted the beginning of a “maximum Xi” era, in which the old rules governing CCP leadership are “all but irrelevant”.
McGregor continues: “In place of rules in domestic politics, Xi has substituted what he calls ‘political standards’, which essentially means absolute loyalty to him and his policy program.
“Starry-eyed foreigners can no longer interact with Beijing on the pretence that there is a nascent group of influential friends at court, so-called ‘reformers’ whom they can nurture and rely on.
“Beijing hasn’t given up on reform. The Chinese are simply reforming on their, or Xi’s, own terms. It just so happens that this looks nothing like the kinds of changes that the West hoped for.”
McGregor claims Xi has cast himself as the “saviour of the country”, preventing a slide into what Xi has described as “weak, hollow and watered-down party leadership”.
“Xi’s political persona is a mix of fire and brimstone preacher, a tender pastor administering to his flock and unrepentant autocrat willing to expunge anyone should they stray from the correct line,” McGregor adds.
“The latest revision of the party constitution says all party members are ‘obliged … to uphold Comrade Xi Jinping’s core position’ as the head of the party.
“Xi has been skilled in exploiting the enormous powers of his office to do what a communist party does best — mobilise the state, the workforce, capital and technology in a singular effort to get his way in the world.”
McGregor goes on to claim the new-look political structure under the leadership of Xi has set China up on a “war footing”, with Xi wanting to appear in “absolute control” to ensure he can “project maximum strength abroad”.
This allows Xi to gain leverage ahead of any potential “showdown” with the United States.
“In truth, China is already locked into a permanent struggle with the US on many fronts — over geopolitics, trade, the region, militarily, and technology,” McGregor writes.
“Perhaps most importantly of all, China sees the confrontation with the US, and by extension, with its allies, as a contest of political systems, which Beijing has long thought it is winning.”
China’s economy, however, remains Xi’s “Achilles heel”, with his commitment to a COVID-zero policy “crushing the economy, with no visible way of reopening”.
But according to McGregor, over the longer-term, the CCP’s broader ambitions to absorb Taiwan under mainland rule and curb US influence in the Indo-Pacific remain iron-clad.
“It might take a decade or more, but for the foreseeable future, Xi has made clear he will remain in power to execute the plan,” McGregor writes.
“As he said at the close of the conference — ‘The road map has been drawn and the bugle sounded’.” (Source: Defence Connect)
24 Oct 22. Turkmenistan parades latest military equipment. The Armed Forces of Turkmenistan displayed a wide range of military equipment at a parade held in Ashgabat to commemorate the 31st anniversary of Turkmenistan’s independence. Video footage released by the state-run TV channel, Watan Habarlary, showed Chinese, Emirati, Israeli, Italian, Russian, South Korean, and Turkish equipment. Highlights included footage of the newly inducted Turkmen-class corvette Deniz Han, Cavalon two-seat autogyro, StormRider light armoured vehicle, and Titan-DS armoured personnel carrier. Deniz Han was commissioned in August 2021. The 91.4m-long ship is armed with MBDA’s Otomat Mk 2 Block IV surface-to-air missile system, two vertical-launch (VL) systems for MBDA’s VL MICA short-range anti-aircraft missiles, a 76 mm Leonardo Super Rapid Gun, and a 35 mm Korkut-D twin-barrelled close-in weapon system. Titan-DS vehicles were paraded in Armed Forces of Turkmenistan colours, while the StormRider vehicles were displayed by the Ministry of Internal Affairs, which also has the Titan-DS in its inventory. (Source: Janes)
24 Oct 22. Somalia: Efforts to disrupt offensive planning will drive elevated attack threat against hotels. On 23 October, al-Shabaab killed 9 people and injured 47 others in a roughly eight-hour assault on the Tawakal Hotel in the southern port city of Kismayu. The assault ended after Jubbaland security forces neutralised the al-Shabaab fighters. The attack was highly consistent with established al-Shabaab tactics and targeting. The hotel was often utilised by local government officials and was the site of meetings to plan offensives against al-Shabaab. The assault began with a vehicle-borne improvised explosive device (VBIED) attack against the hotel’s gates, followed by armed gunmen who sought to occupy the hotel for as long as possible. Al-Shabaab is seeking to demonstrate its enduring influence in the south of the country and disrupt coordination efforts ahead of the anticipated launch of southern offensives, following success in central regions. This will sustain the elevated threat of attack, particularly against hotels in major cities such as Kismayu and Mogadishu, through the coming months. (Source: Sibylline)
24 Oct 22. China: CCP Leadership Reshuffle.
EVENT
On 23 October, the Chinese Communist Party (CCP) unveiled its new top leadership team – the Politburo Standing Committee of the Central Committee (PSC) – a day after the conclusion of the CCP’s 20th National Congress.
SIGNIFICANCE
- The tightly choreographed media event marked the start of Xi Jinping’s third five-year term, in a break to the party’s established convention since the Mao Zedong era. Xi will continue as the CCP General Secretary and the Chairman of the CCP Central Military Commission (CMC) – China’s top party and military positions, respectively. Xi is expected to secure the renewal of his presidential term at the next annual parliamentary session in spring 2023.
- The changes in the PSC (with four new members) and other top party leadership tiers have further strengthened the dominance of Xi Jinping’s loyalists. Many of the promoted officials have previously worked with or under Xi when he served in Shanghai, Fujian, and Zhejiang. In contrast, members and associates of other factions within the CCP have been all but excluded from the top leadership groups, as evidenced by the omission of Li Keqiang and Wan Yang from the new PSC, with both looking set to retire in the coming months.
- In addition to the leadership reshuffle, Xi Jinping has further elevated his authority and power through changes in the party constitution, which have been approved at the congress. Although the full text of the amended constitution has not been published, official reports about its approval indicate that the new constitution will solidify Xi’s key policies as well as consolidate his eponymous ideology, namely ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’.
FORECAST
The new PSC line-up does not contain an obvious candidate in the line of succession to Xi Jinping, meaning that Xi may well look to stay in power for at least two additional terms (10 years). Three out of the four newly promoted PSC members will exceed the CCP’s unofficial retirement age of 67 – which is generally observed with some exceptions – by the time of the next quinquennial congress in 2027, while 60-year-old Ding Xuexiang lacks leadership experience at the provincial level, which has served as an unwritten prerequisite for CCP cadres to reach the top position.
With the leadership selection clearly prioritising political allegiance and loyalty to Xi Jinping, China’s economic policy direction will be further centralised and guided by Xi’s ideology, likely at the expense of market-oriented reforms. Following the prevailing trends of the past five years, there will likely be greater state supervision/control on all aspects of the economy, and a greater emphasis on the domestic market. This focus will likely create further trade frictions with other countries and produce a more challenging investment climate for foreign businesses in China.
In the immediate future, however, Xi Jinping’s new team faces a myriad of socio-economic challenges, such as slowing growth, high youth unemployment and growing public discontent towards the government’s long-held zero-Covid strategy. While the CCP leadership has vowed to continue such strict pandemic control policies, it is possible that it will need to make some significant adjustments in the next six months in order to revive the economy and preserve social stability. (Source: Sibylline)
24 Oct 22. Yemen: Houthi attack oil facilities, maritime assets increasing risk of maritime supply chain disruptions. On 22 October, Yemen’s Saudi-backed National Defence Council designated the Houthis a ‘terror’ organisation. This came one day after a Houthi drone attack on a foreign-flagged and owned cargo ship at Al-Dabba port in Ash-Shihr, a Yemeni town off the coast of the Gulf of Aden and near the city of Al Mukalla, aimed at preventing pro-government forces from exporting oil. The vessel and its crew were not damaged or injured. The Yemeni government reported that the strike could hinder further peace talks, being the Houthis’ third in recent days on shipping, representing an escalation since the ceasefire expired on 2 October. Further Houthi attacks on oil facilities, port terminals, foreign-flagged tankers and shipping lanes are likely in the coming weeks. This will sustain incidental and collateral damage risks to personnel and assets, increase the risk of disruptions to maritime supply chains and drive further escalation in the Yemen conflict, threatening regional stability. (Source: Sibylline)
24 Oct 22. Kyrgyzstan: Opposition to key peace deal with Uzbekistan moderately increases the risk of domestic unrest. On 23 October, Kyrgyz police detained at least a dozen politicians and activists following their opposition to the government’s proposed border peace deal with Uzbekistan. The historic demarcation agreement would require Kyrgyzstan to give up a section of land on which there is a key reservoir. Police have searched the homes of individuals opposing the deal and some have been placed under house arrest for 48 hours. Following the arrests, demonstrators held a picket on 23 October demanding the release of the arrested people and an end to political persecution in the country. Further resistance to the proposed agreement is unlikely to seriously jeopardise its introduction given that it remains a priority for Bishkek, though it will moderate increase the risk of domestic unrest in the short-to-medium term. (Source: Sibylline)
24 Oct 22. North Korea-South Korea: Warning shots fired after maritime border incident will sustain limited safety risks to commercial vessels, aircraft. On 24 October, South Korea’s navy fired a warning shot off the west coast of the Korean peninsula after a North Korean vessel allegedly crossed the Northern Limit Line (NLL), the de-facto maritime border which is contested by Pyongyang. Subsequently, North Korea fired retaliatory shots after South Korea allegedly chased the North Korean vessel back across the NLL. The North Korean vessel is believed to have crossed the NLL under Pyongyang’s orders. The incident is the latest flare-up in recent weeks, which has seen record-breaking missile and artillery round launches (see Sibylline Daily Analytical Update – 14 October 2022). The presence of joint US-South Korean navies exercises off the west coast until 28 October will sustain risks of escalating and retaliatory military actions, elevating regional tensions. The risk of war will remain low. Commercial vessels and aircraft located in this area could experience delays and limited safety risks but will remain unlikely targets. (Source: Sibylline)
24 Oct 22. Fate of Denel lies with Treasury – Gordhan. This week’s medium-term budget policy statement may offer some clarity to Denel, which is trying to obtain additional funding in order to implement its multi-bn rand turnaround strategy.
Public Enterprises Minister Pravin Gordhan has said the fate of Denel lies with National Treasury, as it will decide on whether or not to grant the R3.4 bn the state-owned defence company is asking to complete its turnaround.
On 26 October, Finance Minister Enoch Godongwana will deliver his medium-term budget policy statement (MTBPS), which sets out the policy framework for the upcoming budget. The 2022 MTBPS will indicate any adjustments that may be recommended to Parliament regarding the current year’s expenditure plans, and this will include for Denel.
The state-owned defence conglomerate’s latest turnaround plan calls for R5.2bn, of which R990m has come from the Denel Medical Benefit Trust, and which has already been used to pay outstanding salaries, while R1.8bn will come from the sale of non-core assets.
The remaining R3.4bn has been requested from National Treasury. In a written parliamentary reply to Economic Freedom Fighters (EFF) MP Rosina Komane, Gordhan stated that, “The final fate of Denel is in the hands of the National Treasury and the budget allocation process.”
In a 19 October Portfolio Committee on Public Enterprises Budgetary Review and Recommendation Report (BRRR), the Committee noted that for the 2021/22 financial year, Denel was allocated R2.9bn for the settlement of government guaranteed debt as “The entity is in financial distress and was not able to settle its debt and interest hence it has requested government to settle the guaranteed debt and interest.”
In reality, a total of R3 bn was ultimately authorised by the Minister of Finance to settle guaranteed Denel debt, with final approval for this revised amount given in January 2022.
As Denel is unable to satisfy the criteria for being a going concern, it has been unable to submit its 2020/21 annual report to Parliament by 30 September this year as required.
“Denel was unable to table its 2019/20 Annual Report and financial statements by the due date of September 2020 to Parliament…due to uncertainty regarding its going concern status. Despite receiving R1.8bn from National Treasury in August 2019, the entity still reported a comprehensive loss of R1.962bn compared to a loss of R1.469bn in the previous year,” the BRRR report noted.
“The entity again received a disclaimed audit opinion for the 2019/20 financial year, for a third consecutive year, citing insufficient audit evidence to verify the figures in the financial statements. Given the disclaimer audit opinion, the company’s financial statements were questionable,” the report continued.
“Given Denel’s liquidity constraints, a turnaround strategy was approved by the Board in February 2019, where the company embarked on a process to exit unprofitable, non-core businesses. This created an opportunity to acquire strategic equity partners, which enabled Denel to secure market access and generate cash, thereby restoring its financial sustainability. Denel was also engaging with interested parties for equity injections.
“In November 2020, R271m of the R576m recapitalisation received from National Treasury was released on condition that, ‘Denel should deploy these proceeds in priority activities that will allow the business to restart operations with immediate cash generation’. R167m was allocated to projects that can deliver a return in the short term – R753m planned to be generated to deal with creditors’ backlog. The entity received a further R3bn in the 2021/22 financial year to settle government guaranteed debt and interest payments,” the BRRR reported stated.
It added that Denel’s guarantee facilities declined to R3.4bn from R6.9bn after R2.5bn lapsed following the cancellation of the Egyptian Umkhonto missile contract and the maturity of R1bn of its debt.
“However, given that the entity could not submit its annual financial statements due to its liquidity constraints, the turnaround strategy and the capital injection does not seem to have made a huge impact on the success of the business. Government needs to address the long-term strategy of the company and the support required by the Department of Defence and Armscor,” the BRRR report reads.
The Portfolio Committee on Public Enterprises urged Government to “take a decision on the fate of Denel, which requires funding to support its restructuring process.” It reminded readers that Denel is a critical supplier of sovereign and strategic capabilities ensuring security of supply to the Department of Defence and that “Shifts in geopolitical dynamics in Europe, Asia and other parts of the world further justify the significance for the country to preserve and grow its current industrial defence capabilities to meet its own requirements and to grow exports.”
(Source: https://www.defenceweb.co.za/)
21 Oct 22. SA Minister admits budget cuts affect defence capabilities. Minister Thandi Modise’s Department of Defence (DoD) is applying four principles in its quest to “achieve” the Constitutional mandate of the national defence force, she told a parliamentary questioner concerned about the SA National Defence Force (SANDF) not being able to defend South Africa’s sovereignty.
She was responding to a question asked by Economic Freedom Fighters (EFF) parliamentarian Washington Mafanya regarding current defence capability should “there be a need” to defend South Africa’s sovereignty.
Modise told him, not unexpectedly, the “continued decline” in the defence budget adversely affects defence capabilities over the MTEF (medium term expenditure framework). This, the Minister said, “forced” the DoD to prioritise all activities for better efficiency, applying the principles of “minimising, reprioritising, right-sizing and optimising”.
Repeating what she said when introducing the defence budget in the National Assembly (NA) in May, Modise told her questioner both General Rudzani Maphwanya (SANDF Chief) and Gladys Kudjoe (Secretary for Defence) were instructed to report back on three specific areas. They are a review of the budget allocation, including “a zero-based budgeting system, if required”; continuing reduction of personnel by both voluntary exit mechanisms and retrenchment; and conducting cost saving interventions for value “especially in the procurement system”.
She also tasked the country’s senior soldier and the DoD accounting officer to “develop a national perspective on what level of defence South Africa needs and what it can afford to maintain”.
Part of her instruction in this regard included five military focus areas “that must be pursued in the future defence concept”.
They are safeguarding the nation, with the border protection tasking Operation Corona as one example; securing regional development via a peace and security capability; ensuring “hard power” by way of maintaining core combat capabilities; ensuring defence digital protection to, among others, protect South Africa’s “intangible sovereignty”, and nation building by contributing to national development.
In her written reply to Mafanya, Modise gives no time frame for receiving reports and information from Kudjoe and Maphwanya. (Source: https://www.defenceweb.co.za/)
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