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The Privatization Of Denel From A Competition Perspective

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  • Clive Coetzee

    (University of Stellenbosch)

Abstract

South Africa mostly depended on foreign suppliers for its defence needs up to the beginning of the 1960's. This situation changed dramatically with the implementation of various isolation measures and an international arms embargo in the early 1960's. This compulsory arms embargo on the import and export of armaments to and from South Africa compelled the South African government to become self-sufficient in terms of its defence needs, thus directly contributing to the inception of Amscor and later Denel (Coetzee, 97: 22). Denel, one can argue, would not be in existence today if it were not for the international arms embargo and the subsequent drive for self-sufficiency. Denel (Pty) Ltd was established as a private company, incorporated in terms of the Companies Act on 1 April 1992 with the State as the sole shareholder. The Company is managed by a Board of Directors, appointed by the Minister for Public Enterprises and is an autonomous group (Denel, http://www.denel.co.za/ corporate/default.htm). Denel is thus a public firm doing business as a private company and its core business is defence, i.e. development, manufacturing, research, etc of armaments and related systems/products. Denel, however, can not be regarded as a normal consumer orientated company, because of the nature of its core business, i.e. armaments. Armaments have the ability, among others, to kill and destroy; things that other consumer products and services are not capably of or intended to do. Privatization is in this modern era of market domination/new economy very much the buzzword. The perceived benefits of privatization are also advocated quite rigorously in South Africa and include the traditional arguments against public firms: a low rate of return on capital, modest productivity, unsatisfied customers, lack of clear objectives and political and bureaucratic meddling in management (Majone, 1990: 140). The South African Government has shown interest in privatizing Denel, but is the process already 6 years on the road; a road characterized without real progress. Denel can at present, without doubt, be regarded as a public monopoly. Traditional theory tells us that privatization of a public monopoly neither ends the monopoly power nor the possibility of the use of this power at the consumers expense. The absence of competition can thus induce the monopolist to decrease production and so to increase prices. There is also the fear of job losses, especially in South Africa with its very high unemployment rate and the fear of unregulated armaments sales and exports especially to fundamentalists and governments with poor human rights records. I will in this paper argue for the immediate and full privatization of Denel. Competition fears does not seem to be justified as I will demonstrate that competition in the arms industry at present is as strong as ever in history.

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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0205003.

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Date of creation: 23 May 2002
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Handle: RePEc:wpa:wuwpmi:0205003

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Keywords: Denel; Defence Industry; Privatization; Competition;

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