Denel CEO resignation casts doubts on President Ramaphosa's SOE reform agenda

Denel CEO Danie du Toit has resigned after less than two years.
Denel CEO Danie du Toit has resigned after less than two years.
  • Denel CEO Danie du Toit has resigned after less than two years at the company.
  • He was leading Denel through its turnaround strategy, and the leadership void created does not bode well for confidence levels.
  • Treasury is unlikely to be extending bailouts to save ailing SOEs, as it seeks to prioritise Covid-19 funding.

The turnaround prospects for one of South Africa's most troubled state-owned enterprises, Denel, has been dealt a blow with the resignation of its CEO, Danie du Toit, after less than two years at the helm.  

Du Toit assumed his position at the state arms manufacturer in January 2019 and was tasked with overseeing the turnaround strategy of a company plagued by liquidity challenges that impeded its ability to pay staff salaries. The group was dogged by governance challenges during the administration of former president, Jacob Zuma, including questionable transactions with the Gupta family.

The sudden resignation casts doubt on President Cyril Ramaphosa's drive to reform and restructure SOEs that have become a major drain on the state's resources. Denel received a R1.8 billion lifeline last year to aid its turnaround.

Du Toit's short tenure follows a similar script to that of former Eskom CEO, Phakamani Hadebe, who resigned just over a year into his job due to "unimaginable demands" which negatively impacted his health. SAA's Vuyani Jarana left after two years at the head of the embattled flag carrier, while Post Bank CEO, Mark Barnes, lasted three-and-a-half years.

Commenting on Du Toit's departure from Denel, Peter Attard Montalto, head of capital markets research at Intellidex, said the CEO was "efficient", understood the task at hand and had the support from the Department of Public Enterprises. "The DPE in Parliament, on a number of occasions, said they back his plans for divestments and restructuring," he said.

The problem was there was a "never-ending wait" when it came to authorisations which affected the bailout, which ended up making things "unsustainable", Montalto said. When asked if the problem was that the arms manufacturer didn't get the required bailots for its turnaround plan, Montalto responded that it wasn't about the bailout, but rather the use of the bailout funds. 

"I think the guy did as much as he could and probably felt he had sort of come to the end of the road."

Montalto said there is a risk that Du Toit's successor would leave because of similar challenges. "The fundamental problem of SOEs, is the need to move with decisiveness and speed." 

Chief economist at IQ Business, Sifiso Skenjana, is of the view that government should not play an operational role at Denel but instead play the role of an equity partner.

"We understand there has been a lot of talk on the ministry that oversees SOEs and whether or not they over-reach," Skenjana said. "If executives do not feel they have the right backing to deliver on these turnaround strategies, there is the risk of them leaving mid-way."

These leadership voids also do not bode well for confidence levels.

"Any executive departure does usually in most instances reflect a loss of confidence, either in the board itself, the company or the shareholder. There is clearly a confidence issue that is embedded n the fact that there is top leadership leaving these organisations," he said.

While the Covid-19 pandemic is expected to worsen the financial woes of SOEs, Skenjana said it would not be "prudent" of government to use relief funds to support them.

'What started off as health pandemic morphed into economic pandemic, it is certainly not an SOE pandemic."

He referred to the example of Treasury which has not committed to fund SAA's rescue process from state coffers but is instead committing to help raise funding.

Treasury might play a role in raising funds for SOEs, as is the case of flag carrier SAA, but it is unlikely funds are to come from state coffers.

"Our debt trajectory right now cannot go towards shoring up SOEs,"' he said.

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