Denel employees must wait for certain April payments to be made

Armaments manufacturer Denel will not be able to pay the April pensions, taxes and UIF contributions of its employees due to cash-flow problems. It has, however, apparently been able to pay medical aid premiums to ensure its workers can continue to access private health care.

The main reason for the current shortfall is said to be the government’s failure to pay, as yet, the R576-million allocated to the ailing parastatal during Finance Minister Tito Mboweni’s Budget Speech in February.

Business Day reported on Friday, 8 May that it has seen a letter to employees from Denel CEO Danie du Toit outlining the difficulties and warning that the organisation could experience a cash crunch in the next six months.

Trade union Solidarity has confirmed the substance of the report, saying unions were called in on Wednesday, 6 May and told there would be no payments to SARS, pension funds and UIF.

Denel faced similar staff payment problems in 2019

This is not the first time that Denel has struggled to pay staff their due. In June 2019 the parastatal announced that it could only pay 85% of salaries. But, at the last minute, an unnamed ‘lender’ came to its assistance and salaries were paid in full.

At the time, Public Enterprises Minister Pravin Gordhan said Denel’s difficulties were a direct result of state capture.

He said there was no clearer example of the damaging effects of state capture than the financial strain and the uncertainty that employees may face every month, should the entity’s financial liquidity problems remain unresolved.

Next few months will pose significant financial challenges

In his letter to employees last week, Du Toit said:  “The following months may still pose some significant financial challenges … “Denel continues to be supported by the government as evidenced by the R1.8-billion recapitalisation amount received on 31 August 2019; however this was not enough.”

In a subsequent response to Business Day, he it said the parastatal was trying to collect outstanding debts, was cutting capital expenditure and had placed a moratorium on appointments and salary increases.

It was also trying to sell off various units of the business, but the global shutdown had halted this process.