South Africans Want Arms Factory in Hong Kong

Mystery surrounds a series of reports in defense magazines that the state-owned South African weapons manufacturer Denel is teaming up with a Hong Kong-based defense equipment manufacturer to establish a “military factory in Hong Kong as a springboard into the Asia-Pacific market.”

According to a Defense News article on Feb. 14, Denel and its joint venture party has “expanded its footprint by setting up a military factory in Hong Kong as a springboard into the Asia-Pacific market where it hopes to take advantage of rising defense budgets to sell unmanned aerial vehicle (UAV) systems, artillery systems, armored personnel carriers and advanced missile systems.”

If such a factory has been set up in Hong Kong, nobody has seen or heard of it, especially the Chinese defense establishment. There is no record of Denel in Hong Kong or of its projected joint venture. Antoine So, the head of public relations for Invest Hong Kong, the government unit that oversees foreign investment into the territory, emailed that she has never heard of it. There is no telephone number locally for either Denel or VR Laser Asia although the latter company does maintain a Chinese-language website.

In South Africa in the meantime, critics are charging that the joint venture company, VR Laser Services, controlled by the controversial Gupta family empire, hijacked Denel into the contract against the wishes of Denel’s permanent chief executive, chief financial officer and company secretary, all three of whom are on suspension. In an email, VR Laser Services Corporate Communications chief Yolanda Zondo said Oakbay Investments, the holding company for the Gupta family’s businesses in South Africa, has an indirect minority shareholding in the South African entity but that it has no plans for operations in Hong Kong or Asia.

Several sources sympathetic to the three told local media there is strong suspicion they were removed to clear the way for the deal. The Guptas are said to be so close to the South African President Jacob Zuma that they are referred to as “Zuptas.”

Temporarily at least, the joint venture appears to have been brought to a stop by the South African government, when Public Enterprise Minister Lynne Brown ruled the company has not been approved by either her agency or the Treasury and isn’t legal under the Public Finance Management Act. Before any state-owned company can enter a joint venture or partnership it must complete an application under the Public Finance Management Act and obtain the consent of the executive authority. Although requested pre-qualification to explore the arrangement, it never secured permission to form the company.

Chief executive officers for both companies declined to speak with Asia Sentinel. The only communication has been a prepared news release from Denel to defense magazines which said the state-owned company is seeking to expand its business and find new markets in the fields of artillery, armored vehicles, missiles and drones via a joint venture with V R Laser Services.

"We need a foothold in the region, and the establishment of Denel Asia with headquarters in Hong Kong will give us a strong presence and the ability to pursue opportunities," said Denel’s acting chief executive officer, Zwelakhe Ntshapo in the prepared release.

A call to Denel in Gaborone turned up nothing further. Although a spokeswoman promised to send information, she didn’t follow through. A call to Peiter van der Merwe, the chief executive officer of VR Laser Services, also went unanswered. A secretary said he was in a meeting but he left the office without calling back.

Just what an arms factory would be doing in Hong Kong is uncertain. It seems unlikely that the Chinese government, with its own massive arms industry, would welcome such a facility in the special administrative region. Nonetheless, in a recently released statement, acting CEO Zwelakhe Ntshapo said Denel Asia has established the joint venture agreement with VR Laser, described as a Hong Kong-based defense equipment manufacturer despite the lack of any record of it. India, Singapore, Cambodia, Indonesia, Pakistan, Vietnam and the Philippines are some of the markets Denel Asia are said to be considered Denel Asia’s arms sales playground.

The Guptas’ most notable family members are Ajay, Atul and Rajesh "Tony" Gupta, all of whom migrated from Uttar Pradesh in 1993 to establish a business empire that now includes computer equipment, media and mining and military equipment, particularly armored personnel carriers, an apparent target for production in Hong Kong.

The African National Congress in late February warned strongly against what it called the “capture” of state-owned enterprises by “people outside the state” According to local media, there are claims of unfair play paving the way to the Denel deal – in this instance over the bodies of officials who might have opposed it.

“VR Laser has expertise in defense technology and an understanding of defense markets in Southeast Asia,” he said. Denel is said to have multi-million dollar contracts, which include the supply of missile systems and turrets for APCs of the Malaysian army.