September 29, 2018 / 11:22 AM / 2 months ago

South African arms firm fails to pay senior staff in reform setback

FILE PHOTO: South African President Cyril Ramaphosa speaks in parliament in Cape Town, South Africa, February 20, 2018. REUTERS/Sumaya Hisham/File Photo

JOHANNESBURG (Reuters) - South African state-owned arms manufacturer Denel did not pay senior staff their salaries in full this month, the company said, in a setback for President Cyril Ramaphosa’s drive to turnaround struggling state companies.

Ramaphosa has made improving governance and stabilizing the finances of state firms a priority since replacing Jacob Zuma as head of state in February. South Africa’s economy fell into recession this month.

Denel, which produces military equipment for the South African army and foreign forces, has been grappling with a liquidity crunch after becoming embroiled in corruption scandals during Zuma’s scandal-plagued tenure.

“In September management salaries were not paid in full,” Denel spokeswoman Vuyelwa Qinga told Reuters on Friday, adding the cuts were due to “liquidity challenges”.

Executives were paid 80 percent of their salaries while specialists were paid 85 percent, Qinga said.

Qinga said regular employees were paid in full and that the company was working with the government to find a solution to its funding challenges.

In April, Ramaphosa oversaw the appointment of a new board at Denel and the company subsequently suspended its chief financial officer over misconduct allegations.

Labor unions say it is critical that Denel receives financial support - either via additional government guarantees or a capital injection. There could be more details when Finance Minister Nhlanhla Nene delivers the budget next month.

Reporting by Alexander Winning; Editing by Joe Brock and Mark Potter

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