Ratings downgrade serious problem, says De Beers boss

SOUTH Africa was in deep danger of losing its investment-grade credit rating and needed to reassure investors of its commitment to regulatory certainty and fiscal stability, said Bruce Cleaver, chief executive of De Beers.

“South Africa is in a difficult place right now,” Cleaver said at the US-Africa Business Forum in New York this week. “I think the threat of a ratings downgrade is serious.”

Downgrade

South Africa is struggling to revitalise its stagnating economy and contain public debt in the face of warnings of possible downgrades to its credit rating, which has been assessed as one level above junk by Fitch Ratings and S&P Global Ratings.

Investor unease has been compounded by President Jacob Zuma sparring with Finance Minister Pravin Gordhan for control of the National Treasury and state-owned companies.

South Africa’s problems should be resolved over time, according to Cleaver.

“We are investing very heavily in South Africa,” he said. “We have a $2 billion (R27.8bn) expansion program at our biggest mine in South Africa, which is really only 40 percent of the way.”

Zuma told the forum that South Africa remained a good place to invest and the current debate about the direction the country is heading shows its democracy was maturing.

“Coming to invest, you know exactly where you are going to,” Zuma said. “The debates are very open. You can’t say, for example, because you are a president you can do whatever you like because people are going to say: ‘But sorry, that’s not what we voted for you for, you are not following the rule of law and the constitution.’”

De Beers is currently searching for diamonds in Botswana, South Africa and Canada, and spends about $35 million a year exploring, according to Cleaver.

‘SA is in a difficult place right now. I think the threat of a ratings downgrade is serious.’

He said he was also optimistic about the outlook for diamond demand and prices in the medium to long term.

The market in the US, which accounts for about 45 percent of global demand, continued to do very well, and sales in China were expected to pick up as the country’s middle class expanded, he said.

Rough-diamond prices have climbed 8.8 percent this year after De Beers and rival Alrosa PJSC cut off supply to try to support the market.

The stones slumped 18 percent last year as slowing Chinese demand and an industry-wide credit crunch curbed purchases. – Bloomberg