South African Rating Cut a Serious Risk, De Beers CEO Says

(Bloomberg) -- South Africa is in deep danger of losing its investment-grade credit rating and needs to reassure investors of its commitment to regulatory certainty and fiscal stability, said Bruce Cleaver, the chief executive officer of De Beers, the world’s largest diamond producer.

“South Africa is in a slightly difficult place right now,” Cleaver said in an interview with Bloomberg TV at the U.S.-Africa Business Forum in New York on Wednesday. “I think the threat of a ratings downgrade is serious.”

South Africa is struggling to revitalize 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 Ltd. 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 expansion program at our biggest mine in South Africa, which is really only 40 percent of the way.”

Open Debates

Zuma told the forum that South Africa remains 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 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.

He said he is also optimistic about the outlook for diamond demand and prices in the “medium to long term.” The market in the U.S., which accounts for about 45 percent of global demand, continues to do very well, and sales in China are expected to pick up as the country’s middle class expands, 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 in 2015 as slowing Chinese demand and an industry-wide credit crunch curbed purchases.

To contact the reporters on this story: Vonnie Quinn in New York at vquinn@bloomberg.net, Mike Cohen in Cape Town at mcohen21@bloomberg.net. To contact the editors responsible for this story: Karl Maier at kmaier2@bloomberg.net, Antony Sguazzin Sarah McGregor, Ana Monteiro