South Africa would need to accelerate its investment into physical and human capital to improve on its current “disappointing” growth performance and break free from the structural constraints that made it difficult for the country to expand at rates similar to those being achieved in fast-growing emerging markets, renowned economist Nouriel Roubini told an audience in Johannesburg on Wednesday.

Speaking at the Discovery Invest Leadership Summit, the New York University Stern School of Business professor, who rose to prominence for correctly forecasting the US housing crisis, as well as the 2008 global financial crisis, argued that infrastructure investment was especially critical if South Africa were to begin more fully realising value from its vast mineral resources in the ground.

However, he also cautioned that the near-term outlook for industrial commodities was being undermined by the prevailing economic uncertainties, and that prices could soften further should the markets begin fully pricing in the prospect of a double-dip recession. The longer-term outlook remained strong, though, owing to the growth and industrialisation prospects in countries such as China and India.

The current inability to export South African minerals was constraining the country’s current growth potential to around 3.5%, Roubini said, which was well below the 6%-type level needed to start reducing unemployment.

South Africa, where unemployment has increased to 25.7% with only 7 000 new jobs added during the second quarter, was also unlikely to escape the impact of a possible new recession in developed economies, the risk of which had risen materially over the past few months.

In fact, Roubini saw the probability of a second contraction in the US and some countries in Europe as a two-thirds likelihood, with many of the problems considered ‘transitory’ by those expecting the economy to avoid another recession showing themselves to be “chronic and persistent”. These threats related to the sovereign debt crisis in the eurozone, which was enduring, the ongoing political upheavals in the oil-rich Middle East, continuing tussles over the fiscal deficit in the US, which were unlikely to recede ahead of the Presidential elections, and falling confidence in many regions.

In its World Economic Outlook update released on Tuesday, the International Monetary Fund (IMF) reduced its global growth forecast for 2011 from the 4.3% level predicted in June to just 4%. But it saw the US avoiding recession, despite a pullback in its growth forecast from 2.5% to just 1.5%. The 17-nation eurozone is projected to grow by a paltry 1.6% this year. The IMF outlook for developing economy growth was also cut from 6.6% in June to 6.4% for 2011.

But Roubini felt this “consensus” view did not fully take account of the dangers posed by the eurozone crisis, which could be a source of a new financial crisis on the scale of the failure of Lehman Brothers in 2008. He said the current “pray and delay” policy responses were insufficient to deal with the “unstable disequilibrium” that had emerged and was likely to eventually result in a process of disintegration in the eurozone.

The “hard data” from both developed and emerging market economies, from jobs to new orders to inventory levels, was also signalling an economic contraction in some developed countries. Further, the monetary and fiscal instruments available to policymakers were far more limited than was the case where the entire range of tools was deployed in 2008 and 2009 to prevent the ‘Great Recession’ from descending into a ‘Great Depression’.

There was potential for the corporate sector, which is cash flush and performing ahead of expectations, to provide a backstop against another contraction. But Roubini cautioned against relying on such a private stimulus, noting that confidence remained fragile, which was likely to lead companies to hold back before investing in new jobs, building new capital projects, or pursuing mergers and acquisitions.

EMERGING POSITIVES

That said, Roubini, who has been dubbed ‘Dr Doom’ for his persistently negative forecasts, argued that the longer-term outlook, particularly for emerging economies, was relatively positive.

One reason was the rising economic, trading and economic power of emerging economies, which were set to grow by between 4% and 8%, compared with growth rates of between 1.5% and 3% in advanced economies.

He said there were even signs of “radical changes” in the economic growth prospects for countries in sub-Saharan Africa, which could emerge as a major source of global economic growth in the coming years.

Similarly, Absa CEO Maria Ramos said that there were signs of a profound directional change in the growth trajectory of both Asia and Africa.

Africa, she said, was set to emerge as the fastest-growing region in the world, possibly expanding at rates of as high as 7%, and its gross domestic product was set to rise from around $2-trillion to above $3-trillion in the coming ten years.

Consumer spending across the continent was also set to rise to around $1.5-trillion from $900-billion over the same period, during which the population would grow to 1.5-billion. By 2040, Africa would also have the largest workforce in the world, growing from 500-million currently to 1.1-billion at a time when the population of developed countries would be retiring.

But Ramos warned that in the absence of sound macro and microeconomic policies, including a significant improvement in South Africa’s educational outcomes, there was a risk that it and other African countries would not capitalise on the “historic” opportunity for a convergence in the economic fortunes of Africa when compared with developed countries.

The policies selected should seek to get the balance right between growth, which would foster wealth creation, and equity, which would elevate justice.

She argued that such policies should be built on seeking to fully exploit integration with the world economy, macroeconomic stability, facilitating higher savings and investment, allowing markets to allocate resources and the creation of committed, credible and capable government and institutions.