S.Africa must end economic inequalities - Zuma

South Africa's President Jacob Zuma gestures ahead of the State of The Nation address at Parliament in Cape Town June 3, 2009.

JOHANNESBURG (Reuters) - South Africa must ease economic inequalities or face serious consequences, President Jacob Zuma said, a policy that could unnerve foreign investors worried he may steer the economy to the left.

Zuma, inaugurated last month, may be headed for a confrontation with union allies, who have threatened to stage mass strikes for deeper interest rate cuts and called for Reserve Bank Governor Tito Mboweni to go.

In comments broadcast on Sunday, Zuma said ignoring poverty in Africa's biggest economy would be risky.

"If that happens you are certainly sitting on a situation that will explode one day," he said in an interview with local SABC television.

One of Zuma's most difficult tasks will be balancing the interests of unions that helped his rise and those of foreign investors who fear labour allies will force him to change economic policy.

"If the economy is growing, it (has) got to benefit the people of the country ... we need to do something to address that problem. We cannot allow the gap to widen all the time," said Zuma.

Analysts doubt unions will emerge victorious in any showdown but markets are watching political tensions as Zuma tries to navigate the country through its first recession in 17 years.

CAUTIOUS ON JOB LOSSES

Zuma praised the central bank's performance in handling inflation. He would not be drawn on how the government would deal with job losses, a sensitive issue with unions, saying only that retrenchments would be discussed with companies in future.

He was cautious both on job cuts and how global financial woes affected South Africa's economy.

"In no way you can avoid it totally but how do you minimise it?," Zuma said.

In an apparent attempt to ease concerns over public sector wages, Zuma said he would take steps to improve the health and education systems by improving salaries and investing in new facilities in both rural and urban areas.

Corruption charges against Zuma were dropped shortly before his African National Congress (ANC) party's landslide victory in the April election. So he may be under more pressure to make the government more transparent.

Zuma vowed to keep a close eye on his administration's performance and ease bureaucracy, which could encourage foreign companies who may want to do business here.

"We need to establish a performance monitoring structure ... if we are not (doing our work), there is no reason why we should be remaining there... it will apply to everyone, cabinet ministers, everyone," he said.