By Phumza Macanda
JOHANNESBURG, Oct 31 (Reuters) - South Africa will stand a better chance of ending poverty if the country maintains free-market policies and makes itself attractive to foreign investors, the leader of a breakaway ANC faction said on Friday.
Mosioua Lekota, a former defence minister who said on Friday he resigned from the African National Congress, leads a group of ruling party defectors who will meet over the weekend to discuss forming a new party ahead of elections due next year.
"The general thrust I have always been comfortable with is the approach we have taken with inflation targeting," he told Reuters in an interview.
"Making sure that we create the necessary stability and making it easy for foreign investors to come in because with that you have capacity to create increased employment."
The ANC -- which has governed the country with an overwhelming majority since the end of apartheid -- faces its biggest crisis since 1994 as it struggles to keep party unity and ward off further defections.
Divisions in the ANC intensified after the ANC sacked Thabo Mbeki as president last month, a move that was initiated and supported by its labour and communists allies but led to resignations of Mbeki supporters.
Labour federation COSATU and the South African Communist Party abhorred Mbeki's market friendly policies and helped elect Jacob Zuma to the party's top post last December, hoping to have a sympathetic ear for their pro-poor policies.
Lekota said the SACP was now imposing its will on the ANC and its policies would sink the country.
Mbeki succeeded Nelson Mandela as president in 1999 and is credited with spurring nearly a decade of growth in Africa's richest economy. Lekota was among the ministers who resigned in loyalty to Mbeki.
WELFARE SPENDING
The desire to keep consumer inflation between 3 and 6 percent has seen the central bank raise interest rates by 5 percentage points in the past two years, to COSATU and the SACP's chagrin. But this policy has been welcomed by investors.
The SACP and COSATU have called for increased spending on welfare, the end of inflation targeting and expanding the central bank's mandate to include job creation. Despite these calls Zuma assured investors last week policy would not change.
The SACP and COSATU's message has resonated with the poor across the country and many who identify with Zuma's humble background have disrupted Lekota's meetings.
Analysts have cited political uncertainty ahead of next years elections as one of the risks for investors.
Lekota said market-friendly policies would help end poverty and South Africa was already spending more than enough on welfare.
"You need to spread your resources in such a way that while you address the immediate needs of the people, you must expand your investment base so that they generate more resources that come into the fiscus (basket of funds)."
Lekota said there would be more than 4,000 delegates at the weekend's meeting from across the country and one of the topics on the agenda would be South Africa's electoral system.
"It's important that we review, revise and change the electoral system so that instead of people voting for a party in order for it decide who is the mayor of the town, they (the people) should decide."
Lekota said a new party would be formed on Dec. 16 and he would welcome a coalition with smaller opposition parties. (Editing by Marius Bosch)