* Labour laws criticised in gov't-commissioned report
* Labour woes pose long-term risk to South Africa economy
* Political alliance with labour trumps private sector
By Jon Herskovitz
JOHANNESBURG, Jan 25 (Reuters) - South Africa is proposing sweeping changes to labour law intended to increase job security for temporary workers but economists expect the shake-up will make unemployment worse and ramp up costs for employers.
The four bills are seen as the most contentious pieces of legislation facing parliament when it convenes next month and any watering down of the laws could cause friction between the ruling African National Congress and the influential COSATU labour federation, which has threatened "the mother of all battles" over the legislation.
This puts President Jacob Zuma in a bind. He could face the wrath of COSATU if laws cracking down on so-called labour brokers are not passed intact, and from industry, which wants almost all of the proposed labour laws scrapped before they worsen an already rigid labour market.
Adding to his woes is a government-commissioned report saying the bills would deal a blow to Africa's largest economy.
"This will not only contribute to increased levels of unemployment in the country, but also deprive households attached to these workers of a valuable source of wage income," said the government's Regulatory Impact Assessment by Paul Benjamin, Haroon Bhorat and Carlene van der Westuizen of the University of Cape Town.
The four bills call on employers to provide similar benefits to temporary workers as regular workers; justify to the government why they are hiring temporary workers and provide data to ensure they are offering equal pay for equal work.
They also call for setting up a government employment agency, with companies being required to report openings, and doing away with "exploitative" labour brokers, who provide temporary and seasonal workers to firms and farms.
Zuma and the ANC, reliant on the vote-gathering machine of COSATU and its 2 million members, will likely side with its governing partner to push through the bulk of the labour bills, tweaking them slightly so as not to place too heavy a burden on the private sector, analysts said.
WELL-INTENTIONED MEASURES
The ANC, facing municipal elections later this year, has said job creation is its top priority after the economy, where 25 percent of the workforce is unemployed, shed about 1 million jobs since the beginning of 2009.
The labour laws are mostly supported by COSATU, and the labour federation will likely see the ANC as selling out to big business if major portions are altered to favour the private sector at the expense of workers.
Protecting workers and finding decent jobs for the black majority have been a driving force for COSATU and the ANC in their struggle to end apartheid and in the 17 years after that when they formed a governing alliance with the small but influential Communist Party.
But well-intentioned measures aimed at ending past injustices have done little to reduce unemployment, mostly because they have made it more costly for the private sector to hire and fire workers.
As a result, the country does not have enough value-added manufacturing to compete with developed countries and it loses out to developing countries because its wages are much higher.
"South Africa cannot compete globally on the basis of cheap wages and it cannot compete on the basis on skills," said Razia Khan, regional head of Africa research for Standard Chartered.
"A lot of people are asking questions about the longer-term growth potential of South Africa," Khan said.
Manufacturers looking at average monthly salaries in South Africa of 6,400 rand ($900), already bypass the country for lower cost centres such as China, where the official average monthly wage for a city worker has been 1,783 yuan ($270) and an entry-level factory worker could be a third of that.
NEW GROWTH PATH
"There is a huge risk with this new battery of legislation that we are taking the labour market in the wrong direction," said Neren Rau, CEO of the South African Chamber of Commerce and Industry.
"As a nation, we are desperate to create jobs. When you are desperate, you don't introduce constraints."
The Treasury estimates that if the country sustained 7 percent growth for 10 years, national income would double and the economy would generate 5.5 million jobs.
The prospects for reaching that growth goal are dim, with the ANC looking more at pleasing its domestic political constituents than reforming the economy to make it more competitive.
The ANC's highly touted new plan to transform the economy, called the New Growth Plan, was drawn up by a former unionist and now economic planning minister. It looks to create 5 million jobs by 2020 by relying on the public sector to be a driver of employment.
Cosatu has already picked a fight with the ANC when it dropped the adjective "decent" to describe the work it aimed to provide, seeing the ruling party as little concerned about providing permanent work at living wages.
"We want people to be employed in meaningful and gainful employment. Our view is that is decent. There is nothing as indecent as being unemployed," ANC Secretary General Gwede Mantashe told reporters this month. (Editing by Giles Elgood)