* Zuma sets aside billions for jobs

* Pledges tax breaks to the private sector

* Says gov't cannot create jobs alone

* Economists worry if plans will lead to change

South African President Jacob Zuma called on the government and private sector to create jobs, setting aside billions of dollars to create work in Africa's largest economy, hard-hit by chronic unemployment.

We urge every sector and every business entity, regardless of size, to focus on job creation. Every contribution counts in this national effort, Zuma said in his State of the Nation Address to parliament on Thursday.

But economists have been worried that his government is going down the wrong path by relying too heavily on the state to create work over the private sector while a presidential report said four major labour reform bills his administration proposed could cause millions to lose their jobs.

Zuma reached out to the private sector and announced 20 billion rand ($2.75 billion) in tax allowances to promote investment and expansion in the manufacturing sector.

We cannot create these jobs alone. We have to work with business, labour and the community constituencies, Zuma said.

He also said in the major policy speech he took to heart a soaring rand currency that has dealt a blow to exporters. Zuma said the country's budget deficit is expected to shrink to 3-4 percent by 2013 from the current 6.7 percent.

Zuma said the state-run Industrial Development Corporation has set aside 10 billion rand to invest in areas that have high potential to create jobs.

He also proposed creating a 9 billion rand fund to reduce unemployment and find jobs for youth in the country where more than half of those under 24 are jobless and the overall unemployment rate has lingered at about 20 to 25 percent for years.

But the ANC has allocated billions of dollars over the years for job training only to find the money lost to inefficiency and corruption, with few economists expecting the latest plan to do little more than swell state spending.

The labour reforms, job fund and his administration's New Growth Plan, which calls on government initiatives to create 5 million jobs by 2020, have been aimed at pleasing powerful labour federation COSATU, which is in a governing alliance with the ANC.

Zuma has been backing a labour-friendly agenda ahead of local elections he said would be held before the end of May, trying to avoid any friction with COSATU, which has used its 2 million members as a powerful vote gathering machine for the ANC.

A lot of these measures are only going to make things worse, said Gary van Staden, a political analyst with NKC Independent Economists. (Editing by Marius Bosch)