The bloody confrontation between striking South African miners and police last week has raised hard questions about investing in Africa's top economy and the ruling ANC's ability to deliver on overdue promises of job creation and change.

The crackdown against the protesting miners at Lonmin Plc (LONJ.J) (LMI.L) has left more than 40 dead and a nation seething over the deadliest police action in post-apartheid history.

It also puts focus on South Africa's most stubborn problems: chronic unemployment and a growing black underclass - often uneducated and underpaid - that has seen few benefits from the end of apartheid nearly two decades ago.

"It's reinforcing a perception that a lot of people have had for decades: that South Africa is a risky place to put your money," said Peter Major, a mining consultant at Cadiz Corporate Solutions in Cape Town.

"It will shine a brighter light on this country and people will see a lot of the problems that we've got that they wouldn't have really noticed otherwise."

For investors, the Lonmin tragedy is an uneasy reminder that betting on South Africa includes some considerable risks and they may need to demand a bigger discount before putting money in local assets.

Jittery investors are particularly bad news for a country that has struggled to consistently draw foreign direct investment, said Kevin Lings, chief economist at asset manager Stanlib.

"We need to attract much more foreign direct investment that results in capacity expansion, employment and ultimately some exports. This incident is another obstacle to us being able to attract that type of investment."

Markets have so far reflected the concern. The rand slumped by 1.5 percent on Friday, and has remained weak since.

BIGGER RISK DISCOUNT

The long-term worry for South Africa is that investors start demanding more for their risk, as they do withRussia now.

Among the major emerging markets of Brazil, Russia, India, China and South Africa - the "BRICS" - Russia's equity market usually trades at lowest multiple, in part due to investor concern about corruption.

Russian equities .IRTS are trading at just under 5 times earnings, according to Thomson Reuters data, compared with 11 times for Brazil .BVSP, South Africa .JTOPI and China .SSEC and 15 times for India.BSESN.

"Lonmin, government policy-makers, the unions, all of them have a vested interest in appeasing investor anxiety," said Adrian Saville, chief investment officer at Cannon Asset Managers in Johannesburg.

"If that anxiety isn't appeased, in the best case investors will demand a higher price for the risk that they take. In the worst case, they just won't take the risk at all."

Investors' long-term response will largely depend on how the government deals with the killings. President Jacob Zuma, who has declared a week of mourning, has ordered an official inquiry into what he called "shocking" events.

Under Zuma, the ruling African National Congress has increasingly drawn criticism for ignoring widespread inequality in favor of enriching the politically connected.

Per capita GDP is over $8,000 a year but nearly 40 percent of the population lives on less than $3 a day.

Income distribution in South Africa today is even more unequal than at the end of apartheid in 1994, according to the World Bank's Gini index, which measures income equality.

Senior members of the ANC including politician-turned-businessman Cyril Ramaphosa have become multi-millionaires through lucrative "black empowerment" deals. Formerly the head of the National Union of Mineworkers, Ramaphosa now sits on Lonmin's board.

For investors, the biggest reassurance would come from concrete moves by the government to improve education and foster job creation, although those remain a huge challenge.

"The events as they happened last week are part of the worries and concerns that we have at the moment with regards to South Africa's credit story," said Konrad Reuss, managing director for South Africa and sub-Saharan Africa at Standard and Poor's.

"It's critical to see now what kind of responses are going to come forward in the coming weeks and months."