"In this regard we are leading the struggle to eradicate unemployment, inequality and poverty through promoting inclusive economic growth," he said.

"A lot has been achieved in the extension of basic services since 1994, in turning South Africa around but much more still needs to be done."

He said the country's fourth democratic administration's main challenge was to ensure that more people would benefit from economic growth while building on the strength of the same economy.

"In 1994, we knew that our toughest task was to transform the economy to [make it] reflect the change to democratic governance," he said.

"The international economic downturn in 2008 was a major setback especially on the employment [creation] front. We are still recovering from that downturn."

Zuma said the proportion of the population living below the R422 a month poverty line had decreased from 50 percent in 1994 to 34.5 percent in 2009.

Zuma said in 1994, 50 percent of households had access to decent sanitation but the figure had since risen to 82 percent. Access to electricity improved from 51 percent in 1994 to 75. 8 percent in 2011.

He said government still had a lot to do regarding land restitution and re-distribution.

He was also optimistic that South Africa would win a bid to host the biggest telescope built, as he was confident of the country's scientific ability.

Zuma also announced that his administration would grant a special remission of sentence to specific categories of sentenced offenders, probationers and parolees.

The programme would exclude inmates sentenced for aggressive sexual, firearm and drug related offences. The remission would also not apply to inmates who had been declared dangerous criminals.

Previous remission of sentences had been granted in the past to coincide with key national days.

Thousands of people gathered at the Union Building since early on Friday to mark the country's 18 years of democracy.

Malawi's new president Joyce Banda arrived at the venue to join Zuma for the celebration.

Accompanied by her husband and other delegates, Banda is on her first official visit to South Africa following her recent inauguration this month.

She rose to the highest office in Malawi after the death of President Bingu wa Mutharika, who was buried last week.

During her visit, Zuma and Banda were expected to exchange views on issues of mutual interest and common concern, the International Relations department said.

The meeting would focus on Malawi's economic problems, particularly fuel shortages and foreign exchange, said spokesman Clayson Monyela.

Malawi is one of South Africa's top ten trading partners in Africa. Other dignitaries present at the event were deputy president Kgalema Motlanthe, Chief Justice Mogoeng Mogoeng, Arts and Culture Minister Paul Mashatile, Tshwane Mayor Kgosientso Ramokgopa whilst Gauteng was represented by acting Premier Mandla Nkomfe.