Eritrea sees mining start by end of 2009

ASMARA, May 13 (Reuters) - President Isaias Afwerki forecast on Tuesday that Eritrea's first gold mine would begin producing by the end of 2009, starting a metals industry with "huge" reserves and potential to drive development.

But Isaias said his government would take time with its foreign partners to develop mining both to maximise social benefits for Eritreans and avoid the so-called "resource curse" that has bedevilled other African nations.

Experts predict a boom for Eritrea -- believed to be rich in gold and industrial metals -- and half a dozen foreign firms explore in the Horn of Africa nation of 4.5 million people.

"The gold reserves in this country are not comparable to anywhere in the region -- Sudan, Ethiopia, anywhere else," Isaias told Reuters in a rare interview with Western media.

"The reserves and potential are there. It's huge."

Isaias said the most advanced project, by Canada's Nevsun Resources Ltd , would likely start first.

Nevsun has said it expects its Bisha project to produce around 1 million ounces of gold, 750 million pounds of copper, and 1.1 billion pounds of zinc over a 10-year life.

"It should be the first one. Realistically, I would expect mid-2009 or by the end of 2009," Isaias said.

Others are likely to follow, he said.

"The blocks are many. The ventures are diverse," he said, adding that full mining development "will take some time."

Isaias, a 62-year-old former Marxist guerrilla leader who took power in 1991, said he was determined to avoid falling into the trap of other African nations -- perhaps most notably Congo -- whose resources have fuelled corruption and conflict.

"We shouldn't depend on natural resources. That may turn out to be a curse. We may be misled to believe that everything will be solved because we have huge mineral reserves.

"We need to be careful on how we use this resource for a sustainable course and development in this country. That resource is the property of the people."

MACROECONOMIC NEEDS

Mining should fuel economic growth and aid industrialisation in one of the world's poorest countries, Isaias said.

"Our profit-sharing policy with our partners is fair - we take our share, and they take their share. And we use our share in an equitable manner.

"It is not government intervention. This has nothing to do with economic philosophies."

Eritrea's 1998-2000 border war scared off big miners, who were replaced by a handful of smaller companies from Canada, Australia and China.

But Isaias said the big firms would be welcome back.

"Why not? We are not scared. As long as the venture is a venture for shared risk and shared profit."

Few hard facts are known about Eritrea's economy, which is largely agricultural and depends heavily on remittances. The International Monetary Fund (IMF) has estimated around one percent annual growth in recent years.

"If you read publications from outside, you would say the economy of this country has collapsed, but it is sustaining itself," Isaias said.

The Eritrean leader said growth figures used by Western economists were a misleading indicator.

"Anyone can come in this marginalised continent and tell you the growth of the economy has been 10 percent. What do you mean when you have 80 percent, 90 percent of your population under the poverty line?"

Better measures are quality of life, middle class growth, and reduction in the gap between rich and poor, he said.

Giving rare figures, however, Isaias said growth of between 6-8 percent before the war with Ethiopia had dropped to between 2-3 percent since.

Eritrea needed to over-stretch itself, incurring some "deficit financing" and "macroeconomic imbalances", to cope with development needs, he said. The IMF said the deficit in 2005 was an estimated 20 percent of GDP.

"We need to have a lot of stress so that we can overcome problems for the future. It's not ideal. We are not the perfect economy."

But the mining, agriculture, fishing and tourism sectors were ripe for development, he said, citing the example of fishing, where Eritrea was exploiting less than 15 percent of the potential catch off its Red Sea coast.