(Refiles to add dropped word "be" in first paragraph)
* Gas investment decisions due to be made early next year
* Should bring wave of investment into poor Mozambique
* Donors concerned government not ready to handle windfall
* Gas boom could stoke inequality, conflict
By Joe Brock
PEMBA, Mozambique, Oct 26 (Reuters) - Carlos Candido has been fishing in Mozambican waters for three decades, unaware until recently of huge gas deposits beneath the ocean floor. Now the gas wealth is about to be released, Candido wishes it had never been found.
Up the coast from where he lives in northern Mozambique, thousands of people face resettlement to make way for planned gas projects in an area where money is already starting to flow, bringing unwanted consequences such as a rise in prostitution.
Mozambique, one of the world's poorest countries, discovered the reserves off its coast between 2010-2013, offering an opportunity to transform the former Portuguese colony which was ravaged by a 16-year civil war that ended in 1992.
Last week the government said U.S. energy company Anadarko and Italy's Eni would make final investment decisions on planned liquefied natural gas (LNG) developments in the first quarter of next year. This would launch projects that could bring more than $30 billion in investment and make Mozambique one of the world's top three LNG exporters.
Yet recent signs of reckless government spending and an uptick in political violence have raised concerns that Mozambique could be the latest African country to suffer the resource "curse", in which an influx of petro-dollars suffocates the rest of the economy, encourages corruption and stirs unrest.
Candido is unlikely himself to be resettled but doubts his community will benefit.
"We know change is coming," the 62-year-old told Reuters as he dragged his catch up a palm-fringed beach in Pemba, a small fishing town where clusters of bamboo huts have been dwarfed by gas company offices and new hotels. "But I don't see it getting better for us. The government made big promises but all I see is rich foreigners and happy politicians."
President Filipe Nyusi won an election last year on promises to use money collected from energy and mining to diversify the economy and provide work for the poor.
The LNG projects themselves will create 15,000 jobs plus another 200,000 indirectly, Standard Bank forecasts.
But with many of these short-term positions and 350,000 Mozambicans joining the job market every year, they won't solve mass poverty.
INEQUALITY AND CONFLICT
Further up the coast from Pemba, there are plans for a vast 180-square km development around Anadarko's LNG plant, including an airstrip, golf-course and shopping malls.
Thousands of mostly farmers and fishermen will be resettled. Civil society groups are concerned about people being forcibly removed from their homes and losing livelihoods.
People in African countries rich in resources tend to be less literate, have shorter life expectancies, higher rates of malnutrition and suffer more from domestic violence than those in states without resources, a World Bank report said this month.
In countries such as Angola and Nigeria, decades of oil and gas wealth have enriched a local elite and given foreign energy firms bumper profits but have done little for millions of poor people, stoking deadly periods of civil unrest.
"There is a good chance the gas will increase inequality and, even more seriously, it could raise the potential for conflict," Titus Gwemende, Oxfam's extractive industry adviser in Mozambique, told Reuters.
There are already signs of political upheaval that could intensify when gas spoils increase.
Though Mozambique has been relatively stable since the end of the war there have been periods of violence between Nyusi's ruling Frelimo party and its civil war opponent Renamo.
Last month there were two ambushes on the convoys of Renamo leader Afonso Dhlakama, including one on Sept. 25 that killed up to 40 people. Dhlakama says Frelimo's leaders are trying to kill him because he wants more power sharing but the ruling party says Renamo provoked the attack by firing on a civilian minibus.
"Part of what Renamo is fighting for is a greater share of resources," said Barnaby Fletcher, analyst at Control Risks. "The bigger those resources are, the higher the stakes."
Once gas starts being exported, estimated in 2020, the government is expected to earn around $20 billion a year from the developments, triple Mozambique's current annual budget.
Foreign donors are concerned about the government's ability to handle such sums of money given relatively underdeveloped institutions to ensure transparency and accountability.
A controversial $850 million bond launched in 2012 to start state tuna-fishing company Ematum has intensified fears that the government is not ready to handle windfalls. Around $500 million of the proceeds turned out to be for defence spending and, so far, no details have been provided on where exactly the money went.
Standard & Poor's downgraded Mozambique's credit rating in July, largely due to the Ematum bond issue and rising debt levels. Mozambique's total debt has risen to 58 percent of its annual economic output from 37 percent three years ago.
Finance Minister Adriano Maleiane, an economist who was not in charge when the bond was launched, has promised to restructure Ematum's debt and improve transparency.
"Ematum set a warning siren off," one Maputo-based Western diplomat told Reuters. "They are spending money before it has arrived."
Unless sharp improvements are made to reduce unemployment and improve education and social welfare, poor Mozambicans are still likely to seek out whatever petro-dollars they can get.
"Some of my friends, they don't go to school. They work at night here," said 14-year-old Ijaia Fargie, referring to the increase in prostitution in Pemba since gas developments began. "They make a lot of money, sometimes 500 meticals ($10)." (Editing by David Stamp)
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