Yemen, grappling with poverty and a resurgent al Qaeda, is in talks with Saudi firms interested in acquiring farms or investing in fishery and livestock production with a first deal eyed by June, an official said.

Talks with Gulf investors mainly from neighbouring Saudi Arabia focused on investing in the western Red Sea coastal area of Houdeida, home to a port and fishery industry, Salah Attar, chairman of Yemen's General Investment Authority, told Reuters.

'We hope to conclude a big project, which is considered a strategic project, within quarter two of this year. It's a huge project,' he said, adding that a first phase of the deal could be in the range of several hundred million dollars.

He declined to name the interested Saudi investor, saying only that it was a well-known firm. Saudi Arabia, the world's top oil exporter, has been encouraging private investors to invest in agricultural projects abroad to secure food supplies.

Western and Arab powers worry that Yemen, where around 40 per cent of the population lives on $2 a day, will become a failed state and fear al Qaeda could exploit the situation to use Yemen as a base for attacks.

A Yemen-based regional wing of al Qaeda claimed responsibility for a failed December 25 attack on a US-bound passenger plane, driving home how the militant group could threaten Western interests from Yemen.

Yemen says it needs $2 billion a year in economic aid to stay afloat and double that amount to turn around the economy in a country facing a Shi'ite revolt in the north, separatists in the south and al Qaeda militants.

Dwindling oil reserves and water reservoirs add to Yemen's woes. Yemen relies on groundwater, which nature cannot recharge fast enough to keep pace with a population of 22.4 million that is expanding by more than three per cent a year.

Attar acknowledged that limited packaging capabilities and transport issues were obstacles for the agriculture industry. Diplomats say government control is weak in several parts of the country where tribes often block roads to ask for benefits.

Yemen was also in talks with European firms to start new gold and limestone granite mines, hoping to conclude the latter by year-end, Attar said, declining to elaborate.

'The gold is more difficult because it's sort of an agreement that goes through parliament,' he said.

More than 10 foreign mining firms from Europe, America, Asia and the Middle East operate in Yemen, according to the website of Yemen's embassy in Washington.

The World Bank is helping Yemen develop its mining sector as part of efforts to diversify its economy and root out poverty.

'Yemen's mining industry has a considerable potential and could contribute to about 3 to 7 per cent to the country's GDP, generating foreign exchange revenues in the range of $0.5-1 billion annually,' the International Finance Corporation, a member of the World Bank Group, said on its website.-Reuters