Indian conglomerate Essar plans to spend up to $4 billion constructing a plant to process iron ore from Zimbabwe's Mwanesi resource within the next five years, Industry and Commerce Minister Welshman Ncube said on Wednesday.

This would be the largest single foreign investment into Zimbabwe's troubled economy and would equal about two-thirds of the country's estimated GDP.

Ncube said the plant would process 25 million tonnes of low grade ore annually and create 500 jobs in a country with an unemployment rate of more than 85 percent. It is the latest drive by investors from emerging market giant India into Africa.

Rivals China and Brazil are also keen on investing in Africa's resource sector but western firms have been lukewarm to Zimbabwe in recent years because of the policies of the government of President Robert Mugabe, which include its current drive to have majority stakes of foreign mining houses turned over to local black investors.

The African unit of Essar Group in November agreed to buy 54 percent in the Zimbabwe Iron and Steel Company (ZISCO), with the government keeping 36 percent and 10 percent owned by minority investors.

Essar went on to form a mining company, NewZim Minerals, in which it owns 80 percent and the remainder is held by the government, and owns the Mwanesi resource in Chivhu, some 150 km south of Harare.

"The creation of NewZim Minerals will see the development of the Mwanesi resource. It's a vast resource ... which will provide iron ore for a 25 million tonnes per annum plant..., Ncube said at a ceremony to launch Essar's mining and steel units.

The plant will process ore to be fed into steel works at ZISCO, which has now been renamed NewZim Steel.

"DON'T BE AFRAID"

ZISCO is the first state-owned company to be privatised by the unity government formed in 2009 between Mugabe and long-time rival Prime Minister Morgan Tsvangirai.

Speaking at the same ceremony, Mugabe defended selling a majority stake to Essar at a time the government is pursuing plans to force miners to sell more than 51 percent shares to locals, saying Essar had taken over ZISCO's $240 million debt.

He also appealed to foreign investors to come to Zimbabwe.

"Other possible investors are still waiting on the wings, some possibly frightened about Zimbabwe because of its reputation given by the media in the West. We say come, don't be afraid. But come as friends and not as exploiters," Mugabe said.

The 87-year-old leader said Essar would refurbish ZISCO to produce 2.5 million tonnes of steel within 27 months. The plant currently has capacity to produce 1 million tonnes of steel.

Ravi Ruia, the Essar global vice chairman said the company would only export excess ore.