ASMARA, March 28, 2008 (AFP) - The red and blue logo of US-government food aid is all over Eritrea, though now on grain sacks re-stitched into popular shopping bags or cooking oil tins retooled as windowsill flower pots.

Any food inside is long gone, and not being replaced.

In 2005, this fiercely independent Horn of Africa country officially ended free distribution of food aid, saying it was determined to feed itself without outside help -- at a time when UN estimates said two-thirds of Eritrea's 4.2 million residents required food aid.

To offset this move, the government set up a 'cash-for-work' program, running manual labour schemes that pay workers basic wages to be spent in government food stores.

The government has also expelled all but nine strictly controlled aid agencies and last month warned UN agencies to expect the same fate, shunning millions of dollars in potential aid.

State-run media repeatedly stresses the importance of self-sufficiency.

'In today's world of muscle-flexing bullies and exploiters,' a recent ministry of information statement read, 'any given country runs the risk of being ruthlessly exploited and oppressed if it does not continuously endeavour to be self-reliant.'

But the rhetoric jars with reality, as foreign money still props up Eritrea's economy, notably with taxes paid by members of the Eritrean diaspora.

An ongoing border standoff with long-time foe Ethiopia, after a bloody 1998-2000 war, meanwhile, chokes private enterprise, diverts reconstruction efforts to defence and drains the work force.

And Eritrean youth pay a heavy price, with thousands conscripted into sub-Saharan Africa's largest army. The World Bank said the Eritrean army accounted for at least 11 percent of the labour force in 2005, making Eritrea one of the most militarised nations in the world.

Paid less than a dollar for compulsory service that lasts at least 18 months, these youths make up a cheap force to harvest crops or build dams.

Even school-children must spend holidays on 'summer work programmes', terracing hillsides and planting trees.

-- 'I gave up believing there will be change' --

President Issaias Afeworki hails these programs as a success, praising in state propaganda the 'coordinated efforts of the people and members of the defence forces'.

Independent assessments are hard to come by, with travel outside the capital for foreigners tightly restricted.

But even in the capital Asmara the situation is hardly rosy, with shortages of basic goods including bread, beer and cooking gas as costs of daily necessities have soared in recent years.

The black market is expensive, and many rely on ration coupons exchanged at state stores for basics such as sugar, cooking oil or flour.

'It's not much but it helps make ends meet, and that's a hard thing to do,' said one Eritrean.

Secretive government agencies rarely reveal statistics but even the most basic indicators show the economy is struggling in this country, where 80 percent of the population are mainly subsistence farmers or herders.

With inflation hitting 20.3 percent in 2004, coupled with an annual growth of just 1.8 percent -- low compared to many African nations enjoying growth of five percent or more -- life is far from easy.

Meanwhile, the goal of self-sufficiency is still far off.

Some experts estimate that as much as half the gross domestic product comes from the diaspora.

Eritrean embassies make massive efforts to encourage payment of a two-percent income tax, fearing a cash drop-off as dual citizens grow uncomfortable at supporting a military regime accused of the arbitrary imprisonment and torture of thousands, repression of religious minorities and the muzzling of all free media.

Eritrea also received 355 million dollars in net official development assistance in 2005, equivalent to 36.9 percent of Eritrea's gross national income, according to the World Bank -- the fourth highest rate in the world, bettered only by Liberia, Burundi and Afghanistan.

Yet last month Finance Minister Berhane Abrehe warned UN aid agency chiefs to prepare an 'exit strategy' to move to '100 percent programme ownership by the government'.

'Only some of the more relevant and highly impacting UN agencies should be retained,' Berhane said, according to a confidential report seen by AFP.

Analysts see the one-party state's policies as a useful tool to maintain its authoritarian control over an increasingly disgruntled population. Thousands are fleeing to neighbouring Sudan or Ethiopia despite a reported shoot-to-kill policy by border patrols, and families of those left behind risk being punished by crippling fines or imprisonment.

'I have given up believing that there will be change... I trust in God to survive,' said one Eritrean.

With opposition figures jailed and near daily warnings of an Ethiopian attack, few see an alternative to the unelected 61-year-old president, still viewed as a hero of the long war that led to independence from Ethiopia in 1993.

'Every day we are told it is a national duty to defend our country,' shrugged one Eritrean.

'Times are tough but, as the saying goes, we just have to tighten our belts.'