LIBYA: OPENING UP
By Justin Keay
As its economy slowly becomes more open, Libya is
attracting the attention of a wider range of potential investors
than just adventurous oil companies.
In the old days of the Soviet Union, sovietologists would gauge
reform prospects by studying the Kremlin lineup at military parades
to see how close key individuals stood to the general secretary. In
much the same way, Libya watchers try to determine head of state
Muammar al-Qadhafi's intentions by judging how much prominence his
sons get in the national media and in the running of the country.
If the modernizing 38-year-old Saif al-Islam seems in the
ascendant, reform prospects look good. If his younger, more
conservative brother Moatassem-Billah, Libya's national security
adviser, seems more prominent, the assumption is that old statist
tendencies are reasserting themselves.
The reality, of course, is much more complex. Despite rumors to the
contrary, Qadhafi doesn't seem to favor either son over the other
as his successor and seems happy to listen to both. This means the
country is as hard to read as ever, even if it is relatively easy
to take some of Qadhafi's wilder suggestions-such as his calls for
the abolition of the state and the nationalization of oil companies
operating in Libya-with a large pinch of salt.
Richard Dalton, a former British ambassador to Libya and a fellow
at international policy think tank Chatham House, argues that the
liberalization that accompanied Libya's return to the international
fold from 1999 onward and the 2005 resumption of relations with the
US is continuing, with the country moving from a planned to a mixed
economy. "Yes, there is an ongoing clash between those who want to
move faster and those who want to slow down, but there's no
disagreement over the direction: All agree liberalization is the
way to go," he says.
The IMF certainly believes so. Its latest report, published on
October 28, commends the authorities on their efforts to boost the
private sector by passing a series of liberalizing laws. Projecting
that 2010's GDP would grow 10% on the back of sharply increased oil
production (which accounts for 70% of GDP and 95% of export
earnings), against a decline of 1.6% last year, it concludes Libya
is determined to diversify to create viable employment
opportunities for the growing labor force. The IMF was equally
positive regarding medium-term prospects: "Libya's economic growth
and financial position are expected to strengthen as a result of
higher oil receipts and investment in the oil sector, the upgrading
of infrastructure, the implementation of reforms and the continued
interest of foreign investors."
What kinds of investors are being attracted? Dalton says the
typical company or bank that invests in Libya would be one
accustomed to working in difficult, unpredictable environments
where decision-making can be erratic. "This is a very good market
for companies with an appetite for being in such markets," he says.
"If they can put up with the disadvantages, there is clearly a lot
of money to be made."
Obviously, the main focus to date has been on the hydrocarbon
sector, notably oil, where the authorities are keen to step up
production from the current level of some 2 million barrels per day
(bpd) to 2.5 million by 2015 and 3 million after that.
Unsurprisingly, international oil companies have been falling over
themselves to sign energy agreements with Libya, with such
companies as Occidental, ENI, Total, BP and Repsol all engaged to
However, the US and other Western countries are dipping their toes
in other areas too. The first major US trade mission to Libya,
which took place last year, was heavily oversubscribed, with an
eclectic mix that included Boeing and Electrolux. Twenty-five
companies participated, although 75 companies applied, which gives
some measure of the interest.
And opportunities are growing. Privatization is proceeding, albeit
slowly, and Tripoli's three-year-old stock market expects to hit
the milestone of having 25 companies listed soon, with many more
joining over the coming year, including cell phone companies Al
Madar and Libyana. The total market capitalization of firms on the
stock exchange is expected to exceed $1.3 billion by the end of
this year, although the bourse still remains closed to non-Libyans.
IPOs are expected in the banking and steel industries, while other
investment opportunities will be driven largely by the ambitious
infrastructure projects: Roads, technical colleges, housing and
even whole new suburbs are planned to boost employment prospects
among the 6 million-strong population and alleviate housing
shortages. So far, this focus on the non-energy sector seems to be
working: In 2009 non-oil GDP grew 6%, and the IMF expects Libya to
have posted a rise of 7% last year.
The bank sector has also seen considerable, meaningful reform, with
regulation remaining conservative and conducted along international
lines. The 2008 merger of Gumhouria and Al Ummah into Libya's
largest bank-now simply called Gumhouria-was a vital
transformational step, with the profitable state-owned bank issuing
new products and aggressively seeking depositors in its 150
branches. An IPO took place in 2009 as a first step toward the
bank's being privatized totally. BNP Paribas has had a stake in
state-owned Sahara Bank since 2007 with management control and the
right to increase its stake to 51%; it is drawing on BNP Paribas's
international expertise in order to introduce new products for
retail and commercial customers. Meanwhile Jordan-based Arab Bank
has held 19% of Libya's Wahda Bank since 2008, while the granting
of a license in August 2010 to Italy's UniCredit marks the first
time a Western bank has been licensed to operate fully within
However, for some, the fact that UniCredit was the only Western
bank green-lighted for a license, despite widespread expectation
that HSBC and Standard Chartered would also get one, is symptomatic
of the erratic decision-making in Tripoli. Skeptics point to the
fact that although investor-friendly laws have been drafted, their
implementation seems to be taking rather longer than expected.
There are other causes for concern too. Tourism is expanding but
very slowly, with long-term growth restrained by the absolute ban
on alcohol. This suggests a low-volume future with most visitors
being either adventure travelers or people attracted by the rich
archaeological heritage, including the famous Roman city of Leptis
Magna. Meanwhile, many of the building projects currently under way
in Tripoli, Benghazi and elsewhere have ground to a halt, their
funding interrupted because of disputes with investors.
And despite all the ballyhoo, the energy sector hasn't quite
delivered what was hoped: Recent oil and gas finds have been
underwhelming, and the government's ambivalence about giving
international oil companies free rein has hardly helped speed
exploration or production. Consequently, some analysts say the IMF
projections are too optimistic. "The way things stand, there's no
way the economy [in 2010 can have grown] by 10%. Our forecast is
3.3% GDP growth, fueled mainly by capital spending on
infrastructure," says Rory Fyfe, Libya specialist at the Economist
Intelligence Unit. He argues that OPEC constraints and declining
real demand for Libyan energy will mean growth will be around 3.7%
this year and 3.9% in 2012.
That said, how many new, relatively wealthy but largely untapped
markets just off the coast of Europe are there these days? Tom Cook
of the London-based Middle East Association led a trade mission of
some 33 companies to Libya in October and says much of the apparent
ambivalence to foreign investment reflects suspicion of the outside
world's motives. "I would describe the current situation as a
tentative opening up," he says. "Libyans know the worth of what
they have, but they are cautious about how to return value, not
least because many lack understanding about how international
finance and commerce work." He adds, however, that the Libyan
business community is very open and keen to do business.
This suggests that for companies seeking new horizons,
Libya-despite its small population and erratic politics-will remain
something of a magnet.