Trade and Investment in the New Libya
In 2004, when the UN Security Council lifted more than a decade of sanctions, Libya embarked on a process of slow but fundamental economic change. It invited international oil companies to invest in the development and expansion of its oil and gas reserves (which represent 95% of its exports). Its growing oil revenues began to finance significant investment in infrastructure and other sectors such as transport, telecommunications, banking, other financial services, education and healthcare. A start was made on economic reform and although the State continued to dominate the economy, Libya’s private sector began a cautious revival.
Despite reform, strong revenue flows, zero debt and a growing sovereign wealth fund, however, only a small proportion of the population, largely those associated with the Qadhafi regime, prospered. Thirty per cent of the population was unemployed. Foreign investors and other firms doing business in Libya continued to experience significant challenges: slow and arbitrary decision making, late or incomplete payments and an absence of transparency and predictability. The most business-friendly legal reforms were not introduced until 2009 and 2010 and even then, the IMF expressed doubts about their status.
Pent up political and economic frustration precipitated a popular uprising in February 2011 which began in Benghazi but quickly spread to the rest of the country. The eight months of fighting which followed ended with the removal of the dictatorial Qadhafi regime which had held power and dominated the economy for 42 years.
Inevitably, the Libyan economy suffered during the revolution and the IMF reports that GDP fell 60% in 2011. The impact of sanctions and the civil war was also felt by national and foreign firms involved in business and trade with Libya. The export of UK goods fell nearly 80% on the year before.
But the rapid resumption of Libyan oil production and export revenues since the fall of the Qadhafi regime has prompted the IMF to foresee strong prospects for Libya’s economic recovery in 2012. Although deficit budgets are predicted for the next two years, the National Transitional Council has committed Libya to genuine economic diversification and reform and to creating a business environment conducive to international partnership and private sector participation. After the country’s negative experience of centralised economic control, it is likely that future governments will also espouse diversification and reform. And geographical proximity makes Europe a major market for Libya’s oil and gas and a natural business partner.
New market entrants and British companies with long standing experience of the Libyan market will inevitably face determined competition from other countries’ suppliers as they bid for new contracts or seek to re-establish themselves in Libya. Until elections bring in a new assembly and government (the first elections are due in June 2012), Libya will continue to operate under the imperfect Qadhafi era legislation. But active engagement with the market and partnership with Libyan enterprises will unlock the trade and investment potential of a prosperous new Libya.