Libyan Economy on the Rise
So far, Libya has not descended into anarchy or some kind of “meltdown”, as some have concluded following numerous security incidents and local clashes since the end of the Libyan civil war. Rather, these events are symptomatic of a weak state structure, a surplus of guns, a long history of feuds and an atmosphere of suspicion and confusion. They are problematic but do not pose an existential threat to the country. More proof that Libya is on the right path can be seen in the, surprisingly, relatively smooth elections for General National Congress in July.
Great Potential for Investment
Besides being the third largest country in Africa, Libya has the tenth largest proven oil reserves (1.548 trillion cu m) in the world and is Africa’s second largest oil producer and a major gas producer with a huge potential to develop its economy. Its Gross Domestic Product is around $37.492 billion and investments consist of 15.6 % of the annual GDP. The raising of UN sanctions on Libya’s financial reserves and the recovery of its oil production and exports will enable the Libyan private sector to grow and will provide many business opportunities.
Chronic Obstacles and Challenges
The country still faces many challenges including endemic corruption and smuggling, which accounts for 40 percent of GDP and is equivalent to the defence budget. It is a huge task for any emerging authority to stay on top of security challenges in a country which is so vast and diverse. However, the oil and gas protection force has been successful and this is a sign of what the new government can be able to do in future, at least in some areas. Nevertheless, transitional justice and law making, vital to the success of the new Libya, is lagging.
With regard to prosperity, the country faces the same issues as under the previous regime: structural unemployment of 25 %, high inflation and the issue of foreign labour. Even though people want jobs, they do not want to do the hard jobs on construction sites and in agriculture. Diversification issues remain from the previous era. Libya is a very small market with 6,7 million indigenous Libyans. It is therefore difficult to establish industries that can be competitive, building on import substitution and then progressing to export. The nature of foreign partnerships is still undecided.
In the public sector, a process of internal review and restructuring is occuring. The public sector entities are functioning, staff is being paid, planning is going on, but major decisions and major new contracts are not yet happening. Contracts are being awarded in priority areas: education, health, electricity and infrastructure.
The private sector has been thriving since the end of last year and is really making itself felt. In Tripoli new houses are being built, shops are being renovated, new rooms are being added to restaurants, the streets are busy, there is a huge consumer appetite, people are buying goods, there is liquidity and the banks have lifted restrictions on the amount of cash that can be withdrawn. The airlines are also doing well and there is a huge demand for flights. New food and beverage and retail franchises have been signed.
In the future there will be a private sector which has a lot more freedom to operate and a public sector which is slightly dysfunctional and slow in getting going, but which will be very well funded. The private sector will become much more important for joint ventures.
Libya’s Outlook: Unstable yet Promising
The dramatic turn of events in 2011 which led to the overthrow of the Gaddafi regime and the creation of the National Transitional Council should help to create a more transparent Libyan economy which is open to development and diversification. Nevertheless, no one can forecast with any exactness what will happen in Libya in the coming months.
Libya is at the beginning of the transition and the hard work is still ahead. In a broad sense, Libya is peaceful but the situation is still very edgy. Most of the major incidents, be they hijackings, clashes with militias or kidnappings, tend to be resolved through mediation. Following victory of the moderately Islamist “National Forces Alliance” led by Mahmoud Jibril in the General National Congress election Libya got a promising, business-oriented winner.
Mahmoud Jibril has a Western education, a conciliatory stance towards the movement for decentralization of the country, experience with liberal economic reforms and an eagerness to create a functional state apparatus whose presence will be felt by ordinary Libyans as well as any armed opponents of its authority. The elections were very well conducted despite grim expectations, even from some Libyans. It is not yet clear whether there will be a government of national unity. What will later emerge as a constitution is also unclear.
Economic activity in Libya is likely to rebound this year as the country rebuilds from civil war and oil production increases, the International Monetary Fund said in July. In a report on Libya’s economy conducted by an IMF mission, the Fund forecast growth will skyrocket 116.6 % this year, following a contraction of 60 % in 2011. Growth next year is expected to ease to 16.5 % and 13.2 % in 2014, the IMF added. Libya has always been a relatively high risk market but one with high rewards. Now is the time for daring foreign companies to make their mark.