Trade and Investment in 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 companies to invest in the development and expansion of its oil and gas reserves (which represent 95% of its exports), and its growing oil revenues began to finance significant investment in infrastructure and other sectors such as transport, telecommunications, banking and financial services, education and healthcare.A start was made on economic reform and, while the State continued to dominate the economy, Libya’s private sector began a cautious revival.
However, despite reform, strong revenue flows, zero debt and a growing sovereign wealth fund, only a small proportion of the population – largely those associated with the Qadhafi regime – prospered. Thirty percent 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 (and the example of movements in other Arab countries during what was known at the time as the Arab Spring) 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 that followed ended with the removal of the kleptocratic Qadhafi regime, which had held power and dominated the economy for 42 years.
Inevitably, the Libyan economy suffered during the revolution and the IMF reported that GDP fell 60% in 2011. National and foreign firms involved in business and trade with Libya also felt the impact of sanctions and the civil war. The export of UK goods fell nearly 80% compared with the previous year.
A rapid resumption of Libyan oil production and export revenues in 2012 raised hopes of early economic recovery. Instead, factional, religious, tribal and local rivalries led to the rise of unaccountable militias and, in 2014, the weak and ineffective central government folded. The country has since been divided, with competing centres of power claiming authority over disparate territories – and sometimes vying for control of the economic institutions of the State. Some areas of the country are effectively lawless and smuggling has become a major and profitable industry.
In these circumstances, without a government able to provide a macroeconomic framework across the country, the Libyan economy experienced several years of recession, with GDP falling to half its 2010 level. The World Bank reported in 2017 that, “inflation hit a record level of 28.5 per cent over 2017-H1 … mainly driven by acute shortages in the supply chains of basic commodities, speculation in the expanding black markets, the de facto removal of food subsidies, due to lack of funds, and the strong devaluation of the LYD in parallel markets”. With these factors adding to the insecurity arising from violent political conflict, foreign trade and investment severely contracted – but never completely stopped.
In 2017, UK visible exports to Libya amounted to £49.6 million, only £10 million less than to neighbouring Tunisia. Although not a patch on UK exports to the market in the years before 2011, the figure illustrates that Libya continues to offer significant business opportunities.
The year also saw further positive developments on the economic front – not least, the success of the National Oil Corporation (NOC), under the Chairmanship of Mustafa Sanalla, in restoring oil production to 1 million barrels per day (bpd). At current oil prices, this is sufficient to fund budget expenditure and to support the currency (the Central Bank’s recent injection of hard currency into the economy boosted the LYD).
Moreover, it can do so without eroding the Central Bank’s financial reserves, which reportedly stood at US$67.5 billion at the end of 2017.
Meanwhile, the Libyan Investment Authority’s (LIA) assets, also of about $67 billion, remain frozen under UN sanctions and are therefore largely intact.
Libya’s potential attraction as a market endures, and will return to full strength once a political solution restores stability and security to the country. At 6 million, the population is small, particularly when set against the value of its oil and gas resources, and its highly accessible position close to Europe. Libya will offer a strong demand for reconstruction and development that it will be well able to afford.
New market entrants and British companies with longstanding experience of the Libyan market alike will then face determined competition from other countries’ suppliers as they bid for new contracts or seek to re-establish themselves in Libya.
But when the time comes, active engagement with the market and partnership with Libyan enterprises, with the help of the LBBC and the British Embassy, will unlock the trade and investment potential of a prosperous new Libya. Membership of the LBBC now enables UK firms to monitor Libyan developments, prepare for the restoration of normal business relations, and to establish a record with potential Libyan partners of familiarity and loyalty during harder times.