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LIBYA


  
   

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 34,137    34,136 57
  n/a     n/a
GNI per capita
 US $
Ranking is given out of 208 nations - (data from the World Bank)

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Area (sq.km)
1,759,540

Population
5,499,074

Capital
Tripoli

Currency
Libyan dinar 

Leader 
Col Mu'amar al-Qadhafi


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Background:
The Great People's Socialist Libyan Arab Jamahiriya 
Modern Libya, the Jamahiriya, has grown as the political experiment of an idiosyncratic vision that has been more concerned with the implementation of its ideology than the construction of appropriate institutions to manage the state. So long as an adequate inflow of oil revenues could be sustained, the 'experiment' has been able to gain a degree of public tolerance, if not support, thanks largely to the dispersal of public welfare. Ultimately, the Jamahiriya's political institutions have fostered the perpetuation of a kinship based society. As tribal loyalty has supplanted civil society, the grass roots political activity that would typically be organized around business, social, or religious concerns has been suffocated. An effective repressive apparatus has ensured the eradication of civil society and effectively precluded the rise of a sustained opposition movement of any kind. 

Pariah State? 
Although Libya has earned international condemnation, President George W. Bush stopped short of including Libya in his 'Axis of Evil' paradigm pronounced during his 2002 State of The Union Address. Indeed, Libya's idiosyncratic and flamboyant leader Col. Mu'amar Qadhafi was among the first leaders to condemn the September 11th 2001 attack on the World Trade Center and the Pentagon. Yet Libya remains one of America's favorite 'Pariah States'--along with Cuba, Syria and Iran--and its leader is an icon of comedians and variety show hosts' personifications of 'nut-case' evil, bordering on the grotesque. Libyans, and those who are familiar with their country, however, might be puzzled by America's concerns over Libya. Not only is the current Libyan military capacity limited in terms of equipment, and even more so in management, but Qadhafi has been waging a campaign against political Islam since the time G. W. Bush was still prancing around as a fraternity huckster at Yale. Indeed, it might be correct to suggest that Bush and Qadhafi have been consumed by similar passions in recent years. The Libyan leader has long considered Islamists to be the greatest threat to the regime and publicly denounced them as being a disease to be eliminated, "worse than cancer or AIDS". 

Political Opposition and Economic Reform
Moreover, Qadhafi's peculiar political structure and ideology have, in fact, made it difficult for any opposition movement to sustain a successful campaign against the regime. The violent opposition that has sporadically taken place, has largely been a reaction to the ill-conceived economic reforms that have been implemented since 1986 - as oil prices fell to record lows. The reforms have failed to fulfill the intended liberalization of the economy and critically curtailed the State's distributive largesse. This has alienated the poorest elements of society that had typically been Qadhafi's most vociferous supporters. Yusuf al-Muqariyif of the National Front for the Salvation of Libya (an Opposition Group based outside Libya) has even suggested that Qadhafi has created the Islamist threat himself to gain support from Tunisia and Egypt toward the easing of international sanctions, the idea being "either me or fundamentalism". Anti-government protests, by Islamists or others, have not been ideologically motivated. Rather, these have been symptomatic of the fact that Libya's income and distributive network have relied on a single resource. The abrupt shrinking of the public sector showed the vulnerability of this policy and proved unsustainable to most Libyans, who had become accustomed to a high standard of living. Oil revenues have made it possible for Libya to experience a significant political, social and economic transformation since independence and especially since 1969.
The regime that was established as a result of the 1969 revolution has made great efforts to distribute the wealth accumulated from oil production among the population through public services and subsidies for a variety of consumer products. It has promoted large scale, if somewhat misguided, development projects in infrastructure, education and ISI industry. The Great Man Made River (GMMR) designed to facilitate irrigation for agricultural production along the Libyan coastline via an artificial 4000 km river based on Sahara groundwater is a multi-billion dollar monument to Libya's material infrastructure since independence, the result of an extensive program of welfare spending. Radical egalitarian principles based on Qadhafi's Green Book since 1978 improved the material living conditions of the vast majority of Libyans as enterprises were nationalized and housing rental payments were outlawed.
However, the combination of a 50 % drop in oil revenues in the mid-1980's that created a current account deficit have hurt the State's distributive capacity. While the economy's nationalization process continued, the State responded by applying austerity measures and limiting imports of consumer goods. Libyan consumers, who had become accustomed to the availability of a wide range of consumer goods, reacted badly to the austerity measures, sometimes venting their anger through popular protest and by damaging and burning government supermarkets. The depth of the economic crisis was such that the foreign labor force had to be reduced. Typically, the expulsion of Egyptians and, in particular, Palestinians that was masked in political rhetoric over the Arab-Israeli peace process, has more often than not resulted from economic difficulty. This made it necessary to curtail spending and adopt a measure of economic reforms to stimulate greater private sector involvement in the economy. The reforms effectively served to retract the distributive network of subsidies and state employment that had provided the Government's principal source of support from the population. 
Therefore, for a majority of Libyans, the 'reforms' have only contributed to deteriorating standards of living. The failure of these reforms has highlighted the institutional shortcomings of the regime that enacted them and promoted increasing opposition to it that the Libyan government has often blamed on what it has called Islamic 'radicals'.

Political Structure and Risk
The General People's Congress (GPC), a body similar to a parliament in the Jamahiriya, also served as a forum of public discontent over the austerity programs. In an unprecedented move, the regime responded to the criticism with a series of policies designed to address the grievances which was adopted in 1988 at the yearly session of the GPC. It provided the framework of a more liberalized economy, curbed the authoritative excesses of the Revolutionary Committees (RC) and assumed the title of Great Green Charter of Human Rights in the Age of the Jamahiriya. Despite this lofty title, the institutional infrastructure of the Jamahiriya failed to implement the Charter in a manner worthy of its name. The Libyan economy has lacked the necessary institutional infrastructure and administration in order to function properly. The mere elimination of state dirigisme, as occurred in Libya, has not sufficed to generate alternative sources of economic growth. 
Free trade and the removal of price subsidies, coupled with international sanctions from 1992 to 2000 caused price inflation for most consumer goods while average wages remained stagnant. The only beneficiaries of the economic reforms were the private merchants who controlled the import and the sale of various types of merchandise. Meanwhile, worker cooperatives known as tasharrukiyyat entailed a form of privatization that was adapted as best as possible to the Green Book's economic ideology. These allow for the sale of state production assets to one or more individuals, who agree to share equally in the management and profits of their enterprise. By and large this system has not enjoyed much success beyond the small service sector in such areas as appliance or automobile repair, hairdressing shops and photography laboratories where ownership is usually limited to single individuals. In these types of activities earnings are higher but thus far privatization has not resulted in a significant diversification of the economy. Property rights have not been guaranteed and neither has privatization been officially sanctioned in law. In the end it has been far harder to create the necessary regulatory framework to support national markets. This requires financial, legal, and civil institutions in order to provide a free exchange of information and enforce contracts. Another very significant problem is the abnormal lack of any reliable statistical information concerning economic indicators or demographics and it is often necessary to 'play by ear'' in order to 'read' the country's economic performance.
Nevertheless, the end of the UN embargo, which had been enforced since 1992, and increased oil demand have helped increase revenues. Reportedly, GDP has risen steadily since 1995 from 7.8 to 12.6 US$ billion in 1999 while consumer inflation has dropped from the estimated 30-35 % that persisted throughout most of the past decade to 12 %, while in 2000 it is rumored that there was a current account surplus of US$ 1.3 billion. Not surprisingly, domestic opposition to the regime, even in the economically depressed Benghazi region, has been limited since 1998 because of the improved economy. Most Libyans have been able to continue enjoying relatively high material living standards. As promising as the situation appears, the Libyan economy under the Jamahiriya has not made significant progress and has grown ever more dependent on oil exports and strong external demand for its product. The fickleness of world oil markets mean that when they're low and there is a threat of an economic crisis, the regime is not institutionally prepared to manage it, raising the prospect of political instability. 
A more significant political risk than even the price of oil is posed by Libya's tribal structure. More than ceding to an Islamist or secular opposition, in the event of collapse of the current leadership, the country would fracture along tribal lines. There has already been direct evidence of opposition motivated by tribal interests and it partly explains the Libyan leadership's foot-dragging over the Lockerbie incident. Indeed, the Warfalla tribe organized one of the most significant coup attempts of the past decade in October 1993. The tribe is well represented in the regime as one of its members is Major Jalud, an original member of the Revolutionary command Council (RCC) that led the 1st September, 1969 coup, which brought Colonel Qadhafi to power. The coup was a response to the regime's considering handing over the suspects implicated in the bombing of the Pan Am B-747 over Lockerbie, Scotland in 1988 to normalize relations with the West. One of the suspects was a member of the Warfalla tribe and Jalud opposed any normalization plans on that basis. 
Islamist politics in Libya, contrary to Egypt or Tunisia, have not developed successfully. Qadhafi has never provided the opportunity for Islamists to carry out any measure of political discourse as its neighbors have by way of elections and official representation. However, Qadhafi's speeches in the period between 1989 and 1993 when economic hardships were hardest, and violent confrontations between citizens and security forces more frequent, indicated his fear of Islamists operating in Libya. In addition; in April 1993, Qadhafi reversed his unorthodox position and presented himself as a defender of Islamic law. He encouraged the adoption of traditional Islamic punishments for murder, theft and fornication. Alcohol consumption, which had been tolerated in the 1980's, was again condemned. In many ways he adopted the defining elements of what he thought was the Islamists' agenda. Qadhafi's Islamic revival, nonetheless, precluded removing the Green Book as the de-facto constitution of the Jamahiriya. 
Libya's unique political system has been envisaged to function according to the precepts of the Green Book. The system has ideally been intended to function as a direct democracy and to guarantee economic and social equality. However, while a measure of economic equality has existed in Qadhafi's Libya, its political system has perpetuated a kinship based social organization and impeded the political development of the population. These combined characteristics have served to hamper the rise of an effective and united opposition. Essentially, direct "democracy" in Libya works through a peculiar infrastructure that involves grass roots discussion and approval of the general ideas pertaining to policy, defined and made plain by Qadhafi, in a manner that resembles more a consultative than a legislative body. Ultimately, the informational and organizational vacuum that exists in Libya has precluded the necessary degree of coordinated action capable of sustaining a real threat to the regime. 
Libyan citizens are fearful and apprehensive and the Revolutionary Committees have had a de-facto mandate to keep them this way! Libyan society has remained fragmented since the Revolution as exclusion from political activity and the official repression of civil society has promoted kinship as the primary mechanism of social organization. There has been little political evolution among the population and therefore little popularity for more radical alternatives to Qadhafi himself.
Officially, Qadhafi himself does not hold any political office and he is simply referred to as the Brother Leader of the Revolution Akh al-Qa'id al-Thawra and, most recently, as the Philosopher of the Revolution. However, his role is in fact one of supreme authority which he exercises through the Revolutionary Committees. These in fact 'bring' Qadhafi's ideas to the Basic Congresses and Committees for approval, while taking back valuable information on the people's perceptions of certain policies, that are sometimes reversed if these are perceived to threaten wide scale, politically dangerous opposition. While there is no formal Constitution as such, the dictates of the Green Book serve a similar purpose. The Green Book promotes many of the themes common to Arab Nationalism and contemporary Islamic thought such as anti--imperialism, and dependence on the West, social injustice and exploitation and advocates a return to Islam to restore Arab/Muslim power.
Kinship based social organization principles have persisted in Libya as a result of the official encouragement of tribe and family and the prohibition of alternative organizational principles. Economically, the Green Book's "Partners not Wage-Workers" (la-hujara', sharika !) slogan is one of the ideological pillars of the Jamahiriya. The egalitarian ideal of this principle is to prevent labor exploitation but has served to forbid capitalist development in real estate, commercial enterprise or industry. Consequently, enterprises have been limited to small size and family ownership where self -sufficiency has been the guiding principle. No one may obtain more than the property to satisfy basic needs. Really, only the Revolutionary Committees, staffed by officers from Qadhafi's six main sub-tribes retain any real authority and they are the only group that resembles a political party. This is what some observers have referred to as the basis of the Jamahiriya's present 'stateless' society. In fact, however, 'stateless society' meant that those who argued for long term social investment, prudent administration, reduced military spending and greater efficiency were kept at bay.
This tendency is fully confirmed by the fact that a constitutional reform in March 2000 has abolished twelve General People's Secretariats (GPS), the equivalent of ministries in more conventional governmental structures, including the very important GPS for Oil. Analysts have interpreted this move as an attempt by Qadhafi to further de-centralize power to the provinces where the Colonel's extended family members wield important posts in the army and provincial government. The concept of a formal head of state has also been revised in favor of designating an official leader. Initial analysis of the significance of this latest political transformation suggests that there has been a concerted effort to diminish the influence of the technocrats, who were instrumental in negotiating the termination of the UN embargo in 1999, in favor of the ideologues of the revolutionary cadres. Certainly this is in accordance with the pattern of power distribution that has prevailed in Libya since the al-Fatah revolution.
Similarly, educational institutions have also suffered from ideological infiltration; in fact the universities became the largest recruiting ground for the Revolutionary Committees as these stressed the teaching of Arabism at the expense of more pragmatic issues such as the management of an oil economy. The weakness of the educational system has not simply been a matter of odd curricula that, until recently, allowed for such ideological intrusion as the imposition of such courses such as 'Econometrics according to the Green Book' at Tripoli's al-Fatah University. There is also the matter of the difficulty that Libyan students have faced in studying abroad because of their country's international perception as a Pariah state making it difficult for them to keep up to date with global technical and scientific developments.

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Update No: 007 - (01/06/04)

How to reform the Libyan Oil Sector

Prospects for foreign investment
As opportunities for new - and continuing - business are becoming riskier in the Persian Gulf Region given the persistent anarchy and violence in Iraq and a noticeable escalation of terrorism aimed at foreign oil industry staff in Saudi Arabia, Libya will surely continue to attract investment from all over the world. European and Asian companies have had a head start, as they remained actively engaged in exploring and developing Libya's oil resources throughout the American and UN trade embargos; however, given the recent developments, US companies will also increase their presence in Libya. Italy's Agip, Eni, France's Total, Spain's Repsol, Austria's OMV and Germany's Wintershall, have been the principal foreign investors in Libya, while Korean firms like Dong-Ha carried out such large scale infrastructure projects as the US$27bn Great Man Made River.
It is estimated that the oil based industrial infrastructure will be through a combined investment of US$30 billion to be used in upgrading aging oil extraction and exploration equipment as well as pipelines, refining facilities and natural gas liquefying processing in order to facilitate pipeline transfer to Europe. The US Department of Energy has estimated that to increase Libya's current 1.4 -1.5 million bpd to the largest levels of the 1970's, when production was around 2.0 million bpd, a US$30bn investment will be required. The much talked about Bechtel and Halliburton conglomerates that had been awarded many contracts in Iraq are likely to find it easier to invest and profit from investing in the reconstruction of Libyan infrastructure. Libya's estimated oil reserves of 36bn barrels would allow it to increase production levels to 3 million bpd, but its infrastructure is not capable of sustaining such levels, the OPEC limit of 1.26 million bpd notwithstanding.
The re-investment will also concern affect more sensitive areas such as the renewed supply of new military equipment. As noted in previous reports in Newnations, there have suggestions that Europe is ready to sell new conventional armaments to Libya. Despite the fact that the international community is still concerned about the scope of Libya's alleged weapons of mass destruction development program, Europe is increasingly seeing the potential for Libya to become a stalwart against illegal immigration from Sub-Saharan Africa and parts of the Maghreb. Moreover, the Libyan leader has repeatedly indicated his concern about the spread of Islamic militants. The new weapons would ostensibly help in the fight against terrorism. The one remaining issue is the German request for compensation for survivors of the victims of a terror attack in a German nightclub in 1986. In a possibly related matter, it would not be surprising if Qadhafi were using the detention of 6 Bulgarian and one Palestinian medics, condemned to the firing squad for supposedly infecting 400 children at a Benghazi maternity ward 6 years ago with AIDS, as a bargaining chip with Europe for clearing up pending difficulties such as the German night club issue. Meanwhile, the European Commission and Bulgaria are in close talks to secure the release of six medics. 
As of late May, that issue remained unresolved. Italy and Britain have been eager proponents of renewed arms sales to Libya and Prime Minster Blair indicated his disposition to such an idea during his visit to Tripoli last March. Italy and the UK, have already noted a 12% increase in trade with Libya in 2003. The United States is well placed to see significant increases in relations with Libya and a London based event planning company has hosted a very successful two-day conference in Washington designed to help American companies do business in Libya; and an even bigger event is planned for July of this year. The point of the conference was to identify opportunities and reassure potential investors that Libya is serious about its intentions to attract Western business and that it presents an attractive opportunity with far fewer risks, political and economic, than expected. Despite concerns over legal transparency and the enforcement of contracts, Rajab Shiglabu, director of the Libyan Foreign Investment board (a newly created office) stressed the Libyan government's commitment to make the Libyan Jamahiriya an attractive place for business. 
Shiglabu, also advised conference delegates that oil was evidently the principal, but not the sole aspect of Libya worthy of business attention. He noted the need to revamp the transportation infrastructure from roads to seaports and airports and tourism. Economy and Trade Minister Abdulgader Omar Elkhair added that Libya was to keen to diversify its economy and reduce its dependence on oil, which accounts for 94 percent of exports, 60 percent of government income and 30 percent of Gross Domestic Product of some 34 billion dollars. The idea of diversifying the economy is not new and UNDP in the 90's was working with the Libyan government to develop programs to develop precisely the sort of things now being advocated in a more serious and committed matter. Since Prime Minister Shukry Ghanem was appointed, he announced Libya's desire to open the country to private investment from abroad and Libya itself. Little has been made of the modality through which a realistic privatization program might be implemented. There are some indications that the most likely modality to favor private investment in the oil sector, which Ghadafi had recently indicated as open to privatization, will closely resemble the Algerian public-private partnership (PPP) approach used by the Algerian state owned oil company Sonatrach.

The Algerian Model 
Starting in 2000 Sonatrach implemented internal reforms to make the process for contracts more transparent favoring the involvement of foreign bidders. The results were impressive. Despite security concerns, the oil sector was the recipient of a record number of investments, which resulted in a 45% growth rate in the sector by 2001. As a result, the Algerian Ministry of Energy and Mines is confident that oil and gas production will grow significantly, with projected revenues increasing by 50% in 2006. The projections are based on infrastructure and investment from joint-ventures between Sonatrach and independent foreign investors such as Anadarko Petroleum, BHP Billiton, Cepsa, and Amerada Hess. Just as Libya, though in a less chaotic and haphazard fashion, Algeria's development model after independence from France grossly undermined the private sector. Growth was to be almost exclusively state-led and domestically funded - through oil. Again, like Libya, Algeria has experimented with privatizing the economy since the late 80's. The consequences were disastrous on the social side. The economic restructuring de-legitimized the government and exacerbated tensions. The disillusionment was largely responsible for the strong performance of the FIS (Islamic Salvation Front) at the 1992 elections. 
Nevertheless, the oil sector had never been privatized or economically liberated to absorb foreign investment. The state owned oil company Sonatrach was seen as too vital to state interests - and essential to facilitate the privatization of other sectors without causing excessive social tensions-to adopt a full-scale liberalization. The policy of choice was then to clean up the company from the contractual and legislative point of view. The government decided to remove the ambiguous roles that Sonatrach was performing as a commercial company whose partnership any oil firm working in Algeria must seek and a government agency responsible for the regulation and distribution of exploration and production contracts. 
The conflict of interest between these two functions was eliminated by legally establishing two independent, self-financed agencies to award future exploration and production contracts. Sonatrach was then forced to compete with other companies for contracts. Libya's National Oil Company has played a very similar role to Sonatrach. Should the Algerian modeled legislation be adopted, NOC would also be relegated to competing for contracts through a separate agency making the competition for contracts more transparent and attractive to potential foreign investors.
Meanwhile on the political front, Colonel Qadhafi must have felt the need to politically distance himself from the United States, as his rapprochement with the superpower has come at a peculiarly odd time. As other Arab states are trying to distance themselves from the administration of George W. Bush, Qadhafi's relationship with the US has never been closer in decades. The opening of Libya to foreign investment and the removal of sanctions has been widely welcomed in Libya. Libyans themselves have few avenues for protest; however Qadhafi felt it necessary to complain at the Arab League Conference in Tunis about the current state of the Arab world and its ineffectiveness against aggression. He called on coalition troops to leave Iraq in order to stop violence in Iraq. he insisted that international forces be placed under UN command. The Libyan leader criticized the latest botched Arab-Israeli peace efforts and threatened to pull his country out of the 22-member Arab League adding: "What's the significance of this Arab gathering? How can this summit convene while there are two Arab presidents in jail? I am disgusted."

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ENERGY

Libya plans auction for 8 oil and natural gas projects

Libya will hold an auction by the middle of the year to draw foreign investment into eight oil and natural gas projects, according to a senior official, the first opportunity for American oil companies to do new business in Libya since President George W Bush eased sanctions recently.
Speaking from an industry conference in Houston, Tarek Hassan-Beck, director of planning at the National Oil Company of Libya, said that he was leading a government group that is completing the terms of an open auction for eight projects across the country and off the coast. While the proposed projects, or blocks, are not production wells within what Hassan-Beck called "prolific Basins."
The projects would not contribute immediately to worldwide oil supply and thus would have no near-term effect on oil prices, which have risen to levels last seen in 1990, when Iraq occupied Kuwait. In New York recently, Crude oil for June delivery was up 44 cents, or 1.1%, at US$39.42 a barrel.
The easing of sanctions against Libya allows US oil companies to revive their participation is decades-old production ventures in the country, and already, Occidental Petroleum, ConocoPhillips, Marathon Oil and Amerada Hess have moved to renegotiate their old leases. But the new projects Libya is preparing for auction would let US companies catch up to European rivals like Agip and Total that have moved in over the last 20 years to help develop Libya's reserves.
"American oil companies themselves have been punching like mad because they have even excluded for so long, and they want to get where oil is, and they're dying to go," a senior European oil executive said. Of the Libyans, he said: "These guys need the money and technology, which they have a lot of untapped areas that need developing. So why waste time?"
American oil executives have already visited Libya to renew relations with government officials and to investigate new projects.
Libya sits atop at least 36 billion barrels of oil, but Hassan-Beck said that only 25% of the country had been explored for oil and gas. He pointed out that there were seven large basins in Libya where oil and gas are produced, but that "just five or 10 years ago, we hadn't discovered some of them and now we have a gold rush."
US and United Nations sanctions severely restricted investment in Libya's oil industry over the past 18 years. As a consequence, the industry is now in dire need of new technology, management techniques and equipment, Hassan-Beck said.
He estimated that Libya would need US$30bn in investment over the next 10 years to modernise the oil sector. The country produces 1.2m to 1.3m barrels a day now, he said. With the proper investment, Libya could produce about 2m barrels a day by 2007, he said.
Libyan oil officials are courting not just the major oil multinationals but smaller, more nimble exploration and production companies that could enter a project more quickly. The officials are also talking to oil field service companies that can help Libya improve the recovery of its oil from wells that are already producing, Hassan-Beck said.
Among Libya's top priorities, Hassan-Beck said, is developing its large natural gas reserves, mostly for export.
A new natural gas pipeline has been built to Sicily, and the first gas should be flowing form there into Europe by September, Hassan-Beck said. But the longer-term goal is to make liquefied natural gas that would be shipped directly to the ever energy-hungry American market, an option that seemed very remote just a few months ago.

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