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Books on Libya
REPUBLICAN REFERENCE
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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Update No: 015 - (31/01/05)
Thinking beyond oil?
The year 2004 was very good for Libya both politically and economically
signalling the return of Libya in the international system. The Libyan leader
Mo'ammar Al-Qadhafi noted on 1st September 2004 address on the anniversary of
the 'Revolution' that brought him to power in 1969 that "The world had
changed". The Libyan media, which typically echoes and interprets the
direction of the leadership's policies, have been stressing that economic
interests are what matters most to Libya now regardless of previous diplomatic
and ideological antagonisms. Indeed, Libya received the largest amount of
foreign direct investment in Africa in 2004 thanks to its vast energy resources,
attracting the right kind of attention from the United States and Europe, whose
corporations are eager to develop. Europe is also hoping to use Libya as a base
for curbing illegal immigration from Africa - the high prices of crude have also
helped sustain the interest and have generated about $15 billion in revenue for
2004. The Prime Minister Choukry Ghanem has been one of the principal architects
of the economic pragmatism that has characterized his administration since the
summer of 2003. Ghanem has indicated that Libya intends to double its oil output
from 1.5 to 3 million barrels by 2010. Ghanem has also implemented reforms to
correct the corruption that prevailed in securing business contracts in Libya
reducing barriers to foreign investment. Ghanem also started to de-centralize
the oil industry adopting more transparent and free-market style processes.
However, this is still a work in progress proposition part of a wider scheme to
reform the primarily state run Libyan economy.
The Libyan oil industry reform, outlining the government's plans how licensing
arrangements with foreign energy companies will be concluded were the focus of a
conference in Tripoli backed and supported by the national oil company NOC.
Nevertheless, Libya as holder of Africa's largest oil reserves, as well as some
of the highest quality crude reserves in the world, realizes it has negotiating
strength. Libya could therefore, refuse to grant better terms demanded by three
of the biggest U.S. oil companies, which want to restart production contracts
that were frozen in 1986 when US sanctions were introduced. The three companies
ConocoPhillips, Marathon Oil, of Houston, and Amerada Hess formed Oasis Oil Co.
with the Libyan state oil company NOC. The US consortium owned 40% of the Oasis,
while the remainder was owned by NOC. The Oasis group has demanded that Libya
extend their agreement for use of the fields for 18 years originally signed
before 1986, but The Oil minister Fathi bin Shatwan has refused citing the 10
year limit on such agreements imposed by Libyan law. Before 1986, the Oasis
group produced 400,000 barrels a day, about one quarter of the country's current
output. The original American Oasis partners were also demanding a higher rate
of return at 8.5%, while the agreement allowed for a 6.5 percent return.
Nevertheless, Shatwan, who discussed these issues during an interview, also said
that he expected the US companies to sign the agreement in spite of the
unfulfilled demands. Meanwhile, Libyan oil has also attracted Japan's Nippon
Oil, which has announced that it will bid for oil and natural gas development
projects in Libya at international auctions.
Two other Japanese firms -- Teikoku Oil and Japan Petroleum Exploration Co. --
will be among 63 firms taking part in the auction. This is a significant
auction, as it is the first to be held since the US lifted full economic
sanctions in September 2004.
This time the Reforms are serious
However, the conference was part of a program designed to generate awareness
and interest in Libya's potential in other sectors of the economy such as
Agriculture, transport, telecommunications, education, tourism and healthcare.
Indeed, while 2004 was a pivotal year for the inflow of foreign investment in
oil, in 2005 Libya hopes to attract investment in other sectors of the economy.
Libya has realized that oil will not last forever, is searching for alternative
sources and develop new industries as while also managing oil revenues more
efficiently suggested Dr. Ghanem. Accordingly, the Libyan Prime Minister said
that Libya has approved investments by some foreign banks in Libya as part of
economic reforms implemented by the government. The economic reform plan
revolves around reforming the banking sector. Ghanem stressed that no other
sector of the economy would be open to foreign investors until the banking
situation had been revamped. He reiterated this position while discussing
rumours that the telecommunications sector, which badly needs updating, would
remain closed to foreign investors for the time being.
Pragmatic revelations at Davos
Nevertheless, reforms are on the way. Toward the end of January, Libya
officially launched a program of economic reform unprecedented since the early
years of Qhadafi's Revolution, when the economy was nationalized. The program is
very ambitious and its implementation aims to make government more efficient and
accountable, as it divests of assets favouring the emergence of a private
sector. Libyan officials also announced that the media would be liberalized. The
announcement was made at the World Economic Forum by Seif el-Islam Al Qadhafi -
the son of the Colonel, who is widely seen as having influenced his father on
taking a more pragmatic foreign policy and economic outlook - and Abdulhafid
Mahmoud Zlitni, the chairman of Libya's National Planning Council. Seif
el-Islam, in a clear bid to attract investment to Libya, stressed during an
interview that "The old times are finished and Libya is ready to move onto
the new stage of modernization…This will be conducted in a well organized
manner that ensures new openness and ownership by the people of Libya, not a
small class of oligarchs like Russia or Egypt." The latter remarks suggest
that Libya's economic reforms might be more substantial than the mild and
lopsided economic reforms usually called 'infitah' (opening) in Arab countries.
Libya has hired famous economic consultants from the West to assist in the
reform and advisers include Michael Porter of the Harvard Business School and
Daniel Yergin, the Pulitzer Prize-winning economist famous for his book on the
oil industry "The Prize." They will be helping Libya develop a
two-year plan to implement the changes necessary to increase the private
sector's role in the economy.
Libya had embarked on two major attempts to reform the economy in the late 80's
and the mid 90's. Both were seen as necessary responses to lower oil prices.
However, the reforms of the late 80's merely reversed the social benefits that
legitimised the Qadhafi regime in the first place and met with strong
opposition. The reforms of the mid-90's permitted the formation of
public-private cooperatives, which were limited to small scale production
facilities; moreover, the sanctions boosted the black market and a related
private retail sector, which supplied Western goods to Libyans, who could afford
them. The latter accentuated differences between rich and poor and Col. Qadhafi
faced some of his strongest opposition in 1996 when the black market reached its
peak. Once critical observers of Libya now suggest that the current economic
reform program is much more serious. Despite the challenges, Dirk Vandewalle,
associate professor of government at Dartmouth College who specializes in North
African politics and economics, says that external and internal pressures make
the current climate much more favourable for cultivating reforms. "There is
a strong internal feeling that change must happen...They realize international
investment will be needed for development." One of the first projects will
focus on reforming government and institutions, and will be guided by the
British Adam Smith Institute - reducing civil sector employees will be one of
the main aspects. Significantly, Libya has also announced it will close
industries where it is not competitive. Two of those might well be the Libyan
Cement Company and the Libyan Steel Company located in Misratah. They were built
along with a number of other 'white elephants' in the 1970's and 1980's only to
accrue millions in losses. Their closure would not have been politically
feasible before the current reforms. Qadhafi added, pragmatically: "We now
have a factory producing cars, which is crazy and will change," Qadhafi
said. "We will not try to produce missiles or airplanes or anything that
the Japanese can make better."
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ENERGY
Poland to access Libya's oil fields
Polish Prime Minister, Marek Belka, recently headed a delegation that met
with Libyan leader, Muammar Gaddafi in Tripoli. Bleka was accompanied by
businessmen, which included the head of PKN Orlen, Igor Chalupec, Warsaw
Business Journal reported.
Oil was the topic of discussion, with PKN Orlen and Lotos teaming up with other
state-owned energy firms to negotiate over access to Libya's oil fields.
Treasury Minister, Jacek Socha, said the project was worth considering both in
terms of economic gains and national energy security, by diversifying oil
supplies away from Russia. Nafta Polska chief, Krzysztof Zyndul, told Daily
Gazeta Wyborcza: "We want to prepare a joint offer for the Libyans by the
ed of April … but it is too early to talk about the creation of a formal
consortium of Polish petrochemicals firms." Nafta Polska owns 17 per cent
of PKN and a controlling stake in Lotos. Several Polish companies would also
seek licences for oil exploration in Libya.
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