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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: 016 - (28/02/05)
Libya Completes Final Normalization
Hurdle…But Significant Structural Problems Remain
In February, Libya moved closer to achieving full normalization with the
United States, while it continues to attract interest from foreign investors
wishing to take advantage of the new more favorable geo-political conditions, as
well as an economic climate that is very favorable for business. The
Undersecretary of State, William Burns, who visited Tripoli to make formal
arrangements for the normalization, also said that Libya would receive the
support of the United States in joining the WTO. Nevertheless, some serious
questions remain, and after the excitement of the rapid and surprising changes
following the rapprochement between Libya and the West in 2004, Libya needs to
take care of the details, before it can be considered ready to sustain the
foreign investment it has been attracting. The questions, nevertheless, are
mostly in relations to the economy as a whole, because the oil sector has always
been run with a different and much more efficient approach. This suggests that
while Prime Minister Shukry Ghanem may have promoted economic reforms aimed at
generating a greater role for the private sector internally and to attract
foreign investors buyers for Libyan state owned enterprises; the reality is that
some very basic issues remain that make Libya a difficult proposition, while
leaving doubt as to the seriousness with which economic reforms are being
pursued.
Competing with Algeria
Neighbouring Algeria, which has also engaged in attracting foreign investors
and deregulating the economy, has been doing a far better job to create the
necessary conditions to support such investment. Like Libya, Algeria is
dependent on oil and has benefited tremendously from the high oil prices in
recent years. However, Algeria has been planning its reforms through a strong
and, by regional standards, democratic mandate adding institutional strength and
credibility. President Boutlefika of Algeria has won 85% of the vote in recent
elections suggesting that the population stands behind the economic reforms,
while softening the entrenched opposition posed by the military and bureaucracy
establishments. As the violence of the 90's fades, Algeria is on track to gain
access in the WTO and attract investment in non-oil areas of the economy. The
oil revenues are being used wisely to improve its credit such that its foreign
exchange reserves exceed its external debt by a significant margin, and it is
leveraging the margin to pay its debts. Moreover, Algeria has been developing
its banking sector, which is a crucial tool for economic development in emerging
markets. Indeed, despite the recent fraud scandal involving the Khalifa Bank,
the reform minded government is promoting the development of private banking and
such financial mechanisms as credit cards and mortgages are already being
adopted. Banks like Citigroup and Societé Generale of France are already
actively pursuing the Algerian market. While these banks still play a minor role
compared to state banks, and credit is still not given easily, the structures
are in place to support their development. The financial de-regulation is being
coupled with reforms in the legal mechanisms governing finance and foreign
investments with the training of more magistrates and lawyers in finance law.
Consequently, Algeria, which struggled through a bitter civil war, has been
actively laying the institutional infrastructure to support the investment it
wants. Algeria is serious about attracting investors and developing the private
sector, and the United States have been paying attention with steadily
increasing cooperation projects in energy as well as other sectors.
As for Libya, market reform remains a promise, which shows no demonstrable
progress. Unlike the political and institutional backing for reform enjoyed by
Algeria, the face of the reform process has been Col. Qadhafi's son Muhammad. It
was Muhammad, who speaking at Davos last month, introduced the wonderful
prospects that Libya's economy offers foreign investors. Muhammad does not have
an institutional role, and officially, as he himself admits, he is not
necessarily slated to inherit his father's role, as the Libyan Jamahiriya system
does not envisage succession on that basis - or any other for that matter.
Therefore, while Libya talks about being open for foreign direct investment (FDI),
there are no structural policies to sustain it. In fact, it may be said that
Libya is now competing for FDI with countries like Algeria, yet it faces the
disadvantage of idiosyncratic political institutions. Markets require a
sophisticated institutional infrastructure and administration in order to
function properly. The mere modification, by decree, of state dirigisme, as
occurred in Libya, is not an adequate way of sustaining them.
Institutional Void
Libya has experimented on various occasion with the concept of privatisation,
most recently, prior to the fanfare of 2004, the solution was found in worker
cooperatives known as tasharrukiyyat. These entailed a form of privatisation
that was adapted as best 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. The program was not successful, and not only because the small
scale production was not conducive to significant diversification of the
economy. Indeed, a fundamental pillar of a free market economy, and what Algeria
has been working fast to establish, is that property rights were not guaranteed
and privatisation had not been officially sanctioned in law. There was no
regulatory framework to support national markets and no financial, legal, and
civil institutions in order to provide a free exchange of information and
enforce contracts. Libya's Green Book based constitution remains the obstacle.
It is an obstacle also because there is no real executive and the various
members of the General People's Committees can override each other's decisions.
Moreover, the Revolutionary Committees, which act as the guardians of the
Revolution have an interest in maintaining the status quo and any serious
attempt to liberalize the economy suggests that the institution of the
Revolutionary Committees (RC) be scrapped. The fact that many of the members of
the RC come from the Warfalla tribe, means that taking necessary institutional
reforms disrupts the tribal balance that represents the heart of the Libyan
system. As often said in other updates, the oil sector functions autonomously,
and very efficiently, as it is vital. Therefore, until real institutional
changes are made, the improved relations with the West will mean largely and
exclusively, that investments will remain concentrated in the oil sector.
Rock shock
Examples of the confusion created by Libya's institutions may sometimes
appear trivial, but they speak volumes about the type problems that foreign
investors want to avoid. For instance, an American rock group, the Oakland Indie
Trio visited Libya in February, where it was engaged to perform live shows in
venues such as the Roman ruins of Leptis Magna and Sebratah. Once, the group
arrived, authorities started expressing doubts about granting the visas for the
performances and after a week of sitting around waiting in the hotel, the band's
concerts were cancelled, as visas were not granted.
This is a situation many business people discover when they go to get a business
visa at a Libyan embassy, or meet their partner in Tripoli. The problem occurs
as members of one people's committee grant a 'privilege', later revoked by
another people's committee. Permits and regulations are in a permanent state of
flux it seems.
Bulgarian Nurses
A less trivial example, is the ongoing imprisonment of the Bulgarian nurses
in Benghazi. In the latest episode of the 6 year long saga, Libyan authorities
did not allow Bulgarian journalists to go to the Judeyda prison to meet the five
Bulgarian nurses sentenced to death. After a week of lingering with formalities,
the reporters were sent home. Most medical experts agree that there is no
scientific evidence proving the guilt of the nurses and the Palestinian doctor,
whereas there is evidence of bad procedures at the hospital.
If Libya is truly serious about attracting foreign investment, it must also show
the world community that its legal system is just and release the nurses.
Democratic credentials. Oil...and tyranny
Already Libya is being widely held up as a flagrant example of hypocrisy in
the way that the State Department selected the six 'Outposts of Tyranny,' and
omitted only those which gave Washington some diplomatic, military, or oil based
advantage to be left off such a list. Our sister website www.worldaudit.org in
its most recent assessment of democracy in the worlds nations, shows Libya in
terms of political rights, human rights, press freedom and public corruption as
just about as bad as it could get.
It seems extraordinary that the American president on his February European
trip, should publicly insist on the democratic credentials of Russia for
example, when his administration has facilitated the return of Libya to the
comity of civilised nations without any pre-conditions of democratic reform.
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ENERGY
Naftogaz Ukrainy may start developing Libyan fields
Ukrainian national oil and gas company, Naftogaz Ukrainy, hopes to start
work to develop oil and gas fields in Libya this year, after the Libyan
government's approval of a production sharing agreement between Libya's National
Oil Company (NOC) and Naftogaz Ukrainy, signed in October 2004, New Europe
reported recently.
Igor Voronin, Naftogaz Ukrainy Deputy CEO, said that the company plans to keep
to its strategy, adopted in 2004, of transforming from being a national to an
international company by buying production and transportation assets. He said
that the company is preparing to take part in the privatisation of Poland's POGC,
which is expected this year.
Voronin also said that the company plans to compete for assets belonging to
Hungary's MOL, again, after Germany's Ruhrgas refused to acquire them under
pressure form Hungarian state regulators. Speaking about Naftogaz Ukrainy plans
to expand its raw material base, Voronin said that assets in Russia are the most
promising. "There is a lot of doubt about the discovery of large fields in
Ukraine or in the Black Sea. This is practically impossible.
Assets in the oil and gas business in Russia are undervalued, plus the
opportunities for supplying hydrocarbons from Russia to Ukraine are good,"
he said. Forecast reserves at the PSA blocks in Libya amount to about 110m
tonnes of il and 30bn cubic metres of natural gas. The PSA is valid for 25 years
for oil, and 30 years for gas. Maximum daily production amounts to 5m tonnes.
The oil produced in Libya will be sold inside the country. Naftogaz Ukrainy
investment in Libyan fields in 2005 may amount to about US$50m
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