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LIBYA

 
  
  

 

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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 19,131     71
     
GNI per capita
 US $ n/a n/a
Ranking is given out of 208 nations - (data from the World Bank)

Books on Libya



Update No: 052 - (28/03/08)

A Realistic Reform or a Privatization Pipe Dream?
Despite its socialist pretensions, the Libyan leadership has often launched initiatives to introduce a greater role for the private sector. More often than not, ‘privatization’ reforms were used to offset the effects of low oil revenues, which hurt the state’s capacity to sustain subsidies in food and social services while allowing cooperative control of small companies having no more than 100 employees. Of course, the strategic oil sector was never included in any such plans. The 1990’s decade of UN sanctions saw a period of less controlled capitalism fueled by the black market and the emergence of a parallel retail sector, which sold goods that most Libyans could not afford, exasperating social disparity. In recent years, the rehabilitation of Libya’s standing in the West has also been characterized by promises of a more favorable business climate, able to absorb foreign investment. There has been no shortage of investment in the oil sector, but apart from some tourism, construction and banking initiatives (BNP Paribas) few foreign or local companies have shown interest in long term investment in Libya. Tourism, which has been promoted as one of the main areas in need of investment has been hampered by the Libyan political system’s inherent governance problems; even rules for allowing visitors in the country had multiple and conflicting interpretations, such that some tourists armed with visas and permits were turned back at borders over whimsical issues. Some of these conflicts, as noted in several updates, are a reflection of internal conflicts between reformers and conservatives of the revolutionary apparatus. Colonel Qadhafi is trapped in his own system and, however well intentioned; his plans to change Libya have so far fallen short, despite the windfall of oil revenue. 

Last week, Qadhafi appears to have started a campaign to tackle the internal conflict, addressing some of the governance weaknesses. In typical fashion, Qadhafi did not hold back punches as he told the General People's Congress – parliament - that the General People's Committees (GPC’s) – ministries in standard parlance - had failed to manage the $37 billion state budget, which delayed many development and infrastructure projects in the country. Qadhafi suggested – he is not the official leader after all, only a ‘guide’- that most committees, with the exception of defense, foreign affairs and security, should be dismantled and power given to ordinary people to devise new ways of sharing out oil wealth – not necessarily the oil sector however, which falls more in the area of foreign affairs and security. In Qadhafi’s latest vision, there is an apparent desire to remove the remaining socialistic aspects of the political system such that the state become more of a regulator, and less of a planner, of economic activity. It follows that such a ‘liberalization’ would necessarily imply that the government would reduce its influence on prices, removing government subsidies to basic goods and government services, to allow a larger role for an eventual private sector. As noted above, this is not entirely ‘revolutionary’; the plan is yet another interpretation of a common theme in Qadhafi’s speeches, blaming public discontent on the incompetence of public officials. The question remains, will the reforms actually be carried out and will Libyans cope?

After almost 40 years of Qadhafi’s rule, Libyans have surely come to expect nothing less than sudden changes from the ‘leader of the Revolution’. Usually big changes, some of which have been nothing short of social experiments, have been launched in periods of high oil prices. With the price of oil hovering around the USD 100/barrel, the timing is right for another Qadhafi experiment; however, should the Libyan leader be serious about such reform, he would have to renounce the Green Book, which is the de-facto Constitution of the country. The Green Book’s anti private property tenets have never fully impeded private business, though they certainly discouraged it, particularly where foreign investment is concerned. Qadhafi is proposing changes that would make Libya look more like Hong Kong than Dubai, removing the very social safety net that has been the backbone of the government’s legitimacy since 1969. When the government removed bread subsidies in 1989, there were riots, exacerbated by an Islamist element in cities like Benghazi. 

Do Changes Have Credibility?
According to Qadhafi’s plan most of the GPC’s will be eliminated by the end of 2008 and the new governance system will act as regulator; the private sector shall actually run the services. Prime Minister Baghdadi al-Mahmoudi will head a new infrastructure and services ministry, replacing the health, education, agriculture and electricity, water and gas committees. On paper, this looks like a radical reform, but there are serious problems that Qadhafi’s speech does not address. The main concern is that while, there are plenty of wealthy Libyans with enough money to invest in the infrastructure and provision of social services, there is a serious shortage of management skills in these areas. Privatization would make matters worse for ordinary Libyans, as there is no compelling reason to believe that private companies would run hospitals, schools or electricity stations better than the government. These sectors would become as reliant on foreign management and technical assistance as the oil sector, which would add to the problem of Libya’s unemployment and underemployment. Qadhafi’s plan is too haphazard to work; many sectors certainly need reforms in which the private sector could play an important role, but for any privatization to work – without major upheavals – the reforms must come before the privatizations, which should also be well targeted. Perhaps, predicting the social upheaval, the government plans to ‘buy’ the people’s acceptance of the governance ‘reform’ distributing USD 3.9 billion (about 9% of its 2008 budget) to all Libyan households such that each receives about USD 12,000. 

Libyans are expected, after years of socialist policies and the discouraging of private initiatives (through intimidations and arrest) to invest these funds into the new system. In other words, to suggest that Libyans become sudden entrepreneurs, even as they know laws and systems change on a whim and are dependent on the oil price, is optimistic to the point of fantasy. No doubt, the traditional ruling families may take advantage of these changes; they don’t need the government handouts and have business experience, but they may well demand more radical political changes including a share of power. How will Qadhafi reconcile such demands, when most of the traditional business elite once backed the monarchy and has lived in exile abroad? Libya is trying to do too much too soon, following in the footsteps of Russia in the post-Soviet era, following the shock therapy advice proffered by Jeffrey Sachs. In the latter case, however, a political reform went hand in hand with the economic one, and as shocking as it was, Russia had an educated and experienced population able to run the privatized sectors of the economy – not that the process was in any way ‘easy’. In this case, the skepticism that often accompanies Qadhafi’s statements is a source for optimism.

The proposed privatization measures are unlikely to be adopted as presented to the GPC; they will doubtless be modified to reflect some of the obvious problems. It is more likely that the ‘reform’ is Qadhafi’s way of shaking up ministries that have failed to perform according to the leadership’s vision; the tourism and passport debacle was a clear example of this discrepancy. Qadhafi’s is trying to reign in on contradictions that exist within the GPC’s and the Popular Committees, suggesting that the actual ‘reform’ shall be more diluted having the attraction of more foreign investment as its ultimate target. Foreign involvement remains focused on oil and gas but Libya needs and wants investment in banking, services, tourism and infrastructure – the very sectors slated for ‘privatization’. The reforms are also intended to break the power of powerful bureaucrats who have thrived under the government social welfare policies that made monopolies of important sectors. 

US Assets Seize Threats Already Leaving ‘Victims’
It is significant, in regard to foreign investment in Libya, that Bush administration has asked Congress to exempt Libya from a law allowing terrorism victims to seize the U.S. assets of state sponsors of the attacks. The logic of the request is that such action would make Libya, and other countries, more reluctant to help the “United States fight terrorism”. In fact, the law made it less attractive for those planning to invest in Libya, or for Libya to invest its growing oil revenues in the United States. In early March, some potential investors possibly started to feel the effects of this law. Indeed, the Libyan government canceled plans to sell a majority stake in European refining company Tamoil to Colony Capital LLC, apparently declining to offer the U.S. private-equity group compensation for terminating the deal. The Libyan government in June agreed to sell a 65% stake in Tamoil (USD 3.5 billion) to Colony Capital, a Los Angeles private-equity group. Tamoil owns refineries in Germany, Italy, Spain and Switzerland. The deal no doubt ended because of Libya’s irritation over the U.S. law that helps victims of state-sponsored terrorism pursue the assets of countries that support terrorism.     

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