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Books on Libya

Update No: 083 - (27/12/10)

American Investors Still Lukewarm Over Libya
Italy, France, Spain, the UK and other European countries continue to bid for important Libyan projects beyond the oil sector with the understanding, or at least the hope, that the potential returns outweigh the risks. However, apart from some American oil companies, which continue to operate in Libya, American companies have not reciprocated their European counterparts’ enthusiasm to invest in Libya. Certainly, in the United States, Libya’s image still needs to be ‘refreshed’. Memories of Pan Am 103, Lockerbie, and the related political activity by senators lobbying for the victims’ families, continue to present Libya as a country ‘of terrorists’. Senator Robert Menendez, who heads the Senate Committee on Foreign Relations, asked for a review of the British decision to release [sole convict for Lockerbie] Abdel Baset al-Megrahi, a few weeks ago. The Libyan leader’s performance at the UN in September 2009 did nothing to help change that image. Indeed, the long speech, a throwback to the ‘anti-imperialist’ struggle of the ideological warfare of the 1960’s and 70’s, only helped to boost the association of Libya with unreliability. Not surprisingly, with this kind of publicity, American investment in Libya has not been forthcoming.

The American ambassador to Libya, Gene Cretz, has returned to Washington to encourage Americans to invest in Libya. In an interview published by Forbes, Cretz stressed the negative image of Libya noting the infamous legacy of the Pan Am flight and that “there’s a guy who has prostrate cancer but he just won’t die”, is keeping US business out. Cretz stressed the infrastructure opportunities that exist, contracts for which European and Asian companies are all too hungry to secure, and that there are tens of billions of dollars worth of opportunities. American companies are very concerned by governance and corruption risks, as defined in the Foreign Corrupt Practices Act and Cretz said that Libyans are aware of this and that they would be ‘accommodating’, especially as Libya is about to privatize (or claims to be doing so) four state owned companies. Cretz tried to sell Libya to Americans by telling them they have to establish a presence in order to get a good ‘catch’ as the country shapes its next ten-year plan and starts issuing contracts. Nevertheless, even as the main American investors in Libya remain Chevron, Occidental, infrastructure companies such as Bechtel, GE, and consulting firms Ernst & Young (Cretz noted that the latter firm is auditing the expected 21,000 procurement contracts that Libya is issuing as part of its development plan).

Will Cretz succeed in persuading more Americans to join him in Tripoli? Despite the appetizing deals, the risks of doing business in Libya extend beyond the country itself. Not only do investors have to be careful about very personal situations such as the one that led to an almost two year long spat between Libya and Switzerland over the justified arrest of the Libyan leader’s son in Geneva in July 2008, they have to consider ‘guilty by association’ risks as discussed in the previous Newnations update. Being too closely associated with Libya is fraught with unforeseen risks that may outweigh the gains in non-extractive sectors (oil is a matter of survival for the Libyan regime, and the government is more careful about it dealings with major oil firms). BP recently experienced some of the backlash association risks for securing important deals in Libya. Some American senators still insist on pursuing a hearing to determine what role, if any, BP played in the British decision (though, formally, it was Scottish) to release al-Lockerbie convict al-Megrahi from prison.

BP delayed its plans to drill off the Libyan coast – the drilling was to have started last August – failing to explain why. In October, the chairman of Libya’s National Oil Company (NOC) announced that BP would start drilling, noting only that this would be “soon”, failing to indicate a specific period. In September a major Italian bank, Unicredit, came under pressure from politicians and shareholders after the CEO, Alessandro Profumo, was forced to step down because of Libya’s increased stake in the bank, which gives it a controlling share. The Libyan leadership position in the bank is still under investigation. The ‘Teflon’ prime minister Silvio Berlusconi, who has survived countless financial and personal scandals, which would have buried any other European politician, has suffered a considerable drop in popularity due to his overly friendly ties to Libyan leader al-Qadhafi. The Libyan leader’s ‘Qadhafi show’spectacle during a visit to Rome in the late summer did not help.

Interestingly, Libya will present greater risk in the near future as the succession issue becomes more pressing. There is no Constitution in Libya and while the succession plans may be contained within the Qadhafi family, the situation is less than clear. Saif ul-Islam al-Qadhafi, the one the West hopes will be the successor (this is not official in any way yet) unequivocally accused apparently his father and certainly the Libyan government of incompetence, only serving to fuel speculation and surely not doing Libya any favors in terms of attracting foreign investors, let alone American ones. Saif al-Islam (Saif), evidently, is taking shots against the ‘old guard’ or die-hard revolutionaries’ (who ironically always become the conservatives in these situations). Saif is merely highlighting the fact that the reformist camp continues to face a struggle against established figures, including the equivalent of the minister of foreign affairs, Musa Kusa. Saif’s accusations were proffered at the World Expo in Shanghai and were prompted by what, obviously embarrassed at the no-show, he deemed to be Libya’s poor interest in the event: "the Libyan government did not even bother to send a junior employee to attend Libya's day at the exhibition…That shows that there is no state in Libya."

Saif was responsible, or was the figurehead, for managing Libya’s diplomatic successes since 2004, but his statements draw attention to the fact that the succession is wrought with uncertainties on policy, direction and a recalcitrant security apparatus, which seems to be the only truly efficient institution. Mu’ammar al-Qadhafi is, despite his eccentricities, still in good health; his failure to tackle the succession problem now or at least to do so with more ‘transparency’ to hint to potential investors where he intends Libya to go, is a significant risk. The differences between Saif and the leadership apparatus, the intelligence services and the tribal framework of Libyan power – not to mention differences between Saif and his brothers (Mutassim, Libya's National Security Adviser favors the ‘conservatives’ and is said to challenge his brother’s liberal ideas and reform initiatives), who are also competing for the succession (they do these things differently in North Korea), could lead to an implosion. A not so distant precedent for this scenario is Somalia after the fall of Siad Barre (a strongman who failed to prepare the country for the day he would no longer hold power). Competing groups, factions, brothers, tribes would struggle against each other leading to years of potential instability. The appetite for Libyan oil would surely attract international intervention on a far greater scale than Somalia, but the risk remains (and if Libya were truly interested in attracting foreign investment), it should realize that addressing the succession problem is crucial.

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