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Millions of US $ 19,131     71
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Col Mu'amar al-Qadhafi


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 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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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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