Earlier this year, 17 February marked the second anniversary of Libya's 2011 revolution. The uprising witnessed the ousting of Colonel Muammar Gaddafi following 42 years of dictatorial rule in the North African country. Libya finally released itself from the shackles of a totalitarian regime with the assistance of the international community, prompted largely by the political zeitgeist that had swept the Arab world. New Libya is now in a phase of construction and reconstruction of everything that a modern state requires, though the growing pains of this fledgling democracy persist.
Libya's first recorded foreign settlement dates back to antiquity with the Phoenicians establishing trade stations on the coast of Tripolitania in the 1st millennium BC. Strategically located on the Mediterranean with over 1700 kilometres of coastline, Libya, the fourth largest country in Africa (more than seven times the size of the UK), has the largest proven oil reserves on the continent- some 48 billion barrels. The country is resource-rich, to say the least, but despite the colossal revenues it amassed from petrodollars, it suffered from chronic underinvestment during Gaddafi's time in power. There were vast developmental disparities between the west and the east of the country, with Eastern cities such as Benghazi left severely underdeveloped and lacking in essential infrastructure. For much of Gaddafi's tenure, the international community considered Libya a pariah state, resulting in sanctions being imposed on the country at various points under the Colonel's stewardship. Many in the west saw the nationalisation of oil in 1973 as an act of defiance by the then 31-year-old tyrant, with Gaddafi's repressive regime becoming synonymous with shocking events in the subsequent years ahead.
All of this left Libya isolated and with an almost non-existent private sector. However, this was set to change with the youth-inspired 2011 revolution and the consequent demise of Gaddafi and his circle.
“Libyan policymakers are now rebuilding after decades of capricious centralised control, in which the rules of the game were whatever a small group of men decided they were when they woke up on any given day,” says Ahmed El-Houssieny, Chief executive of Planet Investment Banking, a financial advisory house in Egypt, and a former managing director of Citadel Capital specialising in Africa and the Middle East.
Libya's post-revolution interim government, the National Transitional Council (NTC), was responsible for overseeing a difficult and yet, on the whole, successful transitional period up until the body's dissolution in August 2012. Under the NTC, the Libyan people finally got a taste of democracy at the polls in July 2012 for the first time in over four decades. The NTC can also claim the recovery of oil production under its watch to near pre-revolution levels (1.6 million b/d), following the almost complete halt in production during the revolt. The current Prime Minister, Ali Zidan, was finally sworn into office in November 2012 following months of regional rivalry and discontent that resulted in failed attempts to form a government.
The PM inherited the leadership of a rentier state facing several challenges. The primary challenge for the government is to ensure security at the domestic level by negotiating with factional groups and to bring an arms amnesty to fruition - the proliferation of firearms among the masses is a hangover from the revolution. Moreover, following the January attack on the In Amenas gas plant in neighbouring Algeria, security cooperation at regional level is high on the agenda. It is expected that new oil concessions in Libya will be granted by early 2014. If overarching security challenges can be tackled, Libya's potential as an economic powerhouse and attractive destination for investment can surely be realised.
Further domestic challenges include the development of a new and inclusive constitution, the establishment of "quality" state institutions, the implementation of the rule of law, as well as pacifying the debate on "centralism vs. federalism" in the country.
At the forefront of economic challenges is the need for diversification away from hydrocarbons, which are the lifeblood of the economy, coupled with the development of a strong private sector. According to Ahmed Ben Halim, CEO of Libya Holdings, an investment partner to leading international companies in Libya, says “The Libyan economy is moving steadily through a stabilization phase that is seeing civil security and basic trade ever more deeply embedded. The country has vast natural resources and during this first phase of its emergence we believe that it will need to invest particularly in its oil and gas sector and in its housing, power and transportation infrastructure.”
He adds, “Foreign investment and international partners will be essential in providing expertise to help the country and we are working closely with such companies to invest in Libya.”
Libya’s investment needs are huge and diverse. The international business community is needed to help develop mutually beneficial relationships across sectors, which will help Libya build a modern state and a healthy business environment. The IMF forecasts 20.2 per cent GDP growth in 2013. As El-Houssieny says: “Everything is needed, really. Libya is a deficit market for housing and real estate, with residential, commercial and office space all lacking. Education and healthcare are crying out for investment. Banking, finance and value-added approaches to maximising natural resource wealth... the list is endless.”
Infrastructure projects will be of particular importance going forward, as these will lay the foundations for Libya and guide its development trajectory. In recent years, it is the Turkish and the Chinese construction companies that have enjoyed a strong presence in Libya, whereas the British and the other European companies have often lagged behind in instrumental sectors. New Libya is capable of providing business opportunities for all, and it is in urgent need of expertise, experience, capacity-building and transfer of technology.
In a post-revolutionary address focusing on British business opportunities in Libya, Lord Green, the UK Minister of State for Trade and Investment, highlighted: “Due to the magnitude of the reconstruction work required, companies will need to think imaginatively about working with other British, Libyan and international partners, such as the Emirati or Turkish firms, in triangular partnerships on larger projects.” Foreign investment will assist with another of the government's challenges by creating employment in the private sector for Libya's “generation in waiting”, thus steering the youth away from queuing for jobs in the oversized public sector. SME development will also be fundamental to job creation, with Libyan entrepreneurship having taken great strides over the last year. This rediscovered entrepreneurial drive can be described as something of a renaissance, as the enterprising spirit is synonymous with the pre-Gaddafi era under King Idris I (1951-1969). The need for skills-based training across sectors and a revamp of the education system provide ample opportunity for international partners in this sector. As Lord Green observes “Education is one of the areas where we can really make an impact in Libya.”
The Libyan healthcare system requires heavy investment too. The World Health Organisation highlights the lack of primary healthcare facilities such as local clinics and district hospitals. There are currently less than 1500 of these serving a population of nearly 6.5 million. Many Libyans are known to admire the UK's National Health Service and consider it as a benchmark.
The financial sector is also of paramount importance and ready for reform. Developing a prudent financial regulatory framework and a business-friendly environment will go some way towards attracting major banks and smaller investors alike, as well as helping grow the economy. The fostering of a 'business-friendly' environment must be government-led and should provide the right conditions and incentives for investors. The prospect of further Dubai-style free-zones and clusters has been discussed as a potential investment driver- Misrata free-zone is the best-known Libyan example that seeks to reap the benefits of agglomeration.
Foreign companies that take the first steps to building relationships with Libyan partners will surely get a foothold in a market with great promise and earn the rewards of investing in this rich nation. In spite of the many challenges in the short-term, Libya, indeed has great potential that will only be realised through joint efforts led by the government, the international business community and the will of the Libyan people. Ben Halim emphasises: “Over the past 30 years as an investor in the MENA region, I have experienced and witnessed phenomenal growth in countries like UAE, Kuwait and Saudi Arabia, all oil-rich nations. The parallels between the Libya of today and the GCC countries of the 1960s and 1970s are striking. Investors that wish they had invested in the GCC then, have another opportunity now with Libya.”