“Libya is serious about encouraging investment,” Libyan leader Mu'ammar al-Qadhafi told participants in the Development and Investment in the Great Libyan Jamahirya conference on 15 November. “We will create a suitable environment for investors, who must be at ease with their investments in Libya.” He also explained that the country welcomes investors who are “careful and concerned” while warning against exploitative capitalism and the use of economic means for political ends.
“Libya tries to remove politics from economics,” Col Qadhafi said, stressing that political disagreements should not lead to economic sanctions, which he described as a tool to cripple economic progress – a point reiterated by a number of Libyan officials throughout the conference.
Held in Tripoli on 14-15 November, and organized by the London-based CWC group, the two-day forum gave Libya the chance to show foreign investors that it is serious about economic liberalization. The fact that Col Qadhafi addressed the audience of over 200 international investors, European diplomats and local businessmen appears to reflect a change in the country’s attitude towards foreign investment.
It also indicates a new willingness, after eight years of political and economic isolation, to reform the economy and attempt to overcome the effects of sanctions, which – according to official estimates – have resulted in economic losses of $26.5 billion (MEES, 13 September 1999).
UN sanctions have now been suspended following the handing over for trial of the two Libyans accused of the 1988 Lockerbie bombing. With the exception of US firms which are still prohibited from investing in Libya by US Presidential Executive Orders, European firms have effectively been given a green light to bring much needed investment to the weakened economy.
Economic growth since 1992 has been either stagnant or very low – in the period 1995-99 growth rates averaged 1.4 percent, with negative GDP growth in 1997 and 1998 of 0.5 percent and 2.0 percent respectively. Since then rates have picked up and in 1999 the country saw a much healthier 5.4 percent rise in GDP – well above the government’s projection of 4.2 percent (MEES, 1 May).
However, the economy is not out of the woods yet, and some analysts are predicting that growth may return to the 2.0 percent range next year. As one British participant in the Tripoli conference told MEES, the latest tentative steps towards removing barriers to foreign capital and reducing oil-dependency are a direct response to popular concern about the state of the economy and a desire for progress.
“Libya is in some ways still governed by the people,” he said. “Mr Qadhafi has to listen to the people, even if he still makes the final decisions.” Libya is still dependent on oil revenues for almost all of its export earnings, which stood at around $9 billion in 1999, and for one third of its nominal GDP of around $44 billion.
Growth in both the industrial and service sectors has been restricted in the past by government controls. However, according 'Umar al-Muntasir, Secretary of the General Planning Council, Libya is now addressing these issues. “We have a development and investment plan because of low national income,” he said. “We were depending on oil income only. Now we need more measures to define government and state resources to allocate for new investment projects.
We want to attract new investments to different sectors.” The government’s $35 billion five-year investment plan is expected to be 60-65 percent funded by the government budget, with the remainder coming from the private sector and foreign direct investment (FDI).
Mr Muntasir told the conference that the government plans to develop the private sector in order to attract foreign currency from abroad. “Our investment plan is not great in size but great in intent,” he said. “It requires a number of policy changes to encourage foreign investment.”
Mr Muntasir and other Libyan delegates also spoke of the need to implement existing legislative measures to attract foreign investors and to reform the current exchange rate. “We are going to propose legislation to help the economy,” said Mr Muntasir. “We have made no great steps yet, but we can work on new approaches and new policies.” Law No 5, the country’s main investment law, was approved by the Basic People’s Congress in 1997 and aims to attract foreign capital to “investment projects within the framework of the general policy of the state and the objectives of economic and social development.”
The law also aims to promote technology transfer, the training of Libyan personnel, the diversification of income resources and the promotion of domestic products for export. The Libyan Foreign Investment Board (LFIB) is mandated under the legislation to oversee foreign investment, which is permitted in industry, health, tourism, services and agriculture. Investors are permitted to transfer profits abroad annually and to repatriate capital under certain conditions (e.g. when a project is liquidated or bought).
In addition to legislation, Libya is also hoping that the unification of the country’s two-tier foreign exchange system will attract foreign capital. During the conference, the country’s Minister of Finance and Economy, al-'Ujayli Burayni, announced that “we believe we have now the means and the appropriate conditions to achieve a unified foreign exchange system very soon, probably by the end of next year.”
Without going into details, Mr Burayni said that Libya would try and guarantee foreign investors a more stable exchange rate. “Until we achieve the unified foreign exchange system, we will make arrangements with foreign investors to ensure a stable foreign exchange at a certain level to protect them against fluctuations,” he said. Mubarak Shamihk, the Secretary of the General People’s Committee, said that the basis for the exchange rate will be set in the near future, but gave no timetable.
The government has been working to narrow the gap between the official and the black-market exchange rates since 1999 with some success (MEES, 1 May). The official focus for the remainder of this year and next will be to continue to narrow this gap. Currently the official exchange rate at bureau de change in Tripoli stands at around $1=LD1.70 – significantly lower than the rates of $1=LD0.53 for 2000 and $1=LD0.57 in 2001 projected by the Economist Intelligence Unit earlier in the year (MEES, 1 May). Reform in the state-dominated financial sector as a whole was also discussed, although the only conclusion reached was that full or even partial liberalization is still a long way off.
Indeed, the extent to which Libya is committed to actually opening up its economy and providing the necessary legislation is far from certain. But just as Syria’s recent investment conference was heralded as a symbolic step in the right direction, the Libyan meeting is seen by some observers in a similar light (MEES, 13 September).
Many investors are adopting a ‘wait-and-see approach,’ with some still displaying a level of skepticism. Some European companies that have been negotiating for contracts in Libya told MEES that the decision making process in general is opaque, frustrating and often whimsical. According to one participant, negotiations for oil and industrial contracts are often very lengthy and uncertain. In some cases, Libyan negotiators have been known to cancel deals outright and without explanation just as an agreement was about to be signed.
Concerns also remain about Law No 5. One European businessman whose company’s factory was nationalized following the revolution told MEES that the law is too vague and that the government has to take steps to clarify its contents. Policy-making is apparently similarly nebulous. In March this year the General People’s Congress abolished a number of ministries including the oil ministry in an effort to devolve central power to provincial centers (MEES, 9 October).
The move has unsettled many foreign investors, who are now concerned that contracts and cooperation agreements could be abandoned just as arbitrarily. But on the whole, participants were realistic and acknowledged they had come to Libya with few expectations in the short-term. Instead, they saw the conference as an opportunity to position themselves for longer-term projects, notably in the oil and gas sectors.—( MEES )
© 2000 Mena Report (www.menareport.com)