Rich But Starved: Libya's Economic Challenge

Throughout his 41-year reign, Muammar Gaddafi has used Libya's status as the world's 12th largest oil exporter to develop an investment portfolio covering business, property and gold.

However, Colonel Gaddafi's iron-fisted rule has starved Libya of the institutions and Libyans of the skills that are crucial to running a modern, thriving economy.

Dr Kristian Ulrichsen, research fellow at London School of Economics, said: "People had access to the internet and satellite TV but the stifling atmosphere of the Gaddafi regime didn't foster a culture of competitive behaviour because people were afraid if they did something out of line, they would suffer dearly for it."

Other than oil, Libya has no other significant industrial base or agricultural sector and the majority of its workforce live off the wealth of the oil sector through employment in a bloated public service.

Butcher's shop in Ajdabiya

Under Gaddafi, Libyans have lacked incentives to build competitive businesses

Researchers at Citigroup believe it could take until the end of 2012 to restore Libya's 1.6 million barrel yearly oil output.

In post-revolutionary Libya, the danger is that those who have learned to use weapons for the first time might continue to do so should opportunities for employment fail to materialise.

"Because oil economies are capital intensive rather than labour intensive... you're trying to broaden your industrial base to create jobs," Dr Ulrichsen told Sky News.

"Decades of under-investment will take years to sort out. People will be frustrated by the slow pace of reform."

I hope that Libya will open up; that there will be more equal opportunities based on what you know, not who you know.

Tarek Alwan, SOC Libya consultancy

In its latest assessment of the Libyan economy, the IMF notes that unemployment has remained high, particularly among the young.

It adds that major civil service reform is needed to bring in effective wage and employment policies that would benefit the youthful, growing workforce.

Even before the uprising, efforts to renew the economy were being made.

Emboldened by the lifting of international trade sanctions, Col Gaddafi's son Saif al Islam embarked on an ambitious plan to update ageing infrastructure, attract private investment and develop Libya into an international business and shipping hub modelled on the success of Dubai.

Construction site in Benghazi

A construction site in Benghazi, where work stopped as fighting began

Both the IMF and the think tank African Economic Outlook (AEO) have praised the regime's success in modernising its banking system.

"In recent years, the Libyan financial sector has undergone significant reform," notes the AEO.

"State-owned banks are being gradually privatised and foreign partners have been invited into the Libyan banking sector as a means of transferring knowledge, promoting competition and modernising the country's financial services."

But efforts to kick-start the private sector have been held back by a lack of business skills and experience among the general public.

Libyan men queue at a bank

The banking system in Libya has seen some modernisation in recent years

According to the AEO, Libyan banks prefer to lend to foreign companies or big public sector projects rather than small and medium-sized businesses (SMEs), which do not have such strong guarantees.

"This problem is exacerbated by the limited capacities of many SMEs, with lenders refusing to grant loans on the basis of poorly designed business plans and incomplete accounts," the AEO says.

Tarek Alwan, whose London based consultancy SOC Libya works with companies interested in investing in Libya, told Sky News that he had learned of a group of German investors interested in developing solar energy farms in Libya - which enjoys 300 days of sunshine a year.

However, they along with many prospective investors were put off by the strength of the Gaddafi regime.

Libyan man sells tomatoes at a stall

Many small businesses in Libya lack the paperwork they need to apply for loans

"There were concerns because of the bureaucracy, corruption, and poor infrastructure in Libya", Mr Alwan said.

"These things will remain for a while. It's impossible to change that culture within a day, a few weeks or a few months."

Libyan-born Alwan also sees huge potential for Libya's tourist industry and says that attractions such as the 2000-year-old Roman city of Sabratha have been underexploited.

"I hope that Libya will open up; that there will be more equal opportunities based on what you know, not who you know," he said.

"People have been fighting, killing and dying for a better lifestyle for all of us. I am sure that we will struggle for a bit but we will prevail in the end."


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Comment by charmaine hogan on February 18, 2012 at 16:44

It has the people it has the money it attracts international interest but ultimately the country needs assistance and guidance to build from the ground upwards, education not solely in terms of literacy but in empowerment and participation of civil society, in assisting small businesses flourish, in diversifying the economy, and of good governance as one starting point

Comment by Emmanuelle DIEHL on February 14, 2012 at 14:31

Very interesting! Especially Mr Alwan's comment regarding ' more equal opportunities will be based on what you know rather than who you know'!

'who you know' was and remains a key element to do business in Libya. In order for foreign companies to operate and do business in Libya in the near future, they will have to show what they know and foster trustworthy relationships with Libyans.

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