The Report : Libya 2008
Source : http://www.oxfordbusinessgroup.com/publication.asp?country=62
TABLE OF CONTENTS
This section provides a quick overview of some facts about the country, its population, languages, natural resources, geography, climate, religion and history.
Libya is currently enjoying the benefits of a growing economy, refreshed political and economic ties, and a new direction that stems from the government’s gradual moves to step out of its role as a distributor of wealth in favour of more limited responsibilities as a regulator and social policymaker. Domestically, Libya has long enjoyed stability and a high level of political participation, though not through traditional representative democratic processes. Rather, the country’s political institutions take the form of consultative bodies at the local, regional and national levels. The government has acted to successfully avoid the troubles of its neighbours, many of which have been battling extremism and social unrest for decades, by encouraging open discourse about social issues and allowing religious freedoms. 2008 saw significant commitments of foreign direct investment (FDI) by Italy and Russia and the resumption of political and economic ties with the US. According to the US Department of Commerce, Libya is now among its fastest-growing markets for US exports – mostly energy sector equipment, cars, agricultural goods and aircraft.
In this section Colonel Muammar Abu Minyar Al Qaddafi provides a viewpoint on wealth distribution. Saif Al Islam Qaddafi, Chairman, The Qaddafi Foundation provides a view point on reform. Abdel Hafidh Zlitni, Secretary, People’s Committee on Planning provides a viewpoint on Libya’s progress. Condoleezza Rice, former US Secretary of State, provides a viewpoint on US-Libya relations and Mike Moore, former Director-General of the WTO and Former Prime Minister of New Zealand, provides a viewpoint on WTO progress and development. In addition, there is an interview with Brian Gleeson, Resident Coordinator, United Nations Libya.
After three decades under a centralised economy predisposed to policy experiments to distribute wealth, Libya’s economy is rapidly changing. Nominal GDP has risen over the past few years, reaching LD89.26bn ($72.56bn) in 2007, equal to real GDP of LD48.71bn ($39.6bn) with base year 2003. This was a rise of 10.79% in nominal terms and 5.6% in real terms over 2006. This followed GDP increases of 12.9%, 6.1%, 9.9% and 5.9% in 2003, 2004, 2005 and 2006, respectively, and represents the steadying growth and rising inflation that have occurred since the repeal of UN and US sanctions in 2003 and 2004, respectively. The government has stated its aims of moving towards redistributing wealth through private business, widening the ownership base by opening the country to foreign investment across all sectors and transferring state-run businesses to private hands. Libya is also starting to take steps to diversify away from its dependence on oil. The country’s energy sector accounts for 70% of GDP but employs only 3% of its workforce, and unemployment is a challenge. Reducing the number of jobless – estimated to be in the 25-30% range – is critical. In the non-hydrocarbons sector the government, defence and social insurance segment is the leading contributor to GDP, with 7.9%, followed by real estate, with 5.8%; construction 4.7%; manufacturing, which includes refined oil, petrochemicals and plastics, 4.5%, transport, storage and telecoms 3.7%; and agriculture, hunting and forestry, excluding fishing, 2.1%. The government aims to consolidate and accelerate the growth and reforms of the past few years by stepping up privatisation, diversification and international cooperation. It is seeking foreign involvement across all sectors of the economy, although the reform process may be slow. Recent efforts include regulatory changes, the establishment of the Libyan Stock Market and the development of the new Libyan Economic Development Board (EDB).
This chapter provides interviews with Ali Abd Alaziz Isawi, Secretary, General People’s Committee for Economy, Trade and Investment; Hamed Arabi Al Houderi, Chairman, Economic and Social Development Fund and Mahmoud Gebril, Head, National Planning Council; former CEO, Libyan Economic Development Board. Alexander Böhmer, Head of Unit, MENA-OECD Investment Programme, provides a viewpoint on sustainability through diversification.
Libya has embarked on a major reform programme of the state-dominated banking sector during which the entire system will be restructured and several banks privatised. The Central Bank of Libya (CBL) has been building the technological, regulatory and institutional infrastructure needed to turn over its holdings in the sector, becoming a regulator rather than the owner-regulator. The banking sector has grown quickly over the past five years in line with increased economic activity overall. The CBL’s banking assets rose from LD54.93bn ($44.66bn) in 2005 to LD79.55bn ($64.67bn) in 2006 and LD101.45bn ($82.48bn) in 2007. Total CBL banking assets reached LD111.51bn ($90.66bn) by the end of the first quarter of 2008. Under state control Libya’s banking policies have been relatively defensive, which has restricted access to credit, as banks keep most of their liquidity in short-term deposits, but this is beginning to change in preparation for the sector’s overhaul, with a new emphasis to orient the sector towards profitability. The privatisation and restructuring taking place should help private firms and SMEs gain access to the financial tools they require to compete in the new economy. Also as Libyans become increasingly aware of the value of using banks to manage their money, the top banks will benefit from their early involvement in this market.
The government has used banks and insurance companies to jumpstart the Libyan Stock Market (LSM) and privatisation efforts in general, slowly feeding them into the private sector. It has thus far proved an important tool for widening the ownership base of private enterprises, improving access to capital, increasing transparency in the local business environment and providing a lower-risk entry point for foreign involvement in the economy. Initial public offerings (IPOs) started in 2007, but the LSM was not fully operational until January 2008. Stakes in seven companies have been listed: Sahara Bank, Wahda Bank, Bank of Commerce and Development (C&D bank), Assaray Bank, Libya Insurance Company (LIC), United Insurance and Sahara Insurance. Although the second quarter of the year 2008 was relatively volatile, with the banking index starting from a base of 1000 in April and closing at 940.44 in June after a high of 1284.21 and a low of 874.14, the next year is primed to be an eventful one for the fledgling LSM. It is establishing a commodities exchange and developing the infrastructure for E-trading. It is also working to encourage foreigners to trade on it. The bourse still needs an international custodian for foreign funds and a significant amount of legislative clarity regarding the repatriation of funds, but these are to be imminently resolved. With the government steadily working to privatise up to 375 national companies in the coming years, most of which will be listed, the LSM is on a steep learning curve.
Education and awareness campaigns are key in raising the value of insurance products in the domestic market. Long accustomed to the basic state welfare system, the take-up rates of health, life and contents insurance are underperforming. Total insurance premiums for Libya are estimated to be worth around $300m-$350m, which compared to less wealthy neighbours, such as Tunisia ($600m) and Egypt ($534m), is low. Currently there are seven insurance companies active in the Libyan market, but it is still dominated by the Libyan Insurance Company (LIC), which is almost five-times larger than its closest competitor. Despite this advantage, new entrants are also reporting strong year-on-year gross premium growth. Key segments of the sector include shipping and aviation, as well as newer offerings such as motor and health insurance. The Insurance Supervision and Controlling Authority is working with all of the country’s companies to advise on a strategy to promote insurance as a necessity. This is being done through advertising campaigns, in the case of some companies, and through educational programmes. As private sector development begins to make an impact on the Libyan market, it is anticipated that the insurance sector will grow to serve it.
This chapter provides interviews with Farhat O Bengdara, Governor, Central Bank of Libya; Mohamed H Layas, Chief Executive Officer, Libyan Investment Authority (LIA); Suliman Salem Alshahomy, Chairman, Libyan Stock Market; and Mokhtar M Daerah, Chairman and General Manager, Libya Insurance Company. Mohamed Najib Hmida El Jamal, General Manager, Libyan Foreign Bank provides an interview on banking reforms.
Libya’s location in the heart of North Africa, on the southern shore of the Mediterranean, means many possibilities for transforming the country into a transportation corridor. The government is working to upgrade airports, build roads and develop new ports. Foreign companies are already taking advantage of a wide range of opportunities for investment and collaboration. Opportunities include a $400m new airport in Benghazi, upgrades to 13 other airports, a new port at Sirte and Libya’s first railway network. Aviation, in particular, stands to benefit from Libya’s renewed international involvement. Years of pent-up demand for high-tech equipment and aircraft caused by the US ban on exports to the country are providing opportunities to investors.
This chapter provides interviews with Mohamed Shlebik, Secretary-General, Civil Aviation Authority and Ramadan M Boumadyan, Chairman, Maritime Authority.
The hydrocarbons industry dominates Libya’s economy, accounting for 98% of export earnings, 90% of government revenue and 70% of GDP in 2007, with revenues estimated at $38.3bn. It is North Africa’s largest oil producer and has more proven reserves that any other country in Africa, with 3.3% of the world’s total. Since 2003 four exploration bidding rounds have been held, production has been boosted by 25%, large investments have flown in and international oil companies have been battling to return to the country at any price. Still, it is widely regarded as underexplored, with only 25% of the country previously contracted out. However, activity is increasing quickly. If everything goes ahead as planned, Libya’s National Oil Corporation (NOC) will tender out more than 100 Exploration and Production Sharing Agreements over the next 10 years for an estimated investment of $7bn. Production is also rising, reaching 1.7m bpd in 2007, up from 1.4m bpd in 2003. The NOC has targeted production of 3m bpd by 2012 and 3.5m bpd by 2020. Natural gas and petrochemicals production have remained small compared to oil output, but both segments have potential to be further developed. After decades of constrained growth, the progress the energy sector has made over the past five years has been remarkable. The attention from foreign investors is a clear indication of high expectations regarding exploration opportunities.
This chapter provides interviews with Abdalla Salem El-Badri, Secretary-General, Organisation of Petroleum Exporting Countries; Abdel Majeed Al Gaoud, Head of Commission, Great Man-Made River Authority; and Felipe Posada, President and CEO, BP North Africa.
INDUSTRY & RETAIL
Industry is at an exciting stage of development and stands to benefit from the government’s privatisation drive. The government has ambitious plans to develop the long-overlooked mining and minerals segments, while the petrochemicals sector is feeling the benefits of an injection of foreign capital. The cement production and steel industries are thriving thanks to the flourishing construction industry in both Libya and the MENA region, while the development of light industries, such as food processing and textile production, is rapidly gaining momentum. Misurata Free Zone (MFZ) is at the forefront of Libya’s drive to attract FDI to the country’s industrial sector and focuses in particular on four segments: food processing, petrochemicals, cement and other construction materials and metallurgical industries that rely on local raw materials such as iron, steel and hydrocarbons. Companies that will be approved to operate in the MFZ include the German firm CCI Cereals Commodity International, the Egyptian cement company ASEC, Asamer and Austrian cement company, and Tripcair, a cement firm from Cyprus. The 30 companies approved for the MFZ add up to a total investment of $3.61bn. Outside of the MFZ new plants are also being planned including ones for petrochemicals, construction and cement. As the government’s drive for privatisation picks up, opportunities for foreign investment and collaboration are set to increase.
In spite of the appearance of foreign brands in recent years, the local retail market remains dominated by the informal sector, with traditional souks and individual shopkeepers still supplying the demands of the majority of Libyan consumers. Wholesale and retail trade, and restaurants and hotels accounted for 5.2% of GDP in 2006 and it is one of the most important sources of employment, especially in major urban areas. Libyan GDP per capita is also high by regional standards and shopping is a popular leisure activity. Despite the consumer appetite, the government restricts foreign participation in the sector, making it difficult for brands to develop a presence in the country. There are only a few major shopping centres, such as the Andalus Gate and the Oasis Centre, and even these establishments offer very few internationally branded shops. Libya’s first major international-class shopping mall, with a 26,000-sq-metre, supermarket-anchored property, will come online in 2012 as part of the Bab Al Medina development in the capital. Like many other areas of the Libyan economy, the pace of change will be measured and the government is unlikely to relax its restrictions on foreign participation in retail ventures. Genuine brands also face competition from the widely available selection of counterfeit products. Still, the country’s retailing culture and rising number of wealthy expatriates in Tripoli should be sufficient enough to encourage a substantial amount of future interest in the sector.
This chapter provides interviews with Kurt Asamer, Executive Board Member, Asamer Group and Jorgen Ole Haslestad, CEO, Yara International.
Despite the presence of several high-grade metamorphic belts suggesting deposits of gold, iron ore and base metals, as well as mineral base commodities, there has been a considerable lack of investor interest in Libya’s mining industry. Years of isolation under international sanctions and a concentration on geological mapping of oil and related hydrocarbons have contributed to the sector’s relative under-development. The only major extraction has been mineral deposits for use in cement production, but Libya also currently extracts and produces lime, gypsum, sulphur, hydraulic cement, clay, dolomite, limestone, nitrogen, salt and soda ash in marketable quantities. The government created the Libyan Mining Company (LMC) in 1996 to regulate mineral resource activity and the firm is developing two factories that are scheduled to be operating by late 2009. The plants will produce calcium carbonate and clay, and initial investments will exceed $15m. There have been discussions with foreign partners, but nothing has materialised thus far. The sector face two main challenges: inadequate transport infrastructure and a shortage of labour, but Libya is a market with ample opportunities for investors with the expertise and technology to extract and produce in this practically untouched territory.
TOURISM & CULTURE
Despite rapid increases in the numbers of arrivals since 2003, Libya is just beginning to position itself as an emerging spot on the world tourism map. Starting from a very low base, the period of 2004-06 saw significant growth in tourist arrivals, which almost tripled from 42,638 to 125,480. Given the prevailing climate, with mild, rainy winters and very hot, dry summers, tourism in Libya is highly seasonal, with the peak season falling between November and March. With Mediterranean beaches, five UNESCO World Heritage Sites, spectacular desert landscapes, traditional souks and wooded mountains, tourism could become a vital future pillar of its economy. For this to happen, Libya needs to modernise and extend its tourist infrastructure, attract foreign investors and expertise, facilitate the visa process and improve its international image. Some improvements are already being made, with a number of new hotel projects to come online in the next three years. Additionally Libya is working to upgrade its infrastructure, including developing a number of new airports, in addition to the $1.5bn planned expansion of the Tripoli International Airport. Still, the country needs to take concerted marketing efforts to reach its goal of 3m tourist arrivals by 2010, especially in promoting Libya’s image as a safe regional choice for visitors.
This chapter provides an interview with Ammar El Mabrouk El Tayef, Secretary, General Authority for Tourism and Handicrafts.
CONSTRUCTION & REAL ESTATE
The construction market has been largely inactive since the late 1970s, so there is latent demand that offers ample opportunity for early investors to reap substantial benefits. With a large, young and fast-growing population, as well as high government liquidity from oil revenue, the market has several key demand drivers, which have led it to become one of the country’s most buoyant sectors in its early attempts at diversification away from hydrocarbons. While the government is focusing most of its attention and public sector work on residential provision – pledging 500,000 additional units by 2010 – private sector companies are addressing some of the shortage in other areas. International construction giants from countries such as Turkey, Malaysia, France, Lebanon, and some Gulf states, are undertaking significant projects, often in joint ventures with government departments. Securing adequate resources is the key challenge in a country undersupplied with cement and iron. With many companies having to import technologies and materials, the government needs to concentrate more on improving domestic output.
For many companies Libya represents a virgin market, with existing building stock long outdated and a dilapidated and an increasingly wealthy government and people keen to modernise numerous aspects of the country’s buildings. As traditional household living patterns start to shift and urbanisation trends continue – about 90% of the population currently lives in 10% of the land area, concentrated in the northern cities of Benghazi and Tripoli – the demand for new residential space is set to soar. Commercial space is also in high demand, especially for foreign companies working in the hydrocarbons and private-sector development. Estimates place the need at 5500 new offices per annum. The retail market is also positive and poised to react to the new market conditions being encouraged by government incentives. Shopping centres have been successful, with 100% occupancy rates in the new Oasis Centre, Zakher Al Yamama and the Andalus Gate. However, these centres remain very small in comparison with their Gulf counterparts, and as yet no large-scale retail facilities exist, despite market appetite. The main challenge is the supply side of material and labour demand. The country is not producing construction materials at a rate to satisfy this exponential demand growth and will need to source good import markets to guarantee prices and construction times for the vast range of real estate due to come online over the next few years.
This chapter provides an interview with Ali Ibrahim Dabaiba, Chairman, Organisation for the Development of Administrative Centres (ODAC).
TELECOMS & IT
The number of internet and mobile phone subscribers has grown rapidly since 2003, and their demands are becoming more sophisticated. SIM cards and internet access were the preserve only a few years ago of the minority that could afford them, but lower prices mean that Libya now has over 5m mobile phone subscribers. While fixed-line penetration increased by only 2% from 2002 to 2008 to 13%, the mobile phone penetration rate increased over the same period from 2% to around 107%. The government has stepped up its commitment to improving Libya’s telecoms infrastructure and is investing in schemes such as a nationwide WiMax network to connect to the most remote regions to the internet. The government shows no signs of opening up the mobile telecoms market to a third operator, but is likely to focus on further privatisation of Libyana and Al Madar, the two companies which are partially state-controlled. While operator services will remain closed to foreign investors, equipment supply and value-added services present clear investment opportunities. Libya’s changing legislative environment and the subsequent possibility of unclear investment guidelines in the telecoms sector urge caution on the part of potential foreign investors, but for companies who have been bold enough to enter the market – such as Alcatel-Lucent and ZTE – the rewards have been considerable. Internet penetration is still low, at 3% in 2007, but the Libyan Post, Telecommunications and Information Company (LPTIC)’s projection for 2008 was 10%. The growth of the ICT sector in Libya will mean a wealth of opportunities for small and medium-sized enterprises in the areas of internet and data processing. The government is working on a master plan to increase networking between strategic public services and the private sector, which is expected to increase demand for equipment and consultancy services.
This chapter provides an interview with Rafiah Ibrahim, Head of Ericsson, Market Unit Northern Africa.
MEDIA AND ADVERTISING
Libyan media is transitioning from a systemised and state-controlled press to a wholly independent media. Although the process is moving slowly, private TV and radio stations are now on the air and independent newspapers are also appearing on newsstands. Circulation figures for newspapers are still relatively low, but some publications’ numbers are increasing. The most popular part of the media is almost certainly the radio, followed by TV, although there is little so far by the way of official data on listeners. The sector needs knowhow and investment, but as with Libya’s overall approach in many areas, there is more likely to be a steady trickle of development than a flood. The government’s cautious approach of studying consequences is also likely to be reflected in the speed in which the media becomes more open.
This chapter provides an interview with Said Laswad, Chief Editor, Tripoli Post.
EDUCATION & HEALTH
Having made remarkable improvements in recent decades to create the basic building blocks, the government continues to allocate significant resources to the education sector. The adult literacy rate for citizens over the age of 15 years has improved from 60% in 1985 to 82.6% in 2006. This is compared to 74% in neighbouring Tunisia. Libya’s literacy rate for people between the ages 15-24 was 97%. However, improvements have been hampered by the dramatic increase in the volume of students and a dearth of qualified teachers. Additionally there is a widespread perception within the sector and among businesspeople that Libyan students are not receiving the skills they need to further the development of the country’s economy. As the public sector works to cope with the pressure, there is an opportunity for the private sector to step in and take on some of the burden. The government is also encouraging cooperation and collaboration with foreign partners to improve standards.
Although there are some charges for special care requirements, health care has essentially been free to all citizens since 1970 and services have been improving over time. The public health budget has averaged close to 3% of GDP in recent years and is estimated at 3.7% in 2008. As communicable diseases have been brought largely under control, the focus on attacking non-communicable diseases has intensified. This is especially true with cardio-vascular and chronic respiratory diseases, cancer and diabetes. Another major risk is the increasing number of road traffic accidents. In 2007, 11.2% of hospital deaths were the consequence of traffic accidents. The health sector faces a number of challenges, including underfunding, a lack of information due to low levels of computerisation and a decline in the quality of medical staff. The public health system has served the country well, but it has become outdated and inefficient. Consequently, Libyans who are able to afford it are increasingly looking to the private sector, or more often travelling abroad in search of better health care.
This chapter provides an interview with Taher E Jehaimi, Dean, Garyounis University.
Agriculture, fishing and forestry contributed 2% to Libya’s GDP in 2007, a figure that has been steadily decreasing since 2002 when the sector contributed 4.3%. About 135,700 people work in agriculture, out of a total of 1.8m workers. Libya produces wheat, barley, dates, olives, citrus fruits, vegetables, peanuts and soybeans, but only enough to meet about 25% of demand. About 75% of Libya’s food is imported, with climatic conditions and poor soil severely limiting output and a growing population and higher incomes causing food consumption to increase. Libya has plans to boost its agriculture production and modernise the sector. What will be key in doing this are developing sufficient training, foreign direct investment (FDI) and international cooperation. There is a need to build up institutional capacity, including training of staff for data collection and processing, and for increased in-depth sector research and study. A strong agricultural sector is a top priority for the authorities, and this opens up great opportunities for both local and foreign entrepreneurs.
This chapter provides an interview with Jacques Diouf, Director-General, Food and Agriculture Organisation of the UN (FAO).
THE BUSINESS GUIDE
In conjunction with PricewaterhouseCoopers, OBG explores the taxation system, examining the environment for investors. The accountancy section provides a viewpoint from Mohammed Ghattour, Managing Partner, Mohammed Ghattour & Co Pricewaterhouse Coopers.
OBG also introduces the reader to the different aspects of the legal system in Libya, in partnership with Tumi Law Firm. The legal coverage provides a viewpoint with Mohamed A Tumi, Managing Partner, Tumi Law Firm.
This section includes an article about Ghadames, a UNESCO heritage site, as well as information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.