New Libyan economy will have few chances to diversify

By DAVID ROSENBERG / THE MEDIA LINE
August 22, 2011 22:52

Analysts: The first order of business will be to establish some form of workable government and to get oil exports up and running.

3 minute read.



Libyan rebels celebrate on outskirts of Tripoli

Libyan rebels celebrate 311. (photo credit: REUTERS)

Libya’s new leaders in the post-Gaddafi era, whoever they may be, start from an economic baseline that their counterparts in Egypt and Tunisia can only envy: How to best manage the country’s vast oil and financial assets.

But doing that will be tricky, analysts told The Media Line on Monday as rebel forces entered the capital of Tripoli, putting them in striking distance of ending the 42-year rule of Muammar Gaddafi.

Be the first to know - Join our Facebook page.


The first order of business will be to establish some form of workable government and to get oil exports up and running, analysts said. Long-term, Libya faces the challenges of preventing corruption and waste from squandering its oil wealth as well as finding ways to diversify the economy, which is now almost entirely based on oil.

“One of problems that Libya always has faced in hydrocarbons is that it didn’t have any viable industry apart from oil and gas. Now, the oil and gas is offline,” Geoff Porter, of the political risk form North Africa Risk Consulting, told The Media Line. "The question is how well the Transitional National Council (TNC) will be able to manage the assets.”

On paper, Libya is prosperous. Before fighting broke out in February, it was producing 1.6 million barrels of oil a day. The country has an estimated $150 billion in assets, including stakes in British publisher Pearson, Italian bank UniCredit and the automaker Fiat, and very little debt. Gross domestic per capita is about $14,000, putting it on par with many eastern European countries.

After suffering years of Western sanctions in connection with Libya’s role in the downing of a Pan Am jet in 1988, Gaddafi made amends with the West and the country began to open from 2006 to foreign investment. Oil companies poured in, followed by makers of consumer products and the tourism industry.

But Libya also faces serious problems. Although it had made some moves toward reforming its government-dominated economy under Gaddafi, the country has little potential for job-creating sectors like agriculture or industry.  Gaddafi ran the Libyan state as a private enterprise, so he leaves behind few institutions or experienced managers. Close to a third of the labor force was unemployed even before the civil war brought the economy to a standstill.

Although rebels stanched the flow of oil from the country’s Mediterranean ports early in the conflict, an official of Libya's Arabian Gulf Oil Company (AGOCO) told Reuters this week that production could resume in as little as three weeks – if security is restored. But Porter said no one is sure about the extent of damage and the lengthy shutdown of operations is likely to have created problems, such as the build up of waxy deposits in pipelines, which will take time to fix.

The problem is that Libya doesn’t have time to wait. Some 95 percent of its export revenues come from petroleum, which it needs to pay for essential imports like food and manufactured goods. Before the war, it was importing 75% of its food.

While Libya can probably start exporting small quantities of petroleum, Porter estimated it would take three to six months for quantity deliveries to begin. In the meantime, countries may have to come to its aid with loans and other assistance.

Looking further down the road, Libya needs to continue developing its energy assets, said Charles Gurdon, managing director of the London-based political risk consultancy Menas Associates. Although international energy companies (IOCs) returned to Libya after 2006, they have very little oil to date and many had abandoned their efforts.

“The main thing for Libya short to medium term is to get the IOCs to come back,” Gurdon told The Media Line. “It may have to change terms and conditions being offered, which were heavily skewed in favor of the government. You had some companies in Libya that accepted deal where they would only receive 7, 8 or 9% of any oil they found. The other 93% went to the state. That’s not really viable.”

If it is ready to business, however, Libya has reserves to be exploited. It has yet to explore for oil offshore, nor has it troubled to tap what are assumed to be extensive natural gas reserves, Gurdon said.


Related Content

A United Nations (U.N.) chemical weapons expert, wearing a gas mask, holds a plastic bag containing
January 22, 2018
Rescuers in rebel-held Syrian area accuse gov't of gas attack

By REUTERS

Israel Weather
  • 9 - 18
    Beer Sheva
    14 - 18
    Tel Aviv - Yafo
  • 9 - 12
    Jerusalem
    12 - 15
    Haifa
  • 11 - 22
    Elat
    12 - 19
    Tiberias