Libya opens door to foreign investment – slowly

New leaders hold off on key decisions, but likely to focus on raising living standards.

Libya flag 311 (R) (photo credit: REUTERS/Thaier al-Sudani)
Libya flag 311 (R)
(photo credit: REUTERS/Thaier al-Sudani)
After eight months of civil war, the door to foreign investment in Libya is slowly opening again – but businesses will likely find a very different country behind it than they knew from the era of strongman Muamar Gaddafi.
More emphasis is likely to be put on providing basic infrastructure and services that benefit ordinary Libyans, whose needs were often ignored in favor of funding showcase engineering projects aimed at glorifying Gaddafi and his regime and spreading Libya’s influence in Africa through foreign aid.
RELATED:Post-Gaddafi era casts shadow over Sahara-SahelICC Prosecutor: Gaddafi son could be tried in Libya
“There will be a much greater degree of introspection, on improving the lives of the average Libyan,” Charles Gurdon, managing director of  Menas Associates, a London-based consultancy specializing in North Africa, told The Media Line. “There won’t be large new projects but projects that will increase standards in health and education instead of very large engineering projects started from scratch.”
Libya is by most measures a wealthy country, with foreign currency reserves stashed away that could exceed $150 billion and oil reserves estimated at 44 billion barrels, the world’s eighth largest. But under Gaddafi’s rule, ordinary Libyans enjoyed little of this wealth. The country’s infant mortality rate was in the leagues of much poorer places like Ecuador and Vietnam while its mobile-telephony usage was the lowest among the Arab world’s oil economies.
Four decades of Gaddafi quirky system of rule has left Libya without a regular government structure and the Libyan people without many of the skills, such as English, needed to operate a modern economy. The civil war wrought destruction and brought economic life to a standstill.
But tempted by the prospects, businesspeople from abroad have been arriving in Libya even as the rebels were mounting their final assault on Sirte, the last Gaddafi stronghold, and the ex-leader himself was still at large. Turkish Economy Minister Zafer Caglayan led a business delegation to Tripoli at the start of November that offered to repair war-damaged buildings, schools, police stations and health centers.
Libyan is getting petroleum production back up faster than most experts had expected. Oil output had climbed to 750,000 barrels per day as of last week and is on track to reach pre-war production levels of 1.6 million barrels. With much of Libya’s foreign reserves still inaccessible, revenue from oil will be critical to getting the economy moving again.
But for businesses hoping to get in on the action in Libya, the challenges are daunting. Personal security remains problematic as the government struggles to gain control over the many militia groups that had a hand in bringing down Gaddafi and have been loathe to put down their arms and getting to Libya is also a challenge.
Turkish Airways and a handful of Arab airlines have begun flying to Libya, but others like Lufthansa and Britain’s bmi are holding off. TunisAir suspended flights after armed men swarmed the runway and stopped a plane from taking off on Sunday. Alitalia is the only European Union carrier to fly to Tripoli regularly.
In any case, there is little in the way of deals to pursue, said Tarek Alwan, managing director of London-based consulting firm SOC Libya. Libya’s transitional government will remain in power until June, if the elections schedule is kept, and has said it will not undertake any major initiative. In the meantime, Interim Prime Minister Abdurrahim Al-Keib must preserve a delicate balance between regional and ideological rivals.
“No one can sign contracts right now. Contracts can only be signed after proper government has been elected,” Alwan told The Media Line. “The interim government might undertake some kinds of emergency construction, but major construction contracts will not be signed and awarded until after general and presidential elections.”
One aspiring early-bird investor was Britain's Heritage Oil, which spent $19.5 million buying a controlling stake in Benghazi-based Sahara Oil Services in October, describing it as an “entrée into Libya.” But subsequently Libya's National Oil Company (NOC) denied it had signed any agreement.
Longer term, the prospects for Western businesses look much better. Gurdon of Menas Associates said Libya’s new leaders are more interested than the Gaddafi regime ever was in raising oil production to help finance infrastructure development and services.
The country’s new leaders will have an Islamic bent and Libyan President Mustafa Abdel Jalil has declared that the constitution will have sharia law as its base, but none of the major factions has adopted the kind of xenophobic platform that would deter foreign investment.
“Libya is not going to turn into radical Islamic state. Having said that, if you look at what is happening in Tunisia and Egypt, the Islamists are strong. But they are moderates with limits. Their model is Turkey and not Iran,” said Gurdon.
The transitional government has said existing contracts with oil firms, including BP, Shell, Eni and Total, will be honored unless it finds evidence of corruption when the contracts were awarded. Moreover, those in charge of economic policy making have spoken about shifting Libya away from a state-directed, closed economy to a more open, free-market model.
Although Islamists are likely to enhance their power in the elections, the key portfolios in the current transitional government, including the Defense and Interior Ministries, are held by secularists. A technocrat from the NOC was chosen to head the oil ministry.
Western businesses, as well as Turkish ones, may be looked on with favor by the new government because of their help in overthrowing the Gaddafi regime. By the same token, Russia and China, whose government remained loyal to Gaddafi, are likely to have harder time. Nuri Berruien, head of Libya's NIC, said November 13 that the government would "favor our friends" when awarding new contracts to tap oil reserves.