Since Muammar al-Qadhafi announced last year that Libya’s quasi-socialist system was to be overhauled, the international business community has eagerly awaited further details of his liberalisation and privatisation plans. London has witnessed conference after conference on ‘doing business in Libya’, as hopeful foreign investors lap up advice on how to break into an infamously difficult market.
Despite such eagerness, and Libya’s concerted efforts to woo foreign investors, relatively few FDI projects have so far been approved. While the opportunities are extensive, and the return of US and European firms is vital to the economy, foreign investors face a range of obstacles.
Charles Gurdon, managing director of consultants Menas Associates, says: “Libya’s state sector has always overwhelmed the rest of the economy and, although this is now changing, the bureaucracy and red tape have made it a challenging environment for foreign investors.
“Libyans are great bankers and traders but the productive private sector is still very small compared with the state sector.”
Investors also face poor infrastructure, with Libya’s existing road networks and public utilities in a state of disrepair. Furthermore, Britain’s trade minister Mike O’Brien has told Libyan officials that the country must ensure a transparent tendering process, respect contracts and the rule of law, and deal with “issues of corruption”, if it is to entice foreign investors.
Energy opens up
Nevertheless, the country’s economic opening is throwing up significant opportunities. Thair El-Heri, of Cubata Asset Management, says: “At this stage, Libya’s hydrocarbon sector looks to yield the most tangible opportunities, especially with unrestrained gas production and downstream expansion.”
Yet there is more to Libya than oil and gas. After more than a quarter of a century of ‘guided revolution’, the economy as a whole is in desperate need of investment.
“The education, health, telecommunications and oil-service sectors are going to be important,” says Mr Gurdon. According to Oliver Miles, of business consultants MEC International: “Libya’s infrastructure requires much improvement and offers many possibilities for the foreign supplier or investor.”
If the government goes ahead with its privatisation plans, there will also be scope for investment in industry and the power sector.
FDI in such sectors is guided by Law 5 of 1997, which offers 100% foreign ownership to approved projects. According to Irene Dallas of international business law specialists Dallas & Co: “The rationale behind the law is twofold. First its purpose is to offer a one-stop shop for foreign investors. This means that, instead of a foreign company having to register at the various ministries, such as immigration, commercial registry, employment, etc, the Foreign Investment Board handles all of this interface.”
The law offers investors tax concessions for the first five years; an exemption on customs duty on imports of materials to be used in the project; provisions to allow foreigners to buy real estate for their project; and exemptions on the payments of stamp duty on much of the documentation.
While Ms Dallas says that the latter may not sound significant, she adds: “Libya is very bureaucratic and so there are many documents required for almost anything. This exemption is therefore attractive.”
The second aim of the law is to bring know-how into the country, enhance Libya’s ability to rely on locally made products rather than imports, and promote the education of the local workforce.
While attractive on paper, is the law achieving its aims? Mr Miles notes that despite its explicit intention of attracting FDI in industry, health, tourism, services and agriculture, much of the money going into these sectors for the foreseeable future will be domestic investment. The small size of the Libyan market and its relatively closed nature means that FDI in such projects is not currently profitable, and most opportunities outside of the energy sector are likely to come in the form of procurement contracts.
One exception is tourism. The recently completed Corinthia Tripoli Hotel, Libya’s first luxury hotel, is a prime example of a Law 5 company. Libya’s potential for tourism is significant, given its unspoiled beaches and Roman and Greek ruins, and Mr Miles says the government has a plan of sorts for developing the sector. Officials have talked of developing resorts, marinas and hotels, although the country is likely to remain a niche tourism market.
There are also FDI opportunities in the service sector. In 2002, First Engineering Group of the UK, which provides engineering services and maintenance, became Libya’s ninth Law 5 company. It is the technical service provider for UK firms such as Alperton International.
To set up First Engineering – which was the first (and so far the only) British company with a Law 5 licence – Michelle Wienburg, commercial director and company secretary, spent three months in Libya jumping through bureaucratic hoops. Her advice? “The first thing is to get yourself a good lawyer, who has a partner or associate in the country. It’s not the sort of market that you walk into and get registered in two minutes,” she says. However, registration can now be done in 30 days rather than 90.
Ms Wienburg recommends joining the British Business Group, which is run under the auspices of the British Embassy in Tripoli. About 40 firms are members, including HSBC, Massey Ferguson and British Airways.
“The benefits of membership are big, particularly if you’re prospecting,” she says. “Because you don’t know who has the ability to help you and who doesn’t, it’s a good idea to create a network of fellow countrymen to assist you with seeing the wood from the trees.”
Mr Gurdon advises potential investors to avoid, as much as possible, local ‘fixers’ who promise to open doors via their business or family connections. He also encourages British investors to get in quickly, now that the US has begun easing its sanctions regime.
Ms Wienburg concurs. “As UK plc/Ltd, we need to make the best of it before Uncle Sam arrives,” she says.
Despite the problems of bureaucracy, corruption and poor infrastructure, the Libyan market is worth taking seriously. While for the time being many business opportunities will be government contracts rather than FDI projects, the latter should become more common in the medium to long term.
“Foreign investors are warmly welcomed, but there are still relatively few foreign players in the market,” says Mr Miles. “This is changing fast and the country seems ready to reward those who take the risk.”