Ever since the Guide of the Libyan revolution, Muammar al-Qadhafi, decided to engage in economic reform and launch an ambitious privatisation programme, Libya has been trying hard to attract foreign investment. Big oil and gas companies have been quick to answer the call and are already lining up to do business in Libya. But projects in other sectors have been slow to develop.
Now that UN economic sanctions have been lifted and the country is fast reintegrating into the world economy, the Libyan government has launched an all-out effort to dispel investor worries and speed up the privatisation process.
“Libya is a promising economy. This is a propitious time to invest in this country,” says Libyan finance minister Mohamed Ali El Huwej.
For one thing, economic prospects are bright. The country recently revalued its oil reserves to 47 billion barrels. With an oil production of about 1.7 million barrels a day (b/d), when light sweet crude is comfortably trading at more than $40 a barrel, Libya has no problems making ends meet. The country also sits on a gas bubble of 54,000 billion cubic feet and its development should guarantee a good income for many decades to come.
With a GDP of $21bn and a relatively small population of 5.8 million people, Libya is a wealthy country. “Libya has no financial problems, almost no foreign debt and it is the most stable country in the region,” the minister says.
Determined to overcome the disarray resulting from the many years of embargo, and to join the World Trade Organization (WTO) as soon as possible (talks on membership have already begun), Libya is also taking steps to modernise and liberalise the economy.
“Reform of the administration has already begun. Our code will be adapted to that of the EU, our main trading partner,” says Mr El Huwej. “We have readjusted our tax system. We are studying a modification of our customs regulations to make them comparable to those of WTO member countries. We are also fighting against unnecessary bureaucracy.”
Admission into the WTO requires abiding by international free trade rules. The most far-reaching reform in that respect would be the removal of subsidies on food and other basic products. “The People’s General Council should approve this bill soon. Higher prices will be compensated by salary increases to improve the standard of living,” says Mr El Huwej. “We are also going to bring our health and education systems up to international levels.”
These reforms will not change the country overnight, however. The international business community still talks of hurdles such as the overwhelming presence of the state sector, the lack of transparency in the tendering process and the deficient infrastructure. What the authorities now say is that they are attentive to investors’ needs.
“Before becoming a minister, I was a businessman,” says Mr El Huwej. “I was the head of the Libyan Arab Foreign Investment Company, LAFICO, an investment arm of the Libyan government, which is known all over the world. So I know the preoccupations of national and international investors perfectly well.”
And he assures them that they can rest easy. “I am well aware that the Libyan market has had some problems, both financial and administrative. At one time, the country lacked transparency. But the government has taken concrete financial and legal steps to restore confidence.”
Law Number 5, the legal framework for foreign investment published in 1997, has been amended recently to make it more attractive. In particular, foreigners are now allowed to buy real estate for their projects, thus removing a big obstacle. Law 5 “is one of the most advantageous of its kind in the world”, the minister says. Investors are granted tax concessions for the first five years and an exemption on customs duty on imports of materials to be used in the project. Profits are exempted from taxes if reinvested and foreign workers can transfer part of their salaries and benefits abroad.
“Our priorities for foreign investment are oil, gas, petrochemicals, telecommunications, tourism and services,” Mr El Huwej says.
He believes that opportunities in the hydrocarbons sector are enormous. Libya wants to increase its oil production to 2 million b/d and resume its historical role as a major supplier to the US and Europe. This will require a $35bn investment, 10% of which is supposed to come from foreign companies.
“We need foreign technology and capital. We have just opened a new oil field with the Italian company Agip. Foreign experience will help us develop efficient administration,” Mr El Huwej says. “Furthermore, hydrocarbons development requires large means and we are looking for foreign capital for that.”
European oil companies, including Total of France, Eni of Italy, Repsol of Spain and ÖMV of Austria, have accounted for most of the international oil exploration ventures in Libya in recent years.
Since the US administration of president George W Bush eased the 18-year-old embargo against Libya in April 2004 and eliminated travel restrictions, US oil executives have flocked to Tripoli. Leading the way was Occidental Petroleum’s CEO Ray Irani, followed by the heads of Marathon, ConocoPhillips and Amerada Hess. These companies had operated in Libya for years before the US imposed sanctions on the country in 1986. Libya remains alluring to them because its high quality, low sulphur crude is ideally suited to the needs of US refineries.
But for Libya to accomplish its development plans, a major overhaul of its infrastructure is needed. Foreigners are more than welcome to invest in that area. “For more than 10 years, we have not been able to do anything serious in that respect because of the embargo,” Mr El Huwej explains. “ We have a five-year plan to reform infrastructure and foreign capital can help.”
Major projects have been launched in the production and distribution of electricity, water, construction and telecoms. They will not be financed exclusively with local or even Arab capital, as was the case during the embargo.
Libya’s water needs are huge. Foreign investors can play a role in the Great Man-made River Project, a long-term undertaking to meet the country’s requirements by drawing water from aquifers beneath the Sahara and conveying it to the coastal belt along a network of underground pipes.
Foreign investors are also concerned about the poor state of the banking sector. Privatisation in the sector will be restricted initially to Libyan capital. “Banking is very sensitive,” Mr El Huwej says. “To start with, we will allow foreign banks to open representative offices. Later on, we will grant licences to foreign banks to operate in Libya. We have to give Libyan banks the time to adjust to competition.”
Despite such strong interest, few FDI projects have so far been approved. “Time is important,” the minister stresses. “The problem may not be that we have been slow to authorise projects. Maybe foreign investors have not come up with enough new, serious, bold projects. These will be welcomed and will get fast approval.” Also, foreign investors should get to know the ropes. “When doing business in Libya, it is very important to get proper legal help,” the minister advises.
Mr El Huwej recognises that a decade of international isolation cannot be reversed in one fell swoop. “The situation is not yet perfect. But the Libyan economy is not complicated,” he says. “It is possible, and reasonable, to overcome the difficulties and we aspire to a larger co-operation with foreign investors.”
With patience and good preparation, prospective investors could be rewarded.