Libya: Not so open for business

The government is drifting and so is business, which is deterring investment. Published in Africa Confidential, 18 January 2013

Although the Libyan economy is returning to life – with the oil sector in the lead – planning is not. Despite the pressing need to rebuild, little is going on. The International Monetary Fund says gross domestic product grew by 122% in 2012 after dropping 60% in 2011 but nearly all that is because oil exports have resumed. Other sectors and all-important public expenditure are in the doldrums.

One brake on progress, or at least confidence, is the plan to audit some 10,000 contracts signed under the late Colonel Moammar el Gadaffi. They could be worth tens of billions of dollars.

This immense task is therefore widely regarded as impractical. There is no timetable and professional services firms have had no reply to their offers of help. Many companies are wary of committing to new contracts while existing ones are still waiting to be confirmed. Construction is worst hit. The Gadaffi regime had planned new universities, a high-speed railway along the entire coast, new oil export terminals and more but for now, no large schemes are going ahead.

In April 2008, Russian Railways signed a US$2.8 bn. contract to build a section of the coastal line between Sirte and Benghazi. In its most recent set of full-year results, it recorded as a loss a RUB6.45 billion ($213 mn.) charge due to uncertainty about the assets it has in Libya and whether its contract will proceed. ‘Things are not able to move ahead because of this audit,’ says a Tripoli accountant.

Many other companies simply worry about whether their past association with Gadaffi’s regime will prove an obstacle with its successor. The Minister of Foreign Affairs and International Cooperation, Mohamed Abdel Aziz, tries to be reassuring. ‘We have decided to invite all the foreign enterprises active for many years in Libya to continue the projects they started,’ he said last month. This, however, appears to run counter to the contract audit, which only confuses the picture further. On top of that, some companies could still find that they are viewed with suspicion, particularly if the government of their country backed the wrong side in the revolution or if they bribed Libyans to obtain business.

A Libyan lawyer told Africa Confidential that ‘it wouldn’t be fair or practical’ to exclude all such businesses but the position of the firm’s host government during the revolution and the intervention by the North Atlantic Treaty Organisation mattered. NATO countries, including Turkey, along with Qatar, are regarded far more favourably than China or Russia. Nevertheless, Libya’s new rulers and civil servants are concerned about corruption, even if they have not decided exactly how it is to be prevented or how to deal with past cases (AC Vol 54 No 1).

Some companies are breaking through the logjams. France’s Alstom and Germany’s Siemens both signed contracts with the General Electricity Company of Libya (GECOL) in December and Italian oil major ENI (Ente Nazionale Idrocarburi) presented a ten-year, $8 bn. Investment plan to Petroleum Minister Abdel Bari el Arusi. Not all the obstruction and delay are Libya’s responsibility.

Some international sanctions imposed when Gadaffi was in power remain in force and some international assets are still frozen. Most of the United Nationsmandated asset freezes were lifted at the end of 2011 but that does not mean Tripoli has reasserted its original control. In November, an Italian court released Libya’s shares in car manufacturer Fiat and Juventus football club.

While Libya looks abroad to regain control of its assets, international companies thinking of entering (or reentering) the country also remain nervous about safety for their staff. One former Western ambassador to Libya says security is their biggest concern. The failed murder attempt on Italian Consul Guido de Sanctis on 12 January will not help. Some are also worried by the government’s Decision No 207 of July 2012. It limits foreign shareholders to 49% of any business, with some exceptions. The decree could well be subject to change later on.

Most foreign companies that do win contracts are expected to make some meaningful gestures towards training locals. Often this is done abroad, which raises further difficulties. One British executive says that there is never any certainty about whether people will be able to turn up for training sessions in London because of the difficulty in securing visas. At least one investment conference due to take place in London last summer was cancelled because of this.