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| World Marketplace |
To the Shores of Tripoli
Diederik Vandewalle
07/01/2005
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When Libya announced in December 2003 that it would dismantle its weapons of
mass destruction, the news sent a ripple of excitement through international
political and business circles. U.S.-led multilateral sanctions had made serious
investment in the country all but impossible for years. The WMD announcement and
the subsequent U.S. decision to lift virtually all economic restrictions
produced a level of investor interest not seen since the 1970s.
At the
Corinthia Hotel in Tripoli, the country’s only true five-star establishment and
the one place in Libya where credit cards are accepted, crowds of newly arrived
businessmen pursued Libyan officials in an atmosphere reminiscent of the Wild
West. Scores of often-impromptu international conferences highlighted the
advantages of doing business in Libya, and several groups in the United States
tussled with each other to decide who would represent U.S.-Libyan economic
interests. The U.S. Liaison Office in Tripoli found itself inundated by requests
for information and advice.
Libya’s oil reserves are the main cause of the
excitement. Petroleum explorers have scoured only one-quarter of Libya’s
territory to date. Conservative estimates of its reserves in that area alone run
to 30 billion barrels. The country’s enormous natural gas deposits remain mostly
untouched. With an aging oil infrastructure, Libya will need billions of dollars
in investment to achieve its goal of boosting its oil production from its
current 1.25 million barrels per day to 3 million barrels within a decade.
Global oil conglomerates are standing by with the needed capital.
Yet while
Libyan policymakers recognize that basic economic reform should accompany the
revitalization of the nation’s oil industry, there are few indications that
Colonel Muammar al Qadhafi, the notorious head of state, is willing to make the
changes necessary to support a modern, market-based economy. Furthermore,
international pressure to use the country’s riches for the greater benefit of
all Libyans has also grown these last years, but there are no institutional
guarantees that the government will. As revenues from the oil sector begin to
flow, Libya’s long-term economic future remains in doubt.
Rogue Pragmatists
Despite its traditional image as an unpredictable rogue
with ties to international terrorism, Libya’s growing pragmatism and efforts to
reform its economy actually predate the WMD announcement. In 1997 the country’s
rubber-stamp parliament—the General People’s Congress (GPC)—adopted Law Number
5, which opened the economy to foreign direct investment for the first time in
decades. The effect was negligible because the international economic sanctions
remained in place. However in March 2003, the GPC made a political overture to
the West by adopting far-reaching liberalization measures. Three months later,
Qadhafi admitted that his public-sector management of the economy had failed,
and he set about abolishing it.
That same month, the GPC chose former trade
and economy minister Shukri Ghanem, a proponent of liberalization and
privatization, as prime minister. Ghanem, a technocrat formerly with OPEC, sees
his top priority as removing the inefficiencies and bottlenecks the
state-controlled economy created in the previous decades. Determined to
implement badly needed reforms, but aware of the enormous resistance he would
encounter from Libya’s patronage-driven system, he slowly set about trying to
build a technocratic team. He restored the defunct Energy Ministry and appointed
Abdallah Badri—another technocrat with considerable experience in the oil
sector—to lead the country’s National Oil Co. and to negotiate the return of
U.S. oil companies to Libya. For the first time, Libya accepted expertise from
the International Monetary Fund, whose calls for wide structural reforms,
improved macroeconomic management and the removal of trade barriers and price
subsidies formed part of the GPC deliberations in March 2004.
| Petroleum explorers have scoured only one-quarter of Libya’s territory to date. Conservative estimates of its reserves in that area alone run to 30 billion barrels. |
Two decades of
hardship caused by the sanctions, and the economic legacy of an inefficient
state-run economy, made reform a political necessity. Furthermore, growing
internal pressures from a burgeoning younger population with scant possibilities
of meaningful employment (Libya’s 2003 unemployment rate was estimated at 30
percent; some 800,000 Libyans were employed by the state) inspired a number of
reform-minded intellectuals and technocrats to push for change. The dire
condition of the country’s economy steeled their resolve, and the lifting of the
international sanctions has catalyzed their efforts.
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