Libya - prospects hampered by mixed messages

Published: August 18, 2009

Despite Libya’s growing internationalisation as being a reasonably stable, tolerate and welcoming environment for investment, a reputation that is bolstered by a variety of customs duties and tax breaks for large projects, some UK investors are not short of criticism about the country’s lack of transparency and at times ambiguous and conflicting announcements from Libya’s key decision and policy makers. These issues, among others, were at times hotly debated at the Middle East Association’s recent Libya conference held in London on July 23.

A number of Libya experts were on hand to provide their first hand accounts of their investments experience and to exchange and suggest possible reforms that would benefit further inward investment. Adrian Creed, partner at Trowers & Hamlins, discussed the feasibility of PPP projects in Libya and emphasised the need for consistency, fairness and transparency as the best advice for Libya. “In Libya you work a lot with state or quasi-governmental companies. They can be sued, but the question is, can it be enforced? Because it might turn out to be a public asset. This is still quite a big task that Libya faces but it has to be done.”

Issues still remain with the over-reliance on oil revenues and conflicting announcements by the country’s ruling figures that remain a challenge. “With a non-transparent legal framework, that does not give enough comfort for lenders,” said Howard Gooder, head of project finance at Europe Arab Bank.

“The country’s oil wealth, strictly separated from tax revenues, is to be used for investment only,” said Mahmud Al-Ftise, secretary at the Privatisation and Investment Board of Libya. “We are expecting 8% growth for 2009.”

Al-Ftise certainly has a point. Libya holds an estimated US$140bn in foreign currency reserves, has no debt and is positioned for steady, long-term growth. These positive financial circumstances are probably one of the factors underlying the recent massive inward investments made by the global leaders in private equity. Carlyle Group, a global private equity firm, has received funds by the Libyan Investment Authority. In the middle of last year, Libya has hired Goldman Sachs Asset Management to invest in a Goldman loan fund. 

There is no framework for an EU relationship with Libya yet but an agreement is being worked on that “could be signed next year with any luck,” said Vincent Fean, HM ambassador to Libya. He pointed out that the most important thing for an investor is to get paid. “You need to know who’s got the budget and there are only a few people in Libya who are the decision-makers. But they move around a lot and investors need to understand that,” Fean explained.

Probably the most controversial presentation was made by Charles Gurdon, managing director at Menas Associates, in the form of a SWAT analysis that sparked criticism among Libyan delegates. Gurdon pointed out that there is no obvious successor for Muammer Gaddafi, leader of Libya. Gurdon believes that some of Gaddafi’s sons are more inclined to keep the internationalisation and foreign business. Gurdon emphasised that political issues and connections are paramount when winning contracts in Libya, and painted a picture of a weak congress subordinated to a strong and dominate executive. He also pointed out the problem of Libya’s future being dependent on oil when only very little new oil has been found in recent years.

The session was concluded by Adela Gooch, programme director of Wilton Park, who observed that Libya is a relationship-based society, with many viewing Libya as a constitutional monarchy.

“Libya is at the centre of three relationships, with Africa, with Europe and with the Middle East,” explained Baroness Symons of Vernham Dean. She also emphasised Libya’s unique position as an Arab African country on the edge of Europe.