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Country name: Great Socialist People's Libyan Arab Jamahiriya
Population: 6,037,000 (July 2007 estimate)
Land Area: 1.8 million km2
Official Language: Arabic
Currency: Libyan Dinar equals 1000 Dirhams
Capital: Tripoli
Seaports: Tripoli and Benghazi
Airports: Tripoli and Benina
Libya, one of the largest countries of North Africa, represents an exciting emerging market in close proximity to Europe. Today there is much that is positive concerning its economy as Libya makes progress in integrating itself within the global trading system and embarks on a major economic program of development. German companies should be able to gain advantage as Libya seeks new business partners, investors and expertise to modernize its infrastructure.
The country is a major producer of light crude oil, the type most preferred by oil refineries because of its low wax content and ease of transportation and refining.
Libya is currently going through a protracted reform process to radically upgrade its industries, infrastructure, public services and ways of doing business. Dramatic changes have occurred not only in terms of a wider availability of goods and services, but also a deeper penetration of modern advanced technology. UK legal and business expertise has been sought to review the country’s legislation and procedures on banking, commercial and dispute resolution.
In 2006 there were some important legal developments related to foreign investment in Libya. One of the biggest changes concerns a decision to cut the minimum investment under Libya’s Foreign Investment Laws Nos. 516 and 717 from $50 million to a much more manageable and risk-averse $3.8 million. This minimum investment capital is further reduced to $1.5 million where the investment is a fifty-fifty partnership between a foreigner and a Libyan national. Furthermore, a foreign investor may now borrow up to 50% of its investment capital from local Libyan banks.
The reduction in minimum start-up capital for foreign investors and the ability to borrow at least half of the capital from Libyan banks encourages more foreign investment. Because of the political and investment risks involved, Libya’s previous minimum capital investment hindered smaller investors from entering the marketplace. The reduction has spurred investment in 2006, effectively breathing new life into the Libyan foreign investment sector. The Libyan government estimates that, so far, there has been approximately $3.06 billion of foreign investment in Libya since 1997. The lowering of investment hurdles will undoubtedly increase that number in 2007.
Another noteworthy change relates to foreign ownership of Libyan companies. In July 2006 the GPC passed a decision providing for the creation of a new type of Libyan company. Called a Mushtarika, this type of company allows foreigners, for the first time, to participate in up to 65% of the shareholding of the company, thereby allowing the foreign entity to maintain control of the company. Furthermore, the board of directors may be comprised of a majority of foreign directors. The new company organization contrasts sharply with the old Joint Stock Companies, in which foreigners could only own a maximum of 49% of the shares and the board of directors was required to include a majority of Libyan directors. This marks a major change in the way foreigners can do business in the country.
September 2006 witnessed the creation of the Oil and Gas Council, now known as the Higher Council for Oil and Gas. This Council was established by General People’s Committee Decision No 211/2006, giving the new body the role of monitoring, maintaining, developing, and protecting the Libyan oil and gas sector for the benefit of the country, as well as giving it a supervisory role over the National Oil Company (NOC) with respect to financial, organizational, and other such issues affecting the NOC. This decision was later amended in November 2006 (GPC Decision No 250/2006), changing the name of the Council, and further clarifying and delineating the role of the NOC by giving it the flexibility to address concerns over time.
The creation of the Council is a shift in Libya’s oil and gas policy, according to commentators. It is expected that the Council will streamline the work of the NOC. Ultimately, it is hoped that the new Council will ensure a higher standard of efficiency and commercial benefit to the country’s oil and gas industry. This should help foreign investors since regulations affecting the oil and gas sector can be passed more easily, allowing for prudent changes to exploration, production, and management to be made quickly.
The ongoing transformation of Libya’s telecommunications industry offers substantial investment opportunities. Libya seemed to skip over landlines almost entirely, instead moving straight into the wireless and fiber-optic world. In fact, Libya’s mobile phone subscriber rate in 2005 was the highest in a study of eighteen Arab nations conducted by Dubai-based Madar Research. Moves to privatize the country's mobile phone sector as part of the wider economic reforms were flagged up by Seif Al Islam, speaking in the latter half of February 2007. Libya boasts two competing state-owned modern mobile phone networks, Libyana, which recently introduced 3G technology to the country, and Almadar. These companies are both owned by the Libyan General Post and Telecommunication Company, but they compete against each other for customers by providing different pricing schemes and coverage areas.
The country’s recent record speaks for itself: oil and gas exports increased by 25% to $36 billion in 2006, real GDP growth stood at approximately 3.5%; and inflation was low at 2.5%. Oil and gas remains the main driver of the Libyan economy, accounting for 97% of its foreign currency earnings and 92% of government revenues. Another sign of an expanding and thriving economy is the increase in domestic consumer demand for goods which led to imports increasing by 24% to some $11 billion.
Since the lifting of the economic sanctions that had been in force for about 10 years, Libya has been working with partner countries to upgrade its infrastructure, administrative procedures and facilities. There are ambitious plans to diversify and liberalise the Libyan economy with investment in the development of sectors such as tourism. While the aim is to move gradually towards a more market oriented economy, currently the greater proportion of the country’s leading companies are part of the public sector where three quarters of the workforce are employed. Private investment remains small standing at 2% of GDP and thus has potential for growth.
The non-oil sector is small at present, but growing and in contrast to previous years, in 2006 it contributed a greater share to the country’s economic growth. While activity in the oil sector grew only 1.5%, activity in the non-oil sector picked up essentially the result of increased government spending. Those main sectors that registered strong growth in 2005 include trade, hotels, and transportation (7%); and construction and services (5%). In addition, Libya’s manufacturing sector registered its first positive growth in five years (1.8%).
Libya’s spending plans include a projected budget of $35 billion on the expansion, upgrading and modernization of vital infrastructure.
In 2005 and 2006, the Libyan authorities continued to implement measures to reform and open up the economy. The country’s customs tariff was streamlined and restrictions on external trade were eased by downsizing the negative import list from 31 items to 17 items. The new tariff schedule has only two rates: 10% for tobacco products and 0% for all other products, but all imported goods are now subject to a 4% service fee. Meanwhile, the production and consumption tax was increased to 25-50% for imported goods and reduced to 2% for domestically produced goods, the IMF reports. Also, an investment fund has been created to manage part of the government's oil revenues.
Libya is seeking to improve its financial services sector through attracting private sector know-how and investment. In terms of monetary and banking policy, Libya passed a new banking law which reinforces the independence of the Central Bank of Libya giving it the authority to allow foreign banks to operate in the country. As of August 2005, banks were granted autonomy to determine freely interest rates on deposits and to set lending rates within a band of 250 basis points above the discount rate (currently at 4%).
In late January 2007, the Central Bank of Libya announced plans to sell a stake in the country’s largest state-owned commercial bank, the Sahara Bank with 44 branches nationwide. The move to sell to a "leading international financial institution" forms part of the Central Bank’s banking sector modernization program launched in partnership with US management consultancy McKinsey. Paris-based investment bank Rothschild is advising on this first privatization.
The invitation issued to prospective strategic partners to submit expressions of interest in the privatization of the bank came as Libya prepared to host its first major banking and finance conference with the deadline of 20th March to submit bids coinciding with the opening day of the conference. The Sahara Bank privatization will initially entail the divestment of a 19% stake held by the Social Economic Development Fund, but the Central Bank indicated that the strategic partner will have the right to increase its stake to 51% "in the medium term".
The Central Bank sees banking privatization as part of "a comprehensive strategy to modernize the financial sector," which "calls for a progressive opening of the Libyan financial market to both domestic and foreign investors."
Experts expect that banking giants such as the UK's HSBC, France's BNP Paribas, Citibank of the US, and Bahrain's Arab Banking Corporation will be in the running for the stake, although they have yet to confirm any interest.
The Central Bank of Libya has in addition said that the sell-off of the four other commercial banks - Wahda Bank, Gumhouria Bank, Umma Bank, and National Commercial Bank of Libya – is also being considered.
France's Calyon corporate and investment bank in 2006 became the only international heavyweight to formally establish itself in Libya. It has since financed a major maritime project. "The country does not need money, it has plenty," according to Calyon's representative in Libya. "Rather, what it needs is advice on its many development projects in order to speed them up and increase their efficiency."
BNP Paribas and HSBC - which has already entered the Libyan market with its subsidiary British Arab Commercial Bank - are expected to open formal representative offices in Tripoli soon.
Reflecting increasing consumer sophistication, credit cards appeared in the Libyan market two years ago, following a partnership deal between Visa and the Bank of Commerce and Development, which now has 22 cash machines nationwide; on the face of it, this may not seem very many, but relative the country’s size it is not inconsiderable.
As regards structural reform, major progress has been made in simplifying business application procedures. In particular, a one stop-window has been established, and a 30-day limit has been set for application approval with the obligation for the administration to notify any refusal through a notary public. The privatization plans and the scope of foreign investment activity have been broadened to include downstream activities in the oil, health, transportation, and insurance sectors. Also, joint ventures between Libyan and foreign investors are now permitted to benefit from the incentives of laws related to domestic investment (Law 5). In all, a total of 216 enterprises have been slated for privatization, and, thus far, 66 small enterprises have been sold.
In the drive to modernize its infrastructure, Libya’s priorities are directed at areas like housing construction, improvements to the environment (water treatment; sewerage and waste water systems and management) and the expansion of the road network.
Other key elements include transport communications, including bridge building and the upgrading and expansion of ports and airports, and tourism development which will boost hotel construction projects.
The enormous expansion plans are likely put heavy demands on other areas of the economy such as in particular power and electricity; desalination as well as other sectors ranging from telecommunications to education and training.
Facilities within these sectors will attract considerable investment and need to be upgraded to keep pace with the increasing demands, as well as associated services including general safety and security; logistics and the provision of business and financial services.
The emergence of Libya on the international scene presents challenging opportunities for exporters capable of providing equipment, materials, products, technology, consultancy services, management skills and financial expertise for the expansion, upgrading and modernization of Libya’s infrastructure, industrial, tourism and social sectors. This comes in a context where Libya is actively encouraging foreign investment, including taking action to enable the establishment of international banks in the country to facilitate large-scale projects.
The energy sector has a key role to play in the drive to realize its ambitious infrastructure and economic development plans. Oil and gas production is vital for Libya’s electrical power generation and feedstock for its downstream refining and petrochemical industries.
The entire energy sector is predicted to need additional investment as it seeks to increase output to keep up with growing demand.
Despite attempts to diversify the economy, the oil industry is set to remain central to the overall economy into the future. Libya has reserves of 39 billion barrels of proven crude oil (according to OPEC figures), the largest reserve base in Africa (42%) and 3% of world reserves. The sale of oil, natural gas and refined products generates export earnings of $12 billion per year accounting for 95% of Libya’s foreign currency earnings and 75% of state revenues.
Libya aims to boost oil production from its current 1.6 million b/d to 2 million b/d by 2008-10 and 3 million b/d by 2015. It is estimated that this will require investment of around $30 billion. A large part of this will be spent on exploration, new field development and the maintenance of existing fields, leading to important opportunities to geo-science companies and contractors, suppliers of equipment and services for various technologies including pressure maintenance/production technology, water/gas injection and improved/enhanced oil recovery.
Expansion of natural gas production is also high on Libya’s priorities, as it has been drawing up plans to increase domestic consumption of natural gas to free more crude oil for export. Recent agreements have also been signed to upgrade and expand the country’s LNG plant with the aim of increasing exports to world markets.
Libya is working on the upgrade and expansion of all its refineries, which serve both the domestic and export markets, and the NOC estimates that a total investment of around $3.5 billion will be needed over the next 5-8 years. NOC has also identified $800 million of investment needed for the development of petrochemical plant to produce polypropylene, butadiene, benzene and high-and low-density polyethylene.
With Libya’s power demand growing at around 6%-8% annually and expected to reach 5.8GW in 2010 its current electrical power production capacity of 4.7GW falls far short of its needs. To meet the shortfall, the General Electricity Company (GECOL) has drawn up plans to increase generation capacity by spending $3.5 billion over the next four years building eight new combined cycle and steam cycle power plants. The company also has a $1 billion program to upgrade and expand the country’s power transmission grid.
Libya believes that overseas joint venture partners will provide not only capital investment but also the transfer of technology and improvement of management and marketing techniques. This is the preferred method that will bring much needed technology and expertise to Libya and play an important part in the country’s development.
A new Libyan Economic Development Board (LEDB) launched in Tripoli on 22 February 2007 is set to become a central focus of the country’s current national economic strategy. As reported in the Tripoli Post, the LEDB was established by decree of the General People's Committee on 8 January 2007. The launch event was attended by senior government officials and a range of international media representatives.
Quelle: Ghorfa, Arab-German Chamber of Commerce & Industry e.V.
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