investing in libya

Investing in Libya

April 2014

Contents

1 Investing in Libya 1

1.1 Economic Climate 1

1.1.1 Background 1

1.1.2 Political Scenario 3

1.1.3 Living Conditions 3

1.1.4 Economic Growth 4

1.1.5 Labour Market 5

1.1.6 Industries 5

1.1.7 Oil and Gas 6

1.1.8 Market Structure 8

1.1.9 Foreign Direct Investment 8

1.1.10 Currency 9

1.1.11 Exchange Rates 9

1.1.12 Inflation 10

1.2 Operating in Libya 10

1.2.1 Why Invest in Libya? 10

1.2.2 Regulatory and Compliance Requirements 11

1.2.3 Risks and Barriers to Business 13

Investing in Libya 1

LibyaAlgeria

Niger

Chad

Egypt

Tunisia

Tripoli Benghazi1 Investing in Libya

1.1 Economic Climate

1.1.1 Background

Libya is located in North Africa, bordered by the

Mediterranean Sea to the north, Egypt to the east, Sudan to

the southeast, Chad and Niger to the south, and Algeria and Tunisia to the

west. With an area of almost 1.8 million square kilometres, Libya is the 4th

largest country in Africa and 17th largest country in the world. Around 6.4

million people live in Libya, 1.7 million of them in the capital city of Tripoli.

Libya is one of the more developed countries in Africa, with the second highest

Human Development Index score in Africa after the Seychelles, and the sixth

highest GDP per capita. According to Annual Statistical Bulletin 2013, Libya has

the 8th largest proven oil reserves in the world and the 15th highest crude oil

production.

In 1969 Muammar Gaddafi, then an army officer, together with a small group of other military

officers, staged a coup dtat against King Idris. In 1977 Libya officially became known as the Great Socialist Peoples Libyan Arab Jamahiriya, with power supposedly held by the General Peoples Committee, however in reality Gaddafi became a de facto dictator. From 1977 onwards Libya saw

great progress with regards to its development: GDP per capita rose at a fast rate while the HDI

became one of the highest in Africa, all this was achieved through the revenues from the oil industry

and without the need for any foreign debt.

Early in 2011, in the aftermath of the revolutions in Tunisia and Egypt, protests began to break out

across Libya. As the protests escalated in severity government forces began using more violent

methods to suppress them until the situation degenerated into a full scale civil war. With the

combined efforts of rebel and NATO forces, the Gaddafi regime was toppled and a transitional

government was set up to begin reconstructing the country.

Following the collapse of the Gaddafi regime, Libya has the opportunity to rebuild itself from scratch.

The transitional government handed over its power to a newly elected parliament, The General National Congress (GNC), with Dr. Ali Zeidan as the Prime Minister of Libya. This new National

Rank Country HDI

1 Seychelles 0.806

2 Libya 0.769

3 Mauritius 0.737

4 Algeria 0.713

5 Tunisia 0.712

6 Gabon 0.683

7 Egypt 0.662

8 Botsw ana 0.634

9 South

Africa

0.629

10 Namibia 0.608

Top 10 African Countries by HDI

Rank Country GDP Per Capita

1 Seychelles 26,168.91

2 Equatorial Guinea 25,117.18

3 Botsw ana 17,595.63

4 Gabon 17,586.34

5 Mauritius 16,350.47

6 Libya 14,474.75

7 South Africa 11,750.37

8 Tunisia 10,200.29

9 Namibia 8,159.88

10 Algeria 7,736.90

Top 10 African Countries by GDP Per Capita

Source: IMF Estimates for 2013

Source: IMF Estimates for 2013 Source: United Nations Development Programme

Human Development Report 2013


Congress is expected to compile a draft Constitution and to enable new parliamentary elections to

take place in 2014.

The Libyan economy has a strong foundation and many promising opportunities. In reality Libya has

not yet tapped much of its oil reserves meaning there is much room for output growth. Furthermore

the oil industry has left Libya with large foreign exchange reserves and a rich sovereign wealth fund.

One advantage of such large foreign exchange reserves is that it makes it easier for the government

to protect the value of the Libyan Dinar. Large foreign exchange reserves also grant the government

a degree of flexibility with regards to monetary and exchange rate policy, which in turn can help

influence the volume of imports and exports and keep the economy stable.

Source: John M. Olin Institute for Strategic Studies: Harvard University

https://blogs.law.harvard.edu/mesh/2007/12/who_has_oil/

Partly due to the success of the oil industry, other sectors have unfortunately been overlooked and

much of Libyas potential in other economic sectors such as tourism, alternative energy and services have not yet been realised. For this reason the economy is very dependent on hydrocarbons for fiscal

revenues and foreign exchange reserves, and this carries with it the risks normally associated with

any highly specialised economy. Development of the non-oil industry is a priority for the government.

The Libyan government has embarked on a programme of privatisation of state-owned entities which

may constitute an area of opportunity. At the same time, one issue potential investors may face in

Libya is the fact that much of the economy is still state controlled, which creates a challenging

business environment further compounded by the fact that decision-making tends to be inconsistent.

Transparency in post-Gaddafi Libya may improve over time.


1.1.2 Political Scenario

Libya is governed by a temporary Constitutional Declaration. Under this Constitutional Declaration,

Libya is a parliamentary republic governed by the GNC, which was elected in July 2012. The

executive branch is appointed by the GNC and led by the Prime Minister, while the President of the

GNC is the de facto head of state, though not explicitly described as such in the Constitutional

Declaration.

During May 2013 the political isolation law was passed. This law bars anyone who served in a senior

position at any time during the 42 years of Gaddafis rule from taking any kind of leadership role in the country for the next decade.

1.1.3 Living Conditions

Libya is one of the most developed countries in Africa and scores highly in terms of the UNDP

Human Development Index1

. The demographics are highly promising; the country has a population of

over 6 million people, 68.8% of which are aged between 15 and 64 years. The median age in Libya is

24.8 years for men and 24.7 years for women. Based on estimates from the International Monetary

Fund (IMF), the population is expected to continue growing at a rate of around 1.8%2

. According to

the World Health Organisation (WHO) life expectancy at birth as of 2011 is 58 for men and 74 for

women. However these figures are likely to be understated as a result of the revolution. The WHO

estimates life expectancy at 70 for men and 74 for women. Ignoring the effects of war, this puts

Libyan life expectancy on par with that of Europe, which averages 72 for both genders, and slightly

below the United States which averages 79 for both genders.

Primary education is compulsory in Libya, and provided by the sovereign state. Children between the

ages of 6 and 15 attend primary school and then attend secondary school for three additional years

(15- to 18-year-olds).

The de facto official language of Libya is Modern Standard Arabic. About 95% of the Libyan

population use different Arabic dialects as native language, most prominently Libyan Arabic, but also

Egyptian Arabic, Tunisian Arabic and other varieties. English is the most widely spoken foreign

language especially by the younger generation and business community. Moreover, there are

thousands of young Libyan professionals who were educated in universities in the United Kingdom

and Ireland. Italian is still known to some degree by some of the elderly people, mainly in the form of

Libyan Italian.

Despite the nations abundant natural resources, the people of Libya are relatively poor when compared to western nations. IMF estimates for 2013 show GDP per capita in Libya is around

US$14,500 ranking it 6th

in Africa but compares poorly with the EU and US where GDP per capita is

estimated at US$34,0003

and US$51,0004

respectively. As foreign companies return to Libya and

bring new investment with them, the potential for economic growth and an improved standard of

living for people in Libya is on the horizon.

Cost of living in Libya is relatively low when compared to major cities in the EU and US, with the

possible exception of property prices in prime areas in Tripoli.

1

The Human Development Index is a measure of development which combines life expectancy, educational attainment and

income into one composite indicator. This index covers 187 countries and is computed annually by the United Nations

Development Programme (UNDP).

2

International Monetary Fund, World Economic Outlook Database; KPMG Analysis

3

Source: Eurostat

4

Source: IMF Estimates for 2013


0

20

40

60

80

100

120

140

160

$ B

illi

on

s

GDP (PPP)

The cost of property in Libya is highly variable depending upon location, and proximity to the city

centre. The median rental cost for a three bedroom apartment in central Tripoli is about US$2,087 per

month, whereas the same type of apartment outside of the city centre would be available for

US$1,342 per month. An apartment in central Tripoli would cost around US$1,046 per square meter,

whilst an apartment outside the city centre will cost approximately US$63 per square metre.

Property prices in Benghazi tend to be less sensitive to city centre proximity.

1.1.4 Economic Growth

As a result of the revolution, GDP growth of the Libyan economy decreased dramatically. The conflict

caused significant disruptions in the supply of oil and gas, particularly as production and exports came

to a halt as a result of a brain drain and also due to the destruction of infrastructural set-ups. These

factors, coupled with the fact that the countrys assets were frozen during the same year, led to a contraction in real GDP by 61%.

Growth regained a sharp momentum during 2012, whereby an increase in real GDP by 92%5

was

recorded, as foreign oil companies resumed operations and economic recovery is continuously

picking up at a hasty pace. This strong positive economic growth is likely to continue in the coming

years, with the Central Bank of Libya forecasting an increase of 11.3% and 9% in real GDP for 2013

and 2014 respectively. Political stability coupled with the restoration of national security and other

measures implemented by the new Libyan government are expected to sustain economic growth

over the short term scenario.

5

Economist Intelligence Unit statistical database; Central Bank of Libya

Property prices in Libya

Rent of Apartment (3 bedrooms) in City Centre US$2087/month Rent of Apartment (3 bedrooms) in City Centre US$630/month

Rent of Apartment (3 bedrooms) outside City Centre US$1342/month Rent of Apartment (3 bedrooms) outside City Centre US$393/month

Price of apartment per square meter in City Centre US$1046 Price of apartment per square meter in City Centre US$669

Price of apartment per square meter outside City Centre US$63 Price of apartment per square meter outside City Centre US$472

Tripoli Benghazi

-100

-50

0

50

100

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

% c

han

ge

Libya Real GDP and CPI

Gross Domestic Product

Source: Numero; June 2013

Source: IMF Source: Economist Intelligence Unit


Indicator 2008 2009 2010 2011 2012 2013

GDP (% real change pa) 2.7 -0.7 4.3 -61.4 92.1 11.3

Gross f ixed investment (% real change pa) 13.1 9.0 10.2 -86.5 115.0 65.0

Private consumption, contribution to real GDP grow th (% points) 2.6 2.5 2.9 -22.8 56.8 5.2

Government consumption, contribution to real GDP grow th (% points) 2.5 -0.1 1.7 -15.2 21.4 2.4

Unit labour costs (% change pa) 2.2 1.6 2.0 -18.2 8.5 5.4

Labour productivity grow th (%) -0.9 -1.1 2.3 -48.2 67.4 -9.8

Total factor productivity grow th (%) -1.1 -2.5 1.2 -43.0 83.7 -3.6

Exchange rate LCU:US$ (av) 1.224 1.254 1.267 1.224 1.252 1.278

Budget balance (% of GDP) 23.7 7.1 6.8 -15.7 26.9 20.4

Public debt (% of GDP) 3.1 4.5 4.0 10.2 3.5 3.0

Lending interest rate (%) 6.0 6.0 6.0 6.0 6.0 6.0

Deposit interest rate (%) 2.5 2.5 2.5 2.5 2.5 2.5

Libya Economic Indicators

High levels of sales of hydrocarbon products have always been the primary source of export revenue

for the Libyan State. This has lead to several successive surpluses in the Balance of Payments

Current Account, which records the balance between revenue from exports and expenditure on

imports. Estimates from the IMF predict that as the oil and gas industries in Libya return to their pre-

revolution output levels, the current account surplus will continue to rise. However this rise is

expected to be neutralised due to expected increments in imports as the country rebuilds and invests

in its economy.

1.1.5 Labour Market

The total labour force comprises individuals aged 15 or over, who supply labour for the production of

goods and services during a specified period, including employed and unemployed individuals.

Currently, the total Libyan Labour force is estimated to be close to 2.4 million people. However

following the revolution one of the main issues the government needs to address is the complex

Libyan labour market situation.

Rising unemployment amongst Libyan nationals co-exists with growing numbers of foreign workers.

Since a labour force survey has not been carried out in recent times, very little accurate information is

available on the state of the labour market and various sources provide varying estimates. It is

generally accepted that expatriate workers constitute a significant proportion of the total labour force.

Unemployment amongst young Libyans is also frequently cited as a problem. Libyan workers tend to

lack the skills and willingness to compete with foreign workers.

According to the World Bank, Libya has one of the highest levels of public sector employment in the

world, employing up to 70% of the formal workforce. The wages and generous non-wage benefits

offered by this sector have resulted in unrealistically high wage expectations from job seekers, and

university and vocational education and training school graduates.

According to the Global Competitiveness report 2010-2011, Libya performs poorly in terms of the

overall quality of the education system, ranking 128 for primary education and 138 for higher

education and training out of 139 countries.

Despite the high enrolment numbers, the quality of education of is poor mainly due to low teacher

qualification levels, gross absenteeism, a lack of facilities and adequate equipment and traditional

curricula oriented towards the preparation of students for university students.

1.1.6 Industries

The Oil and Gas industry is currently the single largest contributor to the Libyan economy. Since the

end of the revolution, oil production has restarted and the oil industry is getting back on its feet. A

few corporations have still not returned due to the security situation; small militia groups are still

Source: Economic Intelligence Unit, Central of Libya, IMF, OECD. NB: Data for 2013 is an estimate


present across the country. However, as the situation improves there is hope that oil production

levels could rise significantly.

During the MEED Libya Projects 2013 conference the Libyan government unveiled some of its plans for the reconstruction of Libya. In total, around 200bn LYD (over US$150bn) worth of projects

will be initiated over the next decade. Much of this is related to rebuilding the country after the civil

war and hence there is much opportunity in the construction industry. Beyond this reconstruction,

there are also plans to further develop the oil and gas industry in order to increase output, as well as

plans to develop a flourishing tourism industry which will take advantage of Libyas climate and Mediterranean coastline.

The potential growth for the Libyan economy can be seen through the success of events such as

Libya Build. This is an annual building and construction exhibition which has proven very popular with foreign and local companies willing to explore the possibilities of investment in Libya. In 2012

636 companies attended the event which attracted over 17,000 visitors.

Other important emerging industries in Libya include renewable energy, transportation and tourism.

In particular, the tourism industry has the potential to be Libyas second largest industry as the country boasts of its UNESCO world heritage sites, sea resorts and desert tourism.

1.1.7 Oil and Gas

According to the IMF, the value of Libyas oil reserves per capita is the 5th highest in the world after Kuwait, Qatar, the United Arab Emirates and Saudi Arabia. Libyan oil reserves also rank 8

th

globally

according to OPEC statistics. As a result of this oil wealth, the Libyan economy tends to compare

favourably with other African nations.

During the civil war oil production practically ceased, and during 2011 oil and gas production

decreased by more than 70%. This resulted in a massive contraction in real GDP, export earnings and

fiscal revenues in 2011. Since the end of the revolution many hydrocarbon industry companies have

returned to Libya to resume operations. In fact, crude oil and gas production rose close to pre-crisis

levels by end-2012, albeit instability during the summer of 2013 reduced oil production to a relatively

very low level. As a result of the return of major players the sector is estimated to have expanded by

about 195% in 2012 and is expected to continue expanding by another 14% in 2013 and 4% in 2014

as more companies return to Libya. Plans to increase output of the hydrocarbon industry could

potentially result in another wave of rapid growth for both the sector and the Libyan economy as a

whole. However, no concrete proposals for this have been laid out as of yet.

Before the onset of civil war in 2011, Libya produced in the region of 1.55 to 1.6 million barrels per

day (bpd) of crude oil, had a refining capacity of 380,000 bpd, and crude oil exports of around 1.3

million bpd. In recent months, instability and industrial action have significantly reduced this volume.

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100000150000200000250000300000350000

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Oil Reserves

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Crude Oil Production

Source: OPEC Annual Statistical Bulletin 2013


The Libyan economy is highly dependent on the hydrocarbon industry a fact that becomes clear

when one notices the effects a slowdown in oil production had on GDP Growth. The government has

stated intentions that it wished to use revenues from this industry to finance massive investment

projects across Libya, mainly in an effort to rebuild after the war but also to develop new industries.

Libya has the potential to operate large and successful tourism and solar energy sectors alongside its

oil and gas industry, which would serve to grow and diversify the economy hence strengthening its

resistance to fluctuations in the commodity market.

Libya also possesses significant reserves of Natural Gas, however in terms of global ranking, Libyas place in the gas market is not as relevant as in the oil market. It produces approximately 15.8 billion

m3

per year, of which more than 60% is exported to Europe (Italy) via a pipeline. Prior to the

revolution, new discoveries and investment into the industry were expected to raise the proven

natural gas reserves in the short term.

In the years leading up to the revolution Libyan production of natural gas was steadily rising from year

to year. As a result of the conflict, gas production much like oil was almost entirely shut down for a

prolonged period of time. Since the end of the revolution however production has restarted and the

industry has shown itself to be quick to recover. The National Oil Corporation has stated that natural

gas is a priority and that there are plans to re-evaluate reserves and explore the existence of shale

gas deposits in Libya. The following table shows Libyas position natural gas reserves and production relative to states in Africa and the Middle-East as well as market leading nations.


1.1.8 Market Structure

The free market concept is still relatively new in Libya. Under the old regime the private sector was

tightly controlled. However since the revolution, the government has been taking steps to encourage

investment by foreign companies and has become more open to private sector involvement in the

economy.

Nevertheless it will take time for these measures to have any noticeable effect; the vast majority of

Libyans still work with the public sector.

1.1.9 Foreign Direct Investment

Foreign direct investment (FDI) inflows to Libya slowed down during the revolution. It is expected

that for the time being most FDI will continue to be in the oil and gas sector. Given the challenging

Rank Rank

1 Russia 48,676 1 United States 682,719

2 IR Iran 33,780 2 Russia 609,200

3 Qatar 25,069 3 IR Iran 202,431

4 Turkmenistan 10,000 4 Qatar 157,050

5 United States 8,910 5 Canada 154,927

6 Saudi Arabia 8,235 6 Norw ay 114,570

7 United Arab Emirates 6,091 7 China 106,429

8 Venezuela 5,563 8 Saudi Arabia 99,330

9 Nigeria 5,118 9 Algeria 86,454

10 Algeria 4,504 10 Netherlands 78,150

11 Iraq 3,158

15 Egypt 60,600

17 Egypt 2,190

17 United Arab Emirates 54,308

19 Kuw ait 1,784

20 Nigeria 42,571

22 Libya 1,549

26 Oman 31,583

26 Others - Middle East 1,077

32 Libya 18,118

28 Oman 950

35 Kuw ait 15,515

31 Others - Africa 652 36 Bahrain 12,450

44 Angola 275 43 Others - Middle East 9,190

48 Cameroon 153 46 Syrian Arab Republic 6,830

47 Equatorial Guinea 6,500

51 Congo 124

52 Mozambique 3,600

54 South Africa 3,200

56 Others - Africa 1,930

59 Tunisia 1,860

60 Cte dIvoire 1,317

64 Angola 760

65 Iraq 646

Natural Gas Reserves (billion Standard Cubic Meters) Natural Gas Production (million standard cubic meters)

Top 10 + Middle East and African Natural Gas Reserves and Producers

...

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Source: OPEC Annual Statistics Bulletin 2013; KPMG Analysis


business environment, inconsistent decision making and high levels of bureaucracy, investment into

other industries is not expected to arrive at the same rate.

Libya has a score of only 10 out of 100 (where 100 is best) in the Investment Freedom category of

the Index of Economic Freedom, which illustrates the difficulty of investing in the country. One factor

influencing slow FDI inflows over the short- to medium-term will be political instability and economic

policy uncertainty, as well as fears over the security situation.

1.1.10 Currency

The currency in Libya is the Libyan Dinar (LYD). The currency is issued and controlled by the Central

Bank of Libya and to ensure the stability of its currency, the Libyan government pegged the Libyan

dinar to an SDR6

(special drawing right) at a fixed rate.

The Dinar is subdivided into 1000 dirhams. The coins used are the 50 and 100 dirham coins, as well

as the and dinar coins. The current series of banknotes includes denominations of 1, 5, 10, 20,

and 50 dinars.

1 Libyan Dinar is approximately equivalent to US$0.78

1.1.11 Exchange Rates

To ensure the stability of its currency, the Libyan government pegged the Libyan dinar (LYD) to the

U.S. Dollar at a fixed exchange rate in 1973. In 1986, it switched to a new system: pegging the dinar

to an SDR at a fixed rate allowing greater flexibility in stabilizing the value of the dinar as world

economic conditions change.

The exchange rate is likely to remain stable as long as the Libyan Dinar continues to be pegged to the

IMFs Special Drawing rights. Pegging of the exchange rate reduces the exchange rate risk that any foreign direct investment in Libya may be exposed to as the value of the Libyan Dinar is held

relatively stable. Furthermore, in March 2013, the IMF warned Libyan authorities that the pegged

Libyan Dinar is only sustainable if monetary and fiscal policies support this regime. The financial

sector needs to be stepped up by the Central Bank of Libya which in turn has the challenge of

restructuring the financial system. In this respect, the Central bank of Libya needs to increase the

number of supervisory and regulatory measures to ensure a stabilised macroeconomic environment

over the medium term. The restructuring of the financial sector can further aid increased foreign

direct investment in Libya.

6

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF

members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the

arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external

positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve

asset, the SDR serves as the unit of account of the IMF and some other international organizations.

After the collapse of the Bretton Woods system in 1973, the SDR is as a basket of currencies, today consisting of the Euro,

Japanese Yen, Pound Sterling, and U.S. Dollar. The U.S. Dollar-equivalent of the SDR is posted daily on the IMFs website. It is calculated as the sum of specific amounts of the four basket currencies valued in U.S. dollars, on the basis of exchange rates

quoted at noon each day in the London market.


Source: IMF, International Financial Statistics

1.1.12 Inflation

Statistics from the IMF show that Libya has historically managed to keep average yearly inflation

below 4% ignoring a few exceptional periods. During 2011 inflation is estimated to have risen as high

as 15.9%, most likely due to the revolution, but is expected to have fallen in recent times. IMF

estimates for the near future predict that inflation will start to stabilise and fall to less than 4% in a

few years.

1.2 Operating in Libya

1.2.1 Why Invest in Libya?

There are multiple business opportunities in Libya in every sector of the economy particularly as Libya

needs to re-organise and re-build its infrastructural set-up and economy. Although oil is a

predominantly important sector, there are many other various opportunities for foreign direct

investment in diverse sectors including health, transportation, education, tourism and public utilities.

The Libyan government has made it clear that it plans to expand the oil industry and use the

revenues to fund investment projects in Libya with a value of around US$200bn. Over and above

government contracts, as economic prosperity starts to spread through the country, demand for

increasingly varied and higher quality goods and services should develop, hence presenting greater

opportunities for investors in all fields of business.

1.160

1.180

1.200

1.220

1.240

1.260

1.280

1.300

1.320

1.340

LY

D

Average Yearly Exchange Rate LYD:USD

0

2

4

6

8

10

12

14

16

18

2010 2011 2012 2013 2014 2015 2016 2017 2018

Infl

ati

on

Ra

te %

Inflation in Libya (Average Consumer Prices)

Source: IMF Staff Estimates


1.2.2 Regulatory and Compliance Requirements

1.2.2.1 Setting up a company in Libya

Under Libyan law, all companies formed in Libya must be Libyan controlled. Most foreign companies

currently operating in Libya tend to operate through a branch or a subsidiary.

A foreign company must register its branch with the Secretariat of Economy and Trade and

International Co-operation. Once registration is completed, a five year renewable business licence is

issued. An application for the registration of a branch can only be made after a number of procedures

have been complied with. These would include:

Preparation and submission of various documents and resolutions as detailed below

Remittance of Foreign Currency equivalent to LYD 70,000 (approximately US$ 55,000) to fund the equity of the local branch or subsidy.

After compliance with the above, an application has to be submitted to the appropriate Secretariat.

The application together with the supporting documentation would be first checked by the secretary

of the Registration Committee of the Secretariat. The application may well be rejected if the

documents are not prepared in the prescribed format. If the application is approved a business

licence will be issued. This process may take anything between three to six months. If the application

is refused, reasons for the refusal will be given.

Attention needs to be paid in the preparation of the documents for registration purposes. All

documents must be:

Endorsed by competent authorities in the country issuing the documents and by the Libyan Embassy (Libyan People's Bureau) in that country. They must be original copies as photocopies

are not acceptable unless they bear an original endorsement of the competent authorities.

Translation into Arabic by a recognised translator. Translations, which originate outside Libya, must carry an endorsement of the official authorities and the Libyan People's Bureau.

The documents which are required to accompany the application form must be sorted into the

groupings as shown by the list of requirements and attached to the application form in the same

order. Documents should be filed in order that may be read from right to left and the Arabic

translations must be placed on top of the original documents. Both the Arabic and original documents

must be notarised and stamped by the Libyan People's Bureau in the country of origin.

The following documents are required when setting up a branch in Libya:

A resolution passed by the Board of Directors for the approval of opening the Company's branch in Libya, including a statement of activities to be carried out in Libya, provided that they are

consistent with the objects of the parent company, and are activities permissible for branches of

foreign companies in Libya.

The name of the Manager of the Company's branch in Libya provided that he holds Libyan nationality or the nationality of the country of the parent company or of one of its owners.

Address of the main office of the company`s branch in Libya.

A certified accurate copy of the Memorandum and Articles of Association of the parent company.

An original recent commercial extract from the competent authority where the parent company is registered.

An undertaking by the Board of Directors of the parent company to prepare the annual Balance Sheet as well as the Profit and Loss Account of the branch.

An undertaking by the Board of Directors of the parent company that they will not interfere in the political affairs of Libya.


Documents showing the company's competence and expertise in the activities that will be carried out in Libya.

An Application Form prepared by the Libyan Administration for obtaining authorisation to open a branch of a foreign company.

1.2.2.2 Legal Issues

In 1997 The Foreign Investment Law (Law 5) was passed in Libya with the aim of encouraging

foreign direct investment and promoting Libyan private capital abroad.

The law targeted several projects in Libya such as:

Production of goods or services for export or import substitution

Creation of new jobs and employment opportunities and provision of advanced technical training

Transfer of know-how, modern technology and technical expertise

Making use of local raw materials

Contribution to the growth of the economically underdeveloped regions

Under Law 5 investors have the rights to the following benefits and exemptions:

Imported machinery, tools, equipment, spare parts and raw materials are exempt from all duties and taxes for a period of five years

The project is exempt from all income tax on its activities also for a period of five years, which period can be extended for a further three years

Exported goods are exempt from all taxes

No stamp duty is imposed on commercial documents in connection with the project

Furthermore the following rights and privileges are also granted to investors:

Net profits and dividends are freely transferable

Expatriate personnel can be freely employed in the absence of Libyan substitutes

Long term leases for land for production facilities are available

Bank accounts in convertible currencies can be freely opened

Ownership of the project may be transferred in whole or in part to another investor

The investor can freely re-export his invested capital

Law 5 guarantees and protects the investor against nationalisation, dispossession, seizure, or any

other similar action. There is a Libyan Foreign Investment Board which promotes investment projects

and provides a one-stop shop for investors, providing all the required services, including the

processing of applications and the granting of licences and permits.

Investors are permitted to open an account in convertible currency, to repatriate profits, to employ

expatriates when there is no qualified local labour and to own and lease property. They are protected

against expropriation and permitted access to arbitration.

Nevertheless, Decision of the Minister of Economy no. 207/2012 concerning the participation of

foreigners in the companies and the branches and representation offices for the foreign companies in

Libya introduced a categorisation of economic activities that effectively limits or restricts expatriate

participation in a number of economic sectors. Moreover, this Decision introduces restrictions on the

ownership of equity non-non-Libyan persons, also depending upon the economic sector of activity.


Professional advice should always be sought on all matters related to the setting up of operations in

Libya.

1.2.2.3 Taxation

Corporate Tax

Any entity registered in Libya is considered to be tax resident in Libya, hence any income generated

in Libya from assets held, or work performed in Libya is subject to income tax in Libya.

Tax is incurred annually on net income accrued during the year. Taxable income consists of income

from business operations, less allowable expenses. Libyan companies are taxed based on their

submitted tax declarations, supported by audited financial statements.

A deemed profit tax may apply in the following situations:

The entity is not registered at the time of taking on a contract

The entity does not hold statutory books in Libya

The books are not maintained in compliance with local regulations

A deemed profit tax may also be applicable if the authorities suspect that figures are incorrect or non-

compliant with the industry norm.

In Libya capital gains are treated as taxable income and are taxed at a standard rate. Net losses may

be carried forwards, but not backwards, for up to five years. Furthermore all corporate taxes, a Jihad

tax is also applicable along with a stamp duty regime. Foreign tax credits are not available unless

provided for in a tax treaty.

Social security contributions must be made by both the employer and the employee at the rate of

11.25% and 3.75% of gross wages respectively.

Personal Taxation

Individuals in Libya are taxed on Libya-source income, residence is not typically a factor in

determining tax liability. Tax is levied on salary or wage, including allowances, derived from

employment, professional income and investment income. Capital gains are treated as income and

charged at the standard rate.

Persons whose annual taxable income is less than LYD12,000 (around US$9460) are subject to a 5%

tax rate. Taxable income above LYD12,001 (around US$9461) is subject to a 10% tax rate. Special tax

rates apply to certain professional incomes.

Persons earning an annual taxable income of less than LYD1800 (around US$1400) in the case of

single individuals or less than LYD2400 (around US$1900) in the case of married adults are exempt

from income tax.

1.2.3 Risks and Barriers to Business

1.2.3.1 Language

The official language in Libya is Modern Standard Arabic with the vast majority of the population

speaking one of the many varieties of Arabic, mainly Libyan Arabic, but also Egyptian and Tunisian

Arabic. A significant number of people also speak one of the various Berber Languages, especially in

the Tripolitania region.


Under the colonial regime, Italian was a prominent language in Libya and it was also the language of

instruction in educational institutions. A few elderly people in Libya still speak some Italian, mainly in

the form of Libyan Italian, however the younger generations are more likely to understand English.

From the 1970s onwards English started to become more important to Libyans, mainly due to

economic and business reasons. While less educated people may not be able to converse in the

language most business people are accustomed to speaking English. Furthermore there are several

Libyan professionals who received their education in the United States or in the United Kingdom and

hence have developed a certain level of proficiency in the language.

1.2.3.2 Culture

Three main elements of Libyan business culture are easily identifiable. The first is the concept of

Wasta or Influence. This is a direct consequence of the development of close personal ties in Libyan society. The concept of influence relates to the importance of having friends in high places

that can facilitate and speed up some processes. As a system based on the reciprocation of favour

wasta is present in all aspects of Libyan life, especially in business.

A second element of Libyan culture is that of Face. Social status, respect and personal dignity are very important to Libyans. As such the protection of the honour of ones family is paramount. As a result of this business dealings in Libya are based on reputation and rely on trust.

Finally Libya is a predominately Muslim country and so features many traditions of Muslim society.

The majority of Libyans follow the Sunni branch of Islam and tend to be conservative without being

fundamentalist. As a Muslim state, Islamic rule pervades Libyan customs and culture, providing a

framework for the behaviour of individuals. Therefore care must be taken to respect this in both

social and business contexts.

Some Libyan Business Practices:

Business meetings should not be scheduled too far in advance in order to allow for any last minute changes of circumstance. It is advised to confirm an appointment with your Libyan

colleagues a few days before you meet.

Libyans, although rarely punctual themselves, value punctuality and will expect their foreign counterparts to arrive on time. If, however, you are running late a polite excuse will be accepted.

In Libya, business hours vary from season to season. In the summer, business is normally conducted between the hours of 7am and 2pm. During the rest of the year, business hours are

8am to 1pm and 4pm to 6.30pm. The weekend tends to be Friday and Saturday.

Libya has a strongly hierarchical society, an awareness of social status and the vast power distance between people is essential, hence many companies tend to place importance on

structure and hierarchy. Respect for social position, family name and profession is key to

successful business in Libya.

In Libyan companies, delegation is rare. Generally speaking, there is one owner or person in authority who is responsible for all those involved in the business and held responsible for all key

decision-making.

Personal relationships built on trust form the basis of all business practice in Libya. Therefore, it is vital that you allow time for cultivating a solid business relationship with your Libyan counterparts.

Despite the strong emphasis placed on respect for social status in Libyan culture, in the Libyan business environment it is not uncommon for all members of an organisation to have equal

access to the most senior person in charge. As a result, you may find numerous employees

interrupting business meetings with their individual concerns.

A vital part of all business introductions in Libya is the exchanging of business cards. You should have all business cards printed in Arabic on one side and in your native language on the other side.


It is customary to reserve the initial part of a business meeting for general conversation. Engaging in small talk before you enter into business discussions with your Libyan associate is vital for

establishing a successful relationship. Mutual trust and compatibility are key requisites for doing

business in Libya, therefore getting to know your Libyan counterparts in this way is essential.

Negotiations play a central role in Libyan business culture. The process of negotiating is often more valuable to your Libyan counterparts for gaining honour and respect than the end result and

is often a slow and drawn out business. As a nation whose people are known for their trading

skills, Libyans are excellent negotiators and pursue not only financial benefits, but also other non-

monetary incentives.

Generally speaking, Libyans place a greater value on someones word as opposed to a written agreement. Former Libyan business protocol favoured spoken agreements, based on a

handshake, over written contracts. Contracts were seen, not as a fixed arrangement, but as an

indication of understanding. However with the rapid modernisation of the business scene, written

agreements have become the rule, especially among large companies.

1.2.3.3 Security

In the aftermath of the revolution the security situation in Libya has improved but remains unstable.

Several armed militia groups still roam rural areas and the risk of clashes between them, especially

during night-time, is present. It has been acknowledged by the government that the possession of

arms by individuals not connected to the police or armed forces is a threat to security.

Public demonstrations are frequent occurrences in Libya, and several governments have advised

travelling citizens to avoid such gatherings and take cover in the event of celebratory gunfire. Crime

rates in Tripoli have risen since the revolution and reports of armed crimes including robbery and

carjacking have increased.

Contact us

Mark Bamber

Chief Executive Officer

United Accountants for Professional Services LLC

KPMG in Libya

Partner, KPMG in Malta

T (Libya) +218 91 607 9876

T (Malta) +356 7943 5670

E [email protected]

www.kpmg.com

2014 KPMG, United Accountants for Professional Services LLC, a Libyan limited

company and a member firm of the KPMG network of independent member firms affiliated

with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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circumstances of any particular individual or entity. Although we endeavour to provide

accurate and timely information, there can be no guarantee that such information is

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