libya - country profile 2005

Country Profile 2005

Libya

This Country Profile is a reference work, analysing the

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Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

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Country Profile 2005 www.eiu.com © The Economist Intelligence Unit Limited 2005

Comparative economic indicators, 2004

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0 50 100 150 200 250

Jordan

Bahrain

Yemen

Lebanon

Sudan

Syria

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Libya

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35.0 55.0

Libya 1

© The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

Contents

Libya

3 Basic data

4 Politics

4 Political background

5 Recent political developments

9 Constitution, institutions and administration

10 Political forces

14 International relations and defence

20 Resources and infrastructure

20 Population

21 Education

21 Health

22 Natural resources and the environment

24 Transport, communications and the Internet

26 Energy provision

27 The economy

27 Economic structure

28 Economic policy

32 Economic performance

32 Gross domestic product

34 Regional trends

34 Economic sectors

34 Agriculture

36 Mining and semi-processing

40 Manufacturing

40 Construction

41 Financial services

42 Other services

42 The external sector

42 Trade in goods

44 Invisibles and the current account

44 Current account

45 Capital flows and foreign debt

46 Foreign reserves and the exchange rate

47 Regional overview

47 Membership of organisations

52 Appendices

52 Sources of information

53 Reference tables

53 Population (Libyan nationals only)

53 Money supply

2 Libya


54 Interest rates

54 Nominal gross domestic product by expenditure

54 Real gross domestic product by expenditure

55 Prices

55 Agricultural production

55 Fishing and livestock products

55 Petroleum and refined products, production and consumption

56 Oil and gas reserves

56 Oil industry statistics

56 Ownership distribution for companies holding producing rights, 2003

56 Production and export of natural gas

57 Oil exports

57 Crude oil exports by destination

57 Main trading partners

58 Balance of payments, IMF series

58 Foreign reserves

58 Exchange rates

Libya 3


Libya

Basic data

1,759,540 sq km

5.55m (2003, IMF mid-year estimate)

Population in ’000 (2001 estimates, National Authority for Information and

Documentation; NAID)

Tripoli (capital) 1,105

Benghazi 597

Misurata 314

Zuwara 306

Khums 197

Sebha 117

Hot and dry with mild winters

Hottest month, August, 22-30°C (average daily minimum and maximum);

coldest month, January, 8-16°C; driest month, July, 1 mm average rainfall; wettest

month, December, 94 mm average rainfall

Arabic

Metric

Libyan dinar (LD)=1,000 dirham. Average official exchange rate in 2004:

LD1.30:US$1. Official exchange rate on June 1st 2005: LD1.31:US$1

2 hours ahead of GMT

Commercial offices and government establishments are closed on Fridays.

Holidays include Declaration of the People’s Power Day (March 2nd),

Evacuation Day (June 11th) and Revolution Day (September 1st)

Land area

Main towns

Population

Climate

Weather in Tripoli

Language

Measures

Currency

Time

Public holidays

4 Libya


Politics

Libya is nominally ruled by the General People’s Committee (cabinet), which is

headed by a general secretary (prime minister). However, Colonel Muammar

Qadhafi has effectively controlled the country since assuming power in 1969.

Colonel Qadhafi does not hold an official post and is referred to as “brother

leader of the Fatih revolution”. The state’s ideological underpinning is provided

by the “third universal theory”, a blend of socialist and Islamic doctrine

developed by Colonel Qadhafi and partly inspired by his nomadic upbringing.

Although the ideology of the revolution remains theoretically intact, policy

changes in 2003, which saw an embrace of capitalism, have abrogated Colonel

Qadhafi’s theory in practice.

In 1992 the colonel changed Libya’s political structure by dividing the country

into 1,500 mahallat (communes), with their own budgets, and legislative and

executive powers. This process was taken a step further in March 2000, with

the abolition of most central government executive functions. Outside key areas

of defence, infrastructure, health, education, social security and trade, control

has been devolved to the 26 municipal councils that make up the General

People’s Congress (see Constitution, institutions and administration). Ultimately,

though, Colonel Qadhafi retains overall power.

Political background

Originally settled by the Berbers, the region was invaded in AD643 by Arabs,

who introduced Islam to the region. They ruled the area that is now Libya until

the 1500s, when it fell to European control. It was then conquered by the

Ottomans in the mid-16th century, although local Arab rulers retained sig-

nificant influence under the Ottoman empire. In 1911, following a lengthy

struggle between the Ottomans and Italy, Libya came under Italian control,

although local tribal leaders remained powerful. Italian forces were unable to

pacify the province of Tripolitania until 1925, and Cyrenaica until the 1930s.

After the second world war, British and French military administrations shared

control of Libya, with the British occupying Cyrenaica and Tripolitania and the

French overseeing Fezzan.

In 1951 Libya became one of the first African colonies to gain independence.

Mohammed Idris al-Sanusi, head of the Sanusi religious order, was named King

Idris and installed as leader of the newly formed federal monarchy. At the time

Libya was one of the poorest countries in the world, with an average income

per head of less than US$50 per year, and was dependent on Western

countries, particularly the UK and the US, for substantial economic aid and

military assistance in exchange for the use of military bases on Libyan soil.

Intensive oil exploration began in 1955 and the first commercially significant

discovery was made at Zelten in the Sirte Basin in 1959. Less than a decade later,

Libya was the second largest oil producer in the Arab world. Oil sharply

improved the fortunes of the country, but popular resentment grew as wealth

was increasingly concentrated in the hands of the elite. The growth of Arab

Independence

Libya 5


nationalism (associated with Egypt’s then president, Gamal Abdel Nasser, who

championed pan-Arabism) and popular visions of “Arab unity” fanned the

flames of discontent, and in September 1969, while King Idris was out of the

country, a small group of military officers�led by a 27-year-old army captain,

Muammar Qadhafi�staged a coup d’état. Opposition was minimal and King

Idris was exiled to Egypt, where he remained until his death in 1983.

A Nasser-inspired Revolutionary Command Council, comprising 12 army

officers and headed by Colonel Qadhafi, quickly assumed control of the newly

proclaimed Libyan Arab Republic. The government embarked on an overhaul

of the country’s political, economic and social systems. Its policy of Arab

socialism stressed self-sufficiency in food and an expanding state sector. All

foreign-owned property and businesses were nationalised and in 1971 a single

political party, the Arab Socialist Union, was formed. Further changes to Libya’s

political system were initiated in 1976, when the General National Congress

was convened�soon renamed the General People’s Congress. The country’s

name was changed to the Great Socialist People’s Libyan Arab Jamahiriya

(loosely translated as “state of the masses”) in 1977. In the same year, factory

workers throughout the country supposedly “spontaneously” assumed control

of businesses, inspired by Colonel Qadhafi’s Green Book, and by 1979 the

private industrial sector had all but disappeared.

Libya’s foreign policy also underwent radical change. Colonel Qadhafi’s

particular blend of Arab nationalism and revolutionary rhetoric met with an

increasingly hostile reception in the West. The US took its first concrete steps

against Libya in 1978, enacting a series of unilateral sanctions (see International

relations and defence).

Recent political developments

During the 1980s Western hostility towards Libya intensified, fuelled by Colonel

Qadhafi’s confrontational and erratic foreign policies, and concern over Libya’s

growing friendship with its main arms supplier, the Soviet Union. In 1981 the

then US president, Ronald Reagan, after having already closed down Libya’s

Washington embassy, engineered a dispute with Colonel Qadhafi over the legal

status of the Gulf of Sirte, which escalated, resulting in the downing of two

Libyan planes. In 1982 the US tightened its trade embargo in order to inflict

maximum damage on the Libyan economy, most significantly by banning

Libyan crude oil imports. Before the ban, the US had been Libya’s largest single

customer, accounting for about 35% of its oil exports. Furthermore, in April 1984,

after the murder of a policewoman, Yvonne Fletcher, outside the Libyan

embassy in London, the UK broke off diplomatic relations.

Two years later the US accused Libya of involvement in the bombing of a Berlin

discotheque, in which three people, including two US citizens, were killed and

several others wounded. Although Libya denied involvement, the US launched

retaliatory air raids on Tripoli and Benghazi, killing an estimated 37 civilians,

together with Colonel Qadhafi’s adopted daughter, and destroying strategic

targets including military installations and communications centres. Relations

with the West hit rock bottom after Libya was implicated in the 1988 bombing

Revolutionary change

The 1980s

6 Libya


of a Pan Am jet over Lockerbie, Scotland, in which 270 people died, and the

1989 bombing of a French UTA flight over Niger that claimed 177 lives. Libya

consistently denied official involvement in both incidents, but since 1999 it has

moved towards offering compensation and admitting some form of liability, an

agreement over which was finally concluded in August 2003 (see International

relations and defence).

In 1991 the US and the UK formally charged two Libyans in absentia with

involvement in the Lockerbie bombing, while France issued arrest warrants for

four Libyans accused of participating in the UTA bombing, including Colonel

Qadhafi’s brother-in-law. Colonel Qadhafi’s insistence on the Lockerbie trial

taking place in the suspects’ home country or a third, “neutral” state led in 1992

to the imposition of UN sanctions against Libya, which were tightened in 1993

as Libya still refused to extradite the Lockerbie suspects to the US or the UK.

These measures, as well as the 1996 unilaterally imposed US D’Amato Act (Iran-

Libya Sanctions Act, or ILSA), which enforced extra-territorial sanctions on non-

US companies investing in Libya, placed substantial strains on the Libyan

economy, and in 1999 the two suspects were eventually handed over for trial in

The Hague, under Scottish law. Concomitantly, the UN suspended its sanctions

against Libya. In the same year, six Libyans were found guilty of the UTA

bombing in absentia in a French court.

The sanctions regime had negative repercussions on the domestic economy in

the 1990s, fuelling rises in import costs and inflation, and providing a focus for

internal dissent. Islamist opposition groups carried out a number of low-level

attacks against government forces and attempted assassinations of Colonel

Qadhafi. In 1993 the regime quickly suppressed an army-led coup attempt.

However, the suspension of UN sanctions in April 1999 and acquittal of one of

the Lockerbie bombing suspects, Al Amin Khalifa Fahima, in 2001 were

interpreted as significant victories within Libya, and internal dissent has been

muted since a security crackdown in mid-1998.

During the country’s political and economic isolation, Colonel Qadhafi turned

his attention to salvaging and promoting better relations with his immediate

neighbours in North Africa and the Middle East. However, in recent years he

has shifted the emphasis away from the Arab world and towards Sub-Saharan

African states, calling for the creation of a “United States of Africa”. The idea

has received only lukewarm approval in Africa, and aside from the replacement

of the Organisation of African Unity with the African Union in 2001, there has

been little concrete progress towards key proposals such as the establishment of

a pan-African parliament.

In January 2001 the court convicted one of the suspects in the Lockerbie trial

and in March 2002 rejected an appeal against the guilty verdict. Links between

Libya and Europe gradually strengthened following the suspension of UN

sanctions and were effectively normalised when, in August 2003, Libya

admitted “civil responsibility” for the Lockerbie bombing and agreed to pay

US$2.7bn compensation to the Lockerbie victims’ families. The US chose to

remain cold towards Libya until, in December 2003, Colonel Qadhafi publicly

announced that he was giving up his weapons of mass destruction (WMD)

The 1990s

Post-2000

Libya 7


programme and would allow more stringent nuclear, biological and chemical

inspections by US and UK personnel. This was claimed by London and

Washington as a diplomatic triumph and immediately resulted in a much

warmer dialogue between the US and Libya, with indications quickly emerging

that the US would review its sanctions policy towards Tripoli, which it

subsequently did: in April 2004 the US lifted the trade embargo, allowing the

resumption of bilateral commercial activity and financial transactions. Earlier,

in March 2004 Tony Blair became the first British prime minister to visit Libya

since Colonel Qadhafi’s succession.

These gains were consolidated with further advances in global relations during

the rest of the year. US and EU trade restrictions were gradually dismantled and

by the end of 2004 relations with the EU were effectively normalised, while the

only outstanding issue with the US was the retention of Libya’s name on its list

of “state sponsors of terrorism”. As of May 2005, this remained a bone of

contention, with Libya�as per its original deal�refusing to pay the third and

final tranche of compensation to the families of the Lockerbie bombing victims

until its name was removed from the list. However, with all the other

restrictions on Libya lifted, this is of relatively minor importance and does little

to detract from what was otherwise a diplomatically triumphant year for

Colonel Qadhafi.

Recent political developments

March 1999

Six Libyans�including Muammar Qadhafi’s brother-in-law, Abdullah Senoussi�are

found guilty in absentia, by a French court, for the bombing of a UTA plane over

Niger in 1989.

April 1999

The two Libyan suspects in the Lockerbie case, Abdel-Basset al-Megrahi and Al Amin

Khalifa Fahima, are surrendered to the UN and flown to Camp Zeist in the

Netherlands to face trial before a panel of Scottish judges. UN sanctions are

immediately suspended.

July 1999

The UK and Libya agree to restore full diplomatic relations, after the Libyan

authorities “accept responsibility for the actions of its citizens” in its embassy at the

time of the shooting of a British policewoman, Yvonne Fletcher, in 1984, and agree to

pay compensation to her family.

January 2001

Mr Megrahi is found guilty of the Lockerbie bombing, but Mr Fahima is acquitted.

Mr Megrahi launches an appeal.

March 2001

France’s highest court overturns previous rulings by lesser courts and judges that

Colonel Qadhafi has diplomatic immunity regarding the UTA bombing, and so

cannot be prosecuted in France.

8 Libya


March 2002

Mr Megrahi loses his appeal and begins his sentence in a prison in Scotland. Libya

protests the decision.

May 2002

Libya offers to pay a total of US$2.7bn compensation for the Lockerbie bombing, or

US$10m per victim, to be paid in three stages, subject to UN and US sanctions being

ended and the removal of Libya from the US list of state sponsors of terrorism.

March 2003

Libya indicates that it is ready to accept “civil liability” for the Lockerbie bombing, in

recognition of its responsibility for the actions of a state employee.

August 2003

A compensation deal for the Lockerbie victims is finally concluded.

September 2003

UN sanctions are fully lifted.

December 2003

Libya renounces its weapons of mass destruction (WMD) programme and agrees to

more stringent weapons inspections.

February 2004

The US lifts its travel ban that prohibits US citizens from visiting Libya, paving the

way for US businesses to re-enter the Libyan market.

March 2004

The British prime minister, Tony Blair, meets Colonel Qadhafi in Tripoli.

April 2004

The US lifts its trade embargo, but keeps frozen Libya’s assets in the US and retains its

name on the list of states sponsoring terrorism. It also maintains its prohibition on

the sale of arms exports and “dual use” goods. Colonel Qadhafi visits Brussels and

meets the then European Commission president, Romano Prodi. The two-day visit is

Colonel Qadhafi’s first outside Africa and the Middle East since 1989.

June 2004

Full diplomatic ties with the US are re-established, with William Burns, the US

Middle East envoy, formally inaugurating a “liaison office” in Tripoli.

September 2004

US lifts its unilateral trade sanctions against Libya, in place since 1986. Shortly after,

the US secretary of state, Colin Powell, and his Libyan counterpart, Abdelrahman

Chalgam, meet in New York, the first high-level meeting between the two countries

in over 20 years. The US’s move is swiftly followed by the EU’s removal of export

restrictions to Libya, facilitated by an agreement with the German government for

compensation for victims of the bombing of a Berlin nightclub in 1986.

October 2004

The German chancellor, Gerhard Schröder, visits Tripoli.

Libya 9


November 2004

The US lifts its ban on the US Export-Import Bank providing loans to US companies

operating in Libya. The French president, Jacques Chirac, meets Colonel Qadhafi in

Tripoli.

Constitution, institutions and administration

Libya’s political system�jamahiriya�is unique. Established in 1977, it is based on

the political philosophy of Colonel Qadhafi’s Green Book, which blends

socialist and Islamic theories, rejecting parliamentary democracy and political

parties. Instead, it calls for direct representation by the people, to be exercised

through popular congresses. In theory, in the jamahiriya system all people are

involved in government by virtue of being able to participate in local Basic

People’s Congresses (BPCs). Each BPC selects a secretary who represents the

BPC in the country’s highest legislative body, the General People’s Congress

(GPC). In parallel with this are two levels of executive committees, the Basic

People’s Committees and the General People’s Committee. In practice, public

belief in this system is very limited and participation is low. Legislative

agendas are for the most part set by the General People’s Committee, although

officially this is not meant to happen and Colonel Qadhafi has occasionally

voiced complaint.

Despite the large gap between theory and practice, the government is dogmatic

about the jamahiriya system. Indeed, officially there are no “ministers” and no

“government”�the words are not used. Committee and congress secretaries are

“chosen” or “appointed”, but not “elected”, and in reporting governmentbusiness it is common for only titles to be given, not individuals’ names. As

Colonel Qadhafi theoretically does not have an executive role but is only the

“leader of the revolution”, no official procedure exists for choosing a successor

to him (see Main political figures box).

In 2000 Colonel Qadhafi initiated a new drive for decentralisation, abolishing

many central government ministries and secretariats and devolving their

functions to the 26 main municipal councils that make up the GPC. This further

diffused the already complex structure and practice of government in Libya,

making accountability difficult to pinpoint. The responsibilities of the different

government bodies are poorly defined and have been further confused by

frequent cabinet reshuffles, shake-ups of ministries and secretariats, and even

the relocation of ministries to different parts of the country. Colonel Qadhafi

controls appointments to the cabinet and his random reallocation of roles

within it seems fairly arbitrary, designed to consolidate his own authority,

although scapegoats are occasionally needed for perceived policy failures. In

2000, for example, the finance and justice ministers were replaced following

allegations of corruption and mismanagement of a series of anti-immigrant

riots respectively. Between early 2003 and March 2004 the cabinet was

reshuffled three times, and while the moves consolidated the authority of the

key reformist ministers�and, most particularly, Shokri Ghanem, who was

appointed prime minister in June 2003�they also maintained a balance by

entrenching the positions of some old-guard hardliners.

Political system

10 Libya


In light of Libya’s recent international rehabilitation and the economic reforms

currently being undertaken, rumours circulated during early 2004 that Colonel

Qadhafi would announce radical political reforms in his anniversary speech on

August 31st. Any such expectations, however, were quickly dispelled. Instead of

revealing any concrete political reforms, Colonel Qadhafi reiterated his faith in

the old political ideology and slogans that have characterised Libyan politics

during his tenure, reaffirming his belief in the jamahiriya system. Despite his

apparent embrace of capitalist principles, which drive his much-trumpeted

economic reform programme, he is still prepared to publicly argue that

capitalism and representative democracy will eventually be discredited and

replaced by his jamahiriya ideology.

Islam is the national religion and the Quran is the basis of all law in Libya. The

judicial system includes a Supreme Court, courts of appeal, courts of first

instance and summary courts. In 1988 the GPC created people’s courts and a

People’s Prosecution Bureau to replace the revolutionary courts. In practice,

political rights and civil liberties are severely restricted, and individuals are

often detained and sentenced without trial. The death penalty is applied for

many offences, ranging from alcohol- and drug-smuggling to political activities.

However, continuing in his quest for economic reform and international

political acceptance, Colonel Qadhafi allowed a UK-based human rights group,

Amnesty International, into Libya in early 2004. Subsequent to their visit, he

announced that the emergency laws as practised by the “revolutionary court”,

which was set up in 1969 and still remains in place, would be abolished,

rendering illegal arbitrary arrest without a warrant. He also stated that, in

addition to adopting “normal criminal law procedure”, he wanted Libya to sign

an international treaty banning torture and to “play a leading international role

in defending human rights”.

Political forces

There is no voting and there are no ballot-box elections in Libya. Politicalparties are illegal, as they contradict the theories set out in Colonel Qadhafi’s

Green Book. However, despite the populist ideas that underpin the colonel’s

political ideology, in practice political power and decision-making are concen-

trated in his hands and in those of his inner circle of family members, securitychiefs and revolutionary committee leaders. Throughout his 35 years in power,

Colonel Qadhafi has exercised considerable skill in ensuring that his authority

and position as Libya’s leader is unchallenged. He has achieved this by

carefully balancing the competing power structures within society�such as thetribes, the military and the oligarchs�and by neutering the opposition, such as

the Islamists. He has also been careful to prevent subordinates from acquiring

too much individual power and from feeling too comfortable in their positions,

ensuring that the authority of any individual at any given moment is almost

entirely dependent on his whim.

The GPC is Libya’s equivalent of a legislature. Although this forum allows a

limited amount of discussion, and even criticism, of government institutions, it

The judiciary

The General People�s Congress

Libya 11


is almost completely ineffectual as a policymaking body and acts as a virtual

rubber-stamp for Colonel Qadhafi’s policies.

During the second half of the 1990s a “gang of five” ran the country. This

group consisted of Colonel Qadhafi; the co-ordinator of the revolutionary com-

mittees, Mohammed Saud; the head of intelligence, Musa Kusa; Ammar al-Taief;

and Issa Kusa. However, since Colonel Qadhafi’s decision to seek international

acceptance and reform Libya’s economy, key ministers, such as Shokri Ghanem

and the foreign minister, Mohammed Abderrahman Chalgam, have managed

to consolidate their authority. Additionally, Saif al-Islam Qadhafi, Colonel

Qadhafi’s son, is growing in prominence and playing an increasingly influential

role at the top echelons of policymaking. However, figures such as Musa Kusa

remain powerful.

Colonel Qadhafi exercises his power through the revolutionary committees, a

loose assembly of young men whose leaders he has handpicked. The

revolutionary committees act as a political police force that controls the army,

the press and government institutions, as well as monitoring the private lives of

Libyan citizens. These committees were particularly active after the US air strike

on Libya in 1986, but their influence was scaled back in 1988 by Colonel

Qadhafi�an astute reader of domestic public opinion�following public

criticism of their behaviour, which included arbitrary arrests and summary

executions. Purification committees, formed in 1996 and charged with

ostensibly combating corruption and black-market activities�but, in reality, any

private-sector activity�helped for a time to shift public attention away from

the revolutionary committees. However, the revolutionary committees have

continued to play an important role at all levels of political decision-making.

Opposition groups both within and outside Libya have proved ineffective,

often working at cross purposes and criticising each other’s motives and

agenda. Since September 11th 2001 the position of domestic opposition groups

has been further weakened. These groups are mainly organised on religious

lines, and the backlash against extreme, political Islam has hurt their cause.

Prior to September 11th, Islamist opposition groups in Libya had already been

significantly weakened. Between 1995 and 1998 these organisations mounted

attacks on government forces, and up to 600 people are thought to have been

killed in skirmishes between the two sides. Although the groups do not pose a

direct threat to the government, they nevertheless demand the vigilance of the

security forces, particularly in and around the groups’ historic stronghold,

Benghazi. Following an alleged assassination attempt on the Libyan leader in

May 1998, Colonel Qadhafi sent thousands of troops to the area to flush out

rebels. Among the most active of these opposition groups are the Libyan

Islamic Fighting Group (LIFG) and the Libyan Martyrs’ Movement (LMM).

Members of the LIFG and the LMM are believed to have met the Libyan

intelligence chief, Musa Kusa, in mid-1999 to discuss a possible end to their

activities. Both groups were weakened militarily by the government

crackdown, and have subsequently been undermined by the government’s

allegations that they are linked to the al-Qaida organisation that the US holds

The key players

The revolutionary committees

Opposition forces

12 Libya


responsible for the September 11th attacks. Although no links with al-Qaida

have been proven, in November 2001 the US added the LIFG to its list of

terrorist groups.

Meanwhile, opposition from pockets of royalist supporters of the former ruling

Sanusi family remains ineffectual, with most domestic royalists in prison and

overseas groups insignificant and disparate�Mohammed al-Sanusi, for

example, the grandson of King Idris, lives in exile in London. In late 2000 six

Europe-based opposition groups attempted to produce a common action stra-

tegy. However, the resulting joint statement was vague in the extreme, centring

on demands for Colonel Qadhafi’s resignation that were not likely to be taken

seriously. A foreign-based campaign group for Berber rights, the Libyan-Amazigh

Conference, is similarly able to do little more than issue statements.

Nevertheless, with Libya’s growing international profile, it appears that

opposition groups and activists outside the country are beginning to organise

themselves a little more effectively. One US-based opposition group calling

itself the American-Libyan Freedom Alliance (ALFA, a group that seeks to

promote a democratic society in Libya and to raise awareness about the Libyan

regime’s human rights abuses) issued a statement in early 2004 declaring that

the Libyan people were on the brink of a new chapter in their “struggle for

freedom”, calling for Libyans to take to the streets to protest and demand

political change, and claiming that the Libyan government would be powerless

to act.

This and other such groups have been prompted to action by Libya’s rapid

international rehabilitation and the risk that if they do not demand political

change in Libya now, or lobby Western governments to call for it, then the

existing regime of Colonel Qadhafi’s will only be strengthened by its accep-

tance by Western governments. Consequently, it appears as if the opposition�at

least that in exile�is mobilising and showing more cohesion than it has hither-

to. A “National Conference for the Libyan Opposition” has been organised for

the end of June 2005, bringing together all the multifarious factions across the

political spectrum, from Islamist to nationalist to Berber. Their common aim is

to adopt a “People’s Constitution”, which they believe would provide the

framework for re-establishing democracy; reasserting the rights of ordinary

Libyans; and reimposing the rule of law. While the conference is unlikely to

have any political impact in Libya, it signifies renewed momentum in the

movement for political change, a movement that has lacked any real impetus

over the past few years. Not least it will raise awareness within the inter-

national community of antipathy among Libyans for Colonel Qadhafi’s regime.

The military�once staunchly supportive of Colonel Qadhafi’s leadership�

became a potential source of organised dissent in the 1990s. In 1993 senior

military officers were implicated in a failed coup attempt. Colonel Qadhafi has

responded by periodically purging the senior levels of the army�ostracising

factions believed to be hostile to his leadership and replacing them with his

own loyal followers�in order to dilute any potential threat to his rule. Army

dissatisfaction with Colonel Qadhafi has eased since the suspension of UN

sanctions, which has allowed the army to purchase new equipment. It also

The army

Libya 13


looks as if Colonel Qadhafi managed to make a deal with the US and the UK

whereby Libya would receive training and equipment in order to bolster its

conventional military capabilities, in compensation for relinquishing its WMD

programme. Such measures are bound to work in Colonel Qadhafi’s favour, at

the least temporarily alleviating any potential dissent within the ranks.

Tribal loyalties continue to play an important role in Libyan politics. Colonel

Qadhafi is careful to shift frequently the balance of tribal representation in the

government to prevent any one faction from becoming too powerful. His own

tribe, the Qadhafiya, is particularly well represented in the upper ranks of the

government, army and security forces, although its alleged involvement in a

coup attempt in mid-1996 illustrates that even its allegiance to the Libyan leader

is not assured. In addition, relations with the powerful Warfala tribe have been

particularly tense since the execution in January 1997 of eight tribesmen

accused of involvement in a coup attempt. Many Warfala members have been

purged from the army and security forces. The Maqaraha tribe, to which

Colonel Qadhafi’s former second-in-command, Major Abdel-Salam Jalloud,

belongs, has also seen its influence wane.

Main political figures

Muammar Qadhafi

Colonel Qadhafi has ruled Libya since 1969. Although he has no democratic

legitimacy, he has a noted facility for reading public opinion and for charismatic

leadership. Nevertheless, what limited domestic support he held further ebbed in the

1990s with worsening economic conditions and increasing Islamist opposition. He

has also been the target of numerous assassination attempts. Since 1999, however,

pressure on his rule has been reduced by the suspension of UN sanctions and an

improvement in the economy owing to high oil prices and increasing foreign

investment.

Abu Bakr Younis Jaber

Mr Jaber has been head of the Libyan army since the late 1970s. He is one of the

original members of the Revolutionary Command Council and a long-time member

of Colonel Qadhafi’s inner circle.

Musa Kusa

The head of Libya’s intelligence service, Mr Kusa is a member of the “gang of five”,

which holds the reins of power in the country. Having been deputy head of

intelligence in 1988, he is alleged to have been involved in the Pan Am bombing over

Lockerbie. However, his position remains very strong and he has headed meetings

with US and British authorities since 2001. He has also been prominent in efforts by

the government to co-opt members of the opposition into the polity, including the

armed Islamist groups.

Saif al-Islam Qadhafi

Since 2000 Saif al-Islam has emerged as the most politically adept of Colonel

Qadhafi’s children. In charge of the Qadhafi International Charitable Foundation, he

has been entrusted with increasingly important public missions, most recently

representing Libya on visits to Europe to rebuild relations and discuss the resolution

The tribes

14 Libya


of the Lockerbie case. Speculation has grown that his father may be preparing him as

a potential successor. However, competition between the four eldest children is keen

and Colonel Qadhafi has at times shown frustration with their public behaviour.

Shokri Ghanem

Appointed prime minister in June 2003 from his previous position of minister of

economy and foreign trade, Mr Ghanem is tasked with overseeing the country’s

reform process. A technocrat, he has a PhD in economics from the Fletcher School at

Tufts University in the US, has lectured on economics and worked for Libya’s

National Oil Company (NOC). Furthermore, he was acting oil minister in the early

1970s and held the post of deputy secretary-general in OPEC between 1988 and 2001.

International relations and defence

Relations with the West have been generally difficult since the deposition of

King Idris in 1969. Colonel Qadhafi quickly developed a reputation for

mercurial policymaking, and for strong verbal attacks on Western “treachery”.

More pertinently, the US and European governments came to believe that the

regime was supportive of, and in some cases directly sponsoring, terrorism. The

US responded by prohibiting exports of military equipment to the country in

the late 1970s, following this up with more stringent measures including the

banning of Libyan oil imports and, subsequently, all forms of US-Libyan

economic activity.

This had a substantial impact on the Libyan oil sector, where US firms had

taken a lead role, but European companies were ready to take advantage.

However, the regime’s international isolation deepened following accusations

of Libyan participation in two bombings�the 1988 attack on a Pan Am jet over

Lockerbie, Scotland and the 1989 downing of a UTA flight over Niger. Tripoli

refused to hand over any of the suspects for trial, prompting the introduction of

a series of UN sanctions from 1992. The UN banned civil aviation as well as

military hardware sales to the country, reduced Libyan diplomatic represen-

tation abroad and froze some of Libya’s financial overseas assets.

The economic impact of the sanctions intensified durin1`g the 1990s, pushing

up both import costs and inflation. However, a divergence of views between

the US and Europe started to emerge in 1996, when Washington passed

secondary sanctions�the Iran-Libya Sanctions Act (ILSA), or the D’Amato Act�

designed to punish non-US firms investing more than US$40m in the Iranian or

Libyan hydrocarbons sector. These sanctions prompted an angry response from

European firms�and, in private, governments�although in practice European

companies have been able to work round the sanctions. Differences persisted

after 1999 when Colonel Qadhafi handed over the two Libyan suspects in the

Pan Am bombing for trial in the Netherlands. Although the UN sanctions were

then suspended, the US maintained its own sanctions and in August 2001 it

renewed ILSA for a further five years. Libya was finally removed from the

D’Amato Act in April 2004, allowing US companies to conduct business in

the country.

Relations with the West

Libya 15


Meanwhile, most EU states had already re-established full diplomatic relations

with Libya. Relations with the UK improved substantially following positive

dialogue over the shooting of a British policewoman outside the Libyan

embassy in London in 1984. Relations with France wavered, however. Despite a

compensation deal in 1999 in which the families of victims of the UTA bombing

were paid US$35m in compensation, the French government took umbrage at the

much larger payment secured by the Lockerbie victims’ families. In a subsequent

deal, France and Libya agreed an additional amount of compensation,

effectively bringing the affair to a close and bringing relations back on to an

even keel. For Italy�the former colonial power and main trading partner�the

process of cementing political co-operation and boosting investment has been

facilitated by the October 2000 decision by Italy’s Agency for Export Credit

Insurance to write-off some debt and review its credit policy for the country.

Italy also led the lobby campaign within the EU for Brussels to lift its trade

embargo, which prohibited the sale of military or “dual-use” goods. Italy was

the destination of a growing number of illegal immigrants from Africa, most of

whom were using Libya as their transit point. Italy was therefore keen to sell

patrol boats and night vision goggles in order to enhance their capability of

controlling the illegal immigrants. Italy’s persistence (or its threat to ignore the

ban) paid off: the EU embargo was finally lifted in October 2004.

The prospect of lucrative contracts and investments, especially in the hydro-

carbons sector, has also encouraged countries such as Australia, Canada and

China to develop or strengthen their ties with Libya.

In the face of such diplomatic activity between EU states and Libya, the US�

ostensibly at least�seemed in no hurry to embrace Colonel Qadhafi. However,

for Libya, normalised relations with Washington remained its ultimate goal

since Lockerbie. Achieving its aim would not only secure Libya’s re-entry to the

global community, it would also attract much-needed foreign direct investment.

To this end, Colonel Qadhafi was quick to condemn the attacks on New York

and Washington on September 11th 2001 and stated that the US had the right to

defend itself (although he did not go as far as supporting the war in

Afghanistan). Like other Middle East countries, Libya is also understood to have

provided some co-operation in intelligence, of at least symbolic value. In return

for these gestures the US appeared at first to steer away from including Libya

among its potential targets in its “war on terror”, and in 2002 it allowed US oil

companies to hold private talks on extending standstill agreements covering

assets they hold in the country that they have been unable to operate since

1986. However, in May 2002 a US official included Libya in a trio of “rogue”

states beyond the “axis of evil” named by the US president, George W Bush,

earlier in the year. Shortly afterwards, the US State Department issued its an-

nual report on terrorism, in which it kept Libya on a list of countries it accuses

of sponsoring terrorism. In addition, the US issued a steady stream of reports,

alleging that Libya was seeking to acquire WMDs.

Libya consistently rejected the allegations. Chastened by the example of Iraq, in

early 2003 Libyan officials sought to provide the US with assurances about

Libya’s missile capacities and a manufacturing plant that the US alleges has

been used for chemical weapons development. Following the finalisation of a

Relations post-Lockerbie

Libyan-US relations

16 Libya


deal on Lockerbie, it was clear that Libya’s putative WMD programme was the

largest obstacle restraining the development of ties with the US. Hence, in order

to circumvent this, Colonel Qadhafi in December 2003 decided to relinquish

his WMD programme and agree to more stringent weapons inspections. This

surprise move accelerated the rapprochement between the two countries, with

the US lifting the travel ban on Libya in February 2004. Two months later, the

US lifted its trade embargo, effectively opening up Libya to the US market for

the first time in 25 years. Additional measures swiftly followed: full diplomatic

relations were restored, residual trade restrictions lifted and the US export credit

agency resumed cover for Libya. The only outstanding measure in place to date

is the retention of Libya’s name on the list of state sponsors of terrorism.

Until recently Arab unity had been a central tenet of Colonel Qadhafi’s political

philosophy, and since 1969 he has made numerous, failed attempts to establish

close relations with other, mainly neighbouring, Arab states. However, in

September 1998, after members of the Arab League decided not to challenge

UN sanctions on Libya, Colonel Qadhafi announced that he was turning his

back on pan-Arab ideas.

Since then Libya has maintained a testy relationship with the Arab League, and

in the past few years it has repeatedly threatened to withdraw from the League

in protest at its perceived ineffectiveness. Nevertheless, Libya has continued to

pursue closer bilateral ties with its Arab neighbours, mainly under the guise of

joint economic projects. Relations between Libya and Egypt improved during

the 1990s under President Hosni Mubarak’s government, despite US efforts to

keep the two states apart. Relations with Tunisia have similarly improved since

a border dispute in 1985, and were boosted by Libya’s reliance on Tunisia for

supply routes during the UN air embargo. Colonel Qadhafi has also supported

efforts to revive the Arab Maghreb Union, although he has abandoned the

notion that it might lead to political unity for Libya, Algeria, Mauritania,

Morocco and Tunisia. Relations with the Gulf states remain prickly, with

bilateral spats with both Saudi Arabia and Kuwait in 2003 causing lingering

tensions. In particular, ties with Saudi Arabia have taken a turn for the worse,

with five Libyans (of whom four are alleged to be Libyan intelligence agents)

languishing in a Saudi Arabian jail accused of plotting to kill the Saudi crown

prince, Abdullah bin Abdel-Aziz al-Saud. The alleged plot was reportedly

hatched following a heated public dispute between Colonel Qadhafi and

Crown Prince Abdullah at an Arab League summit in March 2003. It was foiled

in November 2003 when the Libyans were purportedly caught delivering cash

to Saudi dissidents. The case gained international exposure when a leading US

Muslim activist, Abdurahman Alamoudi, admitted taking part in the plot. He

was on trial in the US for tax and immigration transgressions and cited details

of his involvement as financier as part of a plea bargain. The activist alleged

that Libyan officials talked about creating “headaches and disruptions” in Saudi

Arabia, which he later believed to be a reference to the alleged assassination

plot aimed directly at the crown prince, to be disguised as an al-Qaida-style

militant attack.

As a result of the case, Saudi Arabia expelled the Libyan envoy and recalled its

ambassador in December 2004, and the media in each respective country have

Relations with Arab countries

Libya 17


since engaged in virulent mudslinging. Egypt has attempted to mediate between

the two parties, with limited success. Reports of a breakthrough by the Egyptian

foreign minister, Ahmed Abul Gheit, in March 2005 were dismissed by Saudi

officials who insisted that the investigation was nearing its conclusion and that

the trial was imminent. Meanwhile, Colonel Qadhafi continues to deny the

allegations, calling the case “fabricated and destructive” and claiming his

personal relationship with Crown Prince Abdullah is good.

Having publicly turned its back on the ideal of Arab unity, Libya has been

seeking to develop its relations with Sub-Saharan Africa. The move was initially

designed to lessen the country’s political isolation, and stemmed from the

support Libya received from Africa during the period of UN sanctions.

However, Libya’s Africa policy now has more to do with Colonel Qadhafi’s

desire to present himself as both regional elder statesman and visionary. At its

most basic level, this policy involves Colonel Qadhafi trying to act as peace-

maker in disputes. The policy has met with only limited success, exemplified

by the deployment in 2001-02 of 300 Libyan troops in the Central African

Republic to defend the president against repeated coup attempts. In 2002 efforts

to broker a peace agreement between the Chadian government and a northern-

based rebel group were initially successful, but then led to accusations of

meddling in Chad’s affairs. Offers to mediate elsewhere, such as in the

Democratic Republic of Congo and Somalia, have not been taken up. Colonel

Qadhafi has therefore often made do with just providing financial assistance to

impoverished neighbouring states.

However, Libya has seen limited success in its approach to the Darfur conflict

in Sudan. Following a largely fruitless Egyptian-Libyan peace initiative between

the northern Sudanese regime and the leading southern rebel group, the

Sudanese People’s Liberation Movement, that petered out in 2002, Libya hosted

a regional conference on the conflict in October 2004. The conference, which

attracted some attention for being notionally successful, built on several other

rounds of informal talks between the Sudanese government and the Darfuri

rebel groups, which Libya had brokered following the breakdown of its joint

Egyptian initiative. Although his involvement is commensurate with his

proactive policy on Africa, Colonel Qadhafi is fully aware of Western concern

over�and efforts to negotiate in�the Darfur conflict, and has therefore limited

his direct involvement in the region to co-operation with the UN, allowing the

transport of relief aid by lorry from the Libyan coast across the Sahara desert

to Darfur.

Colonel Qadhafi has, however, spoken out against calls for foreign intervention

in Darfur, although he has not objected to the deployment of an African Union

(AU) force to the region. Although Libya has some strategic interest in what

goes on in Sudan, its policies are limited and motives unclear, since its decision

to convene the conference appeared largely at the behest of the Sudanese

government with whom Libya has remained friendly.

Colonel Qadhafi’s vision for Africa took a small step forward in 2002 when the

Organisation of African Unity (OAU) held its inaugural summit as the AU.

However, the AU falls far short of the Libyan leader’s overall vision, which is

Relations with Africa

The United States of Africa

18 Libya


for a borderless “United States of Africa”, ruled by a single government with

supra-national powers. Colonel Qadhafi has presented the scheme as an

attempt to do away with the artificial borders inherited from the colonial era

and tackle underdevelopment on a region-wide basis. In this plan, Libya’s

jamahiriya political system would be replicated across the continent, and

Colonel Qadhafi would take a uniquely powerful position as originator of the

union, backed by Libyan financial support.

However, while Libyan money has won Colonel Qadhafi some attention in

Africa, especially from poorer African leaders, as a whole his vision has been

treated publicly with caution by AU members. Nigeria and South Africa�

whose support is crucial given their economic dominance south of the Sahara�

have been especially sceptical about Colonel Qadhafi’s ambitions. This aside,

many factors act as a barrier to unity, not least ongoing conflicts between states

in the region. Progress towards the establishment of a pan-African parliament�

one of the first steps planned by the AU�has thus remained slow.

The US has aired its concern over Tripoli’s policy towards Africa, viewing it as

“meddling”. Indeed, perhaps one of the reasons that Libya still remains on the

list of states sponsoring terrorism is because of concern over Colonel

Qadhafi’s links with less savoury African leaders. Libya was one of the few

countries in recent years prepared to support Zimbabwe, supplying it with oil

until a deal between the two countries collapsed in 2003, while allegations of

Libya supplying arms to Charles Taylor, the former Liberian leader, were rife

during the Liberian civil war in 2003. More recently, Tripoli was accused of

fomenting a coup in Mauritania in September 2004, allegations which Libyan

officials denied.

The London-based International Institute for Strategic Studies estimates that

Libya’s active armed forces number 76,000, which is significant in a country of

around 5.5m people. The army accounts for about 45,000, of whom around

25,000 are conscripts. The navy numbers about 8,000 active personnel. Libya

operates a selective compulsory military service of between one and two

years. Reserves, known as the People’s Militia, total some 40,000. In addition,

there are also many thousands of security agents. Libya’s 2003 defence budget

was estimated at US$700m (about 3.1% of GDP), although this figure probably

does not include substantial off-budget spending on domestic security and

intelligence. Current defence spending, although high, is far below the levels

seen in the 1980s, and after some modernisation of equipment following the

suspension of UN sanctions, expenditure now appears to be static.

Armed forces

Army 45,000

Navy (incl Coast Guard) 8,000

Air force 23,000

Total active service 76,000

Source: International Institute for Strategic Studies, The Military Balance.

With its announcement relinquishing its WMD programme, Libya has sought to

gain a quid pro quo from the US and the UK, arguing that it needs to bolster its

conventional military capabilities in compensation. It appears that the US and

Defence

Libya 19


UK governments accepted Libya’s argument and have offered military support

in the form of training and a limited supply of equipment.

Security risk

Contrary to what might be expected, security risk in Libya is fairly low. There have

been no major examples of foreign or multinational firms operating in the country

encountering severe security problems in recent years. This situation is unlikely to

change in the immediate future. There is no ongoing armed conflict, domestic or

external, and the few clashes that have taken place between the government and

Islamist opposition forces have been sporadic and confined to rural areas outside

Benghazi. Opposition resistance has never threatened to take on the scale or level of

violence seen in Algeria. Furthermore, opposition groups have never targeted

foreign businesses.

In these circumstances, the risk of extremist attacks against foreign businesses or

Westerners is low. Although one of its senior members came from Libya, al-Qaida

appears not to have significant support or links in the country, especially now that

the government has weakened the armed opposition force, the Libyan Islamic

Fighting Group (LIFG). However, the LIFG has threatened an attack, in response to

the government’s crackdown on domestic Islamists.

Mass demonstrations and civil or labour unrest do not pose a threat to foreign

business, although riots in 2000 claimed the lives of migrant African workers, who

were seen as a threat to the indigenous labour market. Typically, the government has

very tight control over all public activities and it is the government itself which

organises the few demonstrations it allows to take place. These have always been on

political causes espoused by the government, such as the Palestinian issue or to

protest against the Lockerbie trial. Businesses or private property have never been

attacked in the process. The government also controls all professional or trade

unions and associations. It does not allow strikes or other forms of protest or wage-

bargaining. The government is able to exert this control through an extensive

network of police, security agents and informers who are present in almost all public

workplaces and areas.

Security risk levels in Libya have not changed since September 11th 2001 and the US

wars in Afghanistan and Iraq. As in other Middle Eastern countries, only limited

protests against the war in Iraq were allowed when it began. Moreover, despite past

bitterness about US air raids on Libya in 1986, antipathy towards the US is muted

and less of a potential security threat than in neighbouring Egypt or Saudi Arabia.

The risk of attacks on US businessmen or companies potentially entering or

returning to the country is therefore low. Risk of violent or organised crime is also

slight. There have been no cases of such crimes against foreign companies in the

country and no cases of kidnapping or extortion. Violent and petty crime levels are

low, and, although they are considered by Libyans to have increased, they are below

the average levels found in Europe. However, personal security for women is of

some concern, with women having less freedom of movement than in neighbouring

North African countries. Some local security guard services are available but are of

generally poor quality.

20 Libya


Security risk in Libya will be most heightened during the inter-regnum following the

demise of the Libyan leader, Muammar Qadhafi. Likely outcomes are difficult to

forecast, but it is probable that domestic opposition forces will emerge to challenge

any attempt by members of the ruling regime to seize power. The immediate post-

Qadhafi era is therefore likely to be characterised by tension and uncertainty.

Resources and infrastructure

Population

In 2003 Libya’s population stood at an estimated 5.55m (excluding foreigners),

giving the country one of the world’s lowest population densities at 3 per sq

km, although the average population growth rate is quite high, having averaged

2.5% a year over the last 20 years. By comparison, Egypt, with a population

about ten times that of Libya, has seen its annual population growth rate fall to

under 2% in recent years. As a result, Libya’s population is fairly young, with

32% of the population under 15 years of age and the proportion of Libyans over

the age of 65 low even by regional standards, at about 3.7% in 2001 (the latest

figures available) according to the Human Development Report of the UN

Development Programme (UNDP). Total population figures are bolstered by the

large number of expatriate workers, principally from other Arab states and Sub-

Saharan Africa, estimated at around 1m or more. The numbers of these

workers have fluctuated and been subject to periodic mass expulsions,

especially of Africans, but the country remains heavily dependent on such

migrants, both for skilled work in the oil industry, as well as basic manual

labour, despite a high unemployment rate among nationals and attempts to

reduce dependence on foreign labour.

Largest municipalities by population

(2001 estimates)

Tripoli 1,104,972

Benghazi 596,972

Misurata 314,305

Marqub 305,873

Tarhuna & Missallata 277,606

Jefara 270,152

Khums 197,117

Zawiya 185,842

Jebel Akhdar 182,271

Gharyan 151,162

Source: National Authority for Information and Documentation.

The economic boom that accompanied the discovery of oil in the 1950s spurred

migration to urban areas; in the 1960s urban growth rates rose to more than

10% in some years. An estimated 88% of the population now lives in or around

the coastal cities, especially Tripoli and Benghazi, well away from the pockets of

the country’s oil industry. Outside the major urban centres, Libya’s population

density drops sharply, to below 1 per sq km.

A young population

Libya 21


Education

Libya boasts the highest literacy and educational enrolment rates in North

Africa. The literacy rate for adults aged over 15 is around 80%�well above that

in neighbouring Egypt (where the rate is 55%). Libya has made substantial

improvements in the past two decades, overtaking Tunisian adult literacy levels

(of 71%), while cutting female youth illiteracy from 39% in 1980 to less than 7%

in 2001. Meanwhile, the overall combined primary, secondary and tertiary

enrolment rate in 1999 was 92%, higher than in any of Libya’s North African

neighbours. Education is compulsory between the ages of six and 15.

Secondary education starts at age 15 and lasts for three years. Unusually for an

Arab state, in Libya female students tend to have more schooling than their

male contemporaries�ten years on average for girls and eight years for boys.

There are universities in Tripoli, Benghazi, Marsa el-Brega, Misurata, Sebha and

Tobruq. Until 1982 significant numbers of Libyans attended university abroad,

mainly in the US and western Europe. These numbers dwindled as relations

with the West deteriorated and funding dried up, but numbers are now on the

rise again.

Libya’s education system has been subject to many reforms since the 1970s.

Many of these have been at the behest of the Libyan leader, Muammar

Qadhafi. Schools have seen their curricula and calendars revised many times

and subjects have even been abolished only to be reintroduced later. One

persistent theme in Colonel Qadhafi’s ideas for education has been to move

towards earlier specialisation. However, the main outcome of the many

experiments and reforms has been poor educational standards. This, coupled

with the security of government jobs (albeit poorly paid) for most Libyans and

the availability of migrant workers for difficult or hard work, has led to poor

labour competitiveness. Libya’s gradual reintegration into the international

economy and an easing of restrictions on private enterprise are, however,

leading to the setting up of private schools and training courses to meet demand

in areas such as business, information technology (IT) and languages.

Health

The state provides free healthcare to all citizens, supplemented by a limited

system of charges for basic care needs. Tripoli and Benghazi have the country’s

major hospitals. However, underfunding has led to a decline in the quality of

services during the last decade and many skilled eastern European medical

staff have left because their fixed salaries have become uncompetitive. A

scandal in 1999 in which 393 children were found to have been infected with

HIV at a Benghazi hospital has highlighted problems. On top of this, the trial of

a group of Bulgarian nurses and a Palestinian doctor accused of deliberately

infecting the children has further discouraged foreign workers from staying. The

trial process was strung out until early May 2004, when the defendants were

found guilty and sentenced to death. International appeals, launched on behalf

of the nurses and doctor, have as yet failed to gain a reversal of the verdict, or

even a pardon. With the case so politically charged, however, it would be a

surprise if the sentences were ever carried out.

Poor standards

22 Libya


In 2002 the government announced that it was substantially increasing the

development budget for health services. However, so far only several very

small investments have been instigated and consequently many Libyans travel

to Tunisia or, if they can afford it, to Europe for better or sophisticated medical

treatment. During the years of sanctions the UN flight ban severely hindered

travelling abroad for care, and the Libyan authorities subsequently reported that

mortality rates increased as a result. However, the claim was part of a number

of protests against the sanctions and has not been convincingly substantiated.

This aside, Libya has achieved high coverage in most basic health areas.

According to the UNDP Human Development Report, the mortality rate for

children aged under five fell from 160 per 1,000 live births in 1970 to 19 in 2001.

In Egypt the equivalent figure is 41 and in Tunisia 27. Libya’s immunisation

record is also good: the UNDP reports that in 2001 99% of one-year-old children

were vaccinated against tuberculosis and 93% against measles.

Natural resources and the environment

Libya is divided into three main areas: Tripolitania in the west, Cyrenaica in the

east and Fezzan in the south. The Jefara coastal plain is in the north-west

in Tripolitania, where the capital is located. The area also contains a series of

hills near the coast known collectively as the Jebel. The main geographic feature

of Cyrenaica, home to Libya’s second largest city, Benghazi, is the Jebel

Akhdar plateau.

Most of Libya’s population is concentrated in the coastal strips of Tripolitania

and Cyrenaica, where most agricultural activity takes place. A large portion of

Fezzan in the south is part of the Sahara desert and is therefore hot and dry.

There are occasional oases, which owe their existence to subterranean water.

The country’s extensive oil and gasfields are mostly located in the desert

interior, although there are also a number of offshore fields.

Launched in 1984, the Great Man-made River (GMR) project was designed to

carry over 5m cu metres/day across the desert and increase the area of arable

land by around 150,000 ha. This would be achieved by bringing water from

subterranean reservoirs in the southern part of Libya to irrigate the northern

coastal agricultural plains, where local aquifers had been drained and salt

water intrusion was contaminating farmland. The giant scheme is the world’s

largest water transport project�at completion the system will have pipelines of

4,000 km and two aqueducts of some 1,000 km�and according to Colonel

Qadhafi is “the eighth wonder of the world”, and will turn the desert “as green

as Libya’s flag”. He predicted that the scheme would herald “an agricultural

revolution”, allowing the country to become self-sufficient.

The GMR is a five-phase project, the first phase of which was completed

roughly on time in 1991. It was originally estimated that all five phases would

take 25 years and US$25bn to build. Since the first phase, however, the project

has slowed and the bills have mounted. It is already five years overdue and the

latest estimates for the overall cost are in the region of US$32bn. Even with

desalinised water costing some ten times more than water supplied by the

Hot and dry climate

The Great Man-made River

Libya 23


GMR, some hydrologists have claimed that sufficient desalination plants could

have been built at a fraction of the cost and in much less time. The project has

raised other concerns, most particularly that the rapid depletion of underwater

aquifers could lead to seepage from the Nile. Originally, project managers

believed that Libya’s aquifers would provide water for 200 years, but that has

already been scaled back to anywhere between 15 and 50 years. Worryingly,

the Tuareg, a nomadic Saharan tribe, have reported drier wells in the years

since the project was inaugurated.

The project has also been beset by technical problems. Reports in 2001

indicated that leakage and corrosion in some sections of the first phase of the

pipeline had reduced the water flow to only 15% of intended capacity and

remedial work necessitated the river to be shut down at least three times. The

financial collapse and bail-out of the main contractor on the first two phases, a

South Korean firm, Dong Ah, also delayed completion of the project’s second

phase. Most recently, in early 2005 a US$500m engineering, procurement and

construction (ECP) contract for the building of a 400-km pipeline connecting the

Al Kufra wellfield to existing infrastructure at Sarir was opened to tender.

According to the London-based Middle East Economic Digest (MEED), upon

completion (this particular project alone is expected to take five years), the new

pipeline will supply an additional 1.7m cu metres/d. Technical and engineering

problems continue and there are concerns that the scheme may never actually

reach its target capacity.

24 Libya


Arguments about the GMR’s cost-effectiveness and viability at this late stage are

of course now largely academic. White elephant or not, the project is a sunk

cost. The GMR remains a flagship project for Colonel Qadhafi, and after so

many years its construction has a momentum largely of its own. This should

ensure that the final phases are eventually completed, albeit at a huge cost.

The World Bank has estimated that Libya’s annual water usage is equivalent to

over 750% of its annual renewable freshwater resources. Nevertheless, the

government remains complacent about the country’s environmental problems.

While the country is not at risk from sudden natural disasters, its environ-

mental challenges range from over-exploitation of groundwater resources to

pollution and poor waste management in major cities and the countryside.

However, as yet, water shortages are not a problem for Libyans or businesses,

nor should they become one. Despite the cost of the GMR, Libyan officials have

concluded that the project does not provide a total solution to the country’s

water needs and that more water sources will be required. Consequently, there

are plans to build 11 new desalination plants with a combined capacity of

700,000 cu metres/d. However, like other large projects, bureaucracy and

mismanagement have led to severe delays, with tenders submitted in 2001 still

as yet unexamined and requests by the Libyan authorities for tenders for three

desalination plants presented in March 2003 waiting to be resubmitted.

Transport, communications and the Internet

Libya has an extensive and reliable network of about 25,000 km of tarmac

roads. Most major towns and villages, including the desert oases, are accessible

by car. Traffic levels are high in the major cities and are increasing. However,

the government has so far been able to make do with little transport policy,

focusing only on the expansion of road and other transport infrastructure to

include all regions, and leaving transport services to public and, increasingly,

private companies. The country’s most important road link is the 1,822-km coast

road from Tunisia through Libya via Tripoli and Benghazi, to the Egyptian

border. A second major artery runs from the coastal highway at Tripoli down to

Sebha in the south.

There has been no rail service in Libya since 1964, when the line between

Benghazi and Barce (al-Marj) was abandoned. However, the government

launched a programme to build a new national railway, consisting of a 2,178-km

coastal line running from Tunisia through to Egypt, and a 992-km line�for

which feasibility studies are already under way�running from Sirte to Sebha in

the south. A Chinese company was contracted to provide initial rolling stock,

and work was begun on preparing the route for the railway line. In 2003 a

number of European steel companies submitted offers to provide rails for the

191-km first phase of the coastal line, which will run from the Tunisian border

to Tripoli. Plans for the railway included an eventual extension to Chad or

Niger, supporting Colonel Qadhafi’s vision of linking Libya with Sub-Saharan

Africa. However, these extensive plans have recently been put in jeopardy, with

Colonel Qadhafi having reportedly announced that he has decided to expand

the country’s road network at the expense of building a new rail system. While

Roads

Railways

Libya 25


these reports have not been corroborated, Colonel Qadhafi is known for his

whimsical policy reversals, which tend to result in stagnation and inertia. It can

be assumed therefore that whichever project eventually takes off, it will take

years to complete.

Libya has civil airports at Tripoli, Benghazi, Tobruq, Sirte, Marsa el-Brega, Sebha,

Ghat, Ghadames and Kufra, and an additional number of military airfields.

International civilian air links�which were suspended between 1992 and 1999

as a result of UN sanctions banning all international flights to and from Libya�

have been resumed by many carriers, including most major European and

Middle Eastern airlines. The once-thriving national airline, Jamahiriya Libyan

Arab Airlines (LAA), has also resumed international flights. At the end of 2001

a new local airline, Al Buraq, began domestic flights in competition with LAA,

and another new carrier, Afriqiyah, began to serve flight routes between Libya

and Sub-Saharan Africa, taking over some of the routes previously served by

LAA. In 2002 the government announced plans to invest US$3.5bn in up-

grading aviation infrastructure and modernising LAA’s fleet.

Libya’s major ports are Tripoli, Benghazi, Marsa el-Brega, Misurata and El-Sider

(Sidra). Oil terminals, connected by pipeline to major oilfields, are located at

Zuetina, Ras Lanuf, Marsa el-Hariga, Marsa el-Brega and El-Sider. To alleviate

bottlenecks on imports, work has begun to expand the capacity of Tripoli port.

In 1997 (the most recent data available) Libya’s merchant fleet consisted of 27

vessels, 11 of which were oil tankers, two gas tankers and four product tankers.

In 2002 it was reported that the government is planning to spend US$1bn to

buy 32 new ships of various types, as well as a further US$600m on port

improvements. The need for investment in the fleet was highlighted in 2001 in

a study by a German port supervisor, See-Berufsgenossenschaft (See-BG), which

found that 16 Libyan ships had faults, more than in any other of the 70

merchant fleets surveyed. To add to this, in April 2002 one of the fleet’s cargo

ships sank off the Algerian coast with 25 people aboard reported lost.

By regional and international standards Libya lags far behind in telecom-

munications development. As of 2003, there were only 750,000 fixed telephone

lines, a penetration rate of just 14%. The state-owned General Post and

Telecommunications Company (GPTC) is the sole provider of basic fixed tele-

phone services, but there are no plans yet to privatise it or open the sector to

competition. Mobile telecoms services are similarly underdeveloped, with only

an estimated 127,000 subscribers in 2003, a penetration rate of just over 2%. The

sole service provider, prior to mid-2004, was a government-owned company, Al

Madar, whose services were expensive in comparison with those in neigh-

bouring countries, so restricting expansion. However, in September 2004 a new

mobile-phone network operator and service provider called Libyana was

launched. Shortly afterwards, GPTC announced that it had agreed a �200m

(US$244m) contract with Alcatel of France and Nokia of Finland to enlarge the

country’s mobile-phone network. Under the contract, Alcatel is to build a

network covering the east and south of the country, while Nokia will build a

network for the west of the country. The new networks are expected to take 20

months to complete and will provide 2.5m new mobile-phone subscribers. This

Air services

Ports

Telecommunications

26 Libya


far outstrips Al Madar’s previous two-stage plan to increase the number of

mobile customers to a final total of just 250,000. It also exceeds the govern-

ment’s previous expectations of adding 1m lines to the mobile network, which

the prime minister, Shokri Ghanem, outlined in September 2003. He also

expressed plans at the same time to add up to 1.5m new lines to the fixed-line

network, which the GPTC specifies as a target of 37% for fixed-line penetration

by 2020.

These plans are a response to rapidly rising demand and should see

penetration growing to at least the levels of neighbours like Tunisia. Telecoms

development in Libya has been slow up to now because of poor management

at both GPTC and Al Madar, as well as a shortage of capital. However, with the

arrival of foreign firms, the development of the sector should accelerate.

Growth in access and usage of the Internet in Libya has been faster than in

mobile telephony. However, overall penetration is still low, at only some

160,000 users in 2003. Since 1999 four independent Internet service providers

in addition to the GPTC have been offering Internet access to the public. The

low penetration of fixed lines (and the long waiting list to have a line installed)

has seen many Internet cafés springing up in the main towns and cities, often

combined with existing public phone bureaux. Government control over

Internet use is light, with access to political opposition sites being the only ones

the government regularly seeks to block. Nevertheless, Libyans remain cautious

about government surveillance of private e-mail. Given the low development

of Internet services and the absence of credit card services in the country,

e-business is so far non-existent.

The media in Libya are entirely state controlled. More than a dozen daily,

weekly and monthly newspapers are published. These include the daily

international Al Arab, which is published in London, and a newspaper for the

armed forces. As well as the national radio, Tripoli and Benghazi have their

own radio stations, while there is only one television channel. The availability

of foreign newspapers and magazines is limited, but satellite television is wide-

spread and popular.

Energy provision

Energy generation and distribution in Libya are reliable and sufficient for

current demand. However, anticipating growth in demand from 2,650 mw in

2001 to over 5,000 mw by 2010, the state-owned General Electricity Company

(GEC)�the only power provider in the country�has begun a US$3.5bn

programme of investments. These include the expansion of power stations at

Benghazi, Sirte, Tripoli and Azzawiya. GEC has received loans totalling around

US$174m from the Kuwait-based Arab Fund for Economic and Social

Development for the Benghazi and Azzawiya station expansions, and in August

2002 it finalised a contract with a Russian company, Technopromexport, to

carry out the first-phase 650-mw expansion of the Tripoli West power station.

GEC is also aiming to expand the country’s network of substations by building

42 66-kw substations across the country to establish a nationwide grid. These

Media

Electricity provision

Libya 27


are planned to be part of a 225-kw electricity grid linking Libya and Tunisia,

which will itself form part of a Mediterranean grid. To help attract investment

for this large expansion programme, GEC officials indicated that private

investors would be allowed to establish power plants on a build-operate-

transfer basis and distribute electricity. Implementation of the plans has been in

evidence, with a number of tenders being awarded for the construction of

transmission lines and substations, the latest coming in early 2004.

In October 2004 GEC awarded a �180m (US$235m) contract to Siemens Power

Transmission and Distribution (Germany) to supply and install five regional

power network control centres. Siemens is due to begin work on the centres, in

Azzawiyah, Benghazi, Sebha, Tobruk and Tripoli, by the end of 2005, although

they are not scheduled to be completed until 2008.

However, as a whole the programme does not yet appear to have been par-

ticularly boosted by the establishment in 2004 of a Ministry of Energy, whose

portfolio covers electricity and oil and gas. GEC is apparently experiencing

difficulties in obtaining budget approval, offering further evidence that time-

consuming decision-making procedures look likely to ensure that overall

progress remains slow.

The economy

Economic structure

Main economic indicators, 2004(Economist Intelligence Unit estimates unless otherwise indicated)

Real GDP growth (%) 9.3

Consumer price inflation (av; %) -3.4 a

Current-account balance (US$ m) 6,788.1

Exchange rate (av; LD:US$) 1.30 a

Population (m) 5.7

External debt (year-end; US$ m) 4,132

a Actual.

Source: Economist Intelligence Unit, CountryData.

Libya’s economy is dominated by the hydrocarbons sector�in 2003 it con-

tributed an estimated 97% of export earnings and 86% of government receipts�

which represents 55% of nominal GDP. Manufacturing and agriculture each

account for between 5% and 10% of GDP, while services and trade and finance

make up the balance. The government’s attempts to promote the growth of

agriculture and industry in the 1970s and 1980s met with little success, and

were all but abandoned when the country’s economic fortunes dwindled in

the 1990s. Pressure for diversification has lessened following the revival of oil

prices and the renewed international interest for investment in the hydro-

carbons sector. Notwithstanding this, the government is keen to attract foreign

investment in other sectors, particularly heavy manufacturing and tourism.

Most of the population is concentrated along the Mediterranean coast, which is

also where the majority of the country’s agricultural activity takes place.

Hydrocarbons dominate the

economy

28 Libya


According to the UN Food and Agriculture Organisation (FAO), in 2001 agri-

culture employed around 6% of the workforce. Oil production has traditionally

been concentrated in the east of the country, notably the Sirte basin area south

of Benghazi, although in recent years major discoveries have opened up new

tracts in the south-western Fezzan region, as well as offshore.

Despite the sanctions regime of 1992-99, the standard of living of ordinary

Libyans remains one of the highest in the region, with revenue from the hydro-

carbons sector being used by the government to subsidise basic foodstuffs,

education, health and housing.

Comparative economic indicators, 2004

Libyaa Algeriaa Tunisiab Egyptb Moroccoa

GDP (US$ bn) 26.7 76.5 28.2 76.6 52.9

GDP per head (US$) 4,722 2,293 2,837a 1,044a 1,704

GDP per head (US$ at PPP) 9,076 5,323 7,445a 3,825a 4,387

Consumer price inflation (av; %) -3.4b 4.6b 3.6 11.3 1.5b

Current-account balance (US$ bn) 6.8 10.8 -0.6 4.3 0.7

Current-account balance (% of GDP) 25.4 14.1 -2.0 5.2 1.3

Exports of goods fob (US$ bn) 20.2 32.5 9.7 12.3 9.7

Imports of goods fob (US$ bn) -8.6 -17.9 -12.0 -21.3 -15.8

External debt (US$ bn) 4.1 20.6 16.9a 33.7a 16.2

Debt-service ratio, paid (%) 3.8 14.7 14.1a 7.0a 15.2

a Economist Intelligence Unit estimates. b Actual.

Source: Economist Intelligence Unit, CountryData.

Economic policy

In the 1970s and early 1980s several economic development plans were

introduced, with the primary aim of diversifying the economy away from its

reliance on oil. However, when oil prices crashed in 1986, after a decline in

revenue since 1981, plans to develop heavy industry were shelved owing to a

lack of investment funds. Nevertheless, the government still has a tendency to

call for the preparation of multi-year plans, which are then left to gather dust.

Whereas US economic sanctions imposed in the late 1970s had only a minimal

impact on economic policymaking (because they were not targeted at the oil

sector), sanctions introduced in 1986 required US oil companies to cease

operations in Libya. In 1988 the impact of this withdrawal on investment in the

oil sector led Tripoli to offer more attractive production-sharing agreements to

European companies to make up for the shortfall in oil development. The

assets and acreage held by the five US companies with equity holdings in Libya

in 1986 were frozen and have been held “in trust” by the Libyan government

ever since. The government promised to return the holdings to their US owners

whenever they re-entered the market, although after the renewal of US

sanctions in August 2001 the Libyan authorities warned US companies that if

they did not return within a year they risked losing their holdings. However, it

did not carry out this threat, as it was able to hold talks with the US firms

concerned to renegotiate standstill agreements on their holdings, keen to see

Sanctions and policymaking

Libya 29


their eventual return to Libya. Their tactics eventually paid off, with the

removal of the trading embargo in April 2004.

UN sanctions, in place between 1992 and 1999, were more damaging. While oil

continued to flow and work on prestige projects such as the Great Man-made

River (GMR) proceeded, the pace of economic development in almost every

other sector slowed visibly. Even the oil sector, which is crucial to Libya’s

economic health, suffered. In particular, the sanctions obstructed the impor-

tation of equipment used in advanced recovery techniques that could prolong

the life of older fields, and for making domestic refineries more productive and

efficient. Investment in such equipment has been given priority since the

suspension of sanctions, and the government has opened up new oil and gas

projects for foreign investment, as well as schemes in agriculture, heavy and

light manufacturing, power and tourism.

While sanctions took a toll on the economy in the 1990s, domestic economic

policy over the three decades of Colonel Muammar Qadhafi’s rule has itself

been responsible for much of the under-performance of the economy and its

structural problems. During the first three years of Colonel Qadhafi’s rule the

government nationalised all foreign businesses, as well as all heavy industry,

agricultural land, banks, insurance firms and service companies. In 1977

additional laws placed most other economic activity under the control of the

state. This led to a prolonged period of economic difficulty, sometimes referred

to as the “dark decade”, when there was almost no private business (even

shops, restaurants and services) and when food shortages sometimes occurred.

It was only in 1988, when oil income slumped and US sanctions started to bite,

that the government made its first concessions towards private ownership.

In mid-1996 the liberalisation of private-sector retail activities came to an abrupt

halt when the government instituted “purification committees”, which were

charged with rooting out corruption and enforcing trade and currency reg-

ulations. Most shops carrying imported goods were closed, many shopkeepers

were imprisoned and the committees scrutinised the activities of civilian

government ministries. However, the purification committees were themselves

then accused of corruption and were purged by the government. Since 1999,

private-sector growth has resumed and been given extra impetus by changes

in laws on trading and import activities and on the formation of private

companies or partnerships. In 2002 the economy and finance ministers, and

Saif al-Islam Qadhafi (a son of Colonel Qadhafi), indicated that the objective

now was to transform the economy into a market economy, through liberal-

isation and privatisation. Colonel Qadhafi himself reiterated this message in a

landmark speech to the annual General People’s Congress in June 2003, and

subsequent cabinet reshuffles were designed to give reformists key positions

within government. However, despite the political manoeuvring and heigh-

tened rhetoric, little action has thus far been in evidence, reflecting not just the

constraints imposed by the retention of some of the old guard in senior roles,

but also the listlessness of a system unused to change.

In stark contrast to much of the rest of the economy, the oil sector has benefited

from a prudent management style. Despite the past political militancy of its

State control and the

private sector

Oil sector management

30 Libya


leadership, Libya has never lost sight of the fact that foreign assistance is crucial

to the development of the oil industry, and the government has made efforts to

avoid the delays in payments to foreign oil companies that have been common

for businesses in other sectors.

Like many other OPEC members, Libya nationalised its oil companies in the

early 1970s. By 1973 all oil companies were majority-owned by the National Oil

Corporation (NOC). However, unlike some OPEC members, Libya has stopped

short of the complete nationalisation of foreign oil company holdings. In 1974 it

began offering attractive exploration and production-sharing agreements

(EPSAs), under which foreign oil companies received a fixed percentage of the

output from the fields involved, negotiated on a case-by-case basis. Since 1988

these agreements have been made progressively more favourable to the foreign

signatories�for example, by allowing foreign companies to recover develop-

ment costs after production starts. The terms improved during the era of UN

sanctions in a bid to overcome oil firms’ concerns about the financial and

political risks associated with investing in a country under embargo. In March

2000 the NOC was given formal charge of national hydrocarbons policy when

the energy ministry was abolished in an attempt to make the contracting

procedure more rapid and transparent. While a new petroleum law has been

delayed for almost five years, most of the draft bill’s key provisions�including

modifications to the EPSAs and provision of new incentives for gas projects�

are already in force.

These modifications culminated in a new bidding process known as EPSA-IV,

which was launched in January 2005 and anticipated eagerly by all the global

oil majors. The new bidding process was an attempt to move away from the

previous system of bilaterally negotiated deals, which were widely viewed as

uncompetitive and opaque. At the licensing ceremony, oil executives were

invited to open their bids in public and the details were entered on to a spread-

sheet in view of all. The professionalism and transparency of the process won

plaudits, giving the NOC added credibility and boosting investor confidence.

However, the nature of the bid resulted in fierce competition and produced

some unexpected results.

Bids were based on the share of production an operator was prepared to offer

the NOC, which could not be less than 60%. In the event of a tie, the amount

of the signature bonus the bidders were willing to pay on signing the contract

would be the deciding factor. With production share as high as 87.6% (by the

US-based Amerada Hess bid) and signature bonuses of US$25.6m proffered by

Occidental/Liwa on two blocks, the results proved highly favourable for the

NOC. Indeed, only five of the blocks gave the NOC less than an 80% share, and

only two gave lower than 75%.

Although the EPSA-IV round was deemed a success for the NOC, some officials

have voiced misgivings about the formula used to award contracts. A sub-

sequent bidding round, slated for early 2005, was postponed, allowing time to

examine the potential impact of the bidding process. The Libyan energy

minister, Fathi bin Shatwan, pointed to possible changes in the terms, in favour

of those companies that would be prepared to employ a greater share of Libyan

nationals; that would be willing to invest in downstream activities (developing

Libya 31


refineries); and that would be looking to invest more in exploration. Although

the January round was a financial success, the terms only committed the

winning licensees to two exploration wells during the initial five-year period.

Since many of the winning bids involved a very low share of production,

incoming companies might be dissuaded from exploring extensively.

This new, more radical approach to production has not been extended to

pricing and marketing policy, which has remained fairly conservative. After two

attempts at aggressive pricing that backfired badly, once in the early 1970s and

again in 1980-81, the Libyan government has settled into a pragmatic pricing

policy, pegging its crudes close to or slightly above Brent market prices. The

marketing of Libyan oil has always been cautious, reflecting a lack of

indigenous entrepreneurial experience. Most of Libya’s crude is marketed on a

term basis, with very little sold by the government on the spot market.

Corruption is widespread because of a severe lack of transparency and

accountability in government and the public sector. Nepotism and rent-seeking

have entrenched corrupt behaviour, and public-sector positions are often

distributed as rewards rather than on merit. The government has occasionally

made gestures towards combating corruption, most notably in 2001, when 47

people were sentenced to terms of between one and 16 years for involvement

in the embezzlement of LD700m (US$531m) from a branch of the Central Bank

of Libya in Benghazi. However, this notwithstanding, the government has not

yet shown a willingness to combat corruption seriously and to give senior

officials anything more than just symbolic punishments.

Libya’s budget law requires a balanced budget. Moreover, budget rules dictate

that budgeted oil revenue is allocated according to a fixed formula: 5% must be

spent on debt servicing, while of the remaining 95% allocated to expenditure,

30% should go to the administrative budget and 70% to the capital budget.

The administrative budget covers the government’s main current expenditure

items, principally wages and salaries, other purchases of goods and services,

and food subsidies and other current transfers. The capital budget is for

development expenditure, much of which goes towards large-scale infra-

structural projects such as water projects and road construction. Both the

current and capital budget include extrabudgetary provisions, indeterminate

items of seemingly random allocations. However, it is known that extra-

budgetary recurrent spending includes the government’s contributions to its Oil

Reserve Fund (ORF), designed as a savings account that is supposed to be

topped up in times of high oil prices, while the bulk of extrabudgetary capital

spending is allocated to the GMR.

While this much is known about the make-up of the budget, little is revealed

about the actual figures. The government discloses minimal information about

the budget and no breakdown of fiscal outturns. Since 1996 it has proclaimed

“balanced budgets”, although this disguises the fact that any shortfall in

revenue is covered by drawdowns in foreign reserves and is then incorporated

into the budget figures themselves.

Tackling corruption

Budgets lack transparency

32 Libya


Fiscal account

(LD m)

1999 2000 2001 2002 2003 2004a

Revenue 5,591 8,075 7,814 12,572 16,614 22,213

Oil 2,460 5,557 5,286 9,872 14,228 19,081

Non-oil 3,131 2,518 2,528 2,700 2,386 3,132

Expenditure 4,642 5,528 8,039 10,063 13,396 16,073

Current 3,669 3,721 6,226 6,724 10,564 10,128

Capital 973 1,807 1,813 3,339 2,832 5,945

Balance 949 2,547 -225 2,509 3,218 6,140

a Estimate.

Source: IMF, Article IV report.

Fiscal planning and outcomes depend greatly on the movement in oil prices.

Very weak oil prices in 1998 forced the authorities to introduce an “austerity

budget” in both 1999 and 2000, but rising oil prices in 1999-2000 then enabled

the government to relax its fiscal stance considerably. Sustained high oil prices

since 2001 have meant that by the end of 2004 the government had achieved

record levels of foreign reserves, covering more than 30 months of imports.

Economic performance

Gross domestic product(market prices)

2000 2001 2002 2003 2004

Total (US$ m)

At current prices 34,264.6 28,420.1 19,130.7 22,702.8 26,723.7

Total (LD m)

At current prices 17,550.0 17,196.0 24,309.0 29,353.4 34,873.6

At constant (1987) prices 14,107.3 14,585.1 15,051.5 16,427.9 17,960.2

% change, year on year 2.6 3.4 3.2 9.1 9.3

Per head (LD)

At current prices 3,349 3,220 4,469 5,289 6,160

At constant (1987) prices 2,692 2,731 2,767 2,960 3,173


Source: IMF, International Financial Statistics.

Libya’s nominal GDP per head shrank from around US$7,430 in 1992, the year

UN sanctions were imposed, to an estimated US$5,929 in 1999. The recovery in

oil prices and relaxation of sanctions have since given income per head a

substantial boost, although the devaluation in January 2002 has reduced the US

dollar value of per head income to an estimated US$3,173 in 2004. This

demonstrates again the extent to which the health of the economy is almost

completely dependent on oil prices. Libya displays the classic problems of an

oil-rich rentier economy: a lack of diversification out of hydrocarbons and a

reliance on immigrant labour in spite of a serious structural indigenous

unemployment problem. Investment projects tend to go ahead only after a

period of high oil prices has swollen government coffers, while periods of low

oil returns lead directly to contractions in the economy and cutbacks in projects

and investments.

Libya 33


Diversification away from oil has been a common aim of economic policy and

new investment programmes, but so far with little success. Until the mid-1980s

the agricultural sector and industry were on average regularly allocated 20%

and 14% respectively of the total development budget. Low oil prices in 1998

and the early part of 1999 led government officials to call again for

diversification away from oil into other sectors, and since the suspension of

sanctions the government has stepped up its promotion of foreign investment

in areas such as infrastructure, telecommunications and tourism.

The performance of the agricultural sector has been generally disappointing.

Although water should no longer be a constraint, thanks to the Great Man-

made River and planned desalination plants, agricultural output is still con-

strained by a shortage of arable land and indigenous labour. The government’s

push for the development of large state-owned farms, which were characterised

by low yields and production, only served to compound these shortcomings.

While it is difficult to source actual data, it is estimated that agriculture con-

stitutes less than 5% of GDP.

Success in other sectors has been limited to specific cases, such as the Misurata

iron and steel works and the Ras Lanuf industrial complex. Otherwise most

light and heavy manufacturing plants suffer from under-utilisation and neglect,

despite efforts by the government to attract foreign investment in the sector.

Inflation is difficult to measure owing to the lack of reliable data on domestic

price changes. Although Libya has not published official figures for inflation

since the early 1990s, it is clear that the suspension of sanctions gradually eased

supply-side bottlenecks and led to a fall in prices of many consumer goods.

This was corroborated by figures released by the IMF in early 2005, which

indicated that Libya underwent a deflationary cycle between 2000 and 2004.

Inflation

(av; %)

Annual average

2004 2000-04

Consumer prices -3.4 -5.4

Source: Economist Intelligence Unit estimates.

The difficulty in assessing price movements in Libya arises from the extensive

subsidy system that the government has in place. In the past, Colonel Qadhafi

in effect used price subsidies to negate the need for salary rises. This is revealed

by the prices of a selected number of basic commodities, which have either

declined over the past few years or shown only little upward movement.

Since 2000 the government wage bill has risen by almost 50%, mostly as a

result of the increasing numbers employed by the government, rather than a

rise in wage levels, which had, in effect, remained frozen until 2003. Indeed,

subsidies made up for the lack of wage rises, which between 2000 and 2004

rose almost fivefold.

Prior to adjustments made to public-sector wages in 2003, there were no

substantive changes in public-sector wages since 1981. As of 2003, public-sector

Diversification

Inflation

Wages

34 Libya


wages averaged around LD250 (US$190) per month, ranging from as little as

LD120 to a maximum of around LD450. Dissatisfaction with salaries has

unsurprisingly contributed to chronic workplace absenteeism and neglect.

However, living standards have not fallen significantly, thanks in the past to

higher subsidies and recently to falling prices. Public-sector jobs have also

retained some privileges, such as subsidised housing and cars. At the same

time, many Libyans have resorted to second jobs to make ends meet.

Although no official figures are available, unemployment is high, particularly

among the young. Including disguised unemployment�people with nominal

jobs but who work little if at all�unemployment is thought to be at least 30%.

Nevertheless, like many oil-rich countries, Libya imports a substantial number

of foreign workers for both skilled jobs and manual labour that, as in some

other rentier states, the local population is unwilling, or unable, to do. There are

estimated to be around 1m foreign workers in Libya. The existence of such a

large pool of foreign labour can also lead to tensions with the domestic

population. In late 2000, for example, at least 50 migrant African workers were

killed in riots throughout the country.

Estimates indicate that the government employs up to 70% of all salaried

Libyans. Growth in the private sector and in foreign investment is likely to

create some new jobs. However, given Libya’s high population growth and the

dependency of its economy on oil prices, unemployment is unlikely to fall soon.

Regional trends

The government has largely abandoned its efforts to encourage migration away

from the major urban areas along the Mediterranean coast by redirecting

development resources from this area and moving ministries out of Tripoli. Its

efforts antagonised many public-sector workers and achieved little. For the

purposes of regional planning, the government has divided Libya into four

main areas: Tripoli, Benghazi, Sebha and Al-Khalij. The latter two form part of

the Fezzan region, south of the Tripolitanian coast. Moves to attract labour and

resources to this area have been aided by major hydrocarbons discoveries,

including at Murzuq in the south-west. Nevertheless, these areas remain

sparsely populated, and living conditions and amenities are rudimentary

outside oil exploration areas.

Economic sectors

Agriculture

Agricultural self-sufficiency is no longer seen as a priority, despite Colonel

Muammar Qadhafi’s enthusiasm for the idea in the past. Unsuccessful efforts

were made to boost agricultural productivity in the 1970s, when the sector was

regularly allotted up to 30% of total budget expenditure. Incremental gains in

total output were realised after 1988, when the government started encouraging

small private farms. Nevertheless, the contribution of agriculture, including

Unemployment

Self-sufficiency goal not

achieved

Libya 35


forestry and fishing, to GDP is well below 5% (although no official data have

been released since 1994), and Libya remains reliant on imported food for about

80% of its needs.

Environmental constraints place a severe limit on Libya’s agricultural potential.

Libya is over 90% desert, with most agriculturally productive land limited to a

strip abutting the Mediterranean Sea. Arable land is only 1.7% of Libya’s total

area, and so each plot is often used to produce a number of commodities.

There are two main areas of natural farmland. The first is the partly wooded

high coastal plateau of Jebel Akhdar in the north-east, where crops including

olives and grapes are grown. The second is the fertile coastal plain in the north-

west, where dates, olives, almonds and oranges are cultivated. These two areas

account for more than 80% of the country’s agricultural production. Further

from the coast, land is used for grazing and for growing barley and wheat.

Inland cultivation relies extensively on costly well irrigation and yields are low.

The area of land under irrigation rose in the 1990s, although the government

has used price controls to shift emphasis away from water-intensive crops such

as tomatoes and watermelons. It has also experimented with price controls to

encourage farmers to grow wheat and barley more efficiently. Despite this,

in 2004 Libya produced only 214,500 tonnes of cereals, enough to meet just

15-20% of domestic needs, according to the UN Food and Agriculture

Organisation (FAO).

Labour shortages as a result of the migration of rural workers to urban areas

have sometimes hampered the agricultural sector. However, the supply of poor

migrant workers from Africa, backed up by periodic campaigns to bring in

Egyptian workers, have usually been able to meet demand. A more serious

constraint to agricultural growth has been the overexploitation of coastal

aquifers (see Resources and infrastructure: Natural resources and the environ-

ment) and careless use of fertilisers. Moreover, despite earlier plans, it seems

unlikely that the Great Man-made River (GMR) will ever make a serious con-

tribution to the agricultural sector. The project’s original objectives called for up

to 80% of the water supplied by the GMR to be used for the irrigation of

thousands of hectares of desert land, but this scheme has been all but

abandoned in favour of providing drinking water to Libya’s urban areas. Desert

farms attempted around oases such as Kufra and Sebha have proved costly

and disappointing.

Although animal husbandry remains one of the mainstays of farming in Libya,

the sector languished after the imposition of sanctions, as state support, both in

investment and incentive terms, dwindled. The livestock sector relies heavily

on subsidised imports of animal feed. Statistics gathered by the FAO show that

the numbers of cattle, sheep and goats have either remained stagnant or

declined since 1992. Production of food products from livestock, including

poultry and goat meat, has remained fairly static since 1992, although

production of mutton and lamb has recovered substantially.

Libya’s fishing resources remain largely unexploited, despite a considerable

potential for expansion. With 1,685 km of coastline, the local waters yield

ample supplies of tuna and sardines. The problem is a lack of investment, not

Livestock

Fishing

36 Libya


only in trawlers and ports, but also in processing facilities, although renewed

co-operation with the EU, which is keen to tap into Libya’s marine agriculture,

should reinvigorate the sector. At present, though, the country has just one tuna

plant, in Zanzur, and two sardine-canning factories in Zuwara and Khums, each

with a capacity of 1,000 tonnes/year (t/y). The main fishing port at Zlitan can

handle 40 trawlers and has refrigeration capacity for up to 20 tonnes of fish a

day. The government has indicated that it will develop a fishing port at Marsa

Zuaga and, in the longer term, it hopes to establish up to 24 new fishing ports

along the coast. However, it has made little or no progress on these projects.

Mining and semi-processing

The mining industry is dominated by the extraction of crude oil. Historically,

almost all of Libya’s crude production came from the eastern part of the

country, notably the onshore Sirte basin, but the increasing importance of the

Murzuq basin in the south-west and offshore Bouri field, west of Tripoli, has

changed the geographical balance. The Murzuq basin holds an estimated 10bn

barrels of oil equivalent (boe) of undiscovered recoverable reserves, nearly two-

thirds of Libya’s estimated total of 16.5bn boe of recoverable reserves. With such

potential Libya continues to be rated as one of the best exploration spots in the

world. Development of these reserves is in the hands of the National Oil

Corporation (NOC), which has been exclusively in charge of national

hydrocarbons policy since 2000, when it took over responsibility from the

Ministry of Energy. To this end, the NOC has been inviting increased foreign

participation through exploration and production-sharing agreements (EPSAs).

In the cabinet reshuffle in early 2004, however, a new energy ministry was

established, initially creating uncertainty about which body would lead the

development of the oil sector. It has since become clear, however, that the

ministry will be concerned mainly with electricity and water, with the NOC

retaining its authority over oil production.

Despite its efforts to attract foreign investment and make the contracting process

more transparent, the NOC was initially slow to award contracts for new

exploration blocks. Since 2000 some 130 blocks spread across the Ghadames,

Murzuq and Sirte basins were on offer, with additional areas available offshore.

By the end of 2003 it had completed the award of less than 15 blocks, although

by the time of the EPSA VI bidding round in January 2005 the number of

blocks awarded had increased dramatically. With only approximately 25% of

Libya’s territory having been explored, the oil industry is likely to witness

further considerable growth in the coming years.

Crude oil

(‘000 b/d)

2000 2001 2002 2003 2004

Production 1,414 1,370 1,311 1,433 1,548

Exports 1,236 1,195 1,139 1,249 1,365

Sources: International Energy Agency; Economist Intelligence Unit estimates.

In March 1983 Libya accepted an OPEC quota limit of 1.1m barrels/day (b/d).

This was adjusted in 1993 to 1.39m b/d, where it remained until December 1997,

Oil production

Quota levels

Libya 37


when OPEC decided on a pro rata increase for its member states, which pushed

Libya’s quota up to 1.52m b/d. The country’s quota was cut considerably after

that, bringing it back down to 1.16m b/d in 2002, before it was raised again in

the first quarter of 2003 to 1.31m b/d. By April 2005 its quota had risen steadily,

in line with OPEC’s need to increase supply, and had reached 1.47m b/d.

In the past Libya has tended to advocate production cuts by the oil cartel, so as

to benefit from higher prices, although it has consistently produced at rates

above its quota. However, with the prospect of a considerable expansion in its

own production capacity, Libya has begun to call for its quota to be increased

proportionally. The Libyan foreign minister, Mohammed Abderrahman

Chalgam, has said that the government is aiming to increase Libyan output to

3m b/d over the coming 15 years. Libya’s output has been much higher in the

past�as much as 3.5m b/d in the 1970s�and Mr Chalgam was eager to point out

this potential. In November 2003 he described the country as being “grossly

under-explored”, and said that Libya was looking to attract US$30bn of foreign

investment in the oil and gas sector by 2010, US$2.3bn of which was needed for

investment in refineries.

Basin potential in Libya

Sirte Offshore Ghadames Murzuq Cyrenaica Tripolitania

Area available (sq km) 237 166 29 176 75 37

Blocks (no.) 53 13 6 13 8 3

Average block size (sq km) 4.5 12.8 4.8 13.5 9.3 12.3

Exploration wells (no.) 1,732 71 356 83 34 20

Discoveries (no.) 267 18 87 17 3 0

Success ratio (%) 15 25 24 20 9 0

Estimated production (‘000 b/d) 1,050 55 0 200 0 0

Discovered hydrocarbons potential (Boip)a 91 13 5 5 0 0

Estimated basin potential (Boip)a 115 25 15 40 6 n/a

Yet to be discovered (Boip)a 24 12 10 35 6 n/a

a Barrels of oil in place.

Source: IHS Energy, Libyan Oil and Gas Fields: International Ranking of Cost and Economics, 2000.

The protracted period of UN sanctions left the oil sector damaged, but not

irreparably so. Since the suspension of UN sanctions in 1999, participation by

European firms has increased rapidly. US sanctions prevented US oil companies

from operating in Libya and meant that the companies’ holdings, operated in

their absence by the Waha Oil Company, have deteriorated through lack of

investment. In 2002 the US-based Oasis group (a consortium of Amerada Hess,

Conoco and Marathon) estimated that its holdings in Libya were producing

300,000 b/d, down from a peak of around 1m b/d in the 1970s, while

Occidental (US) estimated that its holdings were producing 55,000 b/d, down

from 200,000 b/d in 1986 (the year US companies were forced to leave Libya as

a result of US sanctions).

With the numerous multilateral and unilateral sanction regimes now lifted and

the prospect of large capacity increases in the next four years, the NOC is keen

to upgrade and enlarge its refining assets. Total refinery capacity has been

around 340,000 b/d for the past decade, although actual production has

averaged well below that level. In addition, design flaws have prevented

Effect of sanctions

Oil refineries

38 Libya


domestic refineries from producing the lighter distillates that are most needed

for local consumption. The NOC has therefore launched a US$3.5bn investment

programme, which includes:

• an upgrade of the 120,000-b/d Azzawiya refinery west of Tripoli;

• new refining units for the existing 200,000-b/d refinery and ethylene plant

at Ras Lanuf on the Gulf of Sirte;

• a new 20,000-b/d refinery at Sebha; and

• expansion of the 24,000-b/d Tobruq refinery and the 10,000-b/d Brega

refinery.

Contracts for the Azzawiya and Sebha refineries were awarded to LG

Engineering of South Korea in mid-2002, although the deal fell through in mid-

2003. In February 2005 the NOC announced that the Azzawiya refinery, the

second-largest in the country, was to have its contract retendered. There were

rumours that Germany’s Uhde had won the estimated US$280m engineering,

procurement and construction (EPC) contract after the collapse of the South

Korean agreement, but the deal never materialised. The NOC was very keen for

the original deadline of early 2005 to be met, as in that year stiffer EU

petroleum product environmental requirements will come into force, which

around 50% of Libya’s petroleum output currently does not meet. With the

project yet to get off the ground, it is unclear when it will be completed. While

the delays are problematic for the NOC, they are not disastrous. During the past

few years the NOC has increased its ownership of refineries outside Libya

through its downstream investment arm, Oilinvest, enabling it to meet the EU’s

new regulations.

Oilinvest was formed in 1988 to handle downstream investments abroad. In

1993, in a bid to shield Oilinvest from the effects of UN sanctions, Libya reduced

its ownership stake to 45%, allowing its European partners to increase their

holdings. Oilinvest’s principal asset is a refining and oil marketing company,

Tamoil, which owns a 100,000-b/d refinery at Cremona in Italy and a 70,000-

b/d refinery at Collombey in Switzerland, and has recently been restructuring

its distribution operations to focus on western Europe. Oilinvest also has a 39%

stake in the state-owned Midor refinery in Egypt, which was finalised in July

2003 (see reference tables at back of report for oil and gas reserves and for oil

industry statistics).

The Libyan authorities have long harboured ambitions to develop gas

production, both to replace oil in domestic use and to export. The country’s

proven natural gas reserves remain largely unexploited, although gas has been

produced and exported in small quantities since the 1970s. According to BP’s

2004 Annual Statistical Review of Energy, Libyan production accounted for just

0.2% of the global total for 2001, far less than its neighbours Algeria and Egypt,

which have both greatly expanded production in the last decade. However,

proven reserves, at some 46.4trn cu ft, represented almost 1% of the global total.

(See reference tables for production and export of natural gas.)

Natural gas

Libya 39


To address this the NOC is seeking to develop gasfields in the Sirte basin and

elsewhere and has launched a number of large projects, notably:

• the West Libya gas project, which aims to connect the Wafa onshore field,

550 km south-west of Tripoli, and the Bouri offshore field with a gas processing

plant at Melitah on the coast, and to transport gas from there to Europe by a

540-km pipeline from Melitah to Gela in Sicily;

• construction of two further pipelines for gas from the West Libya gas

project�a 97-km pipeline from Melitah to Tripoli and a 270-km export pipeline

from Melitah to the Tunisian port of Gabès�and

• construction of two pipelines to link new gas-fuelled power plants in

Benghazi, Khums, Tripoli and Zueitina to the national gas grid.

In order to encourage foreign participation in these gas developments, the NOC

has offered revised EPSAs. Under these the NOC has first option on a foreign

company’s share of gas at an agreed discount, while small discoveries will

automatically be routed into the domestic market. Firms with large finds have

been given the option to export the gas. These EPSAs are dependent on two

negotiable factors covering the ratio between cumulative expenditure and gas

received, which create a sliding scale for the foreign firm’s share of gas. The

more productive the development, the smaller the foreign operator’s share. This

is a standard arrangement in the hydrocarbons industry, but Libya has not

previously outlined such specific definitions, and international gas companies

have welcomed the move towards transparency.

By the end of 2002 Agip Gas, a joint venture between Italy’s ENI and the NOC,

had awarded all the major EPC contracts for the West Libya gas project. The

project came on stream, on schedule, in late 2004, and in February 2005 Agip

Gas was seeking expressions of interest to build a US$100m new harbour in

Melitah, including a jetty for tugs and facilities to support offshore operations.

The only other mineral resource of consequence is iron ore. First discovered in

1974, iron ore reserves at Wadi Shatti in southern Libya are estimated to be in

the region of 700m tonnes, with a 25-50% iron content. Government plans for

the exploitation of these reserves depend greatly on building a 900-km rail link

from the remote Wadi Shatti mines to the iron and steel complex at Misurata

on the coast, which currently relies on imported ore for its output. The Libyan

government has been seeking foreign partners to undertake the financing of

this rail scheme but so far without success.

Until these iron ore deposits are exploited, the largest mining activity outside

the oil sector is salt. Salt pans on the coast around Benghazi and Tripoli yield

about 30,000 t/y, and additional reserves of around 1.6m tonnes have been

pinpointed at Idri, Ghat and Marada. Other mining activities include the

extraction of raw materials such as limestone, clay and stone for the building

industry. About 4,000 tonnes of gypsum are also mined each year.

Other mineral reserves

40 Libya


Manufacturing

The development of Libya’s industrial sector, a stated priority in the 1970s,

faltered in the 1980s as oil revenue slumped and government funding for

development projects dried up. Most government support was given to several

large heavy industry schemes that could make use of the country’s cheap

energy and gas feedstock. Many major projects, such as a planned fertiliser

complex at Sirte and an aluminium smelter complex at Zuwara, have never

been completed owing to funding constraints.

Those industrial complexes that are active suffer from poor maintenance and a

shortage of spare parts. With the constraints of sanctions now lifted, the Libyan

Foreign Investment Board has been seeking to establish joint ventures to up-

grade four cement plants, a number of electrical engineering factories, and the

country’s main iron and steel plant at Misurata. The Misurata complex, owned

by the Libyan Iron and Steel Company (Lisco), and built by a conglomerate of

foreign firms including Germany’s Krupp Hoesch Stahl, Austria’s Voest-Alpine

and Kobe Steel of Japan, began production in 1988. It is now on the government

list of parastatals slated for divestment. It has a combined capacity of approxim-

ately 1.3m t/y of liquid steel and in 2000 exported a total of 640,000 tonnes of

products, just over half of which went to EU countries. Lisco is undertaking a

US$60m programme of upgrades, beyond which it aims to boost liquid steel

capacity to 2m t/y. Progress has proved slow, however, with the result that the

planned further expansion of production at Misurata to 5m-7m t/y by 2005 was

unsuccessful. The absence of a railway linking the iron ore reserves at Wadi

Shatti to the Misurata complex is a further constraint.

In 2002 the Arab Union Contracting Company, a state-owned enterprise, agreed

a �160m (US$167m) contract with a Danish company, F L Smidth, to build a

new cement plant near Zliten. A number of smaller contracts were also agreed

with European companies for investments in factories for prefabricated buil-

dings, lubricant oils and treatment of oil waste by-products. However, the gov-

ernment has been advertising more than 50 other investment proposals for a

range of state-owned companies for several years now, with little success so far.

Construction

The construction industry continues to be dominated by the grandiose and

costly GMR project (see Resources and infrastructure: Natural resources and the

environment). Although Colonel Qadhafi’s interest in the project has ebbed,

giving way to his Africa policy, the scheme continues to move forward. In

recent years it is believed to have been allocated at least 10% of total public

expenditure, and this will need to be maintained if progress is to be made on

the project’s third and fourth stages. Meanwhile, new projects in the hydro-

carbons sector are beginning to add to construction activity. The US$5.6bn West

Libya gas project (see Mining and semi-processing) should boost construction

sector growth for the next three years, as should the power station investment

programme. The planned railway network and a hotel-building programme, if

they take off, should also boost construction activity.

Poor maintenance of

industrial plants

Major projects dominate

Libya 41


Despite improvements, the construction sector still suffers from a patchy pay-

ments record. Foreign contractors from countries including Germany, India, Italy,

Japan, South Korea and Turkey have all experienced repayment problems, and

in the past some contractors have been obliged to accept oil barter arrange-

ments for completed work.

Financial services

The banking system is highly centralised and has been under state control since

1970, when the government nationalised all banks. In addition to the Central

Bank of Libya, there are eight major financial institutions. These are the

Agriculture Bank; Libyan Arab Foreign Bank; National Commercial Bank;

Republic Bank; Sahara Bank; Savings and Real Estate Investment Bank; Umma

Bank; and Unity Bank. The Central Bank is one of three principal shareholders

in the Bahrain-based Arab Banking Corporation. In addition, since 1972 it has

maintained an overseas arm, the Libyan Arab Foreign Bank (LAFB), which is

charged with all international banking functions.

In 1981 LAFB’s foreign investment function was taken over by the Libyan Arab

Foreign Investment Company (Lafico), managed by the Ministry of Finance. In

2001 Lafico was reported to have total holdings of US$7bn, 90% of which were

held in Europe. Lafico has a subsidiary, the Libyan Arab African Investment

Company, which was created in 1999 to invest in African projects as part of

Libya’s growing focus on the continent.

The government introduced a law in March 1993 allowing the establishment of

private-sector banks. The most successful example is the Bank of Commerce

and Development, which opened in 1996 and is a limited shareholder

company, offering conventional retail and business banking services. In 2002

Libyan finance and banking officials indicated that they are considering

privatising some of the country’s banks. However, no clear privatisation plan or

prospectus has been published and foreign investor interest remains low at

present. Indeed, foreign banks have only cautiously welcomed new legislation,

approved by the General People’s Congress in March 2005, to permit foreign

banks to open branches in Libya for the first time. To date the only foreign

banks with representative offices in Tripoli are the Arab Banking Corporation,

Malta’s Bank of Valetta and Egypt’s Suez Bank. Investors are deterred by

bureaucratic regulation and antiquated administrative procedures, as well as

poor transparency and the heavy debt burdens of some state banks. In these

circumstances, there is no capital market to speak of. Officials have indicated

that they are planning to establish a stockmarket, although it is unlikely that

one will materialise soon.

Nevertheless, the authorities are looking to shore up banking supervision and a

draft law on bank reorganisation, currency and credit has been submitted to the

Basic People’s Congress. This should give the Central Bank of Libya greater

control over monetary policy and should, in the medium term, alleviate many

of the concerns of foreign banks. The new law also allows Libyan nationals for

the first time to establish financial firms, with a minimum paid-up capital

of US$10m.

State control

Private-sector banks

42 Libya


Other services

Tourism in Libya is underdeveloped as a result of the country’s past isolation

and poor image as a tourist destination. The potential of the country has never

been in doubt, but it is only recently that the Libyan government has begun to

acknowledge that extensive investment and changes are necessary if growth is

to be rapid. Annual tourist visitor numbers have been boosted by the removal

of sanctions and have already risen from a mere 85,000 in 1995 to over

900,000 in 2003. However, much of this growth reflects increased business

travel and growth in desert tourism, rather than in the sort of holiday tourism

Libya will need if it is to turn the sector into a much larger share of the

economy. For the moment such growth is constrained by the lack of a suitable

tourist infrastructure, above all good hotels, restaurants and beach resorts.

However, as the political climate has gradually improved, speculators have

submitted extravagant plans for the development of upmarket tourist

complexes, including golf courses, and it is understood that contracts have been

awarded. With the relaxation of visa controls combined with a government

official’s statement that the country’s strict alcohol ban could be easily circum-

vented, the way looks open for a brand new tourist destination on the

southern Mediterranean fringe.

Apart from the attraction of beaches on its long Mediterranean coastline, Libya

offers two main areas of interest for tourists.

• Archaeological visits. Libya has 13 main heritage locations, including large

and unspoilt Roman sites at Sabratha and Leptis Magna, and Greek cities at

Cyrene and Apollonia that are among the best preserved sites in North Africa.

• Desert tourism. Libya can offer oasis towns such as Ghadames and pre-

historic cave paintings in the Acacus Mountains area. As a result it has been

having some success in attracting tourists who have been deterred from going to

other Saharan countries, such as Algeria, by political instability and fighting.

In April 2003 the Corinthia Towers, a new 299-room hotel in Tripoli owned by

the Malta-based Corinthia Group, was opened, becoming Tripoli’s first

genuinely high-quality hotel. It has recently announced plans to build a second

five-star hotel in Tripoli, reflecting growing demand.

The external sector

Trade in goods

Main composition of trade(US$ m; fob-cif)

2000 2001 2002 2003 2004

Total exports incl others 14,288.0 12,023.1 11,603.8 14,344.1 20,203.1

Oil 13,254.8 11,027.6 10,613.7 13,361.3 19,375.7

Total imports incl others 4,248.8 4,484.6 6,250.0 6,662.8 9,534.9

Trade balance 10,039.2 7,538.5 5,353.8 7,681.3 10,668.2

Sources: IMF; Economist Intelligence Unit estimates.

Tourism

Trade surpluses

Libya 43


For much of the time since the mid-1960s Libya has enjoyed a positive trade

balance. The size of the trade surplus has, however, fluctuated sharply,

mirroring the peaks and troughs of world oil prices. According to the IMF, the

value of Libyan exports rose 60% in 2000 from a year earlier, to US$14.3bn, after

which they fell in two consecutive years to US$11.6bn by the end of 2002. In

2003, however, strong oil prices pushed revenue up to all-time highs above an

estimated US$14.3bn. The Economist Intelligence Unit estimates that these

records would have been exceeded in 2004, with further significant growth in

oil prices resulting in an additional 40% jump in export values to over US$20bn.

Hydrocarbons products�oil, gas and refined products�account for around 95%

of total exports (see reference tables for data on exports). Crude oil ranks as the

most important export by far, accounting for 90-97% of total hydrocarbons

exports between 1992 and 1999. The government’s attempts to develop the

natural gas sector will help to reduce the unpredictability of the trade balance,

but gas exports will not make a significant impact on this until after 2005.

Import controls, despite being eased since the lifting of UN sanctions, remain

tight even by regional standards. In early 2002 the government cut tariffs on

most essential goods by 50%, to offset the impact on importers (the majority of

whom are state institutions) of the 51% devaluation of the official dinar

exchange rate. As a result, import spending more than held up after the

devaluation, contrary to what usually occurs after such a large devaluation.

In December 2001 Libya lodged an official application to join the World Trade

Organisation (WTO). Membership would be a significant step in the normalis-

ation of Libya’s external relations. Admission requires the unanimous approval

of all WTO members, and Libya’s application was given a boost in April 2004

when the US announced that it would no longer veto Libya’s accession. In July

its application was finally accepted. However, the process for Libya to join the

WTO is likely to be lengthy, not least because many changes will need to be

made in the areas of taxation, tariffs and regulations. The process will also

require the Libyan authorities to introduce far greater transparency, initially

simply to provide sufficient information to support Libya’s application

negotiations, but eventually to satisfy WTO information requirements as an

eventual member. This is a tall order, given existing attitudes within the estab-

lishment towards transparency. However, one factor that may make it easier for

the government to push through the necessary reforms is its ability to decide

upon relevant measures without the need for public debate. Furthermore, with

the economy and the government’s budget currently cushioned by oil earnings,

it should be possible to avoid any economically sensitive measures that incur

substantial public opposition.

Main trading partners, 2003

Exports to: % of total Imports from: % of total

Italy 39.7 Italy 27.5

Spain 13.7 Germany 9.5

Germany 12.8 Tunisia 7.7

Turkey 6.7 UK 7.0

Source: IMF, Direction of Trade Statistics.

Tight import controls

44 Libya


The list of Libya’s main trading partners has changed little since 1990. On the

export side, the major customers for Libyan oil are Italy, Spain, Germany and

Turkey. In aggregate, these four countries accounted for 73% of total exports in

2003. On the import side, the shortlist of major suppliers has also remained

constant, with Italy, the largest supplier, increasing its share of total imports from

21% in 1997 to 28% in 2003. Germany and the UK are the next largest European

suppliers, but Tunisia still supplies almost 8% of Libya’s imports. Trade with

countries in Eastern Europe and the former Soviet Union, which in the past

consisted mainly of the barter of oil for arms, has declined since 1991. There is

interest in reviving trade, but this has so far been hampered by arrears and

disagreements over the settlement of Libyan debts.

Invisibles and the current account

Libya fell into a pattern of current-account deficits beginning in the 1980s�the

combined result of falling oil export receipts and high import bills. In the past

decade the current account has fluctuated significantly, closely mirroring the

movement in oil prices. It registered a deficit in 1998 when oil prices dipped

sharply, but rebounded in 1999 and 2000 when prices strengthened.

Current account

(US$ m)

2000 2001 2002 2003

Goods: exports 13,508 10,985 9,851 14,664

Goods: imports -4,129 -4,825 -7,408 -7,200

Trade balance 9,379 6,160 2,443 7,464

Services: credit 172 183 402 442

Services: debit -890 -1,033 -1,539 -1,597

Services balance -718 -850 -1,137 -1,155

Income: credit 714 676 850 1,143

Income: debit -1,143 -1,575 -1,254 -2,137

Income balance -429 -899 -404 -994

Current transfers: credit 8 8 8 8

Current transfers: debit -495 -736 -788 -1,681

Current transfers balance -487 -728 -780 -1,673

Current-account balance 7,745 3,683 122 3,642


The current-account surplus is lower than the trade surplus because of a struc-

tural deficit in the invisibles balance caused by the high outflow of workers’

remittances and service payments to foreign companies. With an immigrant

population estimated at around 1m, the repatriation of this group’s earnings

represents a significant drain on Libya’s current account, despite the fact that

administrative rulings restrict the amounts that can be transferred out of the

country. The repatriation of profits by foreign oil and gas companies is an

additional burden.

Current account mirrors oil

price changes

Libya 45


Capital flows and foreign debt

Libya has never been a major borrower from the international markets, and

aggregate foreign debt levels remained remarkably stable from the late 1980s

until the early 1990s, averaging around US$4.5bn-5.5bn. However, from 1993

there was a considerable drop in short-term debt levels, as Libya’s patchy pay-

ments history and the sanctions regime meant that many commercial lenders

shied away from exposure in the country. According to the most recent data

published by the OECD, Libya’s total external debt remained static until 1998,

but jumped to US$5.1bn (17% of GDP) in 1999. It has since fallen slightly�in

spite of an estimated increase in short-term foreign debt�and was estimated

to be around US$4.1bn at the end of 2004. This is mainly owing to increased

repayments on the back of higher oil revenue. Total medium- and long-term

debt is estimated at around US$3bn in 2004. Medium- and long-term debt is

mostly held by former Eastern bloc countries, including Russia, while long-term

debt owed to OECD countries is a small percentage of the total, at around 5%,

and is mainly in the form of official supplier credits.

With the lifting of UN sanctions and the final removal of the US trade embargo,

Libya will gradually have greater access to credit from international lenders.

With large-scale development plans in the offing�not only for the oil industry,

but also for nationwide infrastructure projects�Libya will need financing from

overseas. It can be assumed, therefore, that its debt levels will rise.

In the 1980s Libya adopted a policy of delaying payments on its trade debt as a

means of financing persistent current-account deficits, with suppliers often

compelled to accept settlement through oil barter deals. The build-up of arrears

led Western export credit agencies to refuse to guarantee medium- and long-

term export credits for Libya, even before UN sanctions took effect in 1992.

Since the suspension of UN sanctions in 1999, Libya has increased repayments

on its foreign debt, although it remains in arrears. Decisions on repayments

tend to be made on a piecemeal basis. For example, the signing in 2002 of an

agreement on energy co-operation with the Czech Republic is expected to lead

to repayment of US$300m that Libya owes the Czech Republic for the supply

of military vehicles in the past. The lack of a more determined approach to

such debts is a reflection of the poor management of public finances in Libya.

As a result, although improvements in repayments have prompted Italy’s

public-sector Agency for Export Credit Insurance (Sace) to start underwriting

business with Libya for the first time in more than a decade, the OECD still

rates Libya as high risk in repayment terms.

Foreign direct investment (FDI) in Libya has been almost exclusively in the

hydrocarbons sector. The past sanctions regime, combined with the country’s

erratic economic policy, have, in the past, provided little incentive for investors

in other sectors. As a result, funds have consistently been withdrawn from the

country since the mid-1990s, with net outflows recorded up until 1999, when

the UN sanctions regime was finally suspended. Since then net inward invest-

ment, while not shooting up, has remained positive, and with the prospect of

Low external debt

Poor repayments record

Foreign investment

46 Libya


further economic liberalisation following the lifting of UN and US sanctions

FDI will see a marked rise in the coming years.

Foreign reserves and the exchange rate

Libya’s reserve position remains very healthy. At the end of 2004 Libya’s official

foreign reserves (excluding gold) stood at US$25.7bn. This is almost four times

the level at the end of 1999 (US$7.3bn) and is equivalent to a massive 30

months of import cover.

Reserves

(US$ m)

1999 2000 2001 2002 2003 2004

Total reserves excl gold 7,280 12,461 14,800 14,307 19,584 25,689

% change 0.1 71.2 18.8 -3.3 36.9 31.2


Until June 2003 Libya had a tiered exchange-rate system, which dated back to

strict foreign-exchange controls imposed during UN sanctions. Since the

suspension of sanctions, the authorities have attempted to reduce the gap

between the official, commercial and black-market rates. A major step was

taken at the end of 2001, when the Central Bank of Libya devalued the official

exchange rate by 51%. The effect of the devaluation on the public was limited,

as few people have access to the official rate for private purposes. Further-

more, at the time of the devaluation the government reduced import duties by

50% on most state-imported goods, in a bid to offset inflationary pressures.

In June 2003 the Central Bank took further action, reducing the official dinar

exchange rate and aligning it with the commercial rate of around LD1.36:US$1, a

nominal devaluation of around 12%. The unified rate at which the dinar is now

pegged�the Central Bank pegs the dinar against IMF special drawing rights

(SDRs) rather than the US dollar�appears to be close to or at its market value,

making a success of the government’s efforts to put an end to a complicated

and distortionary system of tiered rates and effectively eliminating the black

market. As importantly, the bank’s support of the dinar, guaranteed by Libya’s

massive stock of reserves, ensures continued liquidity. Since the Central Bank’s

unification of the exchange rate, the Libyan dinar has remained stable,

strengthening only slightly from LD1.36:US$1 in June 2003 to around

LD1.31:US$1 in June 2005.

Foreign reserves

Exchange-rate system

Libya 47


Regional overview

Membership of organisations

The African Union (AU) is the successor to the Organisation of African Unity

(OAU) and is based in the Ethiopian capital, Addis Ababa. The AU was formally

launched in July 2002 at a meeting of African heads of state in the South

African city of Durban. This came two years after the AU’s formation was first

agreed in Togo in July 2000 and followed a one-year transitional period which

began after the ratification of the constitutive act of the AU by two-thirds of

member states in May 2001. The AU is modelled on the EU and has ambitious

plans for a parliament, a central bank, a single currency, a court of justice and

an investment bank. The most advanced of these is for a Pan-African

Parliament to serve as the law-making body of the organisation.

The AU also aims to have common defence, foreign and communications

policies, based loosely on those of the EU. The success of the AU, like that of its

predecessor, will depend on the individual performance of its 53 member

states, many of which suffer from very weak governance. The OAU was

criticised for ineffectiveness�little real action resulted from its policy decisions�

and it is not clear how the AU will differ. But the organisation fills the need for

a forum for discussing the continent’s problems and the idea of pan-African

unity exerts a strong hold over member countries. Many of the proposed new

institutions and policy co-ordination mechanisms are costly and cannot be

funded within the AU’s current resource allocations. In early December 2003

donors and external lenders expressed their full support for the AU’s initiatives

and the creation of new institutions. Another problem for the OAU was that it

was hindered by a shortage of funds, because many members failed to pay

their membership dues. This is unlikely to change and several states are

currently banned from voting in the AU because of this. In addition, most

African states are unlikely to give up the sovereignty required to make several

of the proposed initiatives�such as a single currency or a court of justice�

operate effectively. Less costly initiatives that could more effectively promote

African unity include trade integration, particularly the rationalisation of the

many overlapping regional trade blocs; regulatory harmonisation; and the

promotion of the rule of law and macroeconomic stability.

The principle of non-interference, which has been a major hindrance to the

resolution of conflicts on the continent, is a contentious issue among member

governments. Although non-interference was enshrined in the old OAU, the AU

is attempting to tackle this issue. However, to date, it has shown the old AU

tendency to support existing governments, including that of Didier Ratsiraka in

the disputed Madagascar elections of December 2001 (although he

subsequently left office) and of the Zimbabwean president, Robert Mugabe,

following his disputed re-election in June 2002. However, this could change if

the proposed Peace and Security Council (PSC), which is to replace the OAU’s

Mechanism for Conflict Prevention, Management and Resolution, is set up.

The African Union (AU)

48 Libya


Modelled on the UN Security Council, it is envisaged that the PSC could

sanction military intervention in member states in cases of genocide,

unconstitutional changes of government and gross human rights abuse. The AU

heads of state conference held in Maputo, Mozambique, in July 2003 discussed

the PSC but failed to reach agreement as member governments are wary of

condoning intervention in their own affairs. At the end of 2003 23 countries

had ratified the convention, which means that the support of an additional

four countries is required for it to come into effect. A series of meetings of

African defence ministers will be held in 2004 in order to try to agree on the

security and legal ramifications of the PSC. If established, it is planned that the

PSC will have a standing armed force comprising five battalions at its disposal

by 2010. Western countries have promised to help fund the force if it is

established. Even without the establishment of the PSC, since May 2003 the AU

has had an observer mission in Burundi, led by South Africa and including

troops from Mozambique and Ethiopia, to help enforce a peace agreement in

that country’s civil war.

In practical terms, the most high profile AU event is the annual conference of

heads of states, which is hosted by the member state that is due to hold the

chairmanship of the organisation for the next year. The current chairman of the

AU is the Mozambican president, Joaquim Chissano, who took over from South

Africa’s Thabo Mbeki in July 2003. The day-to-day affairs of the AU are

managed by the AU commission, which is modelled on the EU commission

and was endorsed by the AU heads of state summit in July 2003. The

commission is headed by the former Malian president, Alpha Konaré, aided by

a deputy, Patrick Mazimhaka of Rwanda, both of whom were elected at the

summit. There are also seven appointed AU commissioners.

More commonly known as the Arab League, the organisation was formed in

1945 to strengthen relations between Arab states and co-ordinate policies for

the good of the whole Arab nation. Its membership has stood at 22 since

Comoros was admitted in 1993. Palestine is treated as a full member of the

organisation. The League, which has observer status at the UN General

Assembly, is based in Cairo.

The Arab League has attempted to mediate in a number of regional conflicts,

and was the overseer of the Arab boycott of Israel. It has been criticised as an

ineffective talking-shop; one of its handicaps is a system whereby unanimous

decisions of the Arab League Council are deemed binding on all members, but

majority decisions are binding only on those states that voted for them.

The Arab world has become increasingly divided in recent years, further

negating the effectiveness of the League. US and UK policy towards Iraq was a

major cause of tension within the Arab world from the second half of the

1990s, with even some countries strategically allied with the West taking a

signally different position from Kuwait’s staunch support for Iraq’s

comprehensive containment. However, when, from 2002, the prospect of a

US/UK ground invasion to overthrow the regime of the Iraqi president, Saddam

Hussein, became increasingly likely, a common Arab stance opposing any

military action against the Iraqi regime and in support of the lifting of UN

League of Arab States

Libya 49


sanctions was agreed at the April 2002 Arab League summit in Beirut. This was

strongly criticised by Kuwait, given the implied criticism that was made of it in

the resolution. However, the early success of the US-led military campaign to

overthrow the Iraqi regime helped to minimise the tensions that had been

expected within the Arab League and led to League recognition of the new Iraq

Governing Council set up under US auspices. The sovereign interim Iraqi

government has since maintained relatively co-operative relations with its Arab

neighbours, although concerns over security threats emanating from Syria and

Saudi Arabia remain.

An escalation in Israel-Palestinian violence in September 2000 prompted

greater unity between Arab League members, with the body promoting a

number of initiatives in the context of a perceived lack of US engagement on

the issue. However, an ebbing of Palestinian-Israeli violence has seen those

Arab states that have diplomatic relations with Israel�Jordan and, in particular,

Egypt�adopt a more central role in peacemaking efforts. Nonetheless,

differences within the League are likely to persist over the terms on which

peace talks should be resurrected. In contrast, the US’s commitment to

democratisation in the Middle East is showing signs of having prompted a

more concerted Arab League position, balancing criticism with attempts to

publicise efforts within the region to conduct internal change.

The Organisation of Petroleum Exporting Countries (OPEC) was formed in

1960. It aims to promote the interests of the main oil-exporting countries by co-

ordinating their petroleum policies, thus exercising control over world oil prices.

The current members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria,

Qatar, Saudi Arabia, the United Arab Emirates (UAE) and Venezuela; Ecuador

left in 1992 and Gabon in 1995. In the 1970s OPEC succeeded in altering the

structure of oil prices in favour of producing countries, at the expense of major

oil companies. Prices quadrupled in 1973-74 and rose by over 25% in 1979-80.

OPEC continues to hold some 75% of the world’s proven oil reserves, of which

two-thirds lie in the Middle East. However, by driving up prices, it has made

alternative fuels more attractive, and turned previously unprofitable, marginal

oil reserves into commercially viable concerns. These factors have reduced

OPEC’s share of world oil supply from 55% in 1974 to some 40% today.

In the mid-1980s falling demand, oversupply of crude and disagreements

within OPEC as to the correct response brought the pricing system close to

collapse. Prices, which had risen from US$2.50/barrel in 1973 to a peak of over

US$36/b in 1980, crashed to less than US$8/b in 1986, when Saudi Arabia,

which had been acting as the swing producer by cutting its output to support

prices, refused to continue playing this role.

Throughout the late 1980s and most of the 1990s, OPEC’s ability to control

prices was severely curtailed by persistent quota-busting by its members and a

consistent inability to reach agreement on adjustments to its self-imposed

production ceiling. A series of attempts to co-operate with non-OPEC producers

over production cuts failed, and OPEC’s market share was eroded by higher

output from non-member countries. The return of Iraq to the oil market in

December 1996 compounded these problems and oil prices fluctuated heavily.

Organisation of Petroleum

Exporting Countries (OPEC)

50 Libya


In November 1997 OPEC finally agreed to raise its production ceiling by 10%, to

27.5m barrels/day (b/d). This, combined with the economic crisis in Asia,

precipitated a 30% slide in oil prices, which slumped to a low of US$9/b in 1998.

The OPEC price band mechanism was first adopted in March 2000 and in

theory entails automatic quota adjustments if prices fluctuate far beyond the

desired band of US$22-28/b. With the price of dated Brent Blend exceeding the

upper limit of this band by some margin, OPEC made two quota increases in

the run-up to the US-led attack on Iraq in March 2003. The imminence of war

itself caused the price of Brent to fall from around US$35/b in early March to

around US$28/b just before the war began as the expectation of a relatively

quick conflict saw a greater assertion of market fundamentals. This trend was

compounded at the beginning of the conflict, when the price fell further.

Following the war, however, oil prices steadily strengthened. Concerns over

delays in the restarting of Iraqi production grew into more general anxieties

over the prospects for the successful restoration of order in post-Saddam

Hussein Iraq. Market jitters were further heightened by militant Islamist attacks

elsewhere in the Middle East, above all in Saudi Arabia, the world�s largest

producer. Meanwhile, demand strengthened, and consumption appeared to

have been under-reported, particularly in China. Brent peaked at just under

US$40/b in mid-May 2004. In early June, under international pressure and

recognising the need to shore up its credibility as a moderator of international

oil prices, OPEC agreed to raise quotas by 2.5m b/d. The impact of the move

was mitigated by the fact that OPEC production before the output hike stood

only marginally short of the new output ceiling. However, OPEC members

(largely Saudi Arabia and the UAE) also agreed to add 1m b/d of crude to the

market in June. The quota hike caused an immediate easing of prices.

However, OPEC and other oil producers underestimated the momentum that

continued to underpin consumption growth, and were too hasty in judging

that increases in demand were subsiding. In fact, global demand growth

accelerated to 2.4m b/d by the end of 2004. The lag in data, however, led OPEC,

at its December 2004 summit, to warn that slowing consumption growth

pointed to an increasing risk of oversupply. To prevent this, OPEC announced

that, although it was keeping quotas unchanged, member states had pledged to

bring output down to quota levels with effect from January 1st. As well as

reflecting concerns over supply, the cut also marked a hardening of the cartel’s

attitude toward price. At the same time as the production cut was announced,

the cartel also stated that it was “temporarily suspending” the US$22-28/b price

band that had, in theory at least, been the anchor for production decisions

since 2000.

As Brent remained above US$45/b over much of January and February 2005,

however, and new data showed demand for OPEC crude increasing more

strongly than expected, the cartel adjusted its stance. Rather than using the

March summit to cut output as it had anticipated, the cartel instead announced

that quotas had been raised by 500,000 b/d with immediate effect. Although at

27.5m b/d the quota level is the highest the cartel has ever set, member state oil

ministers hinted that the outlook for consumption in the second half of 2005

suggested production would be raised further still when OPEC next meets in

Libya 51


June. Further increases in quotas, however, will be of relevance only if there is

sufficient expansion of capacity to meet them. The production rate of 27.7m b/d

achieved in 2004 was the highest-ever OPEC-10 output and was held only for

two months. It required most member states to produce at�if not beyond�their

sustainable capacity levels, with only Saudi Arabia appearing to have any

further potential output in reserve. Even the March quota level leaves little in

reserve, with International Energy Agency data showing that peak production

of all member states during 2004 was only 500,000 b/d ahead of the quota

agreed in March 2005. These moves have had little effect on oil prices; in mid-

March 2005 Brent reached a high of US$55.8/b.

The Organisation of Arab Petroleum Exporting Countries (OAPEC) groups ten

Arab oil producers and includes three countries that are not members of OPEC:

Bahrain, Egypt and Syria. It was established in 1968 with the aim of co-ord-

inating members’ oil policies. OAPEC also conducts technical training, feasibility

studies and market reviews, and provides information on member countries. A

number of joint Arab projects are sponsored by OAPEC, including the Arab

Petroleum Investments Corporation (Apicorp) and the Arab Maritime Petroleum

Transport Company (AMPTC).

Organisation of Arab

Petroleum Exporting Countries

(OAPEC)

52 Libya


Appendices

Sources of information

Obtaining statistical information from the Libyan government is extremely

difficult. The national sources listed here are not widely or readily available.

Provision of data to international institutions such as the IMF has improved

vastly since the suspension of sanctions but remains patchy.

Census and Statistical Department, External Trade Statistics

Census and Statistical Department, Quarterly Bulletin of Statistics

Census and Statistical Department, Statistical Abstract of Libya

Central Bank of Libya, Annual Report

Central Bank of Libya, Economic Bulletin

National Authority for Information and Documentation

Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner,

Middlesex HA5 5PJ

IMF, Direction of Trade Statistics (quarterly), Washington DC

IMF, International Financial Statistics (monthly), Washington DC

International Energy Agency, Middle East Oil and Gas (annual), Paris

International Energy Agency, Monthly Oil Market Report, Paris

International Institute for Strategic Studies, The Military Balance (annual), London

Middle East Petroleum and Economic Publications (MEPEP), Middle East

Economic Survey (weekly), Cyprus

OPEC, Statistical Bulletin (annual), Vienna

UN Food and Agriculture Organisation (FAO), FAO Production Yearbook

(annual), Rome

World Trade Organisation, World Trade Statistics

OECD, External Debt Statistics

Ali Abdullatif Ahmida, The Making of Modern Libya, State University of New

York Press, 1994

John Davis, Libyan Politics, Tribe and Revolution, I B Tauris, London, 1987

Mary-Jane Deeb, Libya’s Foreign Policy, Boulder, Colorado, 1991

Ted Gottfried, Libya: Desert Land in Conflict, Millbrook Press, UK, 1994

Judith Gurney, Libya: The Political Economy of Oil, Oxford University Press, 1996

Select bibliography

and websites

Select bibliography

International statistical sources

National statistical sources

Libya 53


Mansour El-Kikhia, Libya’s Qadhafi: The Politics of Contradiction, University

Press Florida, 1998

Libya (UN Sanctions), HMSO, UK, 1993

Muammar Qadhafi, The Green Book, Martin Brian & O’Keefe, Tripoli, 1975

M J Salem, The Geology of Sirt Basin, Elsevier, Amsterdam, 1996

G L Simons, The Struggle for Survival, Macmillan, London, 1996

Dirk Vandewalle, Libya since Independence: Oil and State-Building, Cornell

University Press, US, 1998

Dirk Vandewalle (ed), Qadhafi’s Libya 1969 to 1994, Macmillan, London, 1995

www.investinlibya.org

Government-backed site detailing investment opportunities

www.libyaninvestment.com

Site detailing investment opportunities

www.libyadaily.com

Independent national daily

www.jamahiriyanews.com

Official government news agency

www.eia.doe.gov/emeu/cabs/libya.html

US Energy Information Administration

www.opec.org

Official OPEC website

Reference tables

Population (Libyan nationals only)1999 2000 2001 2002 2003

Total (m) 5.14 5.24 5.34 5.44 5.55


Sources: National Authority for Information and Documentation (NAID); IMF, International Financial Statistics (IFS).

Money supply(LD m unless otherwise indicated; end-period)

2000 2001 2002 2003 2004

Money (M1) 7,313.5 7,402.7 7,843.4 8,340.9 10,154.0


Quasi-money 2,195.6 2,516.8 2,188.0 2,477.8 2,598.9

Money (M2) 9,509.1 9,919.5 10,031.4 10,818.7 12,752.9


Source: IMF, IFS.

Websites

54 Libya


Interest rates(%; period averages unless otherwise indicated)

2000 2001 2002 2003 2004

Lending interest rate (%) 7.0 7.0 7.0 7.0 6.0

Deposit interest rate (%) 3.0 3.0 3.0 3.0 2.1

Money-market interest rate (%) 4.0 4.0 4.0 4.0 4.0

Source: IMF, IFS.

Nominal gross domestic product by expenditure(LD m at current prices; % of total in brackets)

1998 1999 2000 2001 2002

Private consumption 8,072.0 8,514.0 8,150.0 8,994.0 13,939.0

(63.3) (60.2) (46.4) (52.3) (57.3)

Government consumption 3,339.0 3,102.0 3,616.0 3,925.0 4,077.0

(26.2) (21.9) (20.6) (22.8) (16.8)

Gross fixed investment 1,397.0 1,536.0 2,214.0 2,158.0 3,366.0

(11.0) (10.9) (12.6) (12.5) (13.8)

Stockbuilding 127.0 46.0 74.0 74.0 150.0

(1.0) (0.3) (0.4) (0.4) (0.6)

Exports of goods & services 2,468.0 3,374.0 6,186.0 5,478.0 11,645.0

(19.4) (23.9) (35.2) (31.9) (47.9)

Imports of goods & services 2,661.0 2,433.0 2,690.0 3,433.0 8,868.0

(20.9) (17.2) (15.3) (20.0) (36.5)

GDP 12,742.0 14,139.0 17,550.0 17,196.0 24,309.0

Source: IMF, IFS.

Real gross domestic product by expenditure(LD m at constant 1987 prices; % change year on year in brackets)

1996 1997 1998 1999 2000

Private consumption 7,958.2 8,368.1 8,757.7 8,561.2 7,720.2

(5.4) (5.2) (4.7) (-2.2) (-9.8)

Government consumption 3,300.0 3,333.0 3,085.0 3,007.8 3,367.0

(7.3) (1.0) (-7.4) (-2.5) (11.9)

Gross fixed investment 1,786.3 1,684.5 1,284.4 1,385.0 1,992.8

(30.9) (-5.7) (-23.8) (7.8) (43.9)

Stockbuilding 270.9 63.9 121.1 43.2 35.0

n/aa (-1.5)a (0.4)a (-0.6)a (-0.1)a

Exports of goods & services 3,125.8 3,790.2 2,932.5 2,971.1 3,561.8

(-9.9) (21.3) (-22.6) (1.3) (19.9)

Imports of goods & services 2,951.4 3,090.8 2,534.5 2,219.8 2,569.5

(20.0) (4.7) (-18.0) (-12.4) (15.8)

GDP 13,489.8 14,148.9 13,646.2 13,748.5 14,107.3

(3.3) (4.9) (-3.6) (0.7) (2.6)

a Change as a percentage of GDP in the previous year.

Source: IMF, Article IV.

Libya 55


Prices(% change, year on year)

1999 2000 2001 2002 2003

Consumer prices (av) 2.6 -2.9 -8.8 -9.8 -2.1

Source: IMF, Article IV.

Agricultural production(FAO estimates; ’000 tonnes)

2000 2001 2002 2003 2004

Barley 80 80 80 80 80

Wheat 125 130 125 125 125

Olives 165 150 150 148 148

Oranges 42.5 43.0 43.0 42.5 42.5

Almonds 30.5 31.0 31.0 31.0 31.0

Tomatoes 225 160 190 190 190

Dates 120 133 140 140 140

Potatoes 190 195 195 195 195

Grapes 50 40 30 30 30

Watermelons 214 216 218 218 218

Source: UN Food and Agriculture Organisation (FAO).

Fishing and livestock products(tonnes)

1997 1998 1999 2000 2001 2002

Total fish catch (liveweight) 32,849 n/a n/a n/a n/a n/a

Beef & veal 14,200 14,100 14,100 14,100 10,000 6,300

Chicken meat 99,000 98,000 98,540 98,000 99,060 98,800

Goat meat 13,230 15,722 15,600 15,600 9,600 6,000

Mutton & lamb 60,300 71,550 72,000 72,000 30,000 27,370

Cows’ milk 118,000 134,000 135,000 135,000 135,000 138,000

Goats’ milk 14,850 14,940 15,120 15,120 9,600 15,408

Sheeps’ milk 49,000 54,000 54,250 54,250 56,000 56,000

Eggs 50,875 56,375 57,750 57,750 59,000 60,000

Source: FAO.

Petroleum and refined products, production and consumption(’000 b/d)

1999 2000 2001 2002 2003

Crude oil production 1,287 1,347 1,324 1,200 1,432

Refined products productiona 324.9 337.8 341.5 369.8 322.7

Consumption of refined products 167.8 155.5 159.7 172.3 184.0

a Excludes output from gas plants.

Source: OPEC, Statistical Bulletin.

56 Libya


Oil and gas reserves

1999 2000 2001 2002 2003

Proven crude oil reserves (m barrels) 29,500 36,000 36,000 36,000 39,126

Proven natural gas reserves

(bn cu metres) 1,315 1,314 1,314 1,503 1,491

Sources: OPEC, Statistical Bulletin; Oil and Gas Journal.

Oil industry statistics(year-end)

1999 2000 2001 2002 2003

Active rigs (no.) 14 14 19 10 11

Wells completed (no.) 90 109 97 100 130

Oil 70 71 78 60 83

Gas 2 2 2 18 31

Dry 11 25 9 11 11

Others 7 11 8 11 5

Average depth (ft) 7,724 7,796 7,600 8,480 7,959

Producing oil wells (no.) 1,430 1,436 1,545 1,498 1,573

Flowing 902 904 1,004 938 1,010

Artificial lift 528 532 541 560 563


Ownership distribution for companies holding producing rights, 2003(%; year-end)

National Foreign

Oil Company Company

Oasis/NOC 59.2 40.8

Occidental/OMV/NOC 51 49

Agip/NOC 50 50

Umm Jawaby/Sirte/NOC 100 0

Aquitaine/NOC 85 15

Wintershalla 0 100

Giesenburg 82.9 17.1

Grace Pet/Sirte 88 12

Occidental/OMV/NOC 81 19

a Wintershall is a government-owned company.


Production and export of natural gas(bn cu metres)

1999 2000 2001 2002 2003

Production 9.2 10.2 10.3 10.2 10.6

Marketed 5.2 5.9 6.2 6.2 6.4

Flared 1.3 1.4 1.4 1.3 1.3

Reinjected 2.1 2.5 2.5 2.3 2.5

Shrinkage 0.6 0.4 0.3 0.3 0.4

Export 1.0 0.8 0.8 0.6 0.8


Libya 57


Oil exports(’000 b/d)

1999 2000 2001 2002 2003

Crude oil 992 1,005 988 922 1,127

Refined products 201 237 225 221 145


Crude oil exports by destination(’000 b/d)

1998 1999 2000 2001 2002 2003

Western Europe 1,131.0 974.2 986.5 963.9 899.9 1,048.2

Italy 539.7 438.9 466.9 409.6 484.6 431.7

Germany 264.2 250 233.7 202.5 187.7 180.1

Spain 130.8 128.1 140.7 145.5 129.9 153

France 49.5 46 48.5 60.8 46.5 70.9

Austria 30.6 22.9 12.9 25.5 13.6 11.5

Switzerland 19.5 37.6 36.3 47.7 43.5 49.3

Belgium 1.6 0.0 3.2 0.1 3.7 0.0

UK 0.0 18.5 7.1 0.0 27.1 0.0

Eastern Europe 5.0 7.5 3.5 13.7 7.5 4.4

Asia & Australasia 0.0 0.0 0.0 0.0 1.4 53.9

Africa 20.0 10.0 15.1 10.0 13.6 20.1

Total 1,161.0 991.7 1,005.0 987.6 922.4 1,126.5

Note. Figures at source do not sum.


Main trading partners(% of total)

2000 2001 2002 2003

Exports fob to:

Italy 42.0 39.6 42.5 39.7

Spain 12.9 14.0 13.5 13.7

Germany 19.2 15.5 13.5 12.8

Turkey 5.6 6.9 8.0 6.7

Imports cif from:

Italy 25.6 29.5 26.1 27.5

Germany 9.9 12.5 9.8 9.5

Tunisia 7.1 6.7 6.8 7.7

UK 7.7 6.8 6.7 7.0

Source: IMF, Direction of Trade Statistics.

58 Libya


Balance of payments, IMF series(US$ m)

1999 2000 2001 2002 2003

Goods: exports fob 7,276.0 13,508.0 10,985.0 9,851.0 14,664.0

Goods: imports fob -4,302.0 -4,129.0 -4,825.0 -7,408.0 -7,200.0

Trade balance 2,974.0 9,379.0 6,160.0 2,443.0 7,464.0

Services: credit 59.0 172.0 183.0 402.0 442.0

Services: debit -979.0 -890.0 -1,033.0 -1,539.0 -1,597.0

Income: credit 453.0 714.0 676.0 850.0 1,143.0

Income: debit -1,270.0 -1,143.0 -1,575.0 -1,254.0 -2,137.0

Current transfers: credit 7.0 8.0 8.0 8.0 8.0

Current transfers: debit -226.0 -495.0 -736.0 -788.0 -1,681.0

Current-account balance 1,018.0 7,745.0 3,683.0 122.0 3,642.0

Direct investment in Libya -128.0 141.0 133.0 145.0 142.0

Direct investment abroad -226.0 -98.0 -175.0 136.0 -63.0

Outward portfolio investment -3.0 -706.0 -1,359.0 72.0 -607.0

Other investment assets -315.0 -333.0 -333.0 -97.0 62.0

Other investment liabilities -373.0 847.0 847.0 787.0 -326.0

Financial balance -1,045.0 -149.0 -887.0 1,043.0 -792.0

Net errors & omissions -403.0 -1,133.0 -1,133.0 -1,413.0 72.0

Overall balance 688.0 6,458.0 6,458.0 1,293.0 278.0

Financing (– indicates inflow)

Movement of reserves -10.3 -5,181.1 -2,339.7 493.1 -5,276.6

Use of IMF credit & loans 0.0 0.0 0.0 0.0 0.0

Source: IMF, IFS.

Foreign reserves(US$ m; end-period)

2000 2001 2002 2003 2004

Total reserves incl gold 12,655.0 14,994.7 14,501.6 19,778.2 25,883.0

Total international reserves excl

gold 12,460.8 14,800.5 14,307.4 19,584.0 25,688.8

Gold, national valuation 194.2 194.2 194.2 194.2 194.2

Source: IMF, IFS.

Exchange rates(LD per unit of currency unless otherwise indicated; annual averages)

2000 2001 2002 2003 2004

US$ 0.51 0.61 1.27 1.29 1.30

£ 0.77 0.87 1.90 2.11 2.39

A$ 0.297 0.313 0.690 0.839 0.960

€ 0.47 0.54 1.20 1.46 1.62

¥ 0.005 0.005 0.010 0.011 0.012

Sources: Central Bank of Libya; IMF.

Editors: Philip McCrum (editor); Hania Farhan (consulting editor)

Editorial closing date: June 8th 2005

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

libya - country profile 2005

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