Libya Tribune

By Tarek Megerisi
Instability resulting from Libya’s revolution and civil war has never fully come under control. It has worsened with political infighting, the failures of the GNA, and the emergence of a rival government in the east of the country.

PART TWO

Enter the SFL

After the revolution, the international community originally pursued a “light footprint” approach in Libya. This limited outside involvement to responding to official requests from the Libyan authorities, such as those for assistance in organising elections.

The approach effectively relegated the international community to bystanders and, as a result, Libya’s first attempts at democratic governance saw it founder and then collapse completely.

But once international actors set about pursuing a different approach, they settled on establishing what became known as the Stabilisation Facility for Libya (SFL) in 2016. This marked a clear reversal of the reactive light footprint approach. This new vehicle was to enable international institutions to identify solutions to some of Libya’s structural issues and work with partners of their own choosing. And, crucially, the GNA was to be a core partner in this new way of working for stability.

As a multilateral initiative between 12 governments, the UN, and the GNA, the purpose of the SFL is to channel international expertise through the GNA and strengthen the its capacity to respond to these challenges and re-establish public services, stabilise the economy on national and local levels, and provide security – the three tenets of stabilisation.

This was to be a joint effort: the board was co-chaired by the GNA’s minister of planning and the UN deputy special representative. But it has ended up being an internationally led affair. The GNA only recently made its first contribution to the stabilisation fund, which was initially devised as a complementary scheme in which international partners would match Libyan contributions.

However, to the frustration of their counterparts, the GNA has also failed to take up its co-leadership role in providing strategic oversight, identifying stabilisation priorities, and developing a national or long-term plan that would give greater cohesion to stabilisation efforts.

That said, the establishment of the SFL represented a turning point whereby the international community assumed a more hands-on approach, proactively attempting to arrest Libya’s vicious cycle of deteriorating stability and lay the foundations on which the future state will be built.

However, the deployment of stabilisation measures to date has largely consisted of disjointedly restoring some services without a wider vision for how to build capacity in Libya for longer-term reform and state-building. As a result, stabilisation efforts risk amounting to nothing more than an expensive life-support machine for the Libyan state.

All this is despite the fact that the United Nations Development Programme (UNDP) provided a stabilisation delivery adviser to the prime minister. The difficulties of international cooperation with the national-level state apparatus are evident at the ministry level, where Gaddafi-era patronage culture still pervades national ministries. Libya’s historical position as an aid donor rather than a recipient country has further left government departments incapable of developing proposals of their own or of following through on those initiated by international actors.

The difficulties of cooperation and a lack of a Libyan-supplied vision blunt the overall efficacy and durability of international efforts and create an environment in which even experienced institutions like the UNDP struggle to make progress.

The GNA’s shortcomings have led the UNDP to make use of SFL funds and take on the responsibilities of conducting needs assessments, prioritising issues and partners, and carrying out stabilisation programmes.

The emergency assistance and the recovery and resilience programmes which each followed operate largely independently of the GNA and have proved effective at slowing the dilapidation of Libyan service delivery, helping restore some normality to Libyans’ lives.

The emergency assistance programme supported some of the hardest-hit yet most vital service areas, repairing hospital facilities and providing them with solar panels to allow them to operate amid ever-lengthier power cuts, rebuilding schools, and supplying crucial equipment such as ambulances and fire and garbage trucks.

In 2017 the UNDP began the next stage of its stabilisation work: the three-year recovery and resilience initiative. This targeted six municipalities across Libya with the aim of building capacity to return services to operation, stimulate local economic recovery, and provide community security and, through it, local stability.

The first step in these efforts focused on supporting local institutions to provide sustainable access to education, healthcare, water, sanitation, and electricity.

The second focused on creating new sustainable jobs and stable sources of income, and on integrating internally displaced persons and returnees.

The third, and arguably the most difficult in the present environment, seeks to help Libyan communities strengthen and reinstate institutions that underpin the rule of law.

These are welcome moves in a country which has seen little success in stabilisation. Where possible, these programmes should continue to expand to cover more municipalities.

Libyan stabilisation programmes have evolved from their original role of providing emergency assistance to maintain vital services like healthcare or education in the wake of war, to more long-term and durable programmes of building the capacity of local actors to re-establish and maintain services, or to directly intervene to repair infrastructure.

Next stop: the economy

As noted above, an improved economic situation is essential to stabilising Libya. Three main issues comprise the economic aspect of instability in Libya: (a) the liquidity crisis, (b) the lack of imports driving price inflation across many products, and (c) the smuggling of subsidised goods.

These phenomena are underpinned by a patronage-based system that gives current elites little incentive to carry out reform. The poor security situation also harms the wider stabilisation effort: one of the causes of a bank run in 2014 was the environment of pervasive criminality in which militias robbed banks or worked with their staff to access the account details of prospective kidnapping targets.

Banks began limiting withdrawals to between 200 and 500 dinars per account.

Today Libyans struggle to access their own money and meet their needs; the long lines of frustrated and despairing citizens waiting for days outside banks are an ever-present advertisement of this problem. Militias and other well-connected individuals prey on these people, offering them a fraction of their account’s value in return for immediate access to their ability to circumvent the system and provide hard currency.

In addition, Libya imports 85 percent of what it needs. The current discrepancy between the official exchange rate of the Libyan dinar (1.4 LD to the US dollar) and a black market exchange rate (of between 6 to 10 LD to the US dollar), has encouraged import fraud. Importers and those with connections in banks or the central bank are able to engage in this manipulation.

As a result, just 14 percent of declared imports reach Libya’s markets: importers convert the credit provided to them by the central bank into hard foreign currency to be sold on the Libyan black market.[1] This has created a scarcity of goods and correspondingly triggered steep inflation, which makes the cost of living virtually unaffordable for most Libyans.

This scarcity has even extended into what were once the subsidised and price-controlled staples of everyday life such as petrol, gas, and bread as militias and other criminal groups continue to hijack the state’s distribution channels.

By concentrating this cheap access to such high-demand goods in their own hands they have gained the ability to either smuggle the goods abroad to sell at global market prices or levy a high mark-up on sales to Libyans in desperate need of these goods.

Hijacking and smuggling subsidised goods exacerbates the hardships of scarcity and price-inflation that many Libyans suffer from, while creating a lucrative new revenue stream from which militias and other criminal entities profit and which further entrenches their power.

The intensity with which these issues affect Libyans means that the most promising path to reversing Libya’s failed state status is a wider stabilisation strategy encompassing such issues, along with restoring services and building the capacity of partners who can effectively manage these services in the long term.

A more effective stabilisation approach for the future should therefore more concertedly seek to address liquidity, inflation, and smuggling. The lack of faith in the banking system combined with these three pressures has denuded the Libyan economy and encouraged a burgeoning cash economy operating largely outside of regulatory control.

The growing liquidity crisis was accompanied by rapid inflation that only further encouraged Libyans’ desperate attempts to preserve their savings by converting bank deposits into assets or foreign currency.

By 2016 over half of the 42 billion dinars in existence were circulating in the popularly dubbed “shadow economy”. Although the available solutions to these problems are incomplete, European and other stabilisation actors are well placed to take them forward.

And, while solutions to the security crisis are largely outside the current preserve of stabilisation, the political and economic structures propping up the current elite and generating so much resistance to change is something that stabilisation actors can address immediately.

The economy strand of stabilisation efforts urgently needs strengthening, even if international actors have already tried to make inroads in this area.

For example, the economic recovery section of the UNDP programme has focused on helping Libyans move into private sector roles. This worked at the local level rather than through national-level structures. In Benghazi the programme has supported the Tatweer organisation, developed by local citizens to provide IT training, programmes to encourage tech start-ups, and an incubator to help entrepreneurs develop.

In Tripoli it has worked with Toyota in organising a three-month sponsored training programme covering vocational and academic disciplines.

Given the public-private sector imbalance in Libya, the correct track to long-term economic development is to encourage both Libyan entrepreneurship and training programmes to reskill workers.

Moreover, by separating these programmes from the Libyan public sector, with its problematic institutionalised working culture and its status as a target for Libyan militias and political factions to fight over, these programmes are more resilient as they are insulated from involvement in Libya’s current conflict.

Despite inadequate support from the GNA as a partner, there have been attempts to move stabilisation on from emergency aid towards tackling some of the structural issues and devising strategies for the long term.

The UNDP has worked on a framework to lay the foundations for long-term change along with short-term fire-fighting. Using the Sustainable Development Goals agreed by the UN in 2015, it focuses on restoring service delivery and capacity-building institutions of governance, with an overall emphasis on economic stabilisation.

As a leading SFL actor it also liaises with the stabilisation initiatives of the 12 other contributor countries that run programmes concurrent to the UNDP. Although there are regular coordination meetings, and there is a surprising level of cohesiveness to the simultaneous operations of such a large number of individual states, there is room to make the overall process more effective.

Nevertheless, in an example of the benefits of a multilateral approach, different partners have qualities suited to each problem. For example, the United States, the United Kingdom, and others have exerted consistent diplomatic pressure to encourage a reform programme between the central bank, the Ministry of Finance, and the Presidency Council in an attempt to tackle economic issues.

Following a series of dialogues that included Western diplomats, the International Monetary Fund, the World Bank, and key Libyan financial actors, the central bank governor announced in early June 2018 that reforms had been agreed, including on the key subsidies and exchange rate issues that lie behind much of Libya’s economic instability.

However, Libyan authorities have spoken about such reforms without following through. This time around, the country needs continued engagement along this path. There is reason to fear that these reforms are not being targeted correctly.

Without associated measures to restore confidence in banks or ensure that Libya’s imports satisfy demand, the market forces that created inflation and devaluation will simply adjust accordingly.

Addressing Libya’s macroeconomic structural flaws collectively benefits Libya’s citizenry and remains the best avenue for reversing the current public atmosphere of despair. Doing so could also bolster public engagement with the political process.

A stronger focus on the economy by stabilisation actors would also be politically effective, as it could also help undercut the economic incentives Libya’s political actors have for protecting the status quo. A strengthened economy would provide a second pillar in the effort to build a stabilised Libya.

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Tarek Megerisi is a visiting fellow with the Middle East and North Africa programme at the European Council on Foreign Relations, where he focuses on Libya. He has previously worked as a freelance Libya analyst, an independent research consultant, and a political affairs fellow with Libya’s first independent think-tank, the Sadeq Institute.

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