How Libya’s Civil War Is Rooted in Its Economic Structures
By Jason Pack
Istituto Affari Internazionali (IAI) releases Jason Pack’s overarching meta-analysis of the uniqueness (and unique dysfunctionality) of the Libyan economy.
This analysis claims that the root of the country’s stymied transition and its post-2014 civil war is primarily economic – not political or ideological.
1.3 Attempts to modernise Libya’s economy only made things worse
Given their unique histories and institutional privileges, we can think of the CBL and NOC as the gold standard for independence of Libya’s economic institutions.
Slightly less independent is the Libyan Investment Authority (LIA), the country’s sovereign wealth fund, which owns numerous other subsidiary investment vehicles.
When it was established in 2006 at the behest of Western consultants affiliated with the Monitor Group, it was intended to mirror the CBL and NOC in its independence.
However, as it was initially vested with over sixty billion dollars of Libya’s oil winnings, its chairman Mohamad Layas was consistently pressured to work with allies of Qadhafi’s son Saif, such as Mustafa Zarti.
Under their influence, the LIA lost prodigious amounts of money and engaged in spectacularly risky and corrupt investment schemes.
Despite their institutional protections, the “Big Three” – CBL, NOC and LIA – have frequently been subjected to political pressure and even to corruption scandals, but their fundamental laws and institutional design largely put them outside political control other than at the moment of the appointment of their heads.
These three “independent” institutions have parallels in more normal economies, in which key functions like sovereign wealth management, oil production or setting interest rates are frequently detached from ministerial control to be run by “formally” non-partisan, yet politically-appointed technocrats.
The distinction between the big three independents and the semi-independent economic entities is crucial to understanding the evolution of the Libyan economy.
The heads of the semi-independents could be changed at any moment and their institutional reporting relationships altered by new Libyan laws.
When the semi-independent bodies like GECOL or the HIB were created, these behemoth economic institutions were given annual budgets of billions of dollars to be transferred to them by the CBL.
They, in turn, doled out subsidised services (like free electricity) or highly inflated contracts for infrastructure projects.
This system allowed key social segments to benefit from subsidised goods or preferential smuggling opportunities, while Libya’s ruling class helped themselves to healthy doses of corruption carved out of inflated no-bid construction contracts.
To facilitate this windfall of largess beyond the prying eyes of the Libyan citizenry, the semi-independents’ relationships to Libya’s ministries and between each other was deliberately obfuscated.
For example, ODAC and the HIB frequently built similar types of infrastructure such as housing, hospitals, schools and roads; they each contracted with foreign construction companies for mutually contradictory projects; blueprints were drawn, ground was broken, but no one technical authority oversaw a coherent masterplan of the Libyan economy.
Frequently, the actors themselves lacked an understanding of what their institutions possessed in terms of liabilities and competencies, nor did they keep track of the productiveness of the goods, services or infrastructure they produced.
They were simply given money, subsidised inputs and an expansive mandate to “build stuff” or provide services. Yet, their actions were constrained by the ever-present threat of arrest or Qadhafi’s sons
demanding a piece of the action.
The logic of the semi-independent economic institutions was fundamentally that of a complex rentier system and not that of a market economy.
Each town, tribe, or ethnic group had preferential access to certain institutions, but not others.
Transparency was the enemy of the functioning of the Qadhafian economy.
For example, according to Libyan law, GECOL has the right to seize crude produced by the NOC from the pipeline network, if that crude is deemed “needed” to generate electricity, which is required by the Libyan people.
Thus, one state economic institution can freely interfere in the operations of another with no thought to the impact this intervention may have on NOC operations, money flowing into the Libyan treasury, or ramifications on international consortia or lifting agreements.
When international experts were brought in from 2005–2010 with the task of helping to modernise the Libyan economy, privatise state holding companies and monopolies and attract foreign direct investment.
They added onto the complex alphabet soup of agencies, another layer of “reformist oversight institutions,” most famously the Economic Development Board (EDB), the Privatisation and Investment Board (PIB), and the Public Projects Authority (PPA).
Unlike their predecessors from the 1980s and 1990s, these 21st century reformist institutions were seen as sitting outside the formal Jamahiriyyan command structure (i.e. they were not answerable to the GPC).
Rather they were made “independent” like the Big Three and given the task of overseeing and directing expenditures of the pre-existing semi-independent economic institutions like the HIB or ODAC as well as trying to curtail the excesses of the monopoly utilities like GECOL and LISCO.
As all businessmen, diplomats and experts who worked in Libya in the last years of the Qadhafi regime experienced, the constantly evolving and highly opaque power relationships between Libya’s myriad agencies made implementing projects, collecting payment for services rendered, or even knowing who held authority over a given domain or project nearly impossible.
By 2010, the chain of command of Libya’s economic institutions was so complex that Libyan policymakers hired outside academics and lawyers to examine, and then advise them, on the authorities, competencies and ideological justifications of various Libyan institutional bodies.
The rates of subsidies, public sector employment and “dead paper” (i.e. signed contractual obligations between Libyan semi-independent economic institutions and foreign companies entailing Libyan sovereign financial liabilities that would likely never be honoured) were shockingly high.
By some accounts, on contracts signed before 2010 and pertaining to the next ten years, future Libyan financial obligations to foreign construction, consulting, project management and oil field services companies would have been ten times greater than Libya’s annual GNP.
Seen holistically, the late Qadhafian economy combined many of the worst features of both classic rentier petrostates (e.g. Qatar or Kuwait) and ideological authoritarian autarkic regimes (e.g. Turkmenistan or North Korea).
On top of that, in Qadhafi’s last years, Libya also incorporated the complex privatising and oversight mechanisms, which Western consultants set up in post-socialist economies (à la Ukraine and Russia)
These were thought to “simplify” complex institutional relationships bringing accountably and market forces to light.
However, to the extent that they functioned at all in Libya, they actually allowed for the same outcomes that had transpired in Russia a decade before: crony privatisation of state assets at fire sale prices, the rise of a new class of oligarchs, and further opacity and inefficiency introduced by the regulatory authorities.
Hence, when the Socialist People’s Libyan Arab Jamahiriyya collapsed under the weight of civil society protests, militia uprisings and NATO bombs in 2011, the economy that Qadhafi left to his successors resembled a Maurits Escher or Salvador Dalí painting: vast, hallucinogenic, bizarrely interconnected and recursive, and truly defying the capacities of the human mind to comprehend it.
Jason Pack is the founder of the consultancy Libya-Analysis and was previously the executive director of the U.S.-Libya Business Association.
The Istituto Affari Internazionali (IAI) is a private, independent non-profit think tank, founded in 1965 on the initiative of Altiero Spinelli. IAI seeks to promote awareness of international politics and to contribute to the advancement of European integration and multilateral cooperation.