By Dr Barah Mikaïl & Simon Engelkes
Despite limited improvements, the Libyan economy still lingers well below its potential, obstructed by continuing violent conflict and political uncertainty.
Libya’s poor economic performance is evident in the numbers, and it is rendered even more obvious by the population’s claims.
Many efforts – including specific policies and economic orientations – have been developed by Libya’s political authorities, in the East and in the West, to try and limit the effects of economic problems on the society. However, results remain limited so far.
To contribute to a deepened understanding of the Libyan economy in its current state, the KAS Regional Program South Mediterranean in cooperation with the Madrid-based think tank Stractegia organized a roundtable within the framework of a two-year series of dialogue rounds dedicated to assess the state of play and identify a possible way forward in order to overcome Libya’s key socioeconomic dilemmas and difficulties.
The roundtable on 8 March 2018 in Tunis provided a platform for Libyan-Libyan dialogue by bringing together a variety of experts and stakeholders from within the Libyan economy, who exchanged their analyses and testimonials during panels on the country’s oil and banking sectors, the role of the private and shadow economies in absence of effective state governance and the function of municipalities in filling the gap of public service provision.
Libya, the country with the largest oil reserves on the African continent, stopped being a stable supplier to the regional economy. Oil revenues have decreased by a quarter and despite reports of increasing production, the country lags far behind its potentials.
The economic crises – seen by some of the experts present as the main motivation behind many faces of the conflict – undermines both social peace and public confidence in the state while it requires the country to stay on the drip of foreign humanitarian and development aid. Inflation accelerated, the black market is thriving, and the future challenges for the Libyan economy range from the reconstruction of the country’s infrastructure and a diversification of the sources of revenue to nurturing the private sector and fighting organized crime and corruption.
Thus, finding sustainable solutions for the key economic issues in Libya can be the start for a resolution of the crisis, and an emphasis on a united political economy and ‘good governance’ could be a catalyst for Libyan development. The expert roundtable concluded with five main recommendations:
Rebuild the oil and gas infrastructure
Oil is central to Libya and its economy; it is its first source of revenue. Although diversification is important for creating a vital Libyan economy, as will be argued below, the oil industry should remain a priority considering that it still constitutes the most important source of wealth for Libya.
97 percent of state revenues rely on oil and gas production, which creates a weakness of dependency within state structures. Furthermore, disruptions in Libya’s oil activity and the long-term closing of important fields – such as Mabrouk and Ghani – had a negative impact on the country’s economy. Irregular production further hinders the country to rely exclusively on oil income.
Despite the oil benefits that Libya expects in 2018, 22,5 billion dollars, the country’s current production of 978,000 bpd (as of January 1st 2018) is low and deceptive.
The National Oil Company (NOC) is expected to have a strong role in this regard.
In reality, its influence and its impact on the country’s oil prospects are rather limited. For instance, the NOC has repeatedly asked national authorities to repair the production fields that have been damaged, but its query was not met with any success.
The Libyan NOC is perceived as an institution that should be able to pressure authorities into taking the necessary decisions; but the reality of the NOC is one of a divided institution, unable to appear as a strong body.
Moreover, political divisions at the national level make it in any case quite difficult for Libyan ‘official’ institutions to have their say and impose their will on actors throughout the whole country.
As a result, oil production in Libya depends on many factors that include the political context; the security situation; the question of who is in control of oil fields as well as who among the involved external actors has more influence in cooperating with Libyan oil companies.
The oil production output dropped after 2011 and productivity levels broke down completely in 2015 due to the security-related closure of oil fields and general instability.
The haphazard shutdowns of key fields and ports during a long blockade of oil terminals in the Eastern Oil Crescent have reduced the pressure at the oil wells. Repsol, OMV, Total, and Waha are some of the companies that make a significant contribution to both Libya’s oil production and its level of exportation.
Sharara, al-Fil, Wajala, and Abou Tefla, on the other hand, are important oil fields that notably participate in the country’s economy. The aforementioned disruptions in oil production make it hard for Libya to project itself on the long run and to proceed with a better organization of its economic prospects.
Data and statistics insist on this reality; while Libya’s oil production was limited to 550,000 bpd in February 2017 given the developments in the Oil Crescent at that time, production went up to 1,01 Mbpd in July, before going down again to 917,000 bpd in December.
In a country where 80 percent of the working population is said to earn a salary directly from the public sector, this creates a situation that is all too uncertain and problematic for a major part of the population.
Today, albeit producing again, oil facilities are used as “bargaining chips” for militias’ financial and political demands. A lot of the production is smuggled outside of the country.
Reportedly, 40 percent of Libya’s neighboring countries’ markets are covered by smuggled Libyan oil. Experts called upon the authorities to find other forms of social support for citizens in need than oil subsidies.
Libya is currently facing a budget deficit of around 12 billion Libyan dinars between state expenditure and revenues, which barely pays the income of its beneficiaries.
Thus, efforts to reconstruct oil and gas infrastructure, revive the oil sector, and unlock the exploitation potential of existing resources require funds between $46-81 billion.
Experts further noted that contracts with foreign oil companies need to be reviewed “for the sake of the Libyan people” and a prerequisite for this is an environment of united institutions.
Besides the oil, Libya has one other underexplored asset: it has comfortable volumes of gas and making a better use of it would considerably back the country’s sources of revenue.
And this despite the fact that, like for oil, both infrastructures and the political context would need to be reassessed and to improve before Libya reaches a satisfactory level of oil and gas production.
Some countries, such as Russia and Italy, have understood well the benefits that Libya’s oil and gas resources could provide; but their strategy is still at the very beginning, and it needs to be completed with an official and clear grand strategy that would also suit Libya’s interests.
Diversify economic activities and sources of revenue
The limited performance of Libya’s economy stands in the way of a prosperous future.
Indeed, most of the Libyan economy is linked to the action of the public sector, while the private sector deals with few and very modest projects.
This situation adds to the lack of dynamism that prevails at the economic level, though it also generates some contradictions: systems of production are generally obsolete, the Libyan market is not competitive compared to the outside, the Libyan working force lacks training, and the constant quest for projects that would guarantee immediate benefits is simply not realistic.
Moreover, there are many factors that limit the prospects of the Libyan private sector.
These include the obvious security challenges; lacks and deficits in terms of human resources; the weak performance of the banking sector; the difficulties that private companies face in the real estate sector given the lack of capacities and financial resources, as well as the lack of anticipation of existing opportunities in general.
The private sector in Libya holds the potential to diminish poverty and to play an important role in securing investment in infrastructure, electricity, water, and health care.
It has been impacted strongly by the economic, political, and social factors driving further division in the country, such as the continuous fluctuation of prices.
Nevertheless, in the fields of finance, health, transport, trade, and general services, the private sector seems to perform better when compared to previous years.
This might give the impetus to municipalities and actors in the private sector to set up Private-Public Partnerships based on a common strategy to boost economic prospects.
During the roundtable, experts referred to “a certain chaos in the activities of the private sector in Libya” and laid emphasis on the need to create a legal framework for an involvement of the private sector in the economy.
Attempts should also be made to start relying on new and alternative sources of revenue by diversifying the market and expanding industrial activity.
Similarly, empowering the private sector entails an efficient strategy against the black market economy and transboundary smuggling as well as providing a more stable security environment for companies and investors.
To be continued in part 2
Barah Mikaïl is Founding Director of Stractegia and Associate Professor at Saint Louis University in Madrid. He is a Senior Fellow at the Foundation for International Relations and External Dialogue (FRIDE) and a Senior Researcher on geopolitics and security-related issues. He worked before as a senior researcher on Middle East and North Africa and on water issues at the Paris-based Institut de Relations Internationales et Stratégiques.
Simon Engelkes is Libya Project Coordinator at the KAS Regional Program South Mediterranean/Tunis.