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.
3. Sovereignty in post-Qadhafi Libya
The only tangible progress that the international community has made in mediating Libya’s ongoing post-2014 war for post-Qadhafi succession is the December 2015 Libyan Political Agreement signed in Skhirat, Morocco.
It was constructed as a binding piece of international law, which, depending on one’s viewpoint, has either been retroactively incorporated into Libyan law by amendment of the August 2011 temporary constitutional declaration, a priori superseded Libyan law, or is not binding because it has not been properly ratified by the House of Representatives or because its mandate has expired.
No matter one’s perspective, all subsequent formal international community engagement in Libya has sought to build upon, amend, or transcend the LPA.
The major Western countries and the UN maintain that the Libya Political Agreement builds upon the amended temporary constitutional declaration of August 2011 determining where sovereignty, executive, legislative and constitutional drafting authority lies in Libya.
It is on the basis of the LPA that all major international countries recognise the GNA as the legitimate and “nominally sovereign” government of Libya – even if they also work with the GNA’s rivals.
In short, even if it does not constrain their actions, legally the LPA is the international community’s “last word” on Libya.
And surprisingly, a large number of the LPA’s clauses, articles and annexes discuss the heads of the major economic institutions, seeking to enshrine their legitimacy and delineate what protocols should be used for replacing them.
These texts comprehensively attribute sovereignty to Libya’s economic institutions and their heads, yet fail to clarify the relationships among them and any future Libyan governments.
3.1 Semi-sovereign not sovereign
The Skhirat Agreement unequivocally grants sovereignty to Libya’s main economic institutions and vests that sovereignty in the position of Chairman of the Board.
The intentions of the drafters of the Skhirat Agreement were presumably to safeguard the Libyan oil sector and the pot of treasure contained in the LIA and in the CBL against political machinations.
However, they do not appear to have understood the unintended consequences of attributing them complete sovereignty as coequals with the government.
According to Libyan law and historical precedents concerning the relationship of the heads of the independent and semi-independent economic institutions to government, the term “semi-sovereign” would have been far more accurate for the Skhirat Agreement to employ than “sovereign” to describe Libya’s economic institutions and their heads. Yet, unfortunately it uses the latter.
Using the correct wording (semi-sovereign) as opposed to incorrect wording (sovereign) in an internationally-binding agreement is crucial as it has the ability to obscure or rework the power relationships in a society.
Given both Qadhafian and post-Qadhafian precedent, the document should have spelled out more clearly that the institutions of the Libyan state possess the ability to replace their heads at any time as well as to change the laws that govern them at any time, so long as either change is done within the relevant legal framework.
Looking back, it is clear that the semi-independent and independent economic institutions of the Qadhafi period have morphed into far more powerful creatures as Libya’s power vacuum has increased and that the LPA was an attempt to codify that evolution.
Determining whether they are semi-sovereign (as seems rational) or are in fact sovereign (as spelled out by the LPA) is a matter of grave international importance and tremendous uncertainty.
After lengthy study, the most accurate definition is semi-sovereign economy institutions (SSEIs).
The Libyan economic institutions’ “semi-sovereignty” is the key aspect that differentiates them from comparable institutions in other countries (which either lack sovereignty and independence entirely like the Abu Dhabi Investment Authority or are simply independent but not semi-sovereign like Saudi Aramco, the Federal Reserve or the Bank of England).
Grasping the precise attributes of Libya’s economic institutions semi-sovereignty provides the key insight needed to reform them.
4. The pressing need for transparency
Transparency must be the unifying thread behind all action seeking to reform the Libyan economy. First, Libyan activists, technocrats and thought leaders must work with international experts to make transparent to the Libyan people how the institutions of their country actually function.
Logically this step must precede any overhaul of the system as some Libyan actors and informed citizens will consent with various structural changes while others will oppose them.
Almost all international actors and Libyans would cherish greater transparency. The heads of the semi-sovereigns were generally quasi-eritocratically appointed. In many cases, they are the most skilled and knowledgeable technocrats in Libya.
All have experience liaising with multinational institutions. Faysel al-Gergab is a shining example of the up-and-coming generation of Libya’s best and brightest: he has extensive work experience with Shell and Mott McDonald and holds a PhD from a British University.
Yet, Gergab would be the first to tell his international interlocutors that his institution, the Libyan Post Telecommunications & Information Technology Company (LPTIC), does not deserve its monopolistic position or sovereign privileges (LPTIC is a multibillion-dollar behemoth that receives all mobile telephone revenue in Libya and owns a vast array of satellites, subsea cables and other nodes of the global telecoms industry).
He believes its present form creates barriers to entry and perverse incentives and that its accumulated wealth must be used to benefit the Libyan people and spur competitiveness and reform.
Gergab is not alone. Most of the heads of the SSEIs would happily forgo their sovereign status to see Libya’s economy rationalised.
Some, of course, would use the position of power that UN and Libyan law grants them to block reforms and preserve their prerogatives.
If those who are blocking reform and transparency were “exposed” to the Libyan public as doing so, their legitimacy would quickly wane.
Libyans as well as astute outside observers know which institutional heads are blocking progress.
Of course, carrots and sticks need to be offered to incentivise adoption as transparency can only be achieved by having the buy in of the majority of the staffs and heads of the SSEIs.
Now is not the time to simply abolish or dissolve the semi-sovereigns, independent of whether Libyan politicians or the international community have the legal and practical tools to do so.
The priority is to focus on determining their actual functions, interrelationships and degrees of independence or sovereignty.
The more redundant and purposeless bodies should be eliminated in the long term, with their assets and liabilities assumed by the Libyan state.
The inefficient monopolies that survive on subsidies or barriers to competition will need to operate in a level playing field with insurgent players.
However, as various factions are fighting to control the Libyan state and neither the Tripoli-based GNA nor the Tobruk-based HoR have a monopoly of legitimacy, dissolving the semi-sovereigns would create a free-for-all to control their balance sheets.
The Big Three (CBL, NOC and LIA) remain essential to Libya’s functioning now as they were during the Qadhafi era – they merely need to hire more meritocratically and conduct their affairs more transparently.
In the case of the NOC, its head Mustafa Sanallah is arguably the only living individual who has the technical knowledge, the popular legitimacy and the web of personal and international relationships, to maintain Libya’s oil production and bring badly needed investment into the sector.
The Big Three cannot, therefore, be dissolved at all. They need to be profoundly reformed, but will remain needed to produce, safeguard, allocate and invest Libya’s wealth, until a competent government arrives with the popular legitimacy and competency to restructure
4.1 What is known about the semi-sovereigns?
Although the timing may be inappropriate and the legitimacy/sovereignty unclear to simply disband the semi-sovereigns, a clear mandate exists to commission studies of them, publicise the findings and encourage transparency.
What do we know so far?
Most crucially we know the following:
First, no study of each institution’s fiefdoms and exact legal powers has ever been conducted in Arabic or English.
Second, Libya’s economic institutions operate in a vacuum of transparency and a void of international best practices.
Third, a consensus view does not exist among Libyan civil society in either the East or West of the country about what should be done and where sovereign authority actually lies in Libya’s political economy.
A genuinely new social contract cannot exist until Libyans are able to take stock of their inheritance from Qadhafi and the role they want their wealth to play.
The SSEIs boil down into four distinct classes: monopoly utilities, state-sanctioned holding companies, development funds and independent state-appointed semi sovereigns (i.e. the Big Three).
Although the details differ on a case by case basis, Libyan law is clear that all of these institutions exist for the purpose of serving the Libyan people and remain accountable to them.
Post-Qadhafi, they operate in a policy vacuum unfettered by adequate ministerial control or harmonisation of their activities with Libyan governmental priorities or those of other institutions.
Since the revolution, the most important SSEI heads have in most cases overstayed their legal mandates (e.g. CBL and NOC), while in the case of the LIA, its assets have been frozen.
In all three cases, their pots of money, huge staffs and legal powers remain obscured from view. Despite this, all of Libya’s major SSEIs are as deeply broken and counterproductive as they are entrenched.
They employ many more people than needed, they block competition, they dole out resources according to a political – rather than an economic – logic.
They sell utilities like electricity at less than one hundredth the price it costs to produce and yet only collect payment from half of commercial customers and less than one in a hundred residential consumers. They subsidise petrol, making a litre at the pump in Libya the cheapest anywhere on Earth.
As stated above, other than the NOC and CBL, whose lineal predecessors predate Qadhafi, the SSEIs were designed either by Qadhafi as complex vehicles to buy off certain segments of the population and his loyalists or by international consultants who were trying to rationalize the excesses of the existing institutions.
They were Soviet-style institutions never conceived to be efficient users of resources or be subject to genuine competition. Therefore, in Qadhafi’s wake these institutions remain vessels logic.
That said they do possess key competencies that are critical to safeguarding Libya’s wealth, producing oil, investing funds, commissioning infrastructure, producing manufactures, facilitating business and putting Libya’s wealth to use.
4.2 What is known about the economic logic of the fighting?
Libyans are fighting over preferential access to the institutions that wield economic (and therefore political and social) power.
This is not a simple fight for geographic control of oil installations or the CBL’s headquarters. The fight is as complex as the Libyan economy itself.
Libyans are aware that their economic system is not simply a straightforward rentier system where a disenfranchised populace is paid off in subventions, salaries and welfare perks to remain quiescent.
It is not a rationally constructed welfare state, like those of the Gulf monarchies where according to clearly defined rules the populace gets handouts from the government and various elites receive opportunities to enrich themselves within clear parameters.
to be continued
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.