Community Dynamics and Economic Interests
By Tim Eaton, Abdul Rahman Alageli, Emadeddin Badi, Mohamed Eljarh, and Valerie Stocker
This paper is based on approximately 200 interviews carried out by the authors – in person and remotely – with a wide range of Libyan actors between November 2018 and September 2019. This the paper does not claim to cover all armed groups in the country.
PART EIGHT
Economic expansion in the public and private sectors
The LAAF has developed into a sprawling network that spans governance, the private sector and the security sector. The backbone of this network, in terms of supporting independent economic activity, is the MAIPW.
The introduction of the military investment law in 2016, which preceded the creation of the MAIPW, represented a clear shift in the LAAF’s vision of its role.
The LAAF is not hiding its intention to model itself on the army in neighbouring Egypt (i.e. emphasizing a prominent role in the economy).
In keeping with the Egyptian experience, this has generated concern that the LAAF will seek monopolistic control of the economy, and also that the LAAF could use its position to bypass other administrative and governance functions fulfilled by civilian authorities.
The MAIPW was restructured on 11 June 2017, with Haftar appointing General Fakhri as its chairman.
The MAIPW is generating limited but steadily growing income for the LAAF. It embodies the LAAF’s long-term strategy for achieving financial independence.
The MAIPW has engaged in a wide range of economic activities. One example is the export of scrap metal, which has been ongoing since 2016.
This business picked up in 2017, and has become an important revenue stream. The rationale is that the LAAF can collect metal scrap in war zones where its forces are active, although it should be noted that the MAIPW has not limited its activities specifically to conflict areas.
There are thriving markets for scrap metal in the southern and western regions, and the MAIPW has also shipped numerous scrap metal consignments through the ports of Tobruk, Benghazi and Brega. The prime overseas destination for such shipments is Turkey.
In October 2017, Haftar issued Directive No. 335, putting three major agriculture and industrial projects in the Sarir and Kufra basins under the management and oversight of the MAIPW.
So far, 19 sites and projects in the southern region are under the MAIPW’s authority, three of which are agricultural mega-projects. The MAIPW has sought to rehabilitate and operate various abandoned factories (under partial or full ownership), including dairy, food, cement and textile factories.
The MAIPW has also signed contracts with the municipalities of Benghazi and Ajdabiya to take over waste management and recycling services in those cities.
These are significant contracts: waste management in Benghazi is charged at a weekly rate of LYD700,000. Moreover, the MAIPW is in charge of fuelling and issuing clearances for ships and tankers docking at ports under LAAF control.
There are also areas where the MAIPW is clearly overstepping its legal mandate. It is charging migrant workers (principally Egyptians) LYD500 for permits allowing them to work in LAAF-controlled areas, which it has no mandate to do.
This applies not only to new arrivals, but also to migrants already working within the country. Given the high number of migrant workers in LAAF-controlled areas, this represents a lucrative revenue stream.
Other areas of activity have no veneer of legality. The LAAF has supported armed groups with known involvement in human smuggling and fuel smuggling.
The Subul al-Salam Brigade in Kufra and Martyr Ahmed al-Sharif Battalion in the Sarir area are believed to have links to human- and drug-smuggling networks.
Both groups purportedly earn a cut of the smugglers’ profits in return for allowing passage through their territory or providing protection against bandits in remote areas.
Subul al-Salam, in particular, is thought to have benefited from its association with the LAAF by establishing itself as the dominant armed group in Kufra since 2015, not only bringing other factions
under its banner but using its connections to oust rival smuggling operations. Elsewhere, some members of the Omar al-Mukhtar Brigade – ostensibly responsible for border patrols and combating illegal migration near the Egyptian border – engage in smuggling.
The extent to which the profits from such activities fund the LAAF is unclear, however, as payments are likely to be made to individuals for permitting illegal practices or are likely to be retained by the relevant local group.
Effective oversight of the LAAF’s financial activities is impossible in the present circumstances. One illustration of the problem is the fact that Abdulsalam al-Hassi, the head of the Administrative Control
Authority in eastern Libya, was briefly detained at the LAAF’s headquarters in al-Rajma following the release of his organization’s 2019 annual report, which was critical of LAAF practices, especially concerning financial matters.
The LAAF’s growing business interests and commercial assertiveness threaten the economic interdependence of warring factions, as the LAAF effectively seeks to create its own self-contained economy if it cannot capture the capital, where the key economic institutions are based.
At present, the LAAF – broadly defined – controls most of Libya’s oil and gas infrastructure while the GNA controls the means of distribution. To date, this has incentivized both sides to accept the need for a certain degree of cooperation.
The imposition of an oil blockade in January 2020 illustrates that this understanding has broken down. The LAAF claims that the blockade is driven by local outrage in the east at the GNA’s military partnership with Turkey.
However, the timing of the blockade, coming only two days before an international summit on Libya, added to the fact that it was the LAAF that implemented it, invites suspicions of a political power play.
The NOC has warned that production could drop as low as 72,000 barrels a day (b/d), from approximately 1.2 million b/d prior to the blockade.
This is set to cost Libya over $50 million in lost revenues per day and will have major implications for the economic interdependence of rival political camps, and of course for the civilian population.
The LAAF’s growing business interests and commercial assertiveness threaten the economic interdependence of warring factions, as the LAAF de facto moves to create its own self-contained economy.
The current move towards mobilizing the entire economy in the east in support of the LAAF’s war effort will apply further pressure to the fragile status quo. It will make it increasingly difficult for state institutions to avoid being dragged into the war.
The blockade was presaged by a dispute between the LAAF and the NOC. In early September 2019, the NOC announced that it would restrict the distribution of kerosene (used for aviation fuel) in the east ‘until such time that assurances can be met that fuel is only being used for domestic and civilian aviation purposes’.
The NOC has reported that consumption of aviation fuel increased by 80% in 2019 compared with 2018. Such an increase cannot be explained by civilian consumption alone; the outbreak of conflict in Tripoli is a much likelier reason.
In response, authorities in the east of the country have accused the NOC of being partisan, and of failing to supply the east with adequate quantities of fuel, a charge that the NOC denies.
On 19 September 2019, the eastern authorities announced the formation of a rival eastern BPMC breaking away from the Tripoli-based entity, further exacerbating governance and accountability challenges in the fuel sector (particularly given that the LAAF controls a significant amount of the oil and gas production and export infrastructure).
In fact the beginnings of the weaponization of the economy can be traced back to June 2019, two months after the launch of the Tripoli offensive, when House of Representatives speaker Saleh declared a ‘state of mobilization’.
This designation triggered the activation of additional procedures for resourcing the LAAF’s war effort. The LAAF’s general command immediately sought to put the announcement into effect.
The LAAF’s rejection of the 2015 Libyan Political Agreement – designed to serve as a political roadmap for the unification of the country’s political and governing institutions after the split that occurred in 2014 – means that Saleh is, in its view, the supreme commander of the country’s armed forces (in theory, this means that Saleh provides civilian oversight of the general commander, Haftar).
In October 2019, Saleh authorized the LAAF general command to move ahead with implementation of the plan, which was announced by Aoun al-Ferjani – head of the LAAF’s Control Authority and one of Haftar’s closest confidants – on Libyan television.
Subsequently, a communiqué attributed to the LAAF announced that all taxes and customs duties collected by state institutions and state-owned companies would come under the control of a newly created LAAF Mobilization Authority.
However, opposition from the Interim Government seems to have led to the plan being shelved – though not before some funds were raised: LYD200 million is believed to have been obtained by the Mobilization Authority from LTT companies.
It is not clear what has happened to these funds, and the Interim Government claims to be investigating. Nonetheless, these events illustrate the LAAF’s desire for direct control of the economy in the east of the country without the need to operate through civilian authorities.
The problems with the east’s economic model are mounting, however. The loans from banks in the east to the LAAF are not secured, which means that these funds – along with currency printed in Russia – are not part of the figures reported by the officially recognized western CBL, based in Tripoli.
Experts estimate that the value of these unsecured loans may be in excess of LYD45 billion.
External sources of revenue
As previously noted, the eastern CBL’s finances have been significantly aided by the printing of approximately LYD14.5 billion in banknotes since 2016 by Goznak, a company 100 per cent owned by the Russian state.
The banknotes have been produced despite their lack of recognition by the CBL in Tripoli, which has refused to accept the notes (maintaining that it has the sole right to carry out monetary policy).
The LAAF also continues to benefit from significant external support from the UAE and Saudi Arabia.
In its 2017 report, the UN Panel of Experts on Libya documented the ‘material’ and ‘direct’ assistance provided by the UAE to the LAAF in support of the latter’s attempts to develop its air force. Such support has increased over the course of the Tripoli war.
There are also reports of direct financial assistance.
A report citing anonymous Saudi officials has circulated claiming that, shortly before the Tripoli offensive, Saudi Arabia promised to provide ‘tens of millions’ of dollars to help pay for Haftar’s military operation, while a report has also circulated alleging that Saudi Arabia has been paying the Wagner Group for the provision of mercenaries to support the LAAF.
Engagement in economic activity at different levels within the group Given the LAAF’s highly centralized command structure, a limited number of elite figures control the group’s finances and revenue-generation mechanisms – legal, quasi-legal and illegal – and manage the income from them.
These elite figures have rapidly accumulated assets and business interests. For example, there are reports that the MAIPW has acquired land and property in Benghazi belonging to figures and families allegedly linked to the Islamist-leaning BRSC and Ansar al-Sharia groups.
Senior LAAF officers such as Chief of Staff Nadhouri and Mohamed al-Madani al-Fakhri, the former head of the MAIPW, as well as the chief of the Criminal Investigation Department in Benghazi, Colonel Salah Hwaidi, are known for dominating Benghazi’s real estate market and have bought property worth tens of millions of Libyan dinars.
There are also a number of allegations that LAAF-aligned groups, such as the Saiqa Special Forces and Awliya al-Dam, have seized property outright.
The LAAF’s general command has tried to distance itself from such practices by issuing statements and decrees prohibiting the seizure of private property by those without the legal mandate to do so.
Seemingly as part of such efforts, in December 2019 it reassigned Fakhri to the command of the LAAF’s Sebha Military Zone, a move that – according to informed sources – was effectively
a demotion. Ramadan Aboaisha, the new head of the MAIPW, was reportedly selected due to his reputation for integrity.
The MAIPW’s activities have become the increasing focus of internal and external reporting, including via the aforementioned report of the Administrative Control Authority.
Proximity to Haftar and his relatives and membership of the Ferjan tribe are key determinants of an individual’s access to – and ability to participate in – the conflict economy. For instance, Fakhri is a business associate of Saddam Haftar, one of Khalifa Haftar’s sons.
Collectively, Fakhri and Saddam Haftar have used their links with the field marshal and the LAAF leadership to make deals with businessmen and establish companies involved in real estate, import and export, and foreign currency trading.
Top LAAF commanders have also been accused of abusing their authority by granting military contracts to friendly companies, usually ones personally linked to them in some way.
For example, LCs are easier to obtain with a recommendation from a high-ranking LAAF officer, despite the nominal control exercised by the western CBL in Tripoli over their issue.
The spoils of activity undertaken through such connections typically do not reach rank-and-file members of the LAAF.
The LAAF’s military accounts department oversees and processes salary and bonus payments and the distribution of benefits (such as those relating to medical treatment) to ordinary members.
On occasions, disputes have emerged over the distribution of funds to cover the overseas medical treatment of injured fighters, and payments to their families. In July 2018, wounded soldiers headed to the headquarters of the LAAF’s general command in al-Rajma, south of Benghazi, to protest about corruption and the lack of care provided to them.
This resulted in their arrest by the military police. One day after the incident, the MAIPW’s headquarters in Benghazi were attacked by Saiqa Special Forces soldiers led by Mahmoud al-Werfalli.
In a leaked phone call, Werfalli threatened the then head of the MAIPW, accusing Fakhri of corruption and embezzlement at the expense of the LAAF’s wounded soldiers and the families of those killed in the war.
The LAAF’s rank-and-file members also engage in illicit or illegal activities, particularly in areas situated on Libya’s borders. In these as well as other regions, loyalty to the LAAF is repaid with acceptance that the groups in question can continue to engage in the smuggling of people, fuel and drugs.
The groups include those operating in cities and towns such as Tobruk, Jaghbub, Imsaad and Kufra.
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