This study is part of the Libya Socio-Economic Dialogue (Libya SED) project carried out by ESCWA.


Key Messages

  • Peace in libya will contribute to strengthening regional cooperation, and will ensure significant gains in growth
  • Employment Investment for neighbouring countries, namely Algeria, Egypt, the sudan, and Tunisia.
  • The total gains for the region from peace in Libya will be $161.9 billion over the period 2021-2025.
  • The Libyan peace process could generate $99.7 billion in gain for Egypt, $29.8 billion for Algeria, $22.7 billion for the Sudan, and $9.7 billion for Tunisia.
  • The reconstruction in Libya will generate numerous job opportunities that could benefit workers in the region.
  • Unemployment will also decrease by 8.84 per cent in Egypt, 6.07 per cent in Tunisia, and 2.18 per cent in Algeria.
  • Once peace is established in Libya, investment will increase in various Arab countries. This increase is projected at 5.98 per cent for Egypt, 5.49 per cent for Tunisia, and 2.01 per cent for Algeria over the period 2021-2025.

Introduction and Objectives

The outbreak of devastating conflicts around the Arab world in the aftermath of the Arab Spring has been a great concern for all political actors and international organizations in the region.

These conflicts have caused great trepidation and fear. They have first led to serious the emergence of violence that has escaped the monopoly of legitimate State-led violence.

This period was marked by the development of armed groups and terrorism that were a great source of instability and fragility for State institutions in many Arab countries.

This instability has had an immediate economic impact, with the onset of severe economic crises in conflict countries. The destruction of economic potential, the cessation of investment and the departure of the immigrant labour force have had a negative effect on the gross domestic product (GDP) of most countries.

The fall in GDP was accompanied by a decline in macroeconomic sizes, such as government revenues, public investment and foreign trade. The effects of conflict have not only been limited to macroeco infrastructure, among others. The destruction of these sectors will have a major impact on post-conflict economic reconstruction.

Alongside their macroeconomic and sectoral consequences, conflicts have had devastating effects on regional cooperation in the Arab region. Thus, trade flows, investments in the region and remittances have all been affected by wars and have reduced regional cooperation among countries.

Conflicts have also led to significant political and economic instability, resulting in setbacks in the commitments of countries in the region to achieve their sustainable development goals (SDGs).

Since the outbreak of the conflicts, the United Nations Economic and Social Commission for Western Asia (ESCWA) has been focusing on their political and economic effects, carrying out important studies and research to show their impact on countries in the region and on regional cooperation.

It has also undertaken important advocacy work with governments, political and social actors and civil society in the region to raise awareness of the destructive effects of these conflicts and the dire need to restore peace and development.

The project is intended to provide a multi-layered platform for Libyan citizens at the national and sub-national levels to debate and discuss their desired socioeconomic vision of Libya and the related policy options and trade-offs they will need to adopt.

The platform also addresses the structural challenges of forging a new social contract and State institutionalization and advancing a sustainable development framework for the country.

In this regard, and in order to inform the Libya socioeconomic dialogue participants when discussing the recovery process and the required alternative socioeconomic frameworks for sustainable development in Libya, ESCWA has initiated two studies:

(a) one that seeks to study the economic cost of the conflict (ESCWA, 2020), and

(b) another that measures the impact of peace in Libya on regional cooperation, which is the topic of this study.

ESCWA (2020) showed that the war caused a significant loss of Libya’s economic potential, which we estimated at 783 billion Libyan dinars ($580 billion) in the period from 2011 to the present day.

These losses will be even greater if the conflict continues beyond the year 2020 and could reach 628.2 billion Libyan dinars ($465 billion) between 2021 and 2025. The conflict would cost the Libyan economy a total of 1,411.6 billion Libyan dinars ($1,046 billion) between 2011 and 2025.

The losses of the Libyan economy are not limited to GDP but have also affected all other macroeconomic sizes. Thus, the cumulative loss of private consumption will average -37.76 per cent between 2016 and 2025.

Total investment could decrease by -68.15 per cent over the same period. Private investment will also be affected by the conflict and has decreased by an average of -45.84 per cent.

This second report will focus on the consequences of ending the conflict and establishing peace with Egypt, the Sudan and Tunisia. This work is all the more relevant as the United Nations-led negotiations between the Libyan parties are bearing fruit.

The end of this conflict will mark the beginning of Libya’s reconstruction. It will also give new impetus to cooperation among countries in the region. This report provides a quantitative assessment of the economic impacts of peace in Libya on regional cooperation. It is structured around four main parts.

After this introduction, the report takes stock of Libya’s external exchanges and the state of regional cooperation with its neighbours. In the third part, the report presents the major features of the quantitative model used to measure the impact of peace in Libya on regional cooperation. The fourth part discusses and analyses the results of the adopted simulations.

Finally, in the fifth part, and after recalling the study’s main conclusions, the report provides some policy options to strengthen regional cooperation between Libya and its neighbouring countries.

Libya and Regional Economic Cooperation

This section presents and analysis the economic relationships between Libya and its major neighbouring Arab partners before and during the conflict. The focus is made on the three transmission channels of the conflict to external partners, namely, trade, foreign direct investment (FDI) flows and remittances.

Libya is a member of the Pan Arab Free Trade Area (PAFTA), the Arab region’s largest trade agreement. Moreover, Libya is a member of the Arab Maghreb Union (AMU) and the Common Market for Eastern and Southern Africa (COMESA), and has bilateral trade agreements with Jordan and Morocco as well.

In addition, Libya is the only Southern Mediterranean country – except for the Syrian Arab Republic – that has not yet concluded a Free Trade Agreement with the European Union. More recently, Libya has signed, but has not yet ratified, the African Continental Free Trade Area (AfCFTA) agreement that will create the largest free trade area in the world starting in 2021.

A. The performance of Libya’s external economic linkages

1. Before the conflict

(a) Trade

Libya’s total exports before the crisis displayed unstable performance, noting an increase from $13 billion in 2000 to $62 billion in 2008.

After a sustained rise in the value of exports to the world since 2002 and achieving the highest record in the country’s history in 2008, these exports declined dramatically at the beginning of 2009 because of the global financial crisis, which slowed demand and triggered a fall in global oil prices.

Libya’s exports experienced a minor recovery in 2010, but that was halted by the political change that took place in the country beginning in 2011. We estimate the total cost of the conflict from its outbreak in 2011 to the present day at 783.4 billion Libyan dinars.

During the same period, imports followed an upward tendency, passing from around $4 billion to $18 billion between 2000 and 2020. This growth shows that contrary to exports, imports are less correlated to export earnings.

Rather, they reflect the limited capacity of the Libyan economy to diversify and adjust to the global economic crisis that severely affected the country’s export earnings starting in 2009.

The project is intended to provide a multi-layered platform for Libyan citizens at the national and sub-national levels to debate and discuss their desired socioeconomic vision of Libya and the related policy options and trade-offs they will need to adopt.

The platform also addresses the structural challenges of forging a new social contract and State institutionalization and advancing a sustainable development framework for the country.

This second report will focus on the consequences of ending the conflict and establishing peace in Libya on regional cooperation, and in particular on trade with Egypt, the Sudan and Tunisia.

In general, the oil industry is known for its boom and bust cycles, which place Libya’s economy at a high risk of revenue volatility due to external shocks. Libyan oil exports dropped significantly in 2009, which severely impacted the country’s total export earnings.

During the pre-crisis period, oil’s contribution to total exports varied from 91 per cent in 2002 to 96 per cent in 2009 and 2010.

Contrary to exports, imports are much more diversified, which is normal since Libya is highly dependent on food and machinery and transport equipment imports to meet the needs of its population.

These two categories accounted for between 50 per cent and 60 per cent of total Libyan imports of goods during the period 2000-2010.

Libya’s key trading partner is the European Union. Even without any bilateral trade agreement, that trade accounted for almost 78 per cent of the country’s exports and 49 per cent of its imports on average during the period 2000-2010.

However, the importance of the European Union for Libyan trade experienced a significant decline over the same period, mainly due to the emergence of other trade partners.

In 2000, the European Union absorbed 85 per cent of total Libyan exports of goods, against 78 per cent in 2010. On the other hand, the share of the European Union in total Libyan imports passed from 62 per cent in 2000 to only 42 per cent in 2010.

Despite this decline, however, Libya continues to be a key energy exporter to the European Union, and the European Union continues to be Libya’s largest export market.

On the other hand, Libya has relatively weaker trade ties with other partners, such as members of the Pan Arab Free Trade Agreement (PAFTA) and the former North American Free Trade Agreement (NAFTA).

During the same period, Libyan trade ties with members of the Association of Southeast Asian Nations plus China, Japan and Korea (ASEAN+++) experienced a significant increase, which has been mainly the result of a major shift from the European Union to the benefit of ASEAN+++ countries.

If we look at exports and imports at the country level, Italy and France have been among Libya’s major trade partners. Indeed, approximately 24 per cent of total Libyan imports were supplied by these two countries during the period 2000-2010, against 12 per cent of Libyan exports being absorbed by the two countries. However, the importance of these two countries for Libya’s trade flows experienced significant changes between 2000 and 2010, passing from 30 per cent to 21 per cent of total Libyan imports, and from 5 per cent to 22 per cent of total Libyan exports.

As far as the Arab countries are concerned, Tunisia represented a major trade partner to Libya in the region. While only around 2 per cent of Libyan exports during the period 2000-2010 were destinated to the Tunisian market, 4.4 per cent of Libyan imports originated from Tunisia over the same period.

Egypt was Libya’s second major Arab trade partner, with 3.2 per cent of Libyan imports having originated from Egypt over the period 2000-2010, against only 0.5 per cent of Libyan exports being absorbed by Egypt.

Libya is also an important partner for Turkey, with a bilateral trade volume that amounted to around $2.4 billion in 2010, compared to $0.9 billion in 2000. The trend in Libyan trade with Turkey over the period 2001-2010 in billions of dollars.

Between 2001 and 2010, Libyan imports of goods from Turkey increased by an average yearly growth rate of 45 per cent, compared to a decrease in its exports by -7 per cent. Until 2006, the trade balance with Turkey had been positive for Libya, before the situation changed dramatically starting in 2007.

To sum up, the pattern of Libya’s imports and exports before the crisis reflected the major following facts: On one hand, exports were weakly diversified in terms of both products and destination markets, which made the economy more prone to suffer from external and internal shocks. Imports, on the other hand, were more diversified in terms of markets and products.

This shows the degree to which Libya’s economy lacks diversification, as it relies heavily on foreign markets to meet the food, industrial and consumer needs of its people.




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