This study is part of the Libya Socio-Economic Dialogue (Libya SED) project carried out by ESCWA.
(b) Foreign direct investment
Foreign direct investment (FDI) inflows into Libya have been constantly increasing since the lifting of the United Nations sanctions in 2004, but showed a significant decline in 2009 due to the global financial crisis.
However, the drop in FDI inflows into Libya continued its downstream trend following the violent demonstrations and civil conflicts that started in 2011.
The free movement of people in a world that has become interconnected not only benefits the migrant workers who leave their countries in search of a better future, but also their families in their countries of origin in the form of cash transfers, or remittances.
Millions of households have escaped poverty thanks to remittances, and many countries are heavily dependent on them. Libya has for decades been a key destination for foreign workers from all over the world, particularly from sub-Saharan Africa, the Arab region and Asia, as its economy has been heavily dependent on foreign labour.
According to a publication by the International Organization for Migration on labour migration dynamics in Libya (IOM, 2020), before the 2011 revolution, an estimated 1.35 million to 2.5 million migrant workers were based in Libya, employed mainly in the health and construction services and, to a lesser extent, in the agriculture and oil industries.
Generally, almost two-thirds (64 per cent of migrants in Libya come from Libya’s neighbouring countries, particularly Chad, Egypt, Niger, the Sudan and Tunisia).
Libya has been a net source of remittance outflows since at least 2000. Remittance outflows have reached their highest value – $1.6 billion – before the crisis in 2010, before falling to $650 million in 2011.
They then grew sensitively starting in 2012 to reach a historical level of $3.2 billion in 2013, before falling again progressively to $1.1 billion in 2014, to reach just $744 million in 2018.
2. During the conflict
The volatility of world oil prices and the armed conflict have greatly disrupted Libya’s oil production and its capacity to export during the period 2011-2019. Libya’s total exports displayed unstable periods, fluctuating significantly between 2011 and 2019.
After a sustained rise in the value of exports to the world in 2002 and achieving the highest record in the country’s history in 2008, Libya’s exports were halted by the political change that took place in the country beginning in 2011.
That political change and the civil war hit hard on Libya’s economy, and Libyan oil production and exports were again disrupted for most of 2011. Exports decreased dramatically by 60 per cent in value during 2011.
While external shocks were behind the first decline in exports observed in 2009, the impact was further aggravated by internal conflicts that dramatically reduced oil production, ultimately leading to a sharp shift in energy export revenues, which represent the bulk of the State’s budget.
However, Libyan oil exports regained their pre-2011 levels in 2012 with the restoration of production, coupled with the rise in oil prices. As a result, exports moved the overall Libyan balance from a budget deficit of 18.7 per cent of GDP in 2011 to a surplus of 24 per cent of GDP in 2012 (IMF, 2013).
In fact, exports rapidly grew from $19 billion in 2011 to $61 billion in 2012. This was viewed as a promising comeback, resulting in the country recording the fastest-growing economy in 2012, with a GDP growth of 122 per cent.
In 2016, Libya once again experienced political instability that led to exports falling sharply to their lowest value since 2002, amounting $9.4 billion. Compared to the pre-crisis period, imports were affected in a similar way as exports.
The European Union remained Libya’s key trading partner during the crisis, despite a significant decrease of its importance in Libya’s foreign trade.
During the period 2011-2019, 70 per cent of Libyan exports were absorbed by the European Union, while 40 per cent of Libyan imports originated from the European Union, against 78 per cent and 49 per cent, respectively, during the period 2000-2010.
At the same time, trade flows with ASEAN+++ increased significantly. In 2019, 24 per cent of Libyan imports originated from ASEAN+++, against only 10 per cent in 2020. However, trade with members of the League of Arab States (LAS) kept its initial share as before the crisis.
A closer look at the Libyan trade with key partners reveals that significant changes occurred during the conflict period (2011-2019) compared to the pre-crisis period (2000-2010).
First, Italy and France were still important partners, but within a completely different context. Indeed, only 16 per cent of total Libyan imports were supplied by the two countries during the period 2011-2019, compared to 24 per cent during the period 2000-2010. However, 20 per cent of total Libyan exports were oriented towards these two countries during the period 2011-2019, against only 12 per cent in the period 2000-2010.
As for the Arab countries, Egypt and Tunisia were still major trade partners of Libya during the crisis, as their shares in total Libyan trade did not experience any significant change. Their respective shares in total Libyan imports varied between 3 per cent and 4 per cent, both before and during the crisis.
In comparison to the pre-conflict years, the period 2011-2018 saw a significant increase of imports from Turkey starting in 2012. In 2013, imports from Turkey reached their highest value, at $2.7 billion. In fact, after 2012, the source of Libyan imports began to shift in favour of Turkey, away from Tunisia and Egypt.
Moreover, Libyan exports to Turkey passed from $0.426 billion in 2010 to only $0.367 billion in 2018, due mainly to the Turkish decision in 2017 to opt for a policy of diversification in its energy imports by increasing the share of oil imports from other sources, mainly Russia, which significantly reduced its oil imports from Libya.
(b) Foreign direct investment
FDI inflows into Libya dropped significantly following the violent demonstrations and civil conflicts starting in 2011. While the country was successful in attracting $1.2 billion worth of FDI in 2012, that amount fell again in the following year and stalled in 2014.
As a result, the stock of FDI in the country has remained “artificially” unchanged since 2013 at $18.5 billion despite significant destruction that partially or even totally impacted several projects.
To identify the regional dimension of FDI outflows for Libya, we used the available data on Libya’s greenfield FDI. Regarding outflows, the data shows that little contribution has been made by Libya in terms of capital expenditures (CAPEX) inflows and job creation in the world since 2009.
A total of 12 projects were recorded between 2003 and 2019, four of which were based in the Arab region (Algeria, Egypt and the United Arab Emirates) and another four were in financial services. Of total foreign capital expenditures, hotels and tourism, as well as food and tobacco, captured the highest value of $345 million.
Remittance outflows have reached their highest value, $3.2 billion, during the crisis in 2013, before falling to $680 million in 2017, and then growing slightly in 2018.
Egypt was the most important Arab recipient of remittances from Libya, followed by Tunisia, with both countries absorbing around 96 per cent of total remittances sent to Arab countries during the three years 2010-2012.
A total of $4.631 billion was sent by migrant workers in Libya to Egypt during this period, compared to $0.720 billion sent to Tunisia. However, since 2013, the situation changed dramatically, and remittances received by Egypt and Tunisia declined to just $0.109 billion in 2017.
In addition, the World Bank data shows that remittances received by both Algeria and the Sudan were too low, never exceeding $1 million. However, it is worth noting that the World Bank’s estimates may not be relevant for neighbouring countries, as most of trade and transfers are made through informal channels.
B. Importance of Libya to the economies of Egypt, the Sudan and Tunisia during the pre-conflict period
Libya is an important economic partner for Egypt, the Sudan and Tunisia. Indeed, a significant share of the three countries’ manufacturing and agricultural production is geared towards the Libyan market.
Over the years, trade between Libya and the three countries has experienced tremendous progress, reaching a historical high level prior to the conflict.
While Tunisia’s total trade has increased more rapidly than its trade with Libya during the pre-conflict period 2000-2010, its exports to the latter exceeded the average annual growth rate of its exports to the rest of the world.
The annual average growth rate of trade in goods (exports and imports) between the two countries reached 7 per cent during this period, which is 3 percentage points lower than that of Tunisia’s total trade with the world.
However, when considering exports alone, Tunisian exports to Libya averaged an annual growth rate of 13.3 per cent over the same period, compared to an average of 10.8 per cent of Tunisia’s total exports to the world.
The trend of the share of Tunisian exports to Libya to total Tunisian exports of goods to the world during the period 2000-2010 increased from about 3.6 per cent in 2000 to 4.5 per cent in 2010.
The highest performance was observed in 2009, when Libya absorbed around 6 per cent of total Tunisian exports of goods, valued at $1.4 billion, making Libya the second largest export market for Tunisia after the European Union.
For Egypt, the picture is slightly different. The country’s trade with Libya increased at an average annual growth rate of around 30 per cent over the period 2000-2010, far beyond its average annual growth of 16 per cent in its total exports to the world.
However, and contrary to Tunisia, the Libyan contribution to total Egyptian foreign trade of goods during the whole period 2000-2010 reached 1.2 per cent, against 3.9 per cent for Tunisia.
However, Egyptian exports of goods to Libya increased at an average rate of 34 per cent between 2000 and 2010, against only 19 per cent for the total Egyptian exports to the world.
Yet, despite this significant performance, Libya absorbed only around 1.3 per cent of total Egyptian exports of goods during the whole pre-crisis period. The trend in the share of Egyptian exports destined to the Libyan market during the pre-crisis period 2000-2010, indicated that the best performance was achieved in 2010 when Libya’s share of total Egyptian exports reached 4.6 per cent, valued at $1.6 billion.
In addition to trade in goods, Libya is a significant market for both Tunisian and Egyptian service exports, including mainly tourism services, and more specifically medical tourism.
The separation of South Sudan in 2011 makes it difficult to evaluate the Sudan’s trade relations with Libya during the pre-conflict period. Moreover, for the three countries, Libya has been an important source of capital flow, particularly remittances.
According to the World Bank, inward remittance flows from Libya accounted for 9 per cent of total inflows to Egypt and 11 per cent to Tunisia in 2010.
On the other hand, official data shows inexistent flows to the Sudan, and this is a direct result of international sanctions on transfers of funds to that country, coupled with a significant gap between formal and informal exchange rates.
Conversely, remittances are likely to be significantly higher than those officially reported, mainly due to their informal nature and the fact that they are mostly made in cash. That being said, total remittances from Libya to Tunisia may well be 2.5 times higher than those reported, according to the African Development Bank (2011).
Finally, as far as FDI is concerned, the inflows from Libya to these three Arab countries are very volatile and limited to a few specific projects, carried out mainly by Libyan public enterprises.
The highest level of contribution of Libya to FDI inflows into Egypt was observed in 2010, totaling around 5 per cent.
In the case of Tunisia, official reporting shows a minor contribution of around 1 per cent to the total Tunisian FDI inflows, limited to the implementation of a few enterprises, mainly in the tourism and oil distribution sectors during the pre-conflict period.
During the crisis
The conflict in Libya has greatly disrupted foreign trade and paralyzed the country’s economy since 2011. This has had a significant impact on the three neighbouring countries considered in the present assessment.
These countries suffered from a sudden interruption of trade in some products and FDI, as well as the return of their workers to their home countries without resources, which intensified pressures on public social assistance.
However, the impact of the conflict has been positive in terms of exports of some products and expenditures of workers who returned from Libya to Egypt and Tunisia during the initial period of conflict.
For Tunisia, exports have been severely impacted. During the period 2011-2019, Libya absorbed around 4 per cent of total Tunisian exports, compared to 3 per cent for Egypt. For the Sudan, Libya absorbed only 0.03 per cent of its exports during the period 2012-2018.
The low level of exports from the Sudan to Libya was largely due to the international sanctions that made all trade operations exclusively informal. These negative impacts accentuated the economic crisis observed in the three countries starting in 2011 due to the political changes and instability.
Compared to 2010, exports from Tunisia to Libya decreased by an annual rate of 3.4 per cent, against a drop in total exports of goods with the rest of the world by about 1 per cent. Moreover, exports to Libya in 2019 represented only 74 per cent of the value achieved in 2010, against 91 per cent for total exports.
For Egypt, the picture is almost similar with Libya, but different with the world. In 2019, Egyptian exports of goods to Libya represented 68 per cent of the value achieved in 2019, against an increase of 16 per cent in total exports of goods to the world.
Moreover, between 2019 and 2010, exports to Libya decreased by an annual average rate of 4.2 per cent, compared to an increase of total export to the world by 1.7 per cent.
Regarding remittances, figure 27 shows that Egyptian and Tunisian shares of transfers received from Libya passed from around 9 per cent and 11 per cent, respectively, in 2010 to less than 0.5 per cent in 2017, reaching the same initial level achieved by the Sudan in 2010.
However, as stated earlier, the case of the Sudan is very particular since international sanctions, coupled with significant gaps between formal and informal exchange rates, have forced all remittance payments to be made in cash, and not via bank transfers.
In 2019, total remittance inflows to Egypt represented 161 per cent of the amount received in 2010, compared to only 16.1 per cent for the Sudan and 92.2 per cent for Tunisia.