Jason Pack & Stefano Marcuzzi
Part 3) The Cost of Bifurcation and Opacity: Business and Politics in a Divided Libya
This section partially examines the technical consequences of the lasting CBL division, but primarily probes perceptions of major international stakeholders concerning the bifurcation. This analysis confirms that the CBL is at the epicenter of interlocking narrative wars not only inside Libya but also among international actors.
These narrative wars obscure the actual technical issues that impede doing business with Libya and making its economy function more effectively. External observers — including most analysts and policymakers — tend to consider the division between the western and eastern CBL as primarily a political issue. “It’s a political fracture that has de facto become a technical one,” said one Western official.
The lack of transparency in the CBL, and especially in the reunification procedures, is acknowledged by most technical experts we spoke to as having a negative impact on Libya’s economy. Yet others, mostly in the Western business community, see it as having almost no practical implications for doing business as the Tripoli-based CBL functions as the country’s finance ministry and Central Bank rolled into one, while the eastern bank does “very little other than try to obfuscate matters, block progress, and attempt illicit transactions” according to a knowledgeable American banker.
This group of businesspeople consider the bifurcation of the bank as essentially a “reputational problem” and part of the media optics that make doing business in Libya difficult. They see it as “inevitable and unsurprising” that there would be profound misinformation about the banking sector circulating, as a virulent narrative war surrounds each major institution and impedes its proper functioning. This analysis essentially relates the divisions in the bank to the prevailing dynamics of the Global Enduring Disorder, where narrative mirages are cast by spoilers to divide their opponents and rally their supporters.
Most stakeholders outside of Libya are less clear about the practical implications (or lack thereof) in financial, structural, technical, and economic terms of the west-east banking divide. For companies interested in pursuing new business ventures in Libya, security, transparency, and the availability of contacts are the main issues to consider when contemplating investing.
For them, CBL bifurcation is truly a mirage and not one of their leading concerns. Many stakeholders, such as a major French businessperson we spoke to, admit to “not understanding how the CBL functions.” He also noted the lack of a legal framework and of an infrastructure network that could support “bankable” projects on the ground as essential to fostering foreign investment.
International stakeholders operating in Libya are much more aware of the negative practical implications of the stalled unification of the banking system than were the Western government policymakers we surveyed. In the words of a different French banker who had been influenced by what others would see as misinformation, “When you have two monitoring authorities, it is impossible to be credible and to apply a national fiscal policy.
The result is a de facto double economic system, with two exchange rates, and diverging regulatory frameworks.” An American government affairs professional who downplayed the importance of CBL bifurcation noted that, on the other hand, “the failure by the HoR to pass the GNU’s budget has created real problems for U.S. businesses as they are uncertain how much money will be allocated to specific sectors and if their projects will ever get funded.” Consequently, their firms are unable to plan ahead for their activities in Libya.
This uncertainty, which does not actually stem from CBL bifurcation but yet may be confused with it, is causing many businesses to reevaluate their commitment to Libya, as a perception exists that corporate income streams are “too unreliable to merit investing in the future,” especially as elections hang in the air and “no one knows when they might ever occur.”
Furthermore, a European embassy official told us that the fact that years ago “the eastern CBL’s Russian-printed dinars had intoxicated the Libyan economy and inflated the black market” presents the specter that this might happen again. A major European multinational operating in the country warned that a reunification of the banking sector is considered “essential for the delivery of ordinary services,” including internal bank transactions. In its absence, it is “just impossible to defend our business decisions to our superiors.”
In this sense, the eastern CBL and its backers are happy to maintain profound ambiguity around CBL unification as the current situation helps deny investments to western Libya and the official institutions. It also harms their western counterparts by making it look like they are not in control of a national institution.
A European banker with direct experience in the sector pointed out that “the eastern Libyan commercial banks — especially the Libyan Development Bank in Benghazi — are stronger and more active than most people think.” They also stressed that divisions exist between the CBL and some commercial banks, including from Tripolitania.
The impact of this is reported to be huge: Entire banks can be paralyzed by vetoes from individuals on their board of directors who play a political game. “There is no professionalism, it is rather puzzling,” commented one European interviewee. According to several Libyan businessmen, this has led to the spectacular rise of the private banking sector — “a sector that was less than 3% of all transactions five years ago has grown to achieve parity of transactions with the state-owned banking sector.”
These problems of genuine inefficiency are aggravated by the fact that the CBL rarely inspects its subsidiary commercial banks — which leaves the CBL unsure about how the smaller banks (which it owns) operate, and in turn, it leaves Libyan commercial banks largely unchecked. Thus, according to another European businessperson with decades of experience in the Middle East, “In Libya, unlike elsewhere, nobody has even a glimmering of the activities in which a given bank is involved, until a scandal breaks out.”
Major European banks also expressed concern to us over the decline in deposits in Libyan commercial banks, which proved detrimental because the local banks, which should finance or act as counterparties to most foreign medium-to-small-size investments in Libya, were the most affected by the ongoing liquidity crunch. Other banking interlocutors referenced the CBL’s self-disclosures about the sector on its website as “completely useless” and presenting “cooked books.”
A second set of problems for investors in Libya is connected to the CBL’s opacity around its own governance and internal procedures. The bank is widely considered by our interviewees to be the personal fiefdom of Kabir, who has been in charge since 2011. Many stakeholders believe that knowing the “right people” is key to make business, and especially to gaining access to letters of credit.
The CBL’s perceived “partiality” is a significant obstacle to international companies from countries that have weaker ties with the Tripoli-based authorities, such as France. The bank’s unclear internal procedures, and the lack of governance mechanisms generally associated with a central bank, such as audit committees, are also cited as limiting trust. Whether actual partiality exists or not, its perception is a crucial part of the media war waged by Kabir’s detractors.
Libyan businessmen we interviewed spoke of “marked improvements in efficiency and transparency, especially concerning letters of credit and backpayments,” but acknowledged that this information is all in Arabic and does not change international perceptions.
A third set of problems is linked to what an Italian businessman called “daily technical faults” hampering the efficiency of the sector. While acknowledging that the CBL is the most efficient financial institution in Libya, stakeholders with direct experience in the region see it as falling well below average standards in the rest of the Middle East and North Africa. One southern European banking interviewee complained that, “If you go to Morocco, Tunisia, or Algeria, banks are precise like clocks. They have even adopted European methods for accounting financial activities. Libya is the exception.”
This originates in the lack of a regulated bureaucratic banking culture and administrative competence dating back to the Gadhafi period, a problem further aggravated by the fact that certain skilled bureaucrats who had served under the old regime were replaced by inexperienced personnel after the Uprisings.
The reliability of payments and services, including CBL letters of credit, are questioned by many international stakeholders. One of them described the process of selling goods to Libya as follows: “First, we alert our Libyan partner [intermediary]; second, he goes to his commercial bank; third, he asks for a CBL letter of credit; once that is confirmed, fourth, the shipment can happen.
The bottleneck is between points 3 and 4, where there is a need for a service from the CBL.” Although elements of the narrative war link this delay to the aforementioned CBL politicization, the interviewee considered it more likely to be the result of bureaucratic inefficiency.
For companies not yet established in Libya, their search for a banking partner is “a nightmare,” in the words of a separate European interviewee: “Most commercial banks have no balance sheets or they have outdated ones. You don’t know who you can trust.” This was acknowledged by the new chairman of the National Commercial Bank (NCB), Musbah Akkari, who on Sept. 14 publicly promised to improve services.
Among non-Libyan policymakers the apparently limited understanding of these dynamics has favored a personalization of the debate over the stalled process of unification and banking sector reform. This is where the narrative war massively obscures actual technical and political issues. There has been a tendency to center the analysis around Kabir, his personality, his responsibilities, and his future role in the sector. Yet it is unclear even to experts what his exact role in these processes is.
Some foreign policymakers, especially in France, tend to see Kabir as epitomizing a broken status quo, and would like to see new interlocutors emerge from both the Libyan political and economic spheres. Such perceptions are supplemented by French officials’ accusations of technical mismanagement of the CBL — namely that “Kabir keeps the CBL utterly inefficient to make himself indispensable” — and of misuse of oil revenues.
This is quite different than the view we encountered among American policymakers and businesspeople, who see the CBL and the governor “as protecting Libya’s wealth,” or a prevailing pragmatic view we encountered in Italy that Kabir represents “a political status quo which is preferable to other possible alternatives.”
Interestingly, while many international firms and domestic Libyan experts voiced concerns over Kabir’s connection with Tripolitanian armed groups and considered his management of the CBL inefficient, none cited to us proof of wrongdoing, preferring to reference various allegations — another aspect of the narrative war. Other firms we spoke to, particularly in America, saw Kabir as a guarantee of institutional continuity and relative competence.
Both groups, however, disliked the personalization of the debate surrounding the CBL: “In Libya there is too much talking of the person, and not enough discussion about the role and the rules, and about improving the efficiency of the sector itself.” In short, just like the politics surrounding Brexit or the MAGA movement in America, technical policy choices have simply exited the mainstream debate — replaced by personalization, accusation, and narrative wars. This seems to be a defining feature of the Global Enduring Disorder
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Jason Pack is a former non-resident scholar at MEI, author of Libya and the Global Enduring Disorder, and the president of LibyaAnalysis LLC. He is the Director of the NATO & THE GLOBAL ENDURING DISORDER Project and a Senior Analyst for Emerging Challenges at the NATO Defense College Foundation.
Stefano Marcuzzi is a Research Fellow at the Center for Higher Defense Studies (CASD), Rome, a Senior Analyst at Libya Analysis LLC, an Adjunct Fellow at University College Dublin (UCD) and Boston University (BU), and an Emerging Challenges Analyst at the NATO Defense College Foundation (NDFC), Rome. He is the author of The EU, NATO and the Libya Conflict. Anatomy of a Failure.
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