Investing in the Arab Spring: Libya

Of all the countries that have come through the Arab Spring, Libya may have had the hardest journey – and, with Colonel Gadaffi having only met his end in recent weeks, faces the most uncertain future. However, fund managers believe that the country could also offer outsize returns for those willing to gamble on a successful transition towards democracy.

A closed economy until the revolution, the Libyan government has inherited huge foreign assets, estimated by the International Institute of Finance to stand at around $110bn, or roughly three times its projected GDP for 2011.

The ability of any new government to put this money into reconstruction – along with the desire of western energy firms to return to Libya’s rich oil and gas fields – provides encouragement to investors.

“The fact Libya’s been such a closed market makes it very interesting”, said Rami Sidani, head of Middle East and Africa at Schroders. “It has these huge surpluses, but nothing has been spent in the country - it’s so poorly invested. Accordingly, it presents massive opportunities”.

“It’s not going to happen tomorrow, of course – there is still plenty of work to do in terms of taking weapons off the street”, he added: “But Libya will be a growth story – it will attract a lot of FDI, especially in the oil and gas sector, from Europe and the Gulf”.

Daniel Litvin, director of C-Resource, a political risk consultancy, agreed there is a chance we will see further privatisation in Libya’s energy sector.

“The country needs a lot of infrastructure to be reconstructed, and a lot of cash needs to be raised for education, social welfare etc”, he said. “For any oil and gas-rich country, one way to fund these activities is by opening up oil and gas exploration and production even more to private firms”.

However, he also warned that big inflows into oil and gas could disturb the delicate post-war ethnic equilibrium in Libya: “The question becomes, who gets revenue from it.”

At BarCap, chief MENA economist Alia Moubayed  said that the story in Libya will not just be about oil and gas.

“Besides social infrastructure, attention will turn to the more hardcore physical infrastructure – telecoms, roads, housing”, she said. “Libya could become a huge construction site.”

 Investment in tourism could even become viable, she said, “if the right framework for the sector is set up, given its natural environment and cultural heritage”.

(Source: Financial News)

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