A New Era Dawns for Business in Libya

By Maryann Maguire, Director of InterCultures.

As Ramadan takes hold of Libya, everyone will be taking a long rest and reminiscing about the momentous events that have punctuated these past twelve months. From revolution to liberation and to the establishment of an interim transitional government, it has been a year of radical change.

But the process of change is only just beginning. “The Revolution was just the beginning, now the hard work starts”, said a Deputy Minister of the transitional government who reminisced about how much has been achieved in just under a year. “The real test of what the new Libya will become starts now”.

He added that kick-starting the economy, the creation of private sector jobs, security and foreign investment remained priorities. “We fought for principles of freedom, democracy and progress. Now we have won, we need to make these realities and protect these principles by improving the lives of each and every Libyan”.

One of the most momentous occasions was the elections which paved the way for the first even truly democratically elected parliament, the 200 strong National General Congress.

The elections were hailed as a victory for the liberals and a defeat for Islamists. The Libyan political framework is however much more complex and such over simplifications mask the formidable political change and process that is taking root. It’s a complex chemistry and one that is untested.

While Dr Mahmoud Jebril’s National Forces Alliance did sweep a majority of the political party votes, the majority of the seats belong to individuals who have defended their independence and intention to vote according to decisions rather than declare themselves part of any of the newly emerging political tribes.

The Congress is now expected to take over from the National Transitional Council, elect a Chairman who will appoint a Prime Minister, to be endorsed by a majority of the Congress. The Prime Minister will then nominate a Cabinet of Ministers. There is speculation that some of the Deputy Ministers will stay for the interim period, to encourage smooth transition, but this has not been confirmed.

Some Ministers are expected to remain, particularly those who have performed well and are seen as effective, good administrators and have improved the management of their ministries which has resulted in good results enjoyed by Libyan in areas such as education, telecommunications and electricity supply for example.

Future roadmap for the economy

So far, little has been said on the economy as the priority has been on the political change. Yet, the elections mark the beginning of a new era.

Many foreign investors, international businesses and those interested in Libya’s economy were awaiting the elections before taking the leap and exploring the opportunities.

The main reasons to wait? The interim government was just that, temporary and scepticism prevailed over its authority to spend the budget. Institutions established following democratic elections are perceived as more stable.

Security was another deterrent. The Foreign Office Travel advice, which recommends all but essential travel, has a chill effect. Businesses also tend to rely on the advice of private security companies who have a vested interest in overplaying the risks, increasing costs and making it difficult for board rooms to sign off on the risks.

The fact is that security is improving every day and militia commanders themselves are working closely with the Ministries of Interior and Defence to ensure the brigades are integrated into the state forces. The rare incidents that occur do not affect business and tend to be localised contained incidents.

The recent introduction of a decree governing the role of international private security companies is also welcome news. Decree 248 makes clear the need for companies to be licensed and regulated. By threatening to black international companies and expel staff using companies which are operating in a grey zone without clear authorisations, the Executive Government has also put the responsibility on international businesses to ensure the companies they are using are appropriately registered and licensed.

Finally international businesses often lack quality and up to date information on practical ways of doing business in Libya, commercial issues, changes to existing laws and quality advisory services. UKTI’s offer in this regard has improved dramatically and Libyan team members are amongst the best informed of the Tripoli business community.

What do the recent results mean for business in Libya?

The recent elections have sent the most encouraging message to date. Despite localised incidents, there were no major security incidents and the world watched, encouraged, as millions of Libyans cast their vote in a festival atmosphere.

Praise by international electoral observer missions of the work of the High National Electoral Commission has also proved that Libyans had the capacity, skills and organisational ability to organise elections with no prior experience in a record time.

The victory of the National Forces Alliance has also reassured many western businesses that Libya is not about to take the same political path as Egypt and Tunisia and that policies are likely to favour foreign investment, including with Mediterranean and European partners.

Most important of all, Libya’s reconstruction needs are immense and a recent IMF report has forecast grown of 116.6%, following a contraction of 60% in 2011.

Libya’s annual budget, as well as emergency budget, also remain in large part unspent and companies who have gone in early report good progress and potential, albeit at times a frustrating experience due to slow progress and the lack of specifics about the needs of Ministries.

In some cases, this is due to Ministries relying on the expertise of companies to make proposals and share knowledge on what they think is needed – which reverses the roles for companies expecting to provide rather than plan.

Likewise, Libyan Ministries have seen a sharp increase in foreign visiting companies. While they are encouraged, they also complain about how difficult it is to get practical and priced proposals in an acceptable timeframe. One Minister quoted a UK company which took four months to come back with a proposal on training which didn’t even include a pricing schedule.

The challenges ahead

What should businesses be looking out for?

A good indicator to watch is how quickly the new National Congress can agree on a President and new Prime Minister.

The challenges for the Congress and Prime Minister are also significant.

The new Prime Minister is likely to be a personality of national unity, acceptable to all and focused on getting business done. Yet he will have a limited pool of candidates to pick from. Most capable and ambitious potential Ministers are likely to wait for the next election for any role.

Those who have most expertise and institutional knowledge have inevitably served under Quaddafi and may be unwelcome and unpopular. This leaves the private sector, the returning diaspora and those willing to accept to sacrifice long term political capital to help Libya in these times of critical need.

The debate surrounding the nomination of Ministers will also be interesting to observe. What will be the main issues, who will lead the debate and will the Cabinet be inclusive and involve personalities from various political backgrounds?

Most Libyan political analysts do not believe the Congress will make any controversial decisions likely to impact negatively on foreign investment. Instead, debates will focus on whether or not former Qaddafi regime figures should take part in public office, how security can be improved and regions better represented.

In short, the political risk levels are sharply on the decrease.

The biggest test will therefore be the new government’s ability to make swift decisions and simplify the process which enables money to flow from the treasury to the Ministries and Ministers to authorise spending. This is absolutely critical, particularly as the emergency and national budget remain largely unspent.

Finally, the government needs to be put in robust procurement and public financial mechanisms to avoid corruption and encourage due process are key to winning the confidence of international investors.

In many ways, the last few months have been a rehearsal of what is to come. Ministries have been re-organised, in part, and those who are the most active and have accessed and spent have been commended. A Committee at the Ministry of Planning is also reviewing existing contracts with a view to kick-start those which terms are acceptable and are in the process of enlisting professional help from various specialist companies.

As always in Libya, things will take time however. The elections were the test for the Libya sceptics who are quick to point out the negatives. What is certain is that over the coming months, the potential is huge for the government to kick start the emergency and immediate needs projects that is needed across all the sectors.

In some ways, over the past few months, Libyans have caught their breath and started to get organised. It will be interesting to see how fast business moves forward. As with many things in Libya, there is huge potential and the next few months will no doubt mark the start of a new beginning for both Libyan businesses and international companies who at last have had many obstacles at last removed.

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