Editor’s Note: This article was featured in Ventures Africa magazine April/May edition

Libya has never been a country with a good reputation, and with all of the bad news about terrorism, chaos and disorder that has appeared since the fall of Qaddafi, it’s hard to believe that things are getting better. But with parliamentary elections later this year and the drafting of a constitution slated to take place before the end of 2014, Libya has a real chance of creating stable public and private sector institutions that will enable dramatic growth for businesses and the country as a whole.

Though many might counsel investors to steer clear of a place characterised by uncertainty, Richard Griffiths, president of the American Chamber of Commerce in Libya, based in Tripoli, thinks differently. “It is key to be in Libya,” says Griffiths. “To understand the market is to be fully aware of the country. The value of visiting Libya and seeing it firsthand is significant [enough to] open up new business channels and models.”

Libya’s economy has always depended heavily on hydrocarbons. If used correctly, oil will be the springboard for the country’s recovery. The latest estimates put proven crude oil reserves at 48.08 billion barrels, 9th highest in the world and the most in Africa, besting Nigeria by 9.5 billion barrels. Proven natural gas reserves were estimated at 1.495 trillion cubic metres in 2012, behind Nigeria, Algeria and Egypt within the continent. When discussing energy, Libya’s regional and global importance as a producer cannot be ignored. Multinational oil companies are eager for tenders in the new Libya and they are more than willing to pay. This interest could very well form the backbone of Libya’s economic renewal.

The forecast for Libya’s projected total daily production capacity of oil has increased to 3 million barrels per day (bpd) from the 1.6 million barrels per day during Qaddafi’s rule. However, 2012 production figures only peaked at 450,000 bpd, a mere 15 percent of total capacity, due to logistical obstacles. According to the International Monetary Fund (IMF), Libya’s 2011 revolution cut oil production and caused a 60 percent retraction in the country’s GDP for 2011. With increasing political stability over the past year, Libya has seen a near 70 percent increase in GDP growth.

The key for Libya’s oil sector is the rapidly increasing number of oil exploration and production sharing agreements (EPSAs) signed with oil companies like Eni, Total and Suncor. On 15 February this year, Italy’s Eni reported profits of €19.75 billion ($26.44 billion) in 2012, up 14.6 percent from the previous year. The company’s press release stated: “Product ion benefited from the nearly complete recovery of production levels in Libya in spite of the complex transition phase the country is undergoing following the revolution”. Eni’s wholly owned subsidiary, Eni North Africa, expects that in 2013, onshore drilling in the prolific Sirte Basin, 300 kilometres south of Benghazi, will increase its upstream activity to pre-revolution levels. Chairman and CEO of Total, Christophe de Margerie, zeroed in on one of the group’s main objectives, indirectly alluding to North Africa in comments about Total’s full-year 2012 results by saying Total is “[…] to rely on a recently expanded exploration portfolio for more significant discoveries.”

Oil companies such as Canada’s Petro-Canada, which merged with Suncor in 2009, and oilfield service providers like Schlumberger, are all attempting to get a slice of the lucrative pie. Suncor stated in its Q4 report to shareholders on 5 February that the restart of operations in Libya partially offset the decrease in exploration and production (E&P) levels. Notwithstanding, Suncor issued a cautionary note that the E&P segment may, in part, be affected by “[…] political, economic and socioeconomic risks associated with Suncor’s foreign operations, including the unpredictability of operating in Libya […]”.

The efficacy in distributing oil wealth throughout the country will not necessarily be a cure for all of Libya’s ills but it will be the jumping-off point for recovery from the collapse of the previous government and a disruptive civil war. Part of the difficulty involved in making sure oil revenue is properly used will be reforming Libya’s National Oil Corporation (NOC), formerly the Libyan National Oil Company, which had been run under 40 years of Qaddafi’s dictatorial rule. Oil produced prior to 2011 in Qaddafi’s Libya was subject to 95 percent tax aimed mostly at multinationals. The figure has now decreased to approximately 75 percent, on par with energy giants like Russia and Norway. With nothing but time to bide, the proper divestiture of oil revenue to a vulnerable population, coupled with a flourishing democracy, may just reverse the bygone days of Qaddafi’s centralised socialism.

Libya needs to do more than just collect revenue from oil if it is to form a new and flourishing society. Other sectors of the Libyan economy impacted by its civil war and current instability also need attention. Within the country there appears to be a swathe of investment potential across all segments of society. As the EU–Libya Chamber of Commerce said, this progress is central to the state’s reconstruction programme. “There is a newly emerging security environment, space in the NGO sector, a total healthcare modernisation and expansion programme, as well as media and publishing and ongoing infrastructural projects are being renegotiated and gradually returned,” the Chamber stated, following its sponsorship of an infrastructure and investment summit in Tripoli during October and November 2012. Says Griffiths: “The population statistics show a massive market potential beyond oil and gas and defence in areas such as health, consumer goods, transport and food and beverage.” Still, there are red flags aplenty.

The country needs to address the deterioration in quality of loan assets, the seizure of property used in the past for collateral, and finally, a liquidity crunch that resulted with the flooding of the Libyan dinar (LD) onto the currency market. Measures by the Central Bank of Libya (CBL) are proving futile in projecting confidence in lieu of a shaky banking infrastructure, but the CBL’s decision to maintain the dinar’s peg has bolstered confidence in the currency. This bodes well for Libyans, where credit cards are not widely accepted and cash is still ‘king’ along the coast and in the vast lawless areas of desert.

Says Sami Zaptia, cofounder and Managing Editor of the Libya Herald, a new English-language daily newspaper based in Tripoli: “The old regime nationalised and centralised for decades. It imprisoned businesspeople, confiscated their properties and destroyed their businesses. It centralised all procurement and imports as well as distribution for a decade in the 1980s.” Zaptia, also the CEO and founder of Know Libya, a company that specialises in business research, training and consultancy in Tripoli, says that the people and businesses that made substantial money during the Qaddafi regime are in the best position to take advantage of the new open market. He cautions that there has been little change over the past 24 months and that the movers and shakers will truly be determined when the economy resurrects itself. “The challenges facing Libya today must be separated into those that are a legacy of 40 years of Qaddafi and the short-term ones caused by the 2011 revolution and conflict,” says Zaptia.

Despite its problems, Libya can still be an attractive country for investment, provided you know what you’re getting into. The security situation in the country will continue to be the major challenge, but even so, Richard Griffiths still considers Libya a great place to be. Says Griffiths: “Libya has been on a very long path to developing systems for trade and business. The period of establishing a government is now over and the process of rebuilding and developing is now underway. The timing for direct engagement is starting.”

Participating in Libya’s transformation could be very lucrative for the investor willing to take on his or her fair share of risk, but for the country, this current phase of change is about much more than making money. After its revolution, Libya has a real chance to do things right. Stable and effective governance will provide the economic conditions businesses need to flourish and create the jobs needed to keep a large segment of the population between the ages 18 to 35 – especially young men— from releasing their frustration by joining groups like Al-Qaeda in the Islamic Maghreb (AQIM). Women – the segment of the population whose worth is most often underestimated – must also be empowered if Libya’s new economy is to take-off. Following the erasure of the Qaddafi regime, there is strong hope for real social and economic change. A liberated Libya is a bright business prospect indeed.

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