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LIBYA - The Economic Base.

In November 2000 the authorities announced a new five-year development plan calling for $35,000m in investments. Thanks to high oil prices, having risen rapidly since April 1999, Libya in 2000 had a budget surplus of about $3,000m. The surplus in 1999 was $2,136m. In 1998, when oil prices were very low, Libya had a deficit of $391m. There will also be a big surplus in 2001 as oil prices have remained high, allowing the authorities to speed up work on infrastructural projects including power plants.

Largely because of the US and UN sanctions, the Libyan economy shrank in 1993-1995 and until end-1998 GDP's growth averaged less than 1% per annum. Unemployment by end-April 1999 was estimated at about 30%. The government was forced to set for 1999 an austerity budget which forecast spending at LD 4.9 bn ($10.9 bn).

Oil income in 1998 had fallen 35% to $5.25 bn, while the wage bill for the 700,000-strong public sector was $5.5 bn. It is said that the sanctions have caused Libya the loss of $26 bn worth of income opportunities.

The situation now is much better and Western banks are willing to finance foreign suppliers to or foreign contractors in Libya. In late October 2000 the Italian export credit agency Sace signed an interim agreement to write off $230m of outstanding debt held by Libya. Since then, Sace has given Libya a more favourable consideration, with cover for medium and long-term projects being reviewed on a case-by-case basis.

Major projects in Libya being pursued by Italian companies and for which Sace's support is badly needed include the $5.5 bn programme to develop two gas fields and build a gas export pipeline to Italy. Apart from major power plants for which Enelpower and Ansaldo Energia have bid (see above), projects include a $250m expansion of Azzawiya oil refinery.

Libya's main trading partners are Italy, Germany, and France. They are followed by Turkey, Greece and Spain.

The UK's Export Credits Guarantee Department (ECGD) is expected shortly to announce an easing of insurance cover rules governing British exports to Libya. Trade between Libya and the UK has increased, with many British companies having carried the risks involved in entering this market. In 2000 British exports to Libya increased to about $270m, from $227m in 1999 and the figure for 1998 was much lower.

Trade mainly involves Libyan exports of crude oil, petroleum products and petrochemicals. British consultants have been prominent in a number of big Libyan projects, such as the GMR. (Before the break in Libyan-British diplomatic relations in the 1980s, Libya was Britain's second biggest trading partner in the Middle East and North Africa. It is now ranked outside the top 10 in terms of British trade with the Middle East and North Africa.

In terms of policy setting, the central authorities in Libya remain notorious in their interventions. They regulate every aspect of the economy, despite the fact that Col. Qadhafi has since 1997 shown an increasing interest in a free market. Expensive projects like the GMR have caused the authorities to divert revenues away from the petroleum sector. Only about 15% of the revenues have been reinvested in the petroleum sector in recent years.

The Central Bank has major external holdings through its offshore arm, Libyan Arab Foreign Bank (LAFB). LAFB has a big stake in Oilinvest, a holding company in charge of overseas petroleum investments. It has co-ordinated purchases into more than 30 global institutions through its subsidiary Libyan Arab Foreign Investment Co (Lafico). The lifting of the UN sanctions has led to an unfreeze of major Libyan assets for Central Bank, LAFB, Lafico and other Libyan-controlled institutions. (On Dec. 1, 1993 LAFB's assets abroad were frozen in compliance with the UN embargo).

The Central Bank has a major share in Arab Banking Corp. (ABC), one of the world's largest financial institutions, with its partners being the Kuwaiti Finance Ministry, the Abu Dhabi Investment Authority and other Arab investors. The Abu Dhabi-based Arab Bank for Investment and Foreign Trade (ARBIFT), in which Libya has a share, was affected by the embargo in recent years but it has recovered. Because of its Libyan connection it is boycotted by the US and some of its assets have been frozen, despite protests from the UAE.
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Publication:APS Review Downstream Trends
Date:Jul 2, 2001
Previous Article:LIBYA - The Electric Power Sector.
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