World Report

The years of isolation are over and oil-rich Libya is reforming and rebuilding relations with the West

fter more than 10 years in the diplomatic wilderness, Libya is back on the world stage and starting to feel the benefits of its re-engagement with the international community and the global economy.

The restoration of trade and investment links with Western countries following the lifting of sanctions is a win-win result for both sides. For the West, it means access to the hydrocarbon resources of Africa’s second largest oil-producing nation. For Libya, it means the chance to get the foreign investment and technology it urgently needs to develop an industry on which its £19.7 billion economy primarily depends. Oil accounts for 94 percent of the North African state’s exports, 60 percent of government income and 30 percent of GDP.

Thanks to rising prices, Libya’s oil exports revenues have doubled in the last five years and are expected to reach a total of £7.3 billion in 2004. The economy is forecast to grow by 2.6 percent, following growth of 3.2 percent in 2003.

Both offshore and onshore sectors are set to boom. With proven reserves of more than 36 billion barrels of oil and only 25 percent of the country presently covered by production and exploration agreements, the big oil companies have been queuing up to invest now that the way is clear.

At the same time, Libya is starting to make up for lost time by freeing up its highly centralised economy. The years of state control have been officially declared over and the process of reducing the role of the public sector and developing the private sector is under way.

Colonel Muammar Gaddafi, who has led the country for 35 years, has recognised the need to reform the public sector and accelerate the pace of privatisation. The appointment in June last year of Shukri Mohamed Ghanem (INTERVIEW) as Prime Minister is a clear indicator of the change of direction. A pragmatic economist, committed to a policy of economic openness, Dr Ghanem has said that Libya is changing its priorities and concentrating on economic development. With Libya’s workforce growing rapidly, a key priority for the government is to generate employment opportunities.

More than 360 state-owned enterprises are scheduled to be privatised by 2008, ranging from factories producing iron and steel, chemicals and textiles to state-owned farms. According to Dr Ghanem, the programme is well under way, with almost half the enterprises already transferred to the private sector.

In addition to attracting investment in the oil and gas sector, the government is eager to draw foreign capital into other areas of the economy, including agriculture, industry and tourism. Possessing one of the few unexploited Mediterranean coastlines and a range of other attractions, Libya is already drawing increasing numbers of visitors. The tourism sector is expected to take off as the country develops the necessary infrastructure of hotels and resorts.

The country also needs substantial help to build up its transport infrastructure of ports, airports, railways and roads, in addition to investment in housing, irrigation and telecommunications.