Country Report Libya November 2009

Outlook for 2010-11: Policy trends

Economic reform has been, and is likely to remain, limited during the forecast period. Even in his elevated position, it will take considerable time for Saif Qadhafi to establish himself and to implement his vision for economic development. Any reform will face stiff resistance from vested interests, as some regime insiders are reluctant to relax their control over large swathes of the state-dominated economy-which has slowed progress on increasing private-sector and foreign-investor participation in the economy. However, there have been some privatisations and reform, particularly in the banking sector. Two state-owned banks have been partly sold off and another sale is expected before the end of 2009. Two new banking licences are expected, with foreign participation, which will help to modernise the sector along with technical assistance from the IMF and World Bank. Bank lending to the private sector increased by 58% between mid-2007 and mid-2009, which is set to continue and will help the small private sector to expand. The government is also nominally committed to streamlining the bureaucracy, although pledges to transfer thousands of civil servants to the private sector and increase transparency in the public finances have not been carried through.

The whims of Colonel Qadhafi will continue to create uncertainty in policymaking, which will deter investors, even in the oil sector. During 2009 the government hinted that it might nationalise the hydrocarbons sector; issued a decree requiring foreign companies to have Libyan nationals as their chief executives; and blocked the sale of Verenex-a Canadian company that had recently discovered oil-to a Chinese national oil company, while acquiring Verenex itself at a reduced price. The resignation of the reform-minded Shokri Ghanem, the chairman of the National Oil Corporation and de facto oil minister, in September 2009, and his reinstatement in October 2009 has added to the confusion and behind-the-scenes disagreements between policymakers. Despite the award of dozens of exploration permits, drilling success has been limited, and when exploration has been successful-as with Verenex-there have been impediments to developing the discoveries. This has eroded the formerly positive perceptions for hydrocarbons potential and for investment throughout the economy. Foreign investment, which is vital for the country's development, is therefore likely to become harder and more expensive for Libya to obtain, and some major foreign companies may withdraw.

© 2009 The Economist lntelligence Unit Ltd. All rights reserved
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