Economic reform has been limited and is likely to remain so, despite recent proposals to liberalise the economy and privatise state companies. Saif al-Islam does appear to have been given a mandate for some reform. But, even if he is able to establish himself and implement his vision for economic development, it will take considerable time to carry this out. 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.

However, there have been some privatisations and reforms. Large public stakes in the banks have been sold, with more to follow, a new preliminary banking licence has been issued to UniCredit, an Italian bank, Bahrain's Arab Banking Corporation has purchased a 49% stake in Libya's Mediterranean Bank, and a second foreign banking licence is expected to be awarded in 2011. In conjunction with technical assistance from international organisations, this will help to modernise the sector. Bank lending to the private sector has increased significantly since 2007 and is set to continue to expand, which will help the small private sector to grow. The partial privatisation of two telecommunications companies and an iron and steel firm has been proposed, and the latter has planned an initial public offering of shares. The government is also committed to streamlining the bureaucracy and is in the process of transferring 340,000 workers to the private sector. Ten new laws were introduced in 2010 to improve the business and investment environment, but they are awaiting executive regulations to clarify how they will be implemented. The prime minister announced the introduction of new investment laws in November to clarify rules and make it easier for foreign companies to enter the market.

The whims of Colonel Qadhafi will continue to create uncertainty in policymaking. During 2009-10 the government suspended visas for EU citizens living within the Schengen visa area and hinted that it might nationalise the hydrocarbons sector. Despite the award of dozens of oil exploration permits, drilling success has been limited and discoveries small. When exploration has been successful, development of the discoveries has been impeded. Four companies decided not to renew their exploration licences for a further five years in October. This has dented the positive perceptions of investing in Libya's hydrocarbons sector and its entire economy more generally. Contractors regularly complain of delayed payments, and investment in Libya is widely regarded as a long-term commitment with large downside risks, driving up the rewards that investors will require. Foreign investment, which is vital for development, is therefore likely to become harder and more expensive for Libya to obtain, and more major foreign oil companies may leave-particularly as a number of exploration permits lapse this year. BP has confirmed its intention to proceed with its own major exploration programme, although its deepwater exploration has been delayed, which could be related to safety concerns resulting from the oil spill in the Gulf of Mexico.

The government is implementing public investment programmes to help to provide a foundation for economic development and to create jobs. Most of these programmes focus on major infrastructure developments in the power, desalination, transport and communication sectors. However, progress has been and is likely to continue to be slow, mainly owing to bureaucratic delays.