Closure of Libya's ministries causes concern

20 March 2008
Is Libyan leader Muammar Gaddafi's shock move to put public utilities into private hands too much too soon for the North African state?

To outsiders, Libya is often a confusing country, but a decision by its leader, Muammar Gaddafi, to dismantle most of the government ministries has also left those inside the country wondering what will happen next. The plans involve removing government subsidies and forcing Libyans to pay for most government services, which will now be run by the private sector.

Oil revenues

Gaddafi blames the ministries, known as general people's committees, for failing to capitalise on the country's oil revenues since international sanctions were lifted in 2003 and 2004. In typical style, he has put forward a solution that amounts to shock therapy for the economy.

The majority of the country's ministries will be wound up by the end of the year. Only the foreign affairs, public security and justice portfolios have been spared.

Prime Minister Baghdadi al-Mahmudi will head a new infrastructure and services ministry, which will replace the health, education, agriculture and electricity, water and gas committees. But this will only regulate the sectors. The private sector will take over the running of the services.

“The powerful ministries will always remain,” says a government official. “The foreign affairs minister does not consult with the prime minister on foreign affairs anyway. The service ministries will no longer exist.”

According to Gaddafi, the Libyan people will now do what the ministries were unable to do, as they were paralysed by bureaucracy and corruption. He says it will now fall to the people to manage Libya's oil revenues themselves.

The new system will involve far greater private sector participation, but it is unclear how it will work in practice.

There is a widespread skills shortage and it will not be any easier for private companies to run the hospitals, schools or power plants than it was for government bureaucrats.

The question of whether the private sector has the know-how to manage the country's wealth and provide the services has been left unanswered.

“Is the private sector ready to take over?” asks Sami Zaptia, managing director of market research firm Know Libya. “We want an efficient government sector. Some sectors are good for privatisation or partial privatisation, but don't cancel the whole government sector.”

Alongside its ministry reforms, the government has embarked on a massive wealth redistribution drive. “The private sector will be very big,” says the government official. “We will connect wealth distribution to wealth creation.”

The government has earmarked LD4.6bn ($3.9bn) of its LD49.5bn budget for 2008 to be used for wealth distribution. It will either give each household LD75,000, or about 3 million individuals will each receive LD15,000.

“We will distribute more cash to people to encourage them to invest and they will spend more and create more demand in the market,” says the government official. “This will allow entrepreneurs to produce more. We have to raise purchasing power and the only way to do this is by providing wealth to the people.

For a country with little private sector experience, this could prove to be wishful thinking.

“It will mean a lot of saving for the country,” says the official. “Now we are spending every year and doing nothing. When the people do it themselves, they will have to maintain it. They have to start somewhere and there is nothing better than on-the-job training.”

Privatisation has been on the agenda since Libya launched its National Economic Strategy (NES) in 2005. However, critics say that Tripoli is now trying to do too much too quickly.

Safety net

“The irony is that if the plans are adopted in full, Libya would, theoretically, be more capitalist than the US,” says Charles Gurdon, managing director of UK consultant Menas Associates. “If the reports are accurate, it could effectively take away the safety net that the state has always provided.”

There is talk of removing government subsidies, which are thought to amount to LD5-10bn a year, gradually. At the moment, energy and fuel are heavily subsidised and education and healthcare are free.

But the government does not appear concerned about asking people to pay for services that they have so far received for free. “Of course they will pay if we secure a better education system and schools,” says the official.

Gaddafi's decisions are often met with scepticism, and this time is no different. Observers say the measures are unlikely to be adopted without modification.

Whatever form the restructure takes, much of the elite who run the country will remain unchanged. Consecutive cabinet reshuffles have moved the same faces from one post to another and the most powerful ministries are untouched by the reforms.

With Gaddafi retaining ulti-mate control, any political change is likely to be little more than cosmetic.

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