Investors begin to move in

16 November 2007
Since the thawing of relations between Tripoli and Washington, foreign direct investment in Libya has increased rapidly, reports Karin Maree

Much has been made of Libya’s transition from pariah state to a land of opportunity in the space of a few years. Political rapprochement with the West has brought significant economic benefits as well as renewed and vigorous interest from overseas investors.

Economic statistics are hard to come by. Official figures are often unreliable, a fact acknowledged by Tripoli. Foreign direct investment (FDI) statistics are no different. But together with anecdotal evidence to which many Libya observers resort, they paint a picture of growing investor interest in the country. Unsurprisingly, it is the oil and gas industry that has provided the greatest draw.

“There is tremendous activity in the oil and gas sector, especially with the advent of better relations with the US,” says Bashir Hagul, a North Africa consultant working for several leading banking, real estate and industrial companies in Libya.

The National Oil Corporation recently renegotiated contractual terms with Italy’s Eni. The new deal calls for the investment of $28bn over the next 10 years. “That in itself is probably larger than all other investments put together to date,” says Hagul.

But recently it has been the non-oil sectors, such as tourism and real estate developments, that have attracted the most interest.

The Libyan Investment Board (LIB) is managing these investments. Until recently, this was the Libyan Foreign Investment Board and dealt exclusively with foreign investment in the non-oil sector. It is now charged with promoting, planning and overseeing the investment of both foreign and national capital in Libya.

Since the board’s inception in 2000, a total of 96 investment projects at a cost of $550m have been implemented. A further 73 totalling $7.2bn are under construction across sectors such as real estate, healthcare and education.

Overseas investors

According to the LIB, foreign investment has reached about $19.8bn since the end of 1998. Of this, $15.2bn has come from Europe, $3.4bn from Asia, a little more than $1bn from African investors and $300m from the Americas.

The latest official FDI figures are due to be released by Tripoli in the first quarter of 2008. “I don’t think there will be a significant difference compared with previous years,” says a Tripoli-based
financial expert. This is partly because major projects are still carried out in partnership with the government, most frequently in conjunction with the Economic & Social Development Fund (ESDF).

“Large developments are very much in the hands of the government, so it is not clear if much money is coming in [from overseas],” says the financial source. “There isn’t a great wave of FDI. By far the biggest change is the money being spent by the government through the ESDF. This far outweighs any FDI, excluding the expenditure of international oil corporations on exploration.”

For the time being, contractors are happy to work with the government rather than take on projects independently.

“A lot of contractors in the real estate sector will see how far they get with the projects they have, then use that experience on their own projects rather than jump in with cold feet,” he says.
Encouraging foreign investment requires a change in Tripoli’s mindset. “Libya has traditionally prided itself on its ability to fund projects without outside help,” says Hagul. “However, considering the great number of projects planned for the next five years, it would be opportune to encourage more FDI and funding through foreign financial institutions.

“Recent amendments to Laws 5, 6 and 7 of the Foreign Libyan Investment Board offer all banks and financial institutions - foreign and domestic - providing project finance to companies under said laws, the same tax exemptions previously offered to foreign companies only.”

Cautious approach

The country is still wary of the possible consequences of opening itself up to the world too quickly, and prefers to follow a more gradual approach.

“There are two schools of thought: one that advocates a fast and complete opening, and another that recommends a conser-vative and cautious approach,” says Hashem Azwai, assistant secretary-general of LIB. “We are going for something between the two.”

With a plethora of projects expected to gather momentum in the next year, foreign investment could be on the rise. “Maybe 2008 could be a key year because there needs to be more FDI to spur things along,” says the financial expert. “Libya can’t rely purely on government expenditure.”

It appears the government is trying to encourage foreign investment. Recently, it passed a decision exempting local and foreign companies funding, implementing or managing investment projects from paying stamp duties.

However, obstacles remain. Land ownership rules in Libya are still unclear. But the LIB says it is preparing a comprehensive investment plan for the country, which will help to resolve the problem.

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