New law threatens Libya's economy

23 June 2013

Libya is enjoying robust economic growth, but legislation banning officials who served under Gaddafi may lead to a government and civil service severely lacking in experience

Libya oil prices 2013

Budgeted: $90
Breakeven: $91

The greatest challenges facing Libya’s transitional government the past year were to bring crude production back onstream and establish its authority in the aftermath of the civil war that brought down former leader Muammar Gaddafi in 2011. The first has been a success; the second remains a major test for the year to come.

Oil output increases

Oil output has increased from an average of 480,000 barrels a day (b/d) in 2011 to 1.45 million b/d in 2012 and a projected 1.7 million b/d in 2013, according to the Washington-based IMF’s Article IV report on Libya, published in May. Production is forecast to continue to edge upwards, to about 1.73 million b/d in 2014.

After shrinking by 62.1 per cent in 2011, the Libyan economy more than doubled in 2012

With crude prices enjoying a resurgence from a low of $79 a barrel in 2010 to $105 a barrel in 2012, Libya’s new government has been assured a healthy income. Hydrocarbons receipts totalled LD71.5bn ($56.7bn) in 2012, and are expected to increase to LD83.6bn in 2013 and LD83.8bn in 2014.

Oil and gas earnings are the mainstay of the country’s economic wellbeing and its prospects for future investment in construction and infrastructure. In 2012, hydrocarbons contributed 69.2 per cent of government revenue, and this is likely to increase to 69.5 per cent in 2013, according to the IMF.

In the years after a conflict as damaging as that in Libya two years ago, the significance of growth figures is more difficult to gauge. After shrinking by 62.1 per cent in 2011, the economy more than doubled in 2012. This year, it is due to grow by 20.2 per cent, before slowing to 10.1 per cent in 2014.

Strong finances

Tripoli’s current account balance was estimated at a healthy 35.9 per cent of gross domestic product in 2012, and is expected to remain strong at 26.3 per cent in 2013 and 18.1 per cent in 2014. The rapid acceleration was driven by hydrocarbons sector growth of 211.4 per cent in 2012, as the industry restarted after the revolution, and should grow to 16.7 per cent in 2013. However, this is set to slow to 2 per cent in 2014.

Non-hydrocarbons growth has been less spectacular, at 43.7 per cent in 2012, but is expected to continue to grow strongly, at a projected 24.5 per cent in 2013 and 19.5 per cent in 2014.

Much, though, depends on the maintenance of political stability. Over the course of the past year, industrial action has caused outages at some of the country’s refineries, with locals demanding employment and a greater stake in the revenues.

Earlier this year, refineries at Ras Lanuf and Marsa el-Brega were briefly shut down, although the government denied reports that this was the result of strikes, claiming instead that there were technical problems at the facilities.

Armed militias in Libya

Of more concern than industrial action, however, is the government’s failure to disarm and disband local militias. Regional groups that gained strength from their role in dislodging Gaddafi and from the arms that were supplied by the West to help in their fight against the regime are now reluctant to cede this power to a political administration.

A string of personnel changes is expected to follow, including the replacement of other cabinet members

There has been progress towards establishing some sort of political normality in Libya over the past year. On 7 July 2012, elections to the General National Congress (GNC), the country’s parliament, resulted in a strong showing by former interim prime minister Mahmoud Jibril’s secular National Forces Alliance. It won 39 of the 80 seats set aside for parties in the 200-seat chamber. The elections, the first free poll since 1952, enjoyed a 62 per cent turnout.

A new government was created on 31 October, but has since been beset with disputes over how acceptable it is for officials who served under Gaddafi to continue to be involved with government.

In late May, Prime Minister Ali Zeidan appointed Mohamed Khalifa Sheikh to replace Ashour Shuwail as interior minister in the latest of a string of cabinet reshuffles. Within days, GNC president Mohamed el-Magariaf had also resigned. This latest change in personnel is being driven by a controversial law, approved on 5 May, which bans any official who served under Gaddafi from holding public office – even if their only involvement was in the leader’s early years, and irrespective of their involvement in overthrowing the regime.

Purging officials

The legislative changes, which formally came into effect on 6 June, were driven by armed militias who surrounded government ministries in Tripoli in early May, demanding the introduction of the law. A string of personnel changes is expected to follow, including the resignation and replacement of other cabinet members, dozens of parliamentarians and hundreds of thousands of civil servants across the country.

These changes do not bode well for governance in Libya in the coming year. The act of banning all those who have served in the government in the past 44 years will leave an inexperienced group of officials even less resistant to the will of the armed militias.

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