Libya’s uphill battle

The unity government faces an uphill battle to secure the loyalty of local interest groups and fulfill its mandate under the UN peace plan. Owing to the lack of a unified army, Libya will struggle to achieve its goal of restoring security across Libya, with conflict continuing in 2018. Consequently, political and security instability in Libya has continued to affect the economy.


Strength in weakness

Policy and economic reforms are unlikely to promote a fundamental diversification away from oil and gas. Libya continues to be largely dependent on its energy resources mainly due to the projected rise in oil prices and the anticipated recovery of the crude-oil production. This is confirmed by the re-opening of several key oilfields in 2017, which has temporarily pushed economic growth back into positive territory. The forecasted boost in oil revenues provides the Libyan government with means and resources to face longer-term challenges.


Put simply, the government has been presented with an opportunity to launch its economic recovery plan by adopting an expansionary fiscal policy aimed at diversifying revenue sources and economic activity to improve public service delivery and rebuild damaged infrastructure. This is easier said than done. The reality is that Libya’s strength remains its weakness - an over-dependence on oil and gas, combined with:

  • limited institutional co-ordination within their public sector,

  • insufficient revenue collection, and

  • poor fiscal management

These factors have created an indefinite delay in efforts to diversify the economy away from the oil sector towards more general industrialisation. Libya requires significant reform programmes that will yield an enhanced ability to mobilise external resources. Only then may it realise its growth potential.

The role of the private sector

The Central Bank of Libya (CBL) has come to the party, at least vocally, and has said it will keep providing credit to business people who want to partner with the CBL in its attempt to create a comprehensive economic project - one that would boost the Libyan economy, in coordination with the Presidential Council; so that Libya can break away from the current economic failure. Its primary focus will be on encouraging private investment in areas most likely to create jobs, such as infrastructure, agriculture, hospitality, and trade services, to address the rising unemployment rate that reached 20% in 2016 and continues to escalate.


Challenges

The main problem faced by the CBL is rising prices of basic goods and it may be difficult to bear the financial burden of subsidies required to sustain the population. The lack of security makes the country's living conditions difficult, and many people have emigrated. Much of the already deficient infrastructure has been destroyed, further complicating access to drinking water and electricity. A third of the population is living below the poverty line thus it’s no surprise the country boasts the unwanted accolade of being the largest number of African migrants trying to escape to Europe.


In the short term, the key challenge is for Libya to restore and improve basic public services. In the long term, Libya—hopefully with help from the international community—needs to develop a more diversified, market-based economy that goes beyond the oil and gas sector. In oil and gas, Libya should drastically change the management of revenues to ensure they are used in the best interests of the population, for example by using revenues to finance large infrastructure investments, creating productive jobs for Libyans in the process. The Libyan Investment Authority holds vast financial resources, estimated at $67 billion at the end of 2012—those could be mobilized and injected into the real economy.

Possibilities

The private sector will only be able to re-enter the Libyan market once the security situation stabilizes, then only will it help create sustainable jobs and wealth. Agriculture could be developed again, as could the renewable energy sector (and solar energy in particular). The tertiary sector, which was not very developed in the past, except for in ministerial offices, would benefit because of these other changes in the economy. The hospitality and tourism industries, for example, could re-grow once there is some stability and adequate infrastructure, as is the case in neighbouring Tunisia and Egypt, where tourism represents a large portion of GDP. To address unemployment, targeted interventions should seek to advance skills development, vocational training, apprenticeship and entrepreneurship programs—something that Gadhafi never did, Libya needs to have a competitive workforce.


Diversification

"What faces Libya may seem like an insurmountable mountain, but it can be done.

It can be done because the situation Libya find themselves in, isn’t irreversible. It requires the political will to fix it. Much like South Africa, a country built on mining (the sector still being the biggest contributor to our economy) they too had to diversify their economy away from solely mining in order to be relevant in the modern world. America, built on the Gold Rush of 1800’s now has the most diversified economy in the world, Nigeria also a country over-reliant on oil has had to diversify their economy away from solely energy and include manufacturing and arts to now be the 2nd biggest economy in Africa. It’s a problem any developing country faces but it’s one that can be solved."


Writer's Bio - Mduduzi Luthuli


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