Libya: Risk Assessment
Country Rating1
Rating: D
Business Climate Rating1
Rating: D
Risk Assessment2
A popular uprising leading to the collapse of the Qadhafi regime and to uncertainties
Opposition forces entered Tripoli at the end of August 2011, bringing therefore an end to Colonel Qadhafi’s regime, which had ruled Libya since 1969.
The National Transitional Council (NTC) has issued a temporary constitution outlining a political transition process which should be completed within 20 months.
Its success will depend on how frictions between various factions and individuals can be managed, as well as on building a new unified army, whereas each Libyan area has its own security force.
In a country with people referring to tribal or regional membership and others to Islamism or Western liberalism, it will not be easy to bring back stability in order to restore oil production and rebuild infrastructure.
Devastating economic consequences in 2011
The economic consequences of the civil war will be devastating in 2011. The activity should shrink dramatically, due to almost total disruption of hydrocarbons production and exports resulting from the military conflict, between March and September 2011, and assuming that oil production will gradually recover before the end of the year.
Public and external accounts very negatively impacted in 2011
The country has recorded fiscal and current account surpluses until 2010, thanks to the exploitation of hydrocarbon resources (90% of budget revenues and 95% of exports).
In 2011, public finances will suffer greatly from the near depletion of hydrocarbons production, representing most of the budget revenue. The implementation of development programs and maintaining public subsidies, especially for food, health and housing, has been postponed. The public accounts will show a wide deficit, although so far public debt was equal to zero.
The external accounts will also significantly deteriorate, from a surplus of 20% of GDP in 2010 to a large deficit in 2011. The main reason is the fall in hydrocarbons exports and, marginally, increases in import prices of foodstuff and semi-durable goods.
Besides, several countries - including the US, France, Italy, UK, Qatar, Kuwait and Turkey - have pledged financial assistance to the NTC and indicated that they will make available the Qadhafi regime's frozen overseas assets, housed in the sovereign wealth fund Libyan Investment Authority.
Catastrophic business environment expected to improve
The institutional and governance problems have continued to weigh during the last years of the Qadhafi regime and slowed the diversification of the industrial fabric. Indeed, plans to liberalize the economy and privatize public enterprises encountered strong opposition within the ruling class.
In addition, the business environment was very difficult, due to uncertain regulation and administrative inefficiency, which greatly slowed the decision process.
Following the collapse of the Qadhafi regime, the new government is expected to introduce reforms to enable the economy to operate more effectively.
Before solving all these problems, long delays in payment and debt collection problems are expected.
Strengths
- Extensive reserves of oil and gas
- Structural reforms undertaken (modernizing the economy and the banking sector)
- Tourist potential associated with the archaeological heritage
Weaknesses
- Scorched earth policy of Mouammar Qadhafi
- Relatively undiversified and oil-dependent economy
- Inadequate levels of education and training
- Dependence on foreign know-how and workforce
- Economy severely encumbered by bureaucracy
- Difficult business environment