Libya: Economy
The government dominates Libya's socialist-oriented economy through control of the country's oil resources, which account for approximately 95% of export earnings, 75% of government receipts, and 25% of gross domestic product. Oil production, previously constant at just below Libya’s Organization of Petroleum Exporting Countries (OPEC) quota of 1.4 million barrels per day (bpd), ground to a halt following the outbreak of political violence in February 2011. Oil revenues constitute the principal source of foreign exchange. Much of the country's income over the years has been lost to waste, corruption, conventional armaments purchases, and attempts to develop weapons of mass destruction, as well as to large donations made to developing countries in attempts to increase Qadhafi's influence in Africa and elsewhere. Although oil revenues and a small population have given Libya one of the highest per capita GDPs in Africa, the government's mismanagement of the economy has led to high inflation and increased import prices. These factors resulted in a decline in the standard of living from the late 1990s through 2003, especially for lower and middle income strata of the Libyan society.
On September 20, 2004, President George W. Bush signed an Executive Order ending economic sanctions imposed under the authority of the International Emergency Economic Powers Act (IEEPA). Under the 2004 order, U.S. persons were no longer prohibited from working in Libya, and many American companies in diverse sectors actively sought investment opportunities in Libya. In 2008, the government announced ambitious plans to increase foreign investment in the oil and gas sectors to significantly boost production capacity from 1.2 million bpd to 3 million bpd by 2012, a target that the National Oil Corporation later estimated would to slip to 2017. In February 2011, the U.S. and UN imposed sanctions on Libya following the outbreak of political violence.
The government had been pursuing a number of large-scale infrastructure development projects such as highways, railways, air and seaports, telecommunications, water works, public housing, medical centers, shopping centers, and hotels. Despite efforts to diversify the economy and encourage private sector participation, extensive controls of prices, credit, trade, and foreign exchange have constrained growth. Import restrictions and inefficient resource allocations have caused periodic shortages of basic goods and foodstuffs, shortages that are worsening as the political unrest continues. Libya faces a long road ahead in liberalizing the socialist-oriented economy and recovering from the losses of the ongoing conflict, but initial steps, including applying for World Trade Organization (WTO) membership, reducing some subsidies, and announcing plans for privatization, have laid the groundwork for a transition to a more market-based economy. The non-oil manufacturing and construction sectors, which account for more than 20% of GDP, have expanded from processing mostly agricultural products to include the production of petrochemicals, iron, steel, and aluminum. Climatic conditions and poor soils severely limit agricultural output, and Libya imports about 75% of its food. Libya's primary agricultural water source remains the Great Manmade River Project, but significant resources have been invested in desalinization research to meet growing water demands. Government officials have also indicated interest in developing markets for alternative sources of energy, pharmaceuticals, health care services, and oil production byproducts.
Sources:
CIA World Factbook (September 2009)
U.S. Dept. of State Country Background Notes (July 2011)