Libya: Lessons Learned?

For the last 4 weeks, PITAPOLICY has reflected upon North African countries, or the Maghreb region as the US honors Black History Month with respect to the African American community. In this last week, we will profile Libya by including some responses by Control Risks, a global consulting firm that reviewed the potential business environment for Arab countries in transition. The Arab countries in transition are generally linked by the common experience of the Arab Awakening that ignited in Tunisia back in December 2010.

PITAPOLICY contributors reviewed the Maghreb region in this order looking at the political and economic forces that have changed–or remain unchanged.

Week One – Algeria “Algeria & The Arab Spring: Why It’s Not Next.” by Sarah Hassaine
*Note: Coincidentally, a few weeks later, Johns Hopkins University presented a panel on Algeria: Why It’s Not Next.

Week Two – Egypt “Ding Dong the Pharoah’s Gone” by PITAPOLICY Founder, Mehrunisa Qayyum

Week Three – Tunisia Before Ben Ali Coup: Opening a Small Business Outside of Tunisia by PITAPOLICY

Week Four – MoroccoMoroccans Keep Rockin’ Your Rights” by Anonymous

Week Five – Libya As we wind up our Maghreb showcase, PITAPOLICY is happy to close with Libya. Control Risks is based in London, but operates several Middle East offices (Abu Dhabi, Islamabad, Al Khobar, Basra, Baghdad, Dubai, Islamabad, and Kabul) with its Maghreb focus operating from its Algiers office.

Libya is an upper-middle income country and represents an economy that has relied on oil to sustain its political structure even before Muammar Gaddhafi took power in 1969. There is no data on Libya’s external debt or economic policy.

With a population of about 6.7 million people, Libya is made up of about 97 percent Arab and around 2.5 percent Berber–which is an ethnic group that also resides in Morocco, Algeria, and Tunisia. Libya’s population growth is a little over the global average: 2.9 children born per woman with a trend towards urbanization that is not yet on par with Tunisia and Egypt, according to the World Bank’s MENA Blog.

Despite Libya’s upper-middle income status, health indicators do not stand on par with other upper-middle income countries. For example, Libya’s mortality rate for ‘children under five’ falls below average in both the upper-middle income cohort as well as the Middle East & North Africa region. As such, it will be of keen interest to see how the new National Transitional Council will take steps to invest in its next generation’s education AND healthcare service delivery.

Interview with Richard Fenning, CEO of Control Risks:

MQ: How would Control Risks classify Libya regarding political risk?

RF: We consider political risk in Libya to be high given that the political system remains influx and the state attempts to redefine itself and reestablish central authority. Central government is likely to remain weak, with a range of non-state actors and informal powerbrokers likely to impact on investors’ operations. Given the early stages of the transitional process, the impact of factionalism and corruption investigations on investors remains speculative but arbitrary shifts in policy and contract repudiation remain significant risks.

MQ: Regarding Libya, has the political risk increased or decreased as it shifts from an authoritarian structure to a transitional council? Please explain Control Risks’ reasoning for classifying Libya in this way.

RF: Our political risk rating was raised from medium to high following the uprising in Libya; given the uncertainties discussed above it is likely to remain high until the latter end of the transitional process. Although the former government was known for capricious policy formation it provided investors with greater stability and certain, however fragile given its structural position and legitimacy, than the current transitional process. However, the institutionalization of the rule of law and the development of meaningful state institutions over the transitional process, which remains credible but very challenging, would see a reduction in the political risk rating.

MQ: I noticed that there is only one North African office hub, which is located in Algeria. Would you say that Algeria presents the best foreign direct investment environment even though it is not an Arab country in political transition like its Arab Awakened neighbors? Please explain.

RF: We consider political risk in Algeria to be high, on par with Libya but higher than the medium rating for Egypt and Tunisia. Algeria’s business environment has significantly deteriorated in recent years, notably as a result of the restrictions on foreign ownership that have been imposed since 2009 on new projects in the non-oil economy. Compulsory majority Algerian ownership has deterred new investment, and the authorities have struggled to attract enough companies to carry out large public-investment projects. The authorities have put pressure on some companies to retroactively adopt the 51:49 model on existing entities without any sound legal basis. This has discouraged established investors from expanding their activities in the Algerian market, despite the high potential in the country, which remains the largest in the Maghreb in terms of population. There are no signs that the authorities intend to revise these provisions in the short-to‑medium term. However, companies face persistent risks associated with pervasive corruption, contract frustration, bureaucracy, currency inconvertibility, and the deep politicisation of the business environment.

Note: PITAPOLICY would like to thank Control Risks for sharing its overview at the National Press Club on February 7th. Next week will kick off the March theme of Technology in the ‘pita-consuming’ region to prepare for observing the Arab Net conference.

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Filed under Analysis, Interests, PIDE (Policy, International Development & Economics), Politics

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