The Turbulent History of Libya’s Economy

Through fights for independence, military coups and bloody uprisings, Libya’s economy in all its vast resources has been notoriously mismanaged.

al-monitor A general view of the port and Zawiya oil refinery, 34 miles west of the city of Tripoli, Aug. 22, 2013.  Photo by REUTERS/Ismail Zitouny.

Topics covered

revolution, private sector, oil, libya, corruption

Sep 12, 2013

The United Kingdom of Libya, which declared its independence from Italy on Dec. 24, 1951, was a small country demographically, but large in surface area. The country, at the time, did not possess important economic potential, but matters began to change once large oil reserves were discovered, and production and export commenced in 1959, lavishing Libya with generous sovereign revenues from its oil exports.

Affairs continued to gradually improve under the monarchy until the scourge of military coups overtook the country when Col. Moammar Gadhafi and his fellow junior officers in the Libyan army executed their coup on Sept. 1, 1969. The Libyan tragedy thus began with Gadhafi instilling dictatorial rule, devoting the country’s oil revenues to build a military arsenal and back rebellions in Asia, Africa and Northern Ireland, not to mention the pursuit of Libyan dissidents abroad.

Gadhafi’s adventures spread into the economy, which he organized and managed based on philosophies cited in his "Green Book" — philosophies that were inconsistent with any recognized economic theories, whether socialist or capitalist. As a result, the economy, in all vital sectors, was run according to unstable tenets that had nothing to do with efficiency. Gadhafi’s regime did not stop there. It embarked on large-scale and useless schemes, such as the "Great Manmade River Project," which was designed to transport water from Libya’s southern desert oases to the coastal regions of the north.

Also during Gadhafi’s reign Libya spent its surplus oil revenues on projects and investments throughout the world, some of which proved to be lucrative, while others were completely unprofitable. The projects served the personal interests of Gadhafi and his family, with total disregard to transparency and traditional investing criteria.

Despite Libya's billions of dollars worth of assets, investment products and other ventures that should deliver adequate returns and bolster oil revenues, these factors did not contribute to the development of the Libyan economy throughout Gadhafi’s 42-year reign. It is true that living standards did theoretically improve as a result of oil revenues during the past four decades, but the country remained poor in terms of its infrastructure, education, healthcare and housing sectors.

In light of the peculiar economic model adopted by the former regime, the country never developed a middle class capable of saving money that might be used to fund private enterprises. As a result, Libya lacked the distinguished businessmen who evolved throughout the oil-rich Arab Gulf countries. No privately-owned companies were established that were capable of operating in the oil or even non-oil related fields.

The Ali Zaidan-led government, appointed by the elected National Congress in October 2012, affirmed the importance of providing security and social harmony, while disarming militants and emphasizing the importance of reforming the service, as well as oil sectors.

But, what has been achieved so far? The country still suffers from the proliferation of weapons and dissident militant factions. The oil sector, meanwhile, is plagued by sabotage attempts through the organization of strikes or the sale of oil for the benefit of unruly factions.

It is well known that Libya produces approximately 1.6 million barrels of oil per day, which, based on current prices, should result in yearly revenues of $60 billion. But the rate of production is unstable, with stoppages occurring in production, exportation and refineries. All of this leads to shortages in the quantity of fuel needed for domestic consumption.

Production levels have decreased since the beginning of the Feb. 17, 2011 revolution, with national income following suit. But, by the end of last year, production soon recovered to normal levels and reached 1.6 billion barrels per day, with oil revenues constituting 98% of the country’s sovereign income, which amounts to approximately 95% of the state’s treasury income.

The Central Bank of Libya expected the economy to grow between 16% and 18% during 2013, while the International Monetary Fund (IMF) predicted the growth rate to be 20%. But, can these predictions be trusted? They may in fact come true if the political situation were to stabilize, with security prevailing in the country, and control being restored over the oil sector.

The nature of the Libyan economy dictates that the government and public sector institutions increase their spending at this crucial period of social and political development following the demise of Gadhafi’s regime.

In 2012, the government allocated $68 billion to public spending, in the form of current or investment expenditures meant to improve living conditions, provide employment opportunities and rebuild the country’s infrastructure and public service sector.

There are also requirements related to the security situation. The state must restore the role of security and judicial institutions, while putting an end to the chaos engendered by militias. A large number of Libyans have the qualifications needed to guide the Libyan economy toward the correct path, by properly directing managerial and financial capabilities, and establishing national companies and institutions that would play a pivotal and motivational role in all vital economic sectors.

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