Reconstructing Libya: In a ruinous state

Dire streets: a Libyan surveys the scene in Misurata, one of the cities that will need rebuilding following this year's civil war

An upscale Tripoli clothing store turns away customers because the staff do not know how to fix the expensive, high-tech cash register. Rubbish rots on streets because none of the foreign workers who used to pick it up have returned. At the trade ministry, applications for permits to start new businesses gather dust as government employees wait aimlessly for new orders from their superiors.

Libya may have thrown off the shackles of Muammer Gaddafi’s 42-year rule – but the dictator has left a devastating legacy. The country remains in many respects an economic backwater, with long-neglected infrastructure damaged further by this year’s vicious civil war, not least in important cities such as Tripoli and Benghazi. Production levels in the crucial oil sector have dwindled to 40 per cent. The tiny private sector is listless, while the bloated and inefficient public sector is warped by a system that rewards personal connections rather than performance. The legal and regulatory systems are opaque.

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Since the war ended last month, the transitional leadership has made clear that attracting foreign investment is a priority. Libyans themselves acknowledge that they are badly in need of foreign expertise to upgrade the infrastructure necessary to put the country back on its feet – from the ports to the oil industry that is the country’s main source of revenue, to the sewerage system and healthcare.

Speaking last month Mahmoud Jibril, the outgoing provisional prime minister, stressed the need to create a sense of order to help attract the companies driven out by the war. With revolutionary militia still on the streets, he said, “they don’t feel a sense of security and they use it as an excuse not to come back”.

For their part, companies and political leaders from overseas, including President Nicolas Sarkozy of France, have voiced their eagerness to invest in the new Libya. But the scale of the challenge involved is significant.

“I don’t think Libya is a place to pile into quickly,” says Coco Ferguson, a co-founder of the UK’s Maris Capital, among the few westerners to have visited post-revolutionary Libya to explore business opportunities. “It’s going to take years to sort out the corruption fostered by the old regime and to build strong institutions,” she says, “but the Libyans have shown they’re not short on courage.”

Of the energy companies and other foreign businesses that trickled into the country in the early 2000s after international business sanctions were lifted, many have yet to return. Of those that have, several employ only local staff. The few representatives of oil companies and banks that have visited have departed hastily because of worries over security and a lack of a stable, legitimate government with the authority to set the country’s course. Elections are not expected before June 2012.

“There’s a chance for investors to come back to Libya, but it’s going to take time,” says Anwar Fitturi, the provisional government’s minister of telecoms and transport. “We’re not about to start signing strategic contracts. That’s up to an elected government.”

One thing Libya does have is cash – lots of it. Tens of billions of dollars in overseas assets are being discovered month after month – which will probably lure companies in search of government contracts.

Those that do invest in the country – where gross domestic product per capita in 2010 was $13,846, compared with $9,071 for the Middle East and north Africa – are likely to find a business culture characterised by a lack of initiative, low productivity and a work ethic even many Libyans compare unfavourably with those of its neighbours. Egypt, Morocco and Tunisia lack Libya’s oil reserves – in 2011, the largest in Africa, according to the US Energy Information Administration – but are better attuned to international business standards.

Doing business in Libya also means navigating a legal system that veers between anarchy and officiousness, based on the whims of officials or institutions that often act in opposition to each other. A priority for the new leadership is to establish a solid legal and regulatory system. For business, clear rules are needed covering, for example, partnerships and repatriation of capital.

Even foreign oil companies established before the war find themselves in a triple bind, with the new government not yet formed, the old rules vague and new officials popping up, some declaring that contracts awarded by the previous regime must be investigated for irregularities.

The regulatory environment is unclear,” says Jonathan Terry of Maplecroft, a UK-based international risk assessment group. “For a couple of years there were a lot of new laws passed, sometimes overlapping. It’s unclear what laws are applicable and where and when.”

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The problem extends beyond the oil industry. According to Labid Buker, manager of a large private information technology company in Tripoli: “Before anything, we need a strategic study of the entire telecom field. We need to create a regulatory system that oversees everything in telecom, internet and mobile services.”

He adds: “The problem is there is no competition. Everything is under a monopoly. Even compared to the [generally mediocre service in the] Arab world, we’re suffering.”

Internet access, for example, is controlled by the state-owned Libya Telecom and Technology company, which provides mediocre and expensive service while stifling private-sector initiatives in a field known elsewhere for attracting creative young go-getters. Service provided by the state-owned mobile phone companies, Libyana and al-Madar, is frequently interrupted; obtaining numbers and paying bills are lengthy bureaucratic processes.

In the antiquated banking system, transactions that should take seconds take hours or even days. “You need to stand in one line to find out what your balance is and then in another line to withdraw the money,” says Mohammad Aribi, an IT expert at state-owned Jomhouri bank.

In the long term, the revolution may help Libya out of overlapping vicious circles of inefficiency – but for now it has made the situation more nebulous. Many of the foreign companies doing business there had to build contacts with the Gaddafi family member in charge of the relevant sector. Old habits die hard. With the dictator’s family gone, says Mr Terry, the few security and energy companies that have returned “are relying on the strength of local connections”, cozying up to figures in the National Transitional Council.

Where investments were made in infrastructure under Gaddafi, critics have frequently been underwhelmed by the results. “There are complaints that the country has spent a lot on electricity without any improvement of services,” says Mostafa Mohammad Shabaan, adviser to a state-owned electrical works company. Despite large sums paid in recent decades to companies such as Siemens and Areva to boost supplies, for example, the distribution network still seems fragile and inefficient, experts say. The power sector employs 30,000 to supply 6m people. Morocco, by contrast, employs about 5,000 to serve 32m, says Mr Shabaan.

Oil revenues were squandered under Gaddafi on big, gilded projects that were poorly executed and maintained. The dictator’s expensive Great Manmade River system, which pumps fresh water from the desert to the cities, has dangerously depleted reservoirs in the country’s south and left large cities dependent on a few pipelines vulnerable to sabotage or accidents. One way to solve the problem, experts say, would be to build salt-water treatment plants along the country’s 1,770km coastline.

Oil infrastructure, however, has long been a special case, considered the most advanced segment of the economy. The country can produce up to 1.8m barrels of light, sweet crude a day and has an estimated 46bn in reserves. But oil is also one sector that may be sewn up for now by companies that have been in Libya for years, such as Halliburton and Baker Hughes of the US, Total of France and Italy’s Eni.

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For outsiders willing to take the risk, the transport sector may present the best opportunities. Sea ports and airports are crumbling. Public transport is non-existent, which creates dependence on private cars and petrol that remains subsidised. Gaddafi in his final years spruced up the main highways, especially those used by the foreigners, but side streets in even the smartest districts are so pocked as to seem unpaved.

“Foreign companies will have a big role in transport because Libyan companies are small and not able to handle big projects such as roads, bridges, harbours, ports and trains,” says Farid Ghiblawi, an expert in shipping and a former maritime official for the transport ministry.

Healthcare, too, offers opportunities. During the first three decades of Gaddafi’s rule, he poured money into training doctors and building hospitals. But today many Libyans consider standards poor. “Some sophisticated surgery we just don’t do here,” says Issam bin Massoud, a surgeon based in Tripoli. “Oncology, gynaecology, neurology, spinal surgery – the patients must go abroad.”

The most talented physicians do likewise, fed up with low pay, unyielding bureaucracy, and poorly trained nursing and support staff. Despite the resources invested in training their own people, Libya must import medics from eastern Europe and Asia.

“The problem is in management,” says a western diplomat in Tripoli. “They have very good doctors and medical facilities but the system is not a system. It’s a patchwork.”

Infrastructure problems feed on each other. The sewerage system, which has not been upgraded since the 1970s, spews waste into the Mediterranean, fouling beaches that could otherwise be magnets for tourists. A poor education system discourages talented expatriates from moving back to help improve dilapidated rural education and healthcare, which in turn encourages talented locals to move to the cities and clog up the roads with traffic.

Even the oil industry is not immune to the deeper structural problems that afflict the rest of the economy. Some ministry employees work no more than four or five hours a week, adding to a culture of waste and inefficiency.

“We have everything,” says Wissam Traboulsi of Schlumberger, the oilfield services group. “We have the money. We have the equipment. Now we need good management to build better systems. This is why we did this revolution; not for money or jobs – because of management.”