Geopolemics.com

Countries: Libya
Posted on Wednesday, February 24, 2010 - 02:30 PM
	Shooting Itself in the Foot>/u> Libya has decided to take a concrete step toward opening its banking sector to foreign capital and investment. "An important part of Libya's financial-sector reform strategy is to allow foreign banks to operate in the country,", announced the Libyan Central Bank which will put up for auction two banking licenses for foreign financial institutions, who will have to find local partners, who will hold 51% of the capital. The foreign institution will put up 49% of the capital but retain management privileges. The institutions interested in taking a risk in Libya will have to have at least a Tier 1 asset rating (at least USD 2 billion) and enjoy a recognized international standing. The applications will have to be received by March 30 and the final offers submitted by June 15. Libya, it would appear, has started to accelerate the process of opening its economy. Certainly, the Libyan Investment Authority, which runs the Libyan sovereign fund, has been gradually gathering international assets, including a minority stake share in the Italian energy giant ENI and a 5% holding in one of Italy’s biggest banks, Unicredit. Libya also intended to invest in Italian companies needing capital, through a fund to be set up through Mediobanca. Shukry Ghanem, the chairman of the Libyan National Oil Company (NOC) said that Libya wants to increase gas exploration and production in order to increase exports to Europe, (seeing as many European countries want to diversify their natural gas supplies, to reduce their reliance on Russian gas). Libya also has plans to privatize some refineries and develop oil derivatives, or downstream, industries to produce petrochemical products, in an effort to diversify the sector and produce more value-added products, from fertilizers to chemicals. In order to achieve this diversification Libya needs more foreign investment. In early February, Ghanem spoke to potential investors in London; he said that Libya prefers to see “the downstream sector to be owned in the main by foreign investors rather than the public sector, serving as a serious bid to encourage entrepreneurship and investment in Libya’s energy sector”. Moreover, Ghanem was confident enough to suggest that Libyan companies would also benefit from the alleged plans to liberalize the oil & gas sector to foreign investment. Ghanem claimed that the decade of sanctions in the 1990’s prevented Libyan companies from competing internationally. Now, Libyan companies will have greater access to means to generate growth and develop local capacity and “content”. Certainly, the Libyan government needs foreign companies to help it achieve its oil production target of three million barrels a day. Nevertheless, in 2009 Libya made a series of erratic and eccentric policy blunders that would make most companies think twice about investing in Libya’s oil and gas sector. The Libyan government started to talk of nationalizing the oil sector and ‘renegotiated’, in its favor, contracts with some of the principal oil companies active in the country such as ENI, Repsol and Total. Then there was the Verenex debacle, during which Libya interfered in the sale of the Canadian company’s assets to the Chinese CNPC, lowering Verenex’s share price and then forcing the latter to sell its assets to the Libyan government at a far lower price than had been agreed with the Chinese. Despite Ghanem’s attractive investment picture, most investors will be wary of entering the Libyan market. The oil sector, which had managed to resist political controversy in the 2004-2008 period has started to fall prey to a wider political dispute between the hardliners and the pragmatists (championed by people like Ghanem himself and Saif ul-Islam al-Qadhafi). The hardliners, who promote a version of Arab nationalism that has faded out elsewhere in the Arab world, see foreign investment as a form of imperialism; until recently, the pragmatists had been able to let practical concerns prevail. Where is the Common Sense? The conservative backlash witnessed in the oil sector has had other and more damaging ramifications; in some cases, these defy common sense. Indeed, the Libyan Central Bank’s sensible announcements, aimed toward generating foreign investment in the banking and downstream oil sectors coincided with a bewildering move. Not satisfied with its ongoing polemic with Switzerland, in a dispute related to the incident involving Hannibal al-Qadhafi and the continued detention of two Swiss businessmen (now acquitted by the Courts but still waiting for their exit visas) since July 2008, Libya announced that it would stop granting visas to all citizens coming from countries belonging to the Schengen Zone. This includes most important countries of the European Union. Passengers arrived at Tripoli airport, hours or even minutes after the announcement, and they were turned back! So much for Libya’s much vaunted plans to develop the tourism sector, let alone attracting foreign investors. Libya’s new policy to restrict visas (a process that has always demanded considerable patience from those requesting them), is a retaliatory move against Switzerland’s decision to ban Colonel Qadhafi and 187 other Libyans from the Swiss Federation. The Swiss announced the measures to put pressure on Libya to grant the exit visas to its two citizens. Italy and Malta, which have very important interests in Libya have tried to resolve the matter amicably, but the talks between Switzerland, Italy (trade between Italy and Libya is valued at some EUR 20 billion annually); Malta and Libya have failed to produce an agreement. Libya is especially incensed by the fact that the Swiss media published photos of Qadhafi’s son Hannibal while he was in police custody. Surely, Libya will still be able to attract investment from other Arab countries and the banking sector opening will likely bring investors from the Gulf. Ahli United Bank, from Bahrain, bought 40% of Libya’s United Bank for Commerce & Investment. Nevertheless, even Arab investors might exercise caution. Why would companies from Dubai or Bahrain invest in the Libyan tourism sector, building hotels and related infrastructure, if the desired western tourists are being given every reason to avoid choosing Libya as a vacation spot? Apologists for Libya might claim that Switzerland’s list of unwanted Libyans and the flabbergasted European reaction, as a bygone of ‘imperialism’ or western arrogance. Switzerland acted within Schengen rules, targeting a specific and small number of applicants. “No longer can the West dictate how a developing state behaves”, they might say. Correctly, they may also point out that Europe needs Libya as a partner to challenge terrorism, organized crime and illegal migration, not to mention energy sources. Nonetheless, since its rehabilitation until 2008, the Libyan leadership had started to shed some of its ‘eccentricity, showing its readiness to become a serious and predictable participant in international relations, rising above controversy and setting a course of normalcy and true development for its people. Sadly, the Libyan leader is now squandering all the goodwill earned since 2004. The recent bewildering episodes in Libya speak of a nation that needs a substantial political change if it wants to bring about the economic plans that are advertised by the regime’s more pragmatic figures such as Saif ul-Islam Qadhafi or Shukry Ghanem. Political change has not started, there are uncertainties over the succession of the leadership and Libya’s steps – all retaliations for the very private antics of the leader’s family members – will only serve to boost the uncertainty. The visa dispute will, of course, eventually be resolved and European business people will be able to return to Libya. They will just be taking a bigger risk. Libya, too, has taken a risk; its business reputation has suffered another important blow. Note: To read more, click here

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