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FACTDROP: West wary of dangers lurking behind Libya’s boom


West wary of dangers lurking behind Libya’s boom

Foreign laborers at the construction site of a new tower overlooking the sea at the commercial center of Tripoli.

Πηγή: The Daily Star
By Jamie Dettmer
March 25 2013

TRIPOLI: Along several kilometers of the main thoroughfare of the upscale Tripoli district of Gargaresh the magic of capitalism is at work. What were dilapidated shops even a few months ago have undergone makeovers with bright new facades and contemporary shop fittings.

On late afternoons the street is full of new model Kias and hijab-chic mothers and daughters eyeing the latest Western and Gulf fashions. The shops are stocked with up-to-date electronics, food from Italy and fruit from as far away as Ecuador. Many of the store signs are in English – a snub to the past; Moammar Gadhafi wouldn’t have approved.

Gargaresh isn’t the only district in Libya’s capital witnessing a consumer liftoff. Ben Ashour and Fashloon are also undergoing face-lifts. And a consumer boom – although on a lesser scale – is under way in the eastern city of Benghazi.

For Richard Griffiths, president of the American-Libya Chamber of Commerce, Gargaresh is a harbinger of things to come.

“This is an attractive market,” he says. “If you look at the median age of the population and the access to markets in Europe and the Middle East, you realize the significant economic potential of the country.”

But that potential so far isn’t attracting U.S. businessmen, who are noticeable by their absence. At the construction-oriented Libya Build trade fair last spring there was only one American exhibitor among the 800 foreign firms present, most of which were Turkish.

In small trade exhibitions since in the capital’s five-star hotels American accents stand out they are so infrequent. Fast-food giants McDonald’s, Burger King and Pizza Hut have all turned down approaches from Libyan entrepreneurs eager to open up franchises of the famous brands.

And Americans aren’t the only ones holding back. European companies and investors also are hesitant. When it comes to overall risk assessments, Libya remains high. In fact, according to Giulio Dal Magro, chief economist of the Italian insurance group SACE, “Libya is category seven, the highest.”

With security alarms happening frequently it is unlikely Libya will slip down to a lower category any time soon. In recent weeks the country has seen the storming of Prime Minister Ali Zeidan’s office by disgruntled militiamen and an assault on a convey transporting the president of the country’s parliament, the General National Congress.

On March 6, hundreds of armed gunmen threatened lawmakers and held them hostage in an attempt to force approval of a controversial political isolation law banning from public office for a decade Gadhafi-era officials and Libyans holding dual nationality.

And militia-on-militia clashes have mounted outside Tripoli and in the Nafusa Mountains between tribes that took opposite sides in the revolution.

Griffiths acknowledges concerns over security and the rule of law are acting as deterrents. It is a point highlighted in an IMF assessment released this week that urges Libya’s new rulers to “normalize the security situation.”

On the face of it, Libya’s economy is recovering well from the 2011 uprising that ended the four-decade-long rule of Gadhafi. After contracting by almost 60 percent in 2011, the economy grew by 120 percent last year, thanks to oil output returning almost to where it was before the rebellion.The International Monetary Fund forecasts a 16 percent growth rate this year and the same for every year until 2018.

But for all of the good news, the IMF notes serious challenges ahead and warns that Libya is too dependent on oil. In fact, oil accounts for 60 percent of the country’s GDP. High oil prices have allowed Libya’s new rulers to maintain high spending, using the public purse to fund an array of subsidies and allowing it to maintain salaries for revolutionary militiamen.

All of that spending has been fueling the consumer boom being seen in districts like Gargaresh and tempering the frustrations of the militiamen, although not containing them completely.

The danger with that approach is it could, according to the IMF, lead to an “entitlement mentality,” one that will be hard to shake off later.

It is a worry shared by Mohammad Saad, a member of Libya’s General National Congress. “The problem is that people think that as we have money we can do and buy anything – that’s okay for an individual but not for a government; and we will have some serious reaction when we have to start to reduce the spending.”

For the IMF, managing the political transition and improving security are key short-term challenges. Get those right and then the country can start grappling with the medium-term challenges of developing government competency and the rule of law, improving education, rebuilding Libya’s infrastructure and encouraging business growth.

In the meantime, when it comes to the private sector, doing business can be especially challenging in an environment where the rule of law is shaky and governance weak. Add to that the fact that businessmen have to contend – or ignore – overly restrictive Gadhafi-era regulations and deal with a bureaucracy that’s notorious for graft.

According to a prominent Libyan investor in property development and retail, “there are no rules.” Chuckling, he says, “That means big risks but also big rewards.”

Investing in commercial property developments and retail can gross him 20 to 50 percent in profits over a six-month period, he claims.

Cutting corners comes at a price. He pays a militia to enforce his deals.

“Someone claimed ownership of one of my properties. I didn’t go to court, as it would have taken too long. So I had my militia friends visit him. They told him that if he returned to the property he would never leave – he’d be buried there. I have not heard from him since.”

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