Libya: Rebels' attention turns to economy

As Libya's civil war moves to its endgame, attention is shifting to how the country's battered economy can be restored - with gallery and video.
Cars queue up for petrol in the Libyan coastal city of Zawiyah. Libyan rebels tried to ease petrol shortages in the coastal strip west of Tripoli by distributing free fuel.
Cars queue up for petrol in the Libyan coastal city of Zawiyah. Libyan rebels tried to ease petrol shortages in the coastal strip west of Tripoli by distributing free fuel.

Libyan rebels are likely to switch focus to rebuilding the country's shattered economy as they loosen Muammar Qaddafi's grip on power.

Trying to secure an estimated US$150 billion (Dh550.9bn) in Libyan foreign assets frozen by governments around the world because of links to the country's leader will be one of their priorities.

They will also need to revive the country's oil market, historically its largest revenue source.

"Libya still has a lot of potential," said Liz Martins, the senior economist at HSBC Middle East. "It has a lot of oil wealth and tremendous opportunities for economic growth."

Six months of civil war is already estimated to have cost the economy about $50bn, according to Col Qaddafi's government. Now, as rebel forces advance on Tripoli after capturing key surrounding cities, the momentum appears to have swung firmly in their favour.

But as hopes rise that an end to the conflict may be in sight, attention will turn to how the country's economic prospects can be restored. GDP expanded by an impressive 10.3 per cent last year, according to the IMF, mainly thanks to greater oil output.

Until now, rebels have relied on international loans and a small amount of foreign assets that have been unfrozen by supportive overseas governments to fund their campaign and bolster the economy in rebel-held areas. But rising prices have squeezed funds needed to pay for food, medicine and the state salaries on which most of the population depends.

Funding pressures are likely to intensify if the rebels' National Transitional Council has to step up and take control of the country in the event of Col Qaddafi's 41-year rule being brought to an abrupt halt.

As a result, restarting oil production to generate revenue will be crucial. Production has ground to a near-standstill since the outbreak of fighting in February.

Libya previously accounted for just under 2 per cent of global crude demand, producing about 1.8 million barrels per day (bpd), of which it exported 1.5 million bpd.

"Oil exports will bounce back more quickly if there's no damage done to the pipelines," Ms Martins said.

Longer term, Libya needs to push ahead with diversification efforts in the non-oil sector, say economists.

A more complex challenge for any new government would be beginning the repatriation of Libya's oil wealth invested in bank accounts, property and other asset classes around the world.

The country is estimated to have about $110bn in reserves and other financial assets managed by its central bank. About $36bn is controlled by the Libyan Investment Authority, the country's sovereign wealth fund, including a 3 per cent investment in the UK publisher Pearson, a 2.6 per cent share in UniCredit, Italy's largest bank, and a 2 per cent stake in both the Italian car maker Fiat and Finmeccanica, an Italian aerospace company. In addition, commercial banks, which are mainly owned by the government, have foreign assets of about $4bn.

Notwithstanding these challenges, other obstacles could impede the task of restoring the economy.

"What's uniting the NTC is Qaddafi. When Qaddafi is gone they're going to clash," a Middle Eastern analyst who declined to be identified was quoted as saying by Reuters last week.

 

tarnold@thenational.ae

Published: August 22, 2011 04:00 AM

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