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Doing Business in Libya

o Market Overview

o Best Prospects for U.S. Companies

o Entering and Succeeding in the Libyan Market

Market Overview

Libya is one of the largest countries in North Africa – boasts large oil and natural gas reserves and a consumer market of almost 6 million. Since the re-establishment of diplomatic relations with Libya in 2004, the United States has lifted economic sanctions against the country and has removed Libya from the U.S. list of states that sponsor terrorism. With these new developments, Libya is now more accessible to U.S. companies.

Libya is a challenging but potentially rewarding market. With proper planning and foresight, U.S. companies can take advantage of commercial opportunities in almost every sector, from oil and gas to agriculture to telecommunications and tourism. The Libyan economy depends primarily upon revenues from the oil sector, which contributes roughly 95% of export earnings, about one-quarter of GDP, and 60% of public sector wages. The recent highs in global crude prices have allowed Libya to accumulate foreign exchange reserves estimated at $50 billion. Oil production stands at 1.7 million barrels a day and the government plans to increase these figures to three million barrels a day by 2010. Libyan authorities estimate that it would take between $7-10 billion in new investments in the oil and gas sector to reach their stated production goals.

In part due to higher oil export revenues, Libya experienced strong economic growth during 2004 and 2005, with real gross domestic product (GDP) estimated to have grown by about 6.7% and 6.5%, respectively. For 2006, real GDP is expected to grow 6.7%, with consumer price inflation of 3.1%. Despite the country's recent economic growth, unemployment remains high. In addition, Libya's ambiguous legal structure, often-arbitrary government decision-making process, large public sector and various structural rigidities have posed impediments to foreign investment and economic growth. 

Libyan officials in the past several years have made progress on economic reforms as part of a broader campaign to reintegrate the country into the international fold. Libya faces a long road ahead in liberalizing the socialist-oriented economy, but initial steps - including applying for WTO membership, reducing some subsidies, and announcing plans for privatization - are laying the groundwork for a transition to a more market-based economy.

Libya is hoping to reduce its dependency on oil as the country's sole source of income, and to increase investment in agriculture, tourism, fisheries, mining, and natural gas.  The non-oil manufacturing and construction sectors, which account for about 20% of GDP, have expanded from processing mostly agricultural products to include the production of petrochemicals, iron, steel, and aluminum. Libya's agricultural sector is a top governmental priority. Climatic conditions and poor soils severely limit agricultural output, and Libya imports about 75% of its food. Hopes are that the Great Man Made River, a $30 billion project, will reduce the country's water shortage and its dependence on food imports. 

Best Prospects for U.S. Companies

Only one fourth of Libya has been explored for natural resources such as oil and gas. The return of American companies to the oil fields of potentially one of the biggest oil-producing nations in the world is well under way. In January 2005, Libya awarded its first contracts for drilling rights to U.S. companies in 18 years. Three American firms, Amerada Hess, ChevronTexaco, and Occidental won the lion’s share of oil blocks in the first round of the exploration and production sharing agreement auction. In October 2005, Libya held its second bidding round. The country plans more such rounds in 2007.

Libyan gas production and exports are also increasing, with the opening of the “Greenstream” pipeline to Europe in late 2004 and plans for additional pipelines and LNG expansion. Similarly, Libya’s electricity demand is expected to increase rapidly in coming years, meaning that the country needs to invest billions of dollars in new generating capacity.

Although Libya is earning high oil export revenues, gasoline import costs are rising rapidly due to Libya’s outdated refining sector, which requires substantial upgrading following years of sanctions.

Although the oil and gas sectors dominate Libya’s economy, there are moves to diversify. Sectors of particular growth and interest to U.S. companies include, but are not limited to: telecommunications, information technology, banking services, electric power generation, construction and engineering, health and medical services, wastewater treatment, desalination, agriculture technologies, transportation, tourism, education and training, and manufacturing. Libyan government officials particularly highlight telecommunications as a sector in which Libya aims to modernize quickly. 

Entering and Succeeding in the Libyan Market

Entering into any foreign market can be tricky and Libya is no exception. While there are a number of opportunities in this market, there are also major challenges that need to be managed. Libya’s legal structure is multi-layered, and its banking infrastructure primitive. Libya’s physical infrastructure requires upgrading, and telecommunications services are not adequate. Office space is limited, and the few Western-class hotels are often filled to capacity. U.S. companies wishing to send representatives to Libya are advised to expect considerable delays in obtaining Libyan visas.

In general, American products are well known and appreciated, including designer apparels, high-technology gadgetry, movies, software and other consumer products. Currently, most of these products enter Libya through third countries. Earlier this year the U.S. Commercial Service and the U.S. Mission in Libya organized the hugely successful USA Pavilion at the Tripoli International Fair. The pavilion was visited by thousands of Libyans eager to learn about U.S. products and services, demonstrating the appetite for American products.

Libya is a diverse and challenging market requiring adaptability and persistence. Careful planning and patience are the prerequisites for success in this emerging market. U.S. firms that are willing to invest time to develop market presence should expect to reap rewards in the long-term.