libya _1_ by arifahmed224

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									Libya

Economy and Trade
The Italians took over control of the area of Libya around Tripoli from the Ottoman Turks in 1911. After World
War II, Libya passed to United Nations (UN) administration, and achieved independence in 1951. Following
a military coup in 1969, Colonel Muammar Abu Minyar al-Qadhafi began to espouse his own political system,
the Third Universal Theory. The system is a combination of socialism and Islam, derived in part from tribal
practices, and is supposed to be implemented by the Libyan people themselves in a unique form of direct
democracy. Qadhafi has always seen himself as a revolutionary and visionary leader. His dream of changing
the world through subversion and support for terrorism had Libya declared a rogue state until Qadhafi began
to rebuild his relationship with Europe during the 1990s. In December 2003, Libya announced that it had
agreed to reveal and end its programs to develop weapons of mass destruction, and to renounce terrorism.
Since then, Qadhafi has made significant strides in normalizing relations with Western nations. He made
his first trip to Western Europe in 15 years when he traveled to Brussels in April 2004. The United States
rescinded Libya’s designation as a state sponsor of terrorism in June 2006, which paved the way for Libya’s
economy to start to prosper. After the United Kingdom and Libya signed a prisoner exchange agreement in
2009, Libya requested the transfer of the convicted Lockerbie bomber Abdelbaset Ali al-Megrahi; he was
freed from jail on compassionate grounds and returned home in August 2009.


Economic Policy over 12 Months
The Libyan economy depends primarily upon revenues from the oil sector, which contribute about 95%
of export earnings, about 25% of GDP, and 60% of public-sector wages. Libya has taken advantage of
its improved ties with the West to attract foreign investment, and a primary aim of government policy is to
reduce dependence on oil and reduce the government’s role in the economy.
Libya faces a long road ahead in liberalizing the socialist-oriented economy, but initial steps—including
applying for World Trade Organization (WTO) membership, reducing some subsidies, and announcing plans
for privatization—are laying the groundwork for the transition to a more market-based economy.
As part of this process, the central bank said in February 2010 that it planned to grant two licenses for
foreign institutions to set up units in Libya as part of promoting the role of the private sector in the country.
The foreign banks will control 49% of their Libyan subsidiaries and have full management control, while the
remaining 51% holding will be owned by domestic investors. The central bank said that banks interested in
applying for the two licenses must have an established international presence and a credit rating of at least
Baa2 by Moody’s Investors Service, or BBB by Standard & Poor’s or Fitch Ratings. HSBC Holdings Plc and
Standard Chartered are among the international banks that have applied to set up in the country.
In August 2009, the central bank announced that Italy’s UniCredit SpA had won preliminary approval to open
a subsidiary. It had also shortlisted two banks from the United Arab Emirates and one from Qatar—Mashreq,
Emirates NBD, and Qatar Islamic Bank—as well as HSBC and Standard Chartered for the other license.
The 2009 budget envisaged a small nominal decline in public expenditure, putting an end to three years of
large fiscal expansion. The small decline in overall expenditure reflects a 20% reduction in capital spending
and a 25% increase in current outlays, which includes a 16% projected increase in the wage bill. The latter
is due in large part to the return to the civil service payroll of a portion of the public employees that were
previously transferred to a central labor office for retrenchment to the private sector. The overall fiscal
position is expected to register a surplus of about 10% of GDP in 2009, despite the projected decline in oil
revenue by almost 40%.
The non-oil manufacturing and construction sectors, which account for more than 20% of GDP, have
expanded from processing mostly agricultural products to include the production of petrochemicals, iron,
steel, and aluminum. Climatic conditions and poor soil severely limit agricultural output, and Libya imports
about 75% of its food.



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Economic Performance over 12 Months
Libya’s overall macroeconomic performance in 2008 was strong, with real GDP growing by about 3.8%.
However, lower oil prices caused growth to slow to 4% in 2009, according to Minister of Economy, Industry,
and Commerce Mohamed Hweji (speaking in April 2009). The minister added that the government expects
growth to accelerate to 6% in 2010.
The government dominates Libya’s socialist-oriented economy through complete control of the country’s oil
resources. Oil revenues constitute the principal source of foreign exchange. Much of the country’s income
has been lost to waste, corruption, conventional armaments purchases, and attempts to develop weapons
of mass destruction, as well as to large donations made to developing countries in attempts to increase
Qadhafi’s influence in Africa and elsewhere. Although oil revenues and a small population give Libya one
of the highest per head GDPs in Africa, the government’s mismanagement of the economy has led to high
inflation and increased import prices. These factors resulted in a decline in the standard of living from the late
1990s up to 2003.
Muammar Qadhafi’s most recent economic plan for Libya is the Wealth Distribution Plan, in terms of which
the government aims to eliminate the majority of Libya’s key ministries in favor of the direct distribution of
oil wealth to the people. Instead of channeling oil revenues to the people through layers of bureaucracy,
the idea is to streamline and transform the whole state apparatus. So far, despite efforts to diversify the
economy and encourage private sector participation, there remain extensive controls on prices, credit,
trade, and foreign exchange, all of which act to constrain growth and discourage private investment. Import
restrictions and inefficient resource allocations by government departments and agencies have caused
periodic shortages of basic goods and foodstuffs.
Although agriculture is the second-largest sector in the economy, Libya imports most foods. Climatic
conditions and poor soil severely limit output, while higher incomes and a growing population have caused
food consumption to rise. Domestic food production meets about 25% of demand. The Libyan government
has announced ambitious plans to increase foreign investment in the oil and gas sectors, with the aim of
significantly boosting production capacity from 1.2 million barrels per day (bpd) to 3 million bpd by 2012. The
government is also pursuing a number of large-scale infrastructure development projects such as highways,
railways, air and seaports, telecommunications, water works, public housing, healthcare, and hotels.


Support for Inward Investment and Imports
Investing in Libya is handled by the Libyan investment promotion agency, the Libyan Foreign Investment
Board (LFIB, telephone: +218 (21) 360-8183-360-9613).
Investment opportunities in Libya at present are limited to the oil and gas field, and associated areas.
Telecommunications and the financial sector remain government monopolies, although in March 2009
news services were reporting that Libya could be opening its banks to foreign operators (source:
www.animaweb.org).


Tax Exemptions
Information is available from LFIB.


Statistics
GDP growth: 4% (official, 2009)
GDP per capita: US$15,200 (2009 est.)
CPI: 2% (2009 est.)
Key interest rate: 5% (December 31, 2008)
Exchange rate versus US dollar: LD1.2641 (2009)*

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Unemployment: 30% (2004 est.)
FDI: US$13.65 billion (December 31, 2009 est.)
Current account deficit/surplus: US$6.502 billion (2009 est.)
Population: 6,461,454 (including 166,510 non-nationals, July 2010 est.)
* Libyan dinar
Source: CIA Factbook except where stated


More Info
Websites:
 •      Central Bank of Libya: www.cbl.gov.ly
 •      Great Man-Made River Authority (GMRA): www.gmmra.org
 •      Libyan stock market: www.lsm.gov.ly
 •      Libyan Foreign Investment Board (LFIB): www.investinlibya.com

To see this article on-line, please visit
http://www.qfinance.com/country-profiles/libya




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