With sovereignty restored in the form of a unified interim government, foreign investors are getting ready to re-engage with the country.
A degree of cautious optimism is returning to Libya. A country abundant in natural resources, it has not yet had a chance to realise its commercial potential, having been divided by conflict ever since the 2011 uprising. More recently, as rival factions competed for control, the Covid-19 pandemic hit and oil prices crashed. Libya’s social and economic cohesion was further put under strain.
But recent developments in the ongoing peace process suggest that positive change is afoot. In February, a UN-led ceasefire culminated in the election of Abdul Hamid Dbeibah as interim prime minister, who, together with the Presidency Council, will seek to unify the country ahead of elections in December. While work is still required to establish long-lasting unity in the country, there is renewed optimism that Libya is on a path to recovery.
Hope for a brighter future
This news brings hope, not just for Libyan society but also for businesses, both domestic and foreign. The Libyan commercial environment has long been characterised by its complexity. In the years leading up to the 2011 uprising, the country was largely closed to foreign investment and the economy highly regulated. The previous regime saw prosperity increase in the country, but Libya’s private sector remained stifled. Financial institutions were no exception to this — the financial landscape was dominated by state-owned banks, with the notable exceptions of privately owned Bank of Commerce and Development and Aman Bank.
The banking sector has steadily grown over the past decade, with more than 15 private banks now operating in the country
The uprising brought with it the promise of a more liberalised economy, and indeed the banking sector has steadily grown over the past decade, with more than 15 private banks now operating in the country. Yet the political instability that followed the fall of the pre-uprising government has since stalled any meaningful progress towards boosting commercial activity and making the country more attractive to international investors. And with trade crucial to the economic recovery of the oil-rich nation, the notion of reconnecting with the global financial system holds substantial weight. Indeed, oil exports ultimately contribute 80% of Libya’s gross domestic product; a reality that gives the state-owned National Oil Corporation a significant strategic role in delivering prosperity to Libya, while also needing to consider international efforts to move towards a greener global economy.
So, what does the future hold for Libya? The ongoing peace process suggests that opportunities are on the horizon, even if the final outcome remains uncertain. Economic reforms are also paving the way towards a more stable business environment. The Central Bank of Libya has recently introduced a new fixed exchange rate for the Libyan dinar, which dramatically reduces currency risk for entities seeking to trade with, or invest in, the country. This is essential for the recovery of trade flows and for building economic resilience.
Capital inflows into the domestic economy have also been stimulated by the official rate being reduced. Indeed, the currency reform has closed the gap between official and black-market rates, which has resulted in a welcome uptick in liquidity re-entering the system. The new government has also taken steps to address the perceived lack of transparency in state-financed entities; another strong step towards bolstering Libya’s international reputation.
Growing private sector
As the peace process continues apace, the Libyan private sector is expected to continue expanding. In the financial sector, a continued natural shift away from state-owned banks to private banks is anticipated, and some degree of consolidation is likely as the market develops.
Access to finance in the country, especially from international providers, is still limited, so dedicated and specialist banking partners that understand the country and can effectively manage the risks will continue to be essential for Libya’s recovery. As the nation embraces a more outward-looking economic model, its financial sector continues to grow and foreign lenders re-enter the picture, increased access to finance should follow — a development that will be a boon to Libya’s commercial sector and the economy.
As the security situation continues to improve, global investors are already positioning themselves to harness the opportunities that will inevitably arise from the country’s recovery. Now more than ever, expertise and understanding of Libya’s unique market dynamics will be crucial to supporting international trade and investment as the north African state builds a brighter future.
Salim Abukhzaam is head of Libya at British Arab Commercial Bank.
