In The Media
Lahcen Achy
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Source: Getty
In The Media
40 Years After Al-Fateh Revolution, What is the Future of the Libyan Economy?
Although it has begun to move out of isolation, Libya still faces an underdeveloped infrastructure and poor social services, coupled with high unemployment rates.
By Lahcen Achy
Published on Sep 8, 2009
Source: Al Quds Al Arabi
It is quite difficult, if not impossible, however, to conduct such an assessment when the mandate of any ruler extends for 40 years with no clear vision or plan for the economic and political orientation of the country. This is further complicated by an absence or inadequacy of data that, even when available, do not match internationally accepted standards.
The truth is that Libya has long dwelt in political and economic isolation and has, therefore, attempted to devise untraditional, if not unique, economic models. It has also launched a record number of regional and continental initiatives, such as the Arab Maghreb federation, the Sahel and Sahara Group of States, the African Union, the United States of Africa and the African Monetary Union. These initiatives were meant to create substitute spaces for Libya, not only to compensate for its isolation but equally to build influential political and economic blocks that would form a new negotiating force to restore balance to the international scene.
However, during the last decade, Libya reconsidered its choices. It started by conforming to UN resolutions, ridding itself of the economic embargo against it, and went on to reestablish its political and diplomatic ties with European countries and with the USA, reintegrating itself into the international community. Five years ago, it also embarked on a new program to embrace free market economy and to recognize the pivotal role of private initiative and property. This paved the way to implement the so-called economic reforms recipes under the supervision of the IMF and the World Bank.
So what is the situation of the Libyan economy today, in the wake of these policy changes, and what are its strengths and weaknesses? The Libyan GDP for 2008 reached around 90 billion USD. With a total population of no more than six million, the average per capita income thus scored an African high of 15,000 USD. This classifies Libya, according to the World Bank, as a medium income country with a budgetary surplus of 25 percent of GDP and a trade surplus of 40 percent of GDP. These are record figures compared to other countries that have been plagued, especially lately, with high levels of internal and external deficit.
Nevertheless, despite great achievements, the economic sector in Libya conceals imbalances that are not to be ignored. First, the above figures are generated by the abundant oil and gas resources in Libya that account for more than 50 percent of GDP, 97 percent of exports and three-quarters of public imports. The Libyan economy is still dependent on the international fluctuations of oil and gas prices, flourishing when prices are high and plunging when they fall. The billions of dollars accumulated throughout the years have, unfortunately, not been used to diversify the economy by breaking its dependency on the oil sector and building on the many other natural resources Libya has to offer. These resources include the strategic geographical location of Libya, which endows it with a rare Mediterranean seafront that stretches for over 2000 kilometers, and vast deserts that could be used for tourism.
Besides the economy being unstable and highly dependent on oil prices, high per capita income hides the significant discrepancies between the various social classes in Libya. Although there are no detailed surveys about household income, expenditure or living standards in Libya, other types of data highlight the disparity between rich and poor. Agriculture, for instance, employs 20 percent of the labor force, although it contributes only 2 percent of GDP. On the other hand, the industrial sector, including oil, gas and petrochemical production, accounts for more than 60 percent of GDP though it employs less than 25 percent of Libyan labor force. It also provides higher wages and fringe benefits than other sectors that have larger contributions to employment.
Public surplus has no value when infrastructure, such as roads, ports and airports, remain underdeveloped and social services, such as education and health, remain poor, with unemployment rates ranging between 15 to 30 percent. Even high ranking officials in Libya have recognized the utter failure of the public sector and voiced their demands for full privatization. This is what Libyan literature calls a transformation towards "people's capitalism."
In order to overcome this current situation, there is an urgent need for a clear economic vision, a transparent political discourse that promotes both local and foreign investment within a sound legal and administrative environment. Needless to say, all these prerequisites remain, so far, unavailable in Libya.
About the Author
Lahcen Achy
Former Nonresident Senior Associate, Middle East Center
Achy is an economist with expertise in development, institutional economics, trade, and labor and a focus on the Middle East and North Africa.
- Arab States Need Industrial Policy Reform
- The Price of Stability in AlgeriaPaper
Lahcen Achy
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Carnegie India does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
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