Libya super rich in hydrocarbons, with a population of only 6 million for the most part follows a socialist leaning but this is now finally changing. During year 2006, Libya recorded one of the world’s highest current account surpluses as a percentage of GDP at 48.5 percent in thanks to its rich energy resources. However, change and reforms are required for its people to realize its true tremendous economic potential and a significantly higher standard of living awaits the people of Libya. Now flush with billions in oil revenue cash, Libya is now in a position to invest in the country’s infrastructure. This is currently noticed with a significant upgrade in the works for the main international airport at Tripoli.
POLITICS: under the leadership of Revolutionary Leader Colonel Muammar al Ghaddafi since September 1969 after his regime toppled King Idris in a coup due to resentment against concentrated new found oil wealth amongst the few political elite of the day.
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ECONOMY: socialist oriented as the public sector and its bureaucracy dominate the economy whereby the citizens receive subsidies for food, health and education following a socialist ideology. At present, Libya is North Africa’s largest oil producer, oil and natural gas dominate the economy as it enjoys a surplus of petroleum revenues. Tourism sector is still non-existent but finally slowly growing in importance. Libyan citizens have access to consumer goods, semi-liberal economic lifestyle. The government maintains a tight control of the economy, many prices are regulated including rice, bread although now being liberalized. The authorities are now implementing significant economic reforms with a goal of opening up the economy to foreign direct investment (FDI), to modernize, to globalize. Foreigners are now allowed to take controlling stakes in Libyan companies. More than 90 percent of the country is desert with limited agricultural production as Libya imports 75 percent of its food requirements. Major industries include petrochemicals, iron, steel, cement, textiles, agriculture, food processing. The United Nations lifted restrictions against Libya in September 2003 followed by the European Union in October 2004 lifting economic sanctions as Libya abandoned plans to continue with weapons of mass destruction programs. Libya has since enjoyed an economic boom further helped by frothy world market prices for hydrocarbons. Italy is a major trading partner for Libya.
Economic Statistics
Total GDP as measured by purchasing power parity stands at $72.6 billion USD (2006) with corresponding GDP/Capita at $12,300 USD which is one of the highest in Africa. GDP at market prices stands at $50.3 billion USD (2006). GDP growth figures include year 2006 at 5.5 percent of GDP, year 2007 estimated at 7.9 percent, year 2008 at 8.1 percent. Inflation quotes have year 2007 projected at 16.2 percent, year 2008 at 6.9 percent. Current account surplus measured at an impressive 24.4 percent of GDP (2005) with the trade component in surplus at $22.6 billion USD (2006). The fiscal account is in surplus at a stunning 38 percent of GDP (2006). Public debt is at 5.6 percent of GDP (2006) while external debt stands at $4.5 billion USD (2006). Unemployment is high at approximately 25 percent however only 7.4 percent of population is living below the poverty line (2005).
Oil and Gas Industry
The petroleum industry accounts for 90 percent of foreign exchange revenues as Libya is dependent on energy accounting for 25 percent of GDP. Libya is a member of OPEC, oil production for year 2006 was measured at 1.751 million bpd while consumption came in at 237,000 bpd. As of 2007, proven oil reserves were measured at 41.46 billion barrels equivalent to 60 years production at current levels. Libya wants foreign direct investment into its oil & natural gas industry as natural gas proven reserves stand at 53 trillion cubic feet as of 2006. There is tremendous potential to increase petroleum reserves as Libya’s energy sector is mostly untapped. European oil conglomerates from Germany and France are active in Libya while American oil companies are finally now allowed to bid on energy rights for exploration.
POSITIVES: telecommunications is being modernized and good Internet access, life expectancy, literacy levels. CONCERN: reliance on energy sector for majority of national wealth - need for further diversification.
BANKING SYSTEM: banking reforms, privatization & foreign investment taking place. The central bank of Libya is responsible for issuance of currency and monetary developments with a mandate of ensuring a stabilized banking system. The rediscount interest rate was lowered by decree to 4 percent in 2004. Gross international reserves came in at healthy $66 billion USD equivalent for July 2007 equivalent to 29 months for 2007 imports.
REGIONAL ANALYSIS: North Africa, Africa, Europe/Russia
Libyan leader Ghaddafi is entertaining strategic efforts to increase his influence amongst several areas of the African continent. Italy is a major energy export market for Libya. Ghaddafi and his charismatic eccentric political philosophy, he is quite a visionary. It is his dream for a United States of Africa of which he may lead? The African Union ‘AU’ founded in July 2002 is an organization promoting democracy and economic development within Africa. He is well known for his ideas and championing both Arab and African unity although critics suggest that Ghaddafi has used Libyan oil wealth to support corrupt African leaders. It should be noted that this long term plan by Ghaddafi for a unified African confederation similar to the European Union is very unlikely, perhaps in 30 or 50 years, but definitely not in the near future. Also envisioned in this master plan includes a single continental currency similar to the euro in use for much of Europe. Ghaddaffi was a leading advocate for Arab unity with a desire to create a Pan-Arab state. Russia remains close in bilateral relations dating back to their close ties during the cold war.
KNOWLEDGE: Terrorism - Islamic Militants, Economic Sanctions, A New Libya
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CURRENCY: ISO Symbol ‘LYD’, Libyan dinar. At time of review on August 9, 2007, the Libyan dinar had an exchange valuation of 1.258 to the US-dollar (USD) and/or 1.721 LYD to the Euroland euro (EUR). Since December 24, 2001, Libyan central bank decree specifies an exchange rate of 1 LYD to 0.608 SDR (IMF’s special drawing right). Currency regime follows that of a multi-tier foreign exchange system, the official market rate is used for transactions of state-owned firms and agencies. Individuals and commercial banks use a rate closer to the market. In January 2002, the official rate for the dinar was devalued by 51 percent to a level of 1.304 LYD to 1 USD from a previous rate of 0.645. During this time, the black market rate was at 1.6 LYD to 1 USD where authorities were trying to narrow the exchange rate gap. Certain foreign currency restrictions are in place although the authorities are moving towards greater exchange rate flexibility albeit at a slow and cautious pace.
CURRENCY HISTORY: the Libyan pound was introduced in 1952 and accordingly replaced by the dinar in September 1971 at par. Prior to independence in 1952, currencies in use in Libya consisted the Algerian franc, Italian lira, Egyptian pound. Historical valuations for the dinar have included official rates as follows: year 2006 at 1.31 LYD to the USD, year 2005 at 1.308, year 2004 at 1.305, 2003 at 1.292, year 2003 average at 1.2, year 2002 at 0.645, September 2001 at 0.63, 2000 at 0.499, 1998 at 0.45, 1997 at 0.3891, 1996 at 0.3651, year 1995 at 0.3532, 1994 at 0.3596, 1993 at 0.325. October 1993 free market rate for the dinar was measured at 0.29 LYD to the USD. From 1986, the dinar was tied to the IMF’s ‘Special Drawing Right’ currency unit. A recent low for the dinar was in July 2003 at 1.43 LYD to the USD but appreciating after removal of UN sanctions.
CURRENCY FORECAST: bullish going forward as the economy slowly shifts to more market based principles, a new beginning for Libya. Integration into the world economy over time coupled with a youthful population who are demanding a Western lifestyle will help to propel this change. BankINTRO.com over the long term believes Libya has great potential, an upgrade of infrastructure and further FDI investments into the oil industry will create residual prosperity providing the politicians to invest into its citizens and develop new diversified industries. Libya, as a petroleum rich nation will ultimately realize an even much higher standard of living closer to those enjoyed in Europe. The current tide has Libya endorsing globalization now noticed with companies from India, China, Russia, United Kingdom, United States, Japan, France, etc. actively seeking opportunities in Libya’s petroleum sector. Another sector to keep an eye on is Libya’s tourism sector, a constructions and tourism related boom is in progress with new hotel rooms, resorts, an upgrade in transportation systems, etc.
Currency risks are heightened with Libya over depending on the petroleum sector for foreign exchange - a new technological revolution resulting in global decline for energy may impact Libya negatively although this looks to be of minimal risk in the short to medium term. Regional instability is noticed with a few surrounding countries, domestic political risk for Libya includes generational shift of power.
In May 2006, the United States lifted economic sanctions against Libya in addition to normalizing of diplomatic relations between the two countries. The Libyan dinar is likely to appreciate as the country plans to double oil output to approximately 3 million bpd by year 2010.
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