West, minus the U.S., eyes Libya's opening market

By Vijay Joshi

TRIPOLI, Libya (AP): It's difficult these days to find a seat on flights to Libya. Chances are, they are taken up by European business executives searching for deals in the Arab world's newest market.

Since the United Nations lifted its economic sanctions last year, Libyan leader Moammar Gaddafi has been wooing foreigners to invest in an economy that remains vastly underdeveloped except for its rich oil sector.

He has begun loosening three decades of socialist economic controls and has tried to put his past reputation as a supporter of terrorism behind him.

But Libya's pledges that investments will be protected remain untested.

"Libya may need privatization but I don't think its government is serious," said Bahgat Moussa, who teaches Middle Eastern economics and business at the American University in Cairo and often visits Libya.

"Nobody knows their real intentions. They are not credible and nobody can predict what the Libyans would do beyond one month," he said.

Potential investors are also uneasy over the government's attempts to push them toward joint ventures with local partners who have little business expertise.

Libya's banking system is so primitive it takes weeks to get checks cashed. Customs procedures are arbitrary. The government doesn't release trade statistics, making projections and analyses impossible.

"We are really in the dark as foreign investors," said Marcus Courage, whose London-based Strategic Profile International represents the British Libyan Business Group, comprising 25 British companies.

But, he added, "One would be foolish to neglect the opportunities that are there."

European investors are betting that Libya will eventually present tremendous opportunities, and that the first to take the risk will be the first to benefit. American investors are still hampered by the United States' own sanctions.

Libya needs to diversify its oil-based economy and reduce 10 percent inflation and unemployment estimated at 30 percent.

Libya "can't afford not to be part of this globalized world," Courage said.

The government enacted a 28-point law in 1997 aimed at encouraging foreign capital investment. But it began pursuing foreign money seriously only after the United Nations suspended on April 5 a seven-year embargo on international airline flights and oil industry spare parts.

The suspension resulted from Libya's handing over two intelligence agents for trial in the Netherlands in the 1988 bombing of a Pan Am jetliner, a turning point in Libya's increasingly fruitful efforts to cast off its notoriety as a pariah state that sponsored terrorism.

The suspension of sanctions opened a floodgate of European interest.

Italian Prime Minister Massimo D'Alema came to Tripoli in November to meet with Gaddafi, and left with a Libyan pledge to fight terrorism. The European Union lifted its sanctions on Sept. 13, as did Switzerland, Germany and Russia. Britain restored full diplomatic relations Nov. 24 after a high-level business delegation visited in July. Swissair, British Airways and Alitalia have started flights to Tripoli.

"You are welcome to invest in Libya. ... We are not pirates or rebels or terrorists," Gaddafi declared at a business conference in September attended by hundreds of executives.

At the same conference, Economy Minister Abdel Hafidh Zlitni said Libya needs to invest US$35 billion over the next five years, mostly in non-oil sectors, and expects $14 billion to come from private sources.

Moussa, the Cairo professor, said that kind of money will be hard to attract.

He and others point to Libya's lack of an independent judiciary, pivotal in cases of business disputes and its currency restrictions and dual exchange rates -- banks buy one dollar for 0.45 dinar, but sell one dollar for nearly two dinars.

Libya has also said often that it will not completely abandon socialism and will focus on investments in what it deems critical areas.

The government is looking at projects such as housing, hospital refurbishment, water treatment, power and transmission lines. It also wants to upgrade the Tripoli airport, run a railway line to Egypt and Tunisia and build luxury hotels.

Moussa said Libyan economists agree financial, administrative and even political reforms should accompany privatization, but nobody is willing to say it openly under an authoritarian rule where the final word rests with Gaddafi.

Libya has yet to sign a major deal outside the oil and gas sector, which earned the country $6.5 billion last year.

Many suspect Libya may be courting Europeans as political leverage to pressure Washington to lift U.S. sanctions, allowing Libya's full return to the international community. Libya's oil industry is almost entirely based on American technology, forcing it to buy replacements in the black market at exorbitant prices.