CalTrade Report | 4 December 2007
Libya Sweetens Trade, Investment Ties with US
But some say ’’shifting regulations’’ and an ’’unwieldy bureaucracy’’ frustrate improved relations
WASHINGTON, DC - Morphing over the past several years from international pariah to developing, open-market economy, Libya is now actively cultivating trade and investment links with the US.
"Many companies from around the world are arriving in Libya now. The Libyan government does not want US businesses to lose a good opportunity," Libya Economy, Trade and Investment Minister Ali Al-Esawi told a group of US businessmen at a recent trade conference in Washington, DC.
Al-Esawi cited oil, tourism, communications and information technology as sectors of the Libyan economy that are, he said, “eager for US investment.”
Libya’s ambassador to Washington, Ali Aujali, echoed the minister’s appeal."Now is time for the American companies to move forward,” said Aujali. “Strengthening our relations in economics and investment is very important to protect our political relations with the United States.”
The minister and the ambassador said Libya is a “secure place for foreign investment” as a result of Foreign Investment Law Number 5, which, on paper, creates the most liberal legal framework for attracting foreign direct investment ever adopted by the Libyan government.
The law currently covers industry, health, tourism, agriculture, and oil-related services, excluding drilling and exploration, but additional business sectors are being added over time, they said.
A trade mission organized by the National US-Arab Chamber of Commerce (NUSACC) departed today for a visit to the North African country.
The week-long mission to Libya is the trade promotion group’s second to the country since the US government removed Libya from the list of state sponsors of terrorism and restored diplomatic relations in 2006.
"Libya plans to dedicate billions of dollars to development and infrastructure projects in the months ahead, and our chamber wants to ensure that US companies - particularly small and medium-sized enterprises - are in the running for those contracts," said NUSACC President David Hamod.
The organization, he added, “wants Libyans to think first and foremost about partners in the United States. Our trips to Tripoli help to lay the groundwork for this to happen."
The warming in ties between the two countries began in 2003 when Tripoli admitted its culpability in the blowing up of a Pan American airliner over Lockerbie, Scotland, in 1988 and a French UTC airliner over Africa in 1989.
The Libyan government later paid billions of dollars in compensation for the two terrorist acts.
Deepening its commitment to combat terrorism, Libya signed the Comprehensive Nuclear Test Ban Treaty and acceded to the Chemical Weapons Convention in 2004, and the US responded by lifting economic sanctions. Since then, Libya-US trade has increased dramatically.
In 2003, the US exported $200,000 worth of goods to Libya and imported nothing from that country. Three years later, US exports to Libya totaled nearly $435 million with imports from Libya - mainly oil - totaling almost $2.5 billion.
The recent climb in the market price of oil has left the Libyan economy flush with money, while the emergence of a younger, technocratic leadership group in recent years has sustained a reform effort, according to an analyst at the Congressional Research Service (CRS).
Libya is offering contracts to foreign companies to participate in a variety of infrastructure projects including the construction of railways, hospitals, an international airport, schools, and roads.
In addition, the government has also announced plans to develop a free-trade zone on the Mediterranean coast east of Tripoli and a national network of wireless telephones, to name a few projects.
Saif al-Islam al-Qadhafi, a son of Libyan leader Muammar al-Qadhafi, is the chief architect of Libya’s reforms, according to U.S.-Arab Tradeline, a NUSACC publication.
“The younger Qadhafi recognizes ... that with a helping hand from the international community — particularly the United States — Libya can leverage its natural resources (oil and gas) to benefit its human resources (the people of Libya),” according to Tradeline.
But some are cautiously optimistic on the potential of maximizing US-Libya trade relations. According to Assistant US Trade Representative Shaun Donnelly, developing an open, market-oriented economy will be "a long road for Libya,” while the US embassy in Tripoli cautions that despite Libya’s stated welcome to international business, foreign investment in that country is “an uncertain prospect.”
In its overview of the Libyan market, the US embassy website states, "The reform process has led to a great deal of confusion, particularly among foreign investors, as shifting regulations and procedures and a weak regulatory environment have not inspired confidence in the market."
According to the website of international law firm, Ali and Partners, "[Libya’s] tedious and discretionary administrative practices often undermine the very solid guarantees afforded by the law. This is particularly true in the light of the committee system adopted in Libya where everyone must agree and, even when they do, their decision is only a recommendation to yet another committee."
As a first step toward dispelling the confusion, Libya and the US are exploring the possibility of negotiating a Trade and Investment Framework Agreement (TIFA).
A TIFA is a consultative mechanism for the US to discuss issues affecting trade and investment with another country.
In most cases, TIFAs have been negotiated with countries that are in the beginning stages of opening up their economies to international trade and investment, either because they were traditionally isolated or had closed economies.