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The glittering prospect of a Libyan gold rush

By Philip Eliason - posted Thursday, 12 January 2006


Here is what Sayf al-Islam al-Gadhafi, head of the International Foundation for Charitable Societies and Libyan leader Muammar al-Gadhafi's son, told a reporter at the Hanover Trade Fair on April 27 about Libya's current economic situation:

When sanctions were imposed on Libya, US firms were absent and the Japanese and Canadians were hesitant. The Europeans were in complete control and monopoly of the Libyan market. The country was in a state of confrontation. It was under an embargo. All these things have now changed. The market is now open and competition is greater. The European monopoly has been broken ... circumstances are now appropriate to develop the infrastructure, to strongly restore investment in Libyan projects, and adopt wiser and more efficient policies. In the past, a group of technocrats and state employees arbitrarily handled things and acted as if public firms were their personal property. Accordingly, neither the Libyan state nor the Libyan people were in control. A group or class of technocrats and civil servants dominated the economy. They became the absolute master. This has now changed.

There is an air of a gold rush about trade development in Libya. Traders press for deals in Libya's capital Tripoli.

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The November 2005 visit to North Africa by the Federal Parliament's Trade Sub-Committee follows its hearings into trade development with the region's five countries - Morocco, Algeria, Tunisia, Libya and Egypt. Australia has had notable ties with Egypt for some time, growing interest in Algeria's gas resources but little to do with Morocco or the more European Union-oriented Tunisia.

The standout country in the region is Libya which has large, bankable, proven oil and gas deposits in a yet only partially prospected territory. Libya is the new frontier for hydrocarbon-based economic development.

Eyes are focused on Libya's large proven reserves of mostly “sweet” crude oil (about 39 billion barrels) and gas (1.32 trillion cubic litres) and expectations that another 35 billion barrels of oil and large gas reserves will be proved by current and near-future exploration. Cash from energy sales will fund Libya's physical and social recovery from years of international sanctions. Libya is likely to spend $US30 billion on refitting or replacing its energy export infrastructure.

In Libya’s state-based economy, trade and politics are inseparably bound together. A review of events in Libya indicates that the sooner Australia stakes its claim to a share of this potential export bonanza by opening a full diplomatic mission in Tripoli, the better. At present, bilateral official representation is unbalanced. The People’s Bureau (embassy) in Canberra has seven Libya-based staff. As at the end of 2005, no Australian official was in Tripoli although an Austrade contractor will officially open a consulate-general early in 2006.

Our trade competitors are investing in the political-trade game. Senior US Departments of Commerce, State and Education visitors have reinforced America's preparedness to work again with Libya. Britain's Tony Blair, France's Jacques Chirac and Germany's Gerhardt Schroeder all visited Libya. The leading Asian economies of Japan, China, Korea and even Thailand are doing the same.

China, running a new initiative to improve relations with the Arab world, sent its Assistant Foreign Minister Lu Guozeng to Tripoli in early August to discuss bilateral co-operation. Korea has achieved major engineering and construction deals, Greece has won tourism development projects and as a sign that politics always plays a part, Italy, a leading contender for oil-prospecting leases, got nothing from a bidding round in early 2005 in a result seen to be linked to Rome's delay in concessionally financing a huge highway development.

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Those seeking to export to Libya understand that going to Tripoli and showing the respect a visit conveys helps smooth relations and prepare for the inevitably complex sales process.

Geophysical parallels were behind the growth of Australian-Libyan relations during the 1970s. Libya’s national economic development plans instituted by its revolutionary government after 1969 made agricultural technology transfer, training in the earth sciences and crop and pasture improvement techniques natural areas for co-operation throughout the 1970s and 1980s.

There is continuing strong contact with Libya by the governments of Western Australia and South Australia through their agricultural and educational facilities, with counterparts in Libya. Western Australia renewed and formalised its operational ties with Libya through its memorandum of understanding established in 2002 and has made efforts to grow its educational ties.

In the 1970s and up to 1987, when diplomatic relations were suspended, Libya regarded Australia as a prime source of training and educational opportunity. Several hundred students were studying in Australia at any one time across disciplines from dryland farming technology and agricultural engineering to civil engineering. Many of these students now occupy positions in Libyan ministries and universities.

Australia’s “alumni” in Libya provide a ready and capable base for a broader development of relations in future. It is clear those who studied in Australia harbour positive views towards the prospect of more frequent contact.

Three Australian Ministers have visited Tripoli in the past three years; Trade Minister Vaile in October 2002; the foreign minister in May 2004 for political and oil talks and the defence minister in 2005 for an ANZAC Day trip which combined useful contacts with several Libyan defence counterparts. Delegations from Western Australia, New South Wales and Queensland visited in 2003 and 2004.

Contacts, such as the May 2005 visit by the Council of Australian Arab Relations to Libya, assist in raising Australia’s profile. The February 2005 visit to Australia by the chairman of the Libyan National Football Federation, engineer Sa’adi al-Gadhafi, third son of Muammar al-Gadhafi, and the Libyan national football team generated substantial positive media attention, augmented by courtesy calls by al-Gadhafi on the ministers for trade, foreign affairs and sports.

We can expect Libya to pursue diplomatic links with Australia at a pace and in a style officials here are unaccustomed to, especially in view of Libya's cultural focus on personal contacts and relationships, rather than more a “faceless” albeit professional and positive treatment by officials.

Libya has taken a range of steps to improve the prospects for its people. These include its major reorientation of foreign and economic policies towards diversified industrial growth. It has reallocated spending away from the military pursuit of its territorial and political integrity towards economic resilience as a means of ensuring security for the Libyan people.

The process of economic adjustment from a state-controlled economy through a mixed economy to a more market based system will take time. Signals are that the Libyan Government is committed to this course of action.

It has decided to progress the market orientation of the economy by starting the privatisation of certain industries, including banking, tourism and airlines. Two banks, the Sahari and Wahda, are being assessed and prepared for possible sale. Foreign banks are close to establishing a presence in Libya and domestic banks will need to adjust to address this competition.

Libya is establishing measures to facilitate foreign investment in the economy, notably in the hydrocarbons sector, but also in the housing, transport and tourism sectors. Early success of investment protection is visible in the health sector with joint ventures at hospital level with the Swiss and Maltese. Reduction of taxes on building inputs, promotion of private sector employment and improved consumer protection arrangements show Libya using regulatory reform and institution building as stepping stones to greater individual participation in the economy.

The strength of Libya’s energy export sector underpins the provision of safety net arrangements for the population while it undergoes adjustment pressures.

In June 2005, the Energy Minister Ahmad Fathi Hamid ibn Shatwan announced that Libyan production had risen over the past two years from 1.3 to nearly 1.7 million barrels per day (mbpd), with a goal of 2.0 mbpd in early 2006 and 3.0 mbpd by 2010. Oil production was vastly higher in 1970 at 3.32 mbpd before post-revolution pricing, taxes and profit policies cut between 1969-73 active rigs by 85 per cent, completed wells by 78 per cent and crude oil production by 54 per cent.

Australia has done well in the oil market with Woodside Petroleum and Oil Search winning business of notable value. Australian firms bring great experience to Libya’s energy sector and, independently or in joint-ventures, there are further bidding prospects ahead. Libya in March 2005 held a second round of bids for rights to explore and develop oil resources. In the first round of tender bidding in January 2005, about 60 companies sought to participate in the market. Libya’s acreage explored for oil stands at about 400,000 sq km with some 1.3 million sq km to explore. Energy Minister Shatwan foresees potential of 100 billion barrels in reserves.

To avoid the curse of oil, economic diversification is a key goal for Libya. For example, Libya has established a national tourism plan involving the construction of tourism centres and hotels as well as amelioration and protection of Libya’s coastline. The plan is worth approximately $US2.7 billion over five years and is hoped to create around 40,000 jobs. Greece recently agreed to assist preserve important sites of antiquity in Libya and other countries are involved in tourism development of Farwa Island, Elkhoms and in the environs of Tobruk. Libya sees its coastline, weather and history as the central tourism draw cards. Australia has worked diligently to protect its own tourism assets and prospects are good for professional exchange in this sector.

Steps forward

Our discussions with the Libyan Government lead us to conclude the main tasks for the future enhancement of the bilateral relationship are the rapid opening of a full embassy at Tripoli which will improve Australia’s knowledge and understanding of Libya and its economic aspirations and needs. A main task will be to reduce the costs of commerce between Libya and Australia through reductions in trade regulation, a more secure legal environment and smoother, faster financial transactions and improved communications and transport links.

There can be an expansion of Libya’s access to Australian education services. (There are at present about 80 Libyan Government fully-funded under and post-graduate students in Australia. Companies such as Woodside are adding to this in-flow.)

Outside government, but helped by it, there can be a growth in people-to-people links and a deliberate program of bilateral visits which in the short-term could ameliorate gaps in understanding and information about capacity and intention of our respective governments and add to the range of Australians and Libyans with direct experience of the other's country.

A direct and visible visits program between Australia and Libya would be well received in Tripoli. This might usefully include senior experts in media, in particular journalists, to see Australia and report in Libya and vice versa, along with technical specialists from the building and construction of public infrastructure; environmental protection and resource management consultants for coastal zones; tourism; and agriculture to suit current interests. In the medium term there is place for global energy market analysts, agricultural production science advisers for seeds, reafforestation, animal and plant breeding and GIS/remote sensing.

Libya, no longer a proliferation risk, has a legitimate call on Australia’s commercial and government experts in defence equipment and training. It has signed accords with EU states to control illegal people movements, transfer of terrorist suspects, and it actively contributes to mediation in tensions between the Moro Islamic Liberation Front and the Government of the Republic of the Philippines in Mindanao. Libya has prospects for engagement with our government on systems to develop e-commerce, computer records and methods to track and combat people smuggling,which is grave concern to the EU.

For an Australia with a hearty budget surplus, the steps to beat the opposition into Libya are not overly costly. It requires a fresh analysis, a government-based strategy and a medium-term perspective, quite unlike the long-term efforts required in developing the China market for non-resource based value-added goods and services.

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About the Author

Philip Eliason, Director of Philip Eliason and Associates, advises Libya on issues relating to bilateral political and commercial links. He prepared Austrade's case to Government to open an office in Tripoli and has worked on issues relating to Iraq's post-war reconstruction as well as assessments relating to Middle East countries readiness for Australian consulting services.

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