The Rafik Hariri Center for the Middle East hosted a visiting economic delegation from Libya on Thursday, April 18 for a roundtable discussion on the economic challenges the country faces during its transition process. Central Bank Governor Saddek Omar Elkaber commented on Libya’s aspiration to liberalize its economy following decades of isolation and state control. Elkaber expressed optimism about the direction of the economy despite the challenges it faces.

Tarek Yousef, a member of the Central Bank board and head of an initiative dedicated to youth employment and entrepreneurship, offered his assessment of the economic hurdles in Libya. Yousef was enthusiastic that a Libyan delegation would participate in the International Monetary Fund’s spring meetings, the first in several decades. Hafed al-Ghwell, an adviser to the World Bank, stressed the need to create an environment more suitable for increased investment and growth, and highlighted a number of prerequisites necessary to generate growth including legal and banking reforms and strengthening of the private sector.

Mohsin Khan, a senior fellow at the Hariri Center, moderated the discussion and suggested the reforms the oil-rich state will need to implement. Khan also emphasized the importance of infrastructure as a means to attract foreign direct investment.

The following themes emerged from the roundtable discussion:

  • Maghreb Integration –The central bank governor noted that while greater cooperation with its immediate neighbors is important, Libya is not yet ready to pursue integration. He expressed the need to develop Libya’s private sector and create conditions that can foster domestic growth before full integration can take place.
  • Private sector – The private sector in Libya remains the key to growth. Eighty-five percent of the Libyan workforce is employed by the government. Among the primary obstacles for the private sector is bureaucratic red tape and an underdeveloped banking sector.
  • Banking and legal reform –At present, the banking sector is ineffective in its financial intermediation function. The sector has been constrained by lack of access to foreign exchange. Banks remain unwilling to lend, confining their operations to safer investments (e.g., CDs), thereby crippling private sector activities. One of the primary impediments to generating new loans is the legal environment. The central bank can play an important role in developing a stronger banking sector and encouraging investment. 
  • Infrastructure – Libya’s infrastructure is very underdeveloped given its oil wealth. There are plans to develop highways and roads that could help attract investment. Developing an institutional infrastructure is necessary to promote economic diversification and employment growth.
  • Employment –Youth unemployment remains a major obstacle. Many university graduates do not have the proper skills to secure employment or to enter global labor markets. One of the positive developments has been the return of expatriates with university training and skills, which has contributed to the new economy. The World Bank has programs in place dedicated to promoting investment and private enterprise.
  • Subsidy reform –The current government is burdened with subsidies dating back to the era of Muammar al-Qaddafi (16 percent of the 2013 budget is allocated to subsidies). For example, just before the outbreak of civil war in 2011, Qaddafi increased government salaries by 40 percent for certain groups of workers. Out of fear for the consequences of removing this wage increase, the government carried over this expenditure to cover all workers into the current budget.  The money allocated toward subsidies can be redirected toward investments in infrastructure and human resource capability.
  • Security and economic development –Outside investors remain cautious due to Libya’s tenuous security environment. Participants noted the need to improve the image of the country for both tourists and investors.

Related Experts: Mohsin Khan