99458 Simplified Enterprise Survey and Private Sector Mapping Libya 2015 Simplified Enterprise Survey and Private Sector Mapping Libya 2015 © 2015 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpre- tations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other informa- tion shown on any map in this work do not imply any judgment on the part of The World Bank concern- ing the legal status of any territory or the endorsement or acceptance of such boundaries. 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Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights​ @worldbank.org. Cover design: Bill Pragluski, Critical Stages LLC. Contents Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Abbreviations and Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix 1. Introduction and Background on Recent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Approach and Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.1. Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.2. Secondary Research. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3. Sample Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.4. Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3. Findings of the Enterprise Survey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.1. Profile of the Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.2. Dynamics of the Private Sector before the Crisis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.3. The Impact of the Summer 2014 Crisis on the Libyan Private Sector . . . . . . . . . . . . . . . . 21 3.4. Main Constraints to Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.5. Perspectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4. Private Sector Mapping. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.1. Methodological Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.2. Background on the Private Sector in Libya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.3. Sizing the Libyan Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.4. Structure of the Libyan Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4.5. Sizing the Private Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.6. Per Sector Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 5. Conclusions and Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Figures 3.1 Panel Firms Represented as Broad Sectors vs. Size (n = 457). . . . . . . . . . . . . . . . . . . . . . . 11 3.2 Panel Firm Represented as Broad Sectors vs. Location (n = 457) . . . . . . . . . . . . . . . . . . . 11 3.3 What Were Your Yearly Revenues in Fiscal Year 2013 in US Dollars per Size of Company? (n = 224). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.4 Does Your Company Usually Export Goods? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . 12 iii 3.5 Days Reported to Obtain an Operating/Import/Export License (n = 126) . . . . . . . . . . . 13 3.6 Over the Last Year, How Many Times Was This Establishment Either Inspected by Tax Officials or Required to Meet with Them? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . 14 3.7 Percentage of Firms Having a Loan or Credit Compared to Regional Peers. . . . . . . . . . 15 3.8 Does This Establishment Have a Credit Line or a Loan from a Financial Institution? (n = 456). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.9 What Is the Reason for Not Having a Loan or Line of Credit Currently? (n = 447). . . . . . 16 3.10 Are You Familiar with Islamic Modes of Financing? (n = 457). . . . . . . . . . . . . . . . . . . . . 17 3.11 When Comparing End of June 2013 and End of June 2014, Did Your Sales? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.12 When Comparing End of June 2013 and End of June 2014, Did Your Investments? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.13 When Comparing End of June 2013 and End of June 2014, Did the Number of Employees? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.14 When Comparing End of June 2013 and End of June 2014, Did the Number of Domestic Competitors? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.15 Has Your Firm Experienced a Direct Impact from the Current Conflict (Started in the Summer 2014)? (n = 457) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.16 Has the Firm Moved Offices or Production Sites because of Events Related to the Current Crisis? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.17 Has Your Number of Employees Been Impacted by the Current Conflict? (n = 457). . . . . 25 3.18 Have Your Sales Been Impacted by the Current Conflict? (n = 457). . . . . . . . . . . . . . . . . 26 3.19 Additional Days to Receive Supplies after the Summer Crisis (n = 255) . . . . . . . . . . . . . 27 3.20 Percentage Decrease of the Capacity Utilization since the Crisis for Some Selected Sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3.21 Compared to Last Year Has Your Capacity Utilization/Hours of Operation Changed? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3.22 Has the Number of Domestic Competitors Been Impacted by the Current Crisis? (n = 457) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.23 Have Your Investments Been Impacted by the Current Conflict? (n = 457) . . . . . . . . . . 30 3.24 Has Your Access to Financing Been Impacted by the Recent Events Related to the Current Crisis? (n = 457) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.25 What Is Your Assessment of the Ease of Obtaining Foreign Currency as Compared to Before July 2014? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.26 Intensity of the Crisis by Region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.27 Please Rate the Following Factors as Constraints to Your Enterprise’s Operation and Growth on the Following Scale (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.28 Percentage of Firms Identifying Constraints as “Major” or “Very Severe” Obstacle Compared to 2011 ICA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.29 What Is Your Expectation for Your Firm’s Employment for One Year from Now? (n = 457) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 iv Contents 3.30 Over the Next Year, How Do You Think the Following Factors Will Influence Your Firm’s Hiring of Additional Workers? (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4.1 Libyan GDP from 2010 to 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 4.2 Evolution of the Part of Hydrocarbons in the Libyan GDP . . . . . . . . . . . . . . . . . . . . . . . . 46 4.3 Representation of the Libyan Economy in 2012 and Part of the Private Sector. . . . . . . . 48 4.4 Value of Libyan Imports per Country of Origin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 4.5 Revenues of Sampled Firms in the Trading Sector—Brackets of US$ (n = 65). . . . . . . . 53 4.6 Estimated Value of the Trading Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 4.7 Estimated Value of the Construction Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 4.8 Revenues of Sampled Firms in the Trading Sector—Brackets of US$ (n = 54). . . . . . . . 59 4.9 Perception of the Evolution of the Number of Competitors after the Summer Crisis (n = 457). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 4.10 Estimated Value of the Real Estate Sector in Libya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 4.11 Estimated Value of the Building Material Manufacturing Sector . . . . . . . . . . . . . . . . . . . 64 4.12 Repartition of Sampled Firm of the Food Manufacturing Sector per Size (per Number of Employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 4.13 Evolution of Revenues of Sales for Companies in the Food and Beverages Industry. . . 67 4.14 Estimated Value of the Private Health Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 4.15 Estimated Value of Private Education Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 4.16 Estimated Value of the Accommodation and Catering Services Sector . . . . . . . . . . . . . . 74 4.17 Evolution of Sales after the Summer 2014 for Firms of the Accommodation Sector . . . 75 4.18 Estimated Value of the Financial Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Maps 2.1 Map of Libya Divided into Five Main Sampling Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 Percentage of Large and Medium Enterprises per Region (n = 457). . . . . . . . . . . . . . . . . 10 3.2 Key Findings of the Impact of the Summer Crisis per Region. . . . . . . . . . . . . . . . . . . . . . 23 Tables 2.1 Sampling Tables per Location and Size. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2 Proportion of Overall Sample by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.1 Key Enterprises’ Performance by Level of Intensity of the Crisis. . . . . . . . . . . . . . . . . . . . 32 4.1 Proportion of 2012 GDP per Broad Sectors (‘000 US$) . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4.2 Multi-Criteria Summary Table of Different Broad Sectors. . . . . . . . . . . . . . . . . . . . . . . . . 49 4.3 Dashboard of the Per-Sector Performance in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.1 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Contents v Acknowledgments This Investment Climate Assessment  Francoise Marie-Nelly, Marouane El Abassi was produced by a World Bank Group team and Joelle Businger, provided strategic guid- led by Pietro Calice as Task Team Leader and ance. Hend Irhiam provided excellent sup- comprising Tahar Benattia (Altai Consulting), port and coordination. Adrian Carriere (Altai Consulting) and Eric The team wishes to extend its gratitude Davin (Altai Consulting). The surveys were to the Central Bank of Libya, the Libyan conducted by Altai Consulting in coordina- Chamber of Commerce, the Libyan Business tion with the Libya Bureaus of Bureau of Councils, Libya Enterprise and the Libyan Census and Statistics. Industry Union for their feedback and This Assessment was developed under the collaboration. overall supervision of Simon Bell and Aurora Special thanks go to Aminur Ahman for Ferrari. The Country Management Unit, peer-reviewing the report and Najy under the leadership of Simon Gray, Marie Benhassine for his advice. vii Abbreviations and Glossary Bbl Barrel CBL Central Bank of Libya FDIs Foreign direct investments FMCG Fast moving consumer goods GDP Gross domestic product GNC General National Congress HB Husni Bey HIB Housing and Infrastructure Board HoR House of Representatives ICA Investment climate assessment IMF International Monetary Fund ISP Internet services provider KIIs Key informant interviews LISCO Libyan Iron and Steel Company LYD Libyan dinar MFZ Misrata free zone MoH Ministry of Health NOC National Oil Corporation NTC National Transitional Council O&G Oil and gas PIB Privatization and Investment Board PPP Public private partnership RIA Regulatory impact analysis SMEs Small to medium enterprises US$ United States dollar Currency Equivalents (as of December 31st, 2014) Currency Unit = US Dollar US$1 = 1.25 LYD Weight and Measures The metric system is used throughout this report Fiscal Year January 1st–December 31st ix 1. Introduction and Background on Recent Events In February 2011, in the wake of revolts country to a permanent democratic consti- against incumbent rulers in neighboring tution. When the deadline passed with Tunisia and the Arab Republic of Egypt, work on the new constitution only getting Libya witnessed a popular uprising against underway, the GNC was forced to organize the rule of Muammar Gadhafi, starting in elections to a new parliament (the House of Benghazi in the east of the country. The up- Representatives [HoR]), which took power rising led to a civil war between the Gadhafi and replaced the GNC on August 2014. loyalist army and rebel groups from several Meanwhile, an un-re-elected minority of cities in the country. After eight months of GNC members, supported by militias de- fighting and almost 25,000 deaths, the rebels clared a new self-proclaimed GNC and ap- eventually took control of Tripoli, toppling pointed a government cabinet. This new the Gadhafi regime. GNC is not recognized by the HoR or by The overthrow of the 42-year long dicta- ­international community. torship was followed by a period of instability At the time of writing this report, the and weak institutional control over the coun- country remains riven by fighting between try, coupled with the establishment of broad- rival militias supporting either the HoR or based power for armed brigades from the GNC. Two competing governments openly main rebel cities. Militias, who gained legiti- vie for control of the country in the midst of macy fighting the former regime, found intense fighting in Benghazi, in the suburbs themselves in control of a large portion of the of Tripoli as well as in the Nafusa Mountains roads, borders, airports as well as key strate- (Kikla). Flights to international and domes- gic sections of the economy (such as ports tic destinations remain scarce, about and oil production infrastructure). At the 250,000 Libyans have been displaced from same time, extremist groups were gaining a their homes and only a very limited number foothold in the east of the country, supplant- of foreign nationals have returned to Libya. ing the formal justice sector with a sys­ temic In addition, the conflict has recently ex- campaign of intimidation and violence. This tended to include oil production and refin- nation-wide climate of insecurity was further ing ­facilities throughout the country. fuelled by the refusal of the most powerful The UN is seeking to bring the HoR and the militias to cede power to a central govern- GNC together at the negotiating table to ment, contributing to a developing sense of reach a deal to end the conflict. The ongoing impunity among their rank and file. UN negotiations are urging the two sides The General National Congress (GNC) to reach an agreement on a coalition govern- was elected in July 2012 to act as the ment whose highest priority would be ­ country’s parliament and it was given 18- restoring services and the confidence of ­ month deadline to primarily transition the citizens in the Libyan states. ­ Introduction and Background on Recent Events 1 2. Approach and Methodology 2.1. Objectives Diversification and Employment, The World Bank, 2011 The objectives of this Simplified 2. Private Sector Research and Future Enterprise Survey remain broadly similar to Project Scoping in Misrata and Benghazi, those of an Investment Climate Assessment Altai Consulting, 2013 (ICA)1 but with a specific focus on the impact 3. Annual Report, Central Bank of Libya of the recent conflict on the dynamics of (CBL), 2013 Libya’s private sector. This study aims at identi- 4. Investment Climate Update: Private fying potential areas for economic growth and Enterprises in the Aftermath of the increased employment, as well as potential Revolution, The World Bank, 2012 further obstacles to business transactions, and 5. Selected Issues on Libya, International to provide feedback from enterprises on their Monetary Fund, 2013 current situation. Given the prevailing security context in Libya, it was not possible to conduct in-depth, in-person interviews with enterprise 2.3. Sample Design managers. As a result, the World Bank Group The sample was defined to reproduce  developed a streamlined survey in terms of the 2011 ICA regional distribution and to in- both sample size and questionnaire length. corporate enterprises of all sizes across the Overall, the main objective of this study is to country. The 2011 ICA sample was based on provide analysis and data to inform possible the last Business Census, performed in 2006 interventions, either in Libya or abroad, in by the National Bureau of Statistics. However, order to support the private sector throughout as mentioned in the Introduction, political what looks likely to be a protracted conflict. events since 2011 have had a major impact on the structure of the Libyan economy, so the ICA sample structure might not be repre- 2.2. Secondary Research sentative of the current Libyan private sector. A literature review of existing reports Nevertheless, for lack of more recent data, was conducted in order to compare the pre- and to allow for comparison with the 2011 vious state of the Libyan economy with its ICA, this study used a similar sampling frame. current situation. In addition, macroeco- In total, 457 interviews were completed with nomic reports and papers focusing on the relevant stakeholders of private enterprises private sector were consulted in order to un- (owners/managers or key personnel) through- derstand the country’s prevailing macroeco- out six areas of the country (see map 2.1): nomic characteristics and dynamics. • The Tripoli Area, comprising the capital The following reports were key to enrich and its surroundings including Tajoura, this piece of research: Janzour, Qsar Ben Ghachir, etc.; 1. The Libyan Investment Climate, Enhanc- • The Middle Area, located to the east of ing Private Sector Performance for Tripoli, mainly composed of coastal cities Approach and Methodology 3 Map 2.1  Map of Libya Divided into Five Main Sampling Areas Tripoli Zwarah Tarabulus Sabratah Bayda Darnah Tobruk Misrata Benghazi Nalut Sirte Bani Walid Surt Mizdah Al Butnan Ghadamis Al Wahat Ajdabiya Al Jufrah Wadi AI Shatii Sebha Obari Wadi AI Hayaa Ghat Murzuq Al Kufrah Tripoli Region Middle Region Western Region Benghazi Region Eastern Region Southern Region and including the economic hub of Misrata • The Eastern Area, comprising the main as well as cities such as Zliten, Tarhouna economically relevant cities of Cyrenaica and Sirte; of Tobruk and Bayda, but excluding • The Western Area, composed of the main Benghazi; and towns west of Tripoli, mainly Zawia and • The Southern Area, comprising Sebha, Sabrata; Obari, and Wadi Ashati. • The Benghazi Area, comprising the city of Because of the impossibility of conduct- Benghazi and its surroundings; ing face-to-face interviews in the current 4 Approach and Methodology Table 2.1  Sampling Tables per Location and Size Location Count 2014 Percent 2014 Frequency 2011 Percent 2011 Tripoli Area 210 46 172 36 Western Area 26 6 44 9 Middle Area 126 28 50 10 Benghazi Area 29 6 125 26 Eastern Area 26 6 50 10 Southern Area 40 9 39 8 Total 457 100 480 100 Number of employees Frequency 2014 Percent 2014 Frequency 2011 Percent 2011 Micro (<5) 61 13 0 0 Small [5–19] 268 59 288 60 Medium [20–99] 104 23 166 35 Large ≥100 24 5 25 5 Total 457 100 480 100 Note: The 2011 figures represent the sample structure of the Enterprise Survey published in 2011 by the World Bank; For the 2014 Enterprise Survey, number of employees represent the total number of employee per company by the end of fiscal year 2013. context, it was decided to conduct interviews random on the ground (table 2.1). Field teams by phone through a call-center in Tripoli, were ­mobilized to visit companies randomly equipped with a computer. Nonetheless, in several cities throughout the country and turnover in companies, the large number of collect contact details to be sent back to the offices closed due to the current crisis and call-center in Tripoli. This process substantially intermittent telephone network coverage in enlarged the sample size, but could not ensure the east (due to damaged telecommunication a perfect representation of all locations, in assets) posed major challenges to data collec- particular in Benghazi and the Eastern Area. tion and triggered a very low response rate The sample was intentionally not strati- among existing contacts. Therefore, the op- fied by sectors due to the lack of accurate in- tion of following a strict sample group meth- formation provided by databases and the odology was discounted as unrealistic. difficulties presented by a multiple-criteria In addition, since there is no comprehen- sampling with such limited access to the sive or up-to-date phone registry of compa- population. Nonetheless, efforts were made nies in the country, the team had to use a to cover a range of industrial sectors, includ- database of small enterprises previously de- ing all sub-sectors of the private sector to the veloped as well as information provided by exception of the agriculture (table 2.2). businessmen in smaller towns. This database was used in the initial phase of the project but valid telephone numbers were quickly ex- 2.4. Limitations hausted before the targeted number of 457 in- This study was undertaken while Libya terviews had been conducted. Hence, a was in the early stages of what has now be- creative “snowball” approach was employed come a de facto civil war. As such, applying to collect phone numbers of enterprises at an ICA methodology in its strictest form was Approach and Methodology 5 Table 2.2  Proportion of Overall Sample by Sector Sector of activity Frequency Percentage Construction (ISIC code F) 54 11.8 Chemicals, pharmaceuticals, non-metallic mineral products 46 10.1 Repair and installation of machinery and equipment 45 9.8 Food, beverages and processing 40 8.8 Retail trade (excluding motor vehicles) 28 6.1 Electronics, computers and optical products 24 5.3 Wholesale (excluding motor vehicles) 24 5.3 Accommodation and food services activities (ISIC code I) 21 4.6 Health and social work (ISIC code N) 20 4.4 Textiles, garments, wearing apparels and leather 15 3.3 Legal, accounting, architecture, consultancy, advertising 14 3.1 Transport, storage (ISIC code H) 14 3.1 Wholesale and trade of motor vehicles 13 2.8 Education (ISIC code M) 13 2.8 Entertainment services and beauty 12 2.6 Publishing, printing and recorded media 11 2.4 Information and communication (ISIC code J) 11 2.4 Wood excluding furniture 10 2.2 Electricity, gas and air conditioning supply (ISIC code D) 9 2.0 Water supply, sewerage and waste management (ISIC code E) 7 1.5 Real estate activities (ISIC code L) 5 1.1 Paper and paper products 5 1.1 Security 5 1.1 Other (specify) 4 0.9 Manufacturing, wholesale or retail of building materials 3 0.7 Financial and insurance activities (ISIC code K) 2 0.4 Tourism, travel 2 0.4 Total 457 100 not possible. The results of this report should that remained active during the third and therefore not be taken as official ICA results, fourth quarters of 2014 following the crisis and the sample, while providing a strong of the summer of 2014. Therefore, it provides level of representativeness in terms of sector, a realistic overview of the current situation size and location, is not as representative of as of February 2015 and assesses the conse- the Libyan economy as would be the case quences of the crisis on the Libyan private under normal conditions. sector. In addition, given the limited sample Nevertheless, this report does provide an size, the research focused on six areas that accurate snapshot of the private enterprises were the most representative of Libya’s 6 Approach and Methodology economy, and some cities and sub-regions Misrata, and the limited representation of were excluded from the sample (e.g., Kufra, very small enterprises (below 5 employees) Hun, Ajdabiya, Derna, etc.). and of service sectors in comparison to man- In addition, the outcome of the previous ufacturing and trade. ICA in 2011 clearly showed that the Libyan Finally, the nature of the methodology economy was mostly composed of micro en- used introduces a bias as it sampled compa- terprises of two to four employees. This was nies that were reachable hence those who intentionally not fully reflected in the sample “survived” the initial shock of the political of 13% of enterprises with less than 5 employ- and security crisis. Less resilient companies ees as it is not the World Bank Group’s core that had to stop their activity could not be interest when conducting enterprise surveys accessed, meaning that the effect of the crisis or similar exercises. No weighting was applied on the Libyan private sector may have been due to the lack of an updated sample frame. greater than the impact presented in this Some caution should be applied when report. This bias is particularly important ­ making inferences on the basis of this sam- when comparing pre-crisis and post-crisis ple, given the oversampling of Tripoli and findings. Note 1. The objective of an Investment Climate country and their link to quantitative data Assessment (ICA) is to “identify key con- found in investment climate surveys.” Source: straints to growth in a country and areas for https://www.wbginvestmentclimate.org​ reform. These reports analyze perception of /­research-and-diagnostics/. entrepreneurs and firm performance in the Approach and Methodology 7 3. Findings of the Enterprise Survey Based on the above findings, the follow- 3.1. Profile of the Sample ing terms will be used throughout the fol- lowing section; 3.1.1. Locations, Sizes and Main • Enterprise, firm, company and establish- Sectors of Sampled Enterprises ment will be used indifferently and refer In total, the research team conducted inter- to a private association in order to carry views with 457 Libyan private enterprises. Of out a business and generate profit from it; these 457 enterprises, 59% were small, 23% • Micro enterprise will refer to a Libyan medium, and 5% large, with large companies ­ enterprise with strictly less than 5 generally concentrated in Tripoli, Benghazi employees; and Misrata. The remaining 13% of the sam- • Small enterprise will refer to a Libyan en- ple were micro enterprises, which are not terprise with between 5 and 19 employees; traditionally included in an Investment Cli- • Medium enterprise will refer to a Libyan mate Assessment (ICA). Nevertheless, the enterprise with between 20 and 99 research team interviewed micro enterprises employees; in this survey in order to gain a more repre- • Large enterprise will refer to a Libyan en- sentative picture of the Libyan economy. terprise with 100 employees or more; The research team interviewed compa- • Crisis refers to the crisis that started in July nies from 26 different sub-sectors (see table 2014 around Tripoli and led to the destruc- 2.2): Proportion of Overall Sample by sector, tion of the main international airport of which were then grouped into 5 broad the city and the evacuation of most inter- ­ sectors to facilitate analysis: 1) Trade, 2) national workers; Manufacturing, 3) Construction and Real • Revolution refers to the 2011 uprising Estate, 4) Services and 5) Other Activities. against the previous regime of Muammar This last category regroups different activi- Gadhafi; ties such as water supply and waste manage- • The terms Tripoli, Benghazi, Middle, ment, electricity, gas, and air conditioning. Western, Eastern and Southern refer to the When interpreting the results of this five Areas defined in paragraph 2.3, and study, is important to note that certain sec- correspond to the sampling areas; and tors and sizes of firms are overrepresented in • Sectors refers to broad sectors that were certain regions. Construction and real estate grouped into 5 categories for the sake of companies tend to be larger than firms from the analysis including construction and other sectors, with 49% of them being me- real estate, manufacturing, trade, services dium or large while only 19% of the firms and other. from the trade sector had 20 employees or Findings of the Enterprise Survey 9 Map 3.1  Percentage of Large and Medium Enterprises per Region (n = 457) Tripoli Region 34% Benghazi Region 24% Middle Region Western Region 28% 23% Eastern Region 12% Southern Region 13% more (see map 3.1). The manufacturing, throughout the sample, with each region trade and “other services” sectors had a being close to the national average (see ­ figures larger percentage of micro enterprises, while 3.1 and 3.2). only 18% of trading firms were had 20 em- ployees or more and the services sector had 3.1.2. Revenues of Enterprises nearly no large firms. Figure 3.3 presents the average revenues Regarding location, the Tripoli region from sales of private enterprises in the sam- and the middle region (comprising Misrata) ple were circa United States dollar (US$) have a greater concentration of construction 400,000. While micro enterprises had an and real estate firms (83% of total firms for ­ average yearly revenue of US$200,000, small both regions) and trading companies (80% enterprises’ median turnover reached of total firms for both regions), higher than US$300,000. The revenues leapt up to the national average. “Other services” com- US$1 million for medium enterprises and panies where more statistically represented US$17,000,000 for large enterprises. A ma- in Benghazi and the South, while services jority of companies in Libya had revenues companies show a higher concentration in that did not exceed US$100,000 per year Tripoli and the Western Area than average. (29% of respondents), meanwhile 14% had Manufacturing companies spread annual revenues of between US$1,000,000 10 Findings of the Enterprise Survey Figure 3.1  Panel Firms Represented as Broad Sectors vs. Size (n = 457) Overall 13 59 23 5 Other 16 52 24 8 Services 11 64 24 1 Construction and real estate 7 51 31 12 Manufacturing 14 58 21 7 Trade 15 66 12 6 <5 [5–19] [20–99] ≥ 100 Figure 3.2  Panel Firm Represented as Broad Sectors vs. Location (n = 457) Overall 9 6 28 46 Other 16 12 24 44 Services 9 7 9 19 50 Construction and real estate 8 3 34 49 Manufacturing 7 10 27 46 Trade 8 5 31 49 Southern Area Eastern Area Benghazi Area Western Area Middle Area Tripoli Area and US$5,000,000, and 9% had revenues of From the sample, only 8% of the enterprises over US$5,000,000. Interestingly, micro en- exported goods, emphasizing the lack of terprises were found to also generate high quality manufactured production in Libya, revenues as 61% of them had yearly turnovers as 98% of exports originated from petroleum above US$100,000. Trade and manufacturing oil.2 Libyan companies interviewed tended to companies were the most revenue-generat- rely on imports to meet the lack of domestic ing enterprises with respectively 50% and supply and flaws in some manufacturing 36% of them presenting yearly revenues above sub-sectors. Most Libyan companies focused US$1,000,000 while this ratio fell to 21% and on their respective domestic market where 22% for construction and services companies.1 unutilized potential had been identified, and where few foreign competitors existed, 3.1.3. Exporting Companies largely due to the recent history of the A very limited number of sampled compa- country. The purchasing power of Libyans ­ nies actually exported goods or services. attracted them towards the retail and Findings of the Enterprise Survey 11 Figure 3.3  What Were Your Yearly Revenues in Fiscal Year 2013 in US Dollars per Size of Company? (n = 224) Overall 5 24 25 15 19 12 Large 13 13 13 13 50 Medium 13 13 29 22 22 Small 7 28 27 11 20 8 Micro 7 32 43 11 7 ≤ 10,000 10,000–100,000 100,000–500,000 500,000–1,000,000 1,000,000–5,000,000 >5,000,000 Figure 3.4  Does Your Company Usually Export Goods? (n = 457) Overall 8 92 Tripoli 8 92 Middle 10 90 Benghazi 7 93 Eastern 4 96 Southern 8 93 Yes No ­ atering services, which are sectors that in- c 3.1.4. Access to Public Services trinsically target local consumption. for Businesses As shown in figure 3.4, the typical export- The licensing system still functioned and de- ing company is located in the Tripoli or the lays to obtain licenses were resolved rapidly Middle Area (Misrata mainly), has at least 20 (see figure 3.5). About a third of private es- employees and operates in the chemical or tablishments sampled (31%) submitted an food and beverage industry. Smaller enter- application to obtain a license to operate in prises, particularly those located in the the import or export of goods over the last Eastern and the Southern Areas were found two years. Large companies had applied more to have a smaller chance to export any goods. often (10 percentage points above the sample 12 Findings of the Enterprise Survey Figure 3.5  Days Reported to Obtain an Operating/Import/Export License (n = 126) 47 20 15 5 2 10 ≤7 7–15 15–30 30–90 >90 Still in process Denied average) as they tended to behave in a more were still in process) than enterprises from formal manner than smaller actors. The num- Benghazi and the East (13%) and the South ber of applications was equally distributed (23%), and thus it appears that process flows across the sample with a slightly larger propor- in the East and South are slower and less effi- tion of companies applying in Tripoli and the cient than in other regions. South Area and in the manufacturing sector. Three enterprises out of four were not vis- Out of those that applied, any delays re- ited by a tax official over the last year, sug- ported were not significantly long; about half gesting that the tax collection system was of the sample obtained the license in less than almost completely dysfunctional in the coun- a week and another 20% between a week and try (see figure 3.6). Twelve percent of firms 15 days, while only 7% of the enterprises ex- mentioned that they were visited once and perienced delays of more than one month, a 11% more than once (in average 2–3 times minority reporting to have waited about a per year). Surprisingly, establishments across year to get it. About 10% were still in process the sample showed close trends with a differ- and only one reported that its application had ence of only 6% between large companies been denied, showing that this procedure re- (26% were visited at least once) and micro mained active in Libya despite the current enterprises (20%). Some small regional dif- difficulties to function. It is worth noting that ferences were identified as enterprises in this did not seem to be an issue while many Benghazi and the Eastern Areas were visited other institutions were all but dysfunctional. less than their peers in the Western and Small and micro enterprises in the trade Southern Areas, having been “never visited” and services sectors were more likely to re- 86% and 88% respectively. This can be ex- port that their licensing application was still plained by the weakness of the state in the in progress, whereas the vast majority (97%) Eastern Area compared to the relative exis- of large companies who had applied for li- tence of institutions in the Western and censes had obtained them.3 Enterprises from Southern Areas—although largely dysfunc- the Western, Middle and Tripoli regions tional. Enterprises in the trade and services were less likely to be waiting for their appli- sectors were less visited than others (21% re- cations to be processed (0%, 6% and 8% ported “once last year”) as they tend to be respectively reported that their applications ­ smaller, more informal or of less interest for Findings of the Enterprise Survey 13 Figure 3.6  Over the Last Year, How Many Times Was This Establishment Either Inspected by Tax Officials or Required to Meet with Them? (n = 457) Overall 73 12 11 Other 85 11 4 Services 75 11 11 Construction and 64 14 20 real estate Manufacturing 70 15 10 Trade 75 9 12 Don’t know Never Once More than once tax officials. Construction companies re- access loans in Tripoli, and the Middle and ported the highest number of visits (34%) as Southern Areas. these companies, often large and strategic, Compared to its regional peers across years tended to be less informal in their opera- (where an ICA has been conducted), it ap- tions. In 2009 the ICA reported that a typical pears clear that Libya has an exceptionally low firm encountered tax officials and labor offi- position when it comes to external ­ financing cials about twice a year suggesting an impor- for the private sector (see figure 3.7). Even tant drop as it was averaging at 0.25 in 2014. when comparing the results of this enterprise survey with the ICA conducted in Libya in 3.1.5. Access to Finance 2009, the levels of firms currently having a Paneled firms were overwhelmingly dependent loan or a credit have dropped by almost 8% on their own capital as their unique source of showing first that Libyans are not keen on financing. Very few Libyan private enterprises using external finance (for a majority of them, contract loans. Of the total sample, only 2% of see figure 3.8) but also because the system is firms mentioned they had a loan or a credit no longer functioning correctly. The World line. The small number of companies that had Bank Group ranked Libya 186 out of 189 contracted a credit line were logically the larger economies on the ease of getting credit, im- enterprises for they had greater capital needs peded by weak collateral and bankruptcy laws, and greater access to banks. It is worth noting and 187 out of 189 on protecting investors. that none of the companies interviewed in To confirm this trend, managers were Benghazi, the Eastern Area or the Western asked to estimate the source of the money used Area contracted loans, outlining the additional for the working capital of their companies, of difficulties in obtaining credit lines in those re- which three quarters used exclusively internal gions. Around 2–3% of companies could funds or retained earnings. The remaining 14 Findings of the Enterprise Survey Figure 3.7  Percentage of Firms Having a Loan or Credit Compared to Regional Peers 60 52 50 40 32 30 25 20 10 12 10 2 0 Libya Yemen, Rep. Egypt, Arab Rep. Morocco Lebanon Libya 2009 2010 2012 2012 2009 2014 Note: Data from the 2012 Investment Climate Update in the Arab Republic of Egypt, 2012, p. 52 and 2011 ICA in Libya, p. 48. Data for 2014 are based on the Enterprise survey realized for this report. Figure 3.8  Does This Establishment Have a Credit Line or a Loan from a Financial Institution? (n = 456) Overall 2 98 Large 13 88 Medium 1 99 Small 1 99 Micro 100 Yes No Note: One interviewee mentioned “don’t know” and was cleared out for this specific question. quarter also used mostly internal funds with sources were money loaned by friends or rela- the minority using external finance called tives that was used by 10% of enterprises for upon domestic banks for loans (while none which it represented often less than 50% total used international banks), credit from suppli- working capital. ers, advances from customers (often between When it comes to source of funds to fi- 10 and 30% of the capital) or public financing nance investments in fixed assets, the gap is from government agencies. The remaining even larger as 85% of our sample used only Findings of the Enterprise Survey 15 internal funding. A minority of large enter- less demanding for credit services (100% prises called for credit from international and 92% identified “no need for a loan” as banks (1% of the sample) or from domestic an response) while the Southern Area ap- financial institutions while about 8% of them peared to have greater needs as 23% of en- were lent money from friends of relatives. terprises had requested a loan that was Libyan enterprises do not contract loans subsequently not granted, likely due to the simply because they do not need them (see suffering of the deficient system. figure 3.9). Eighty five percent of the inter- Construction and real estate companies viewed enterprises do not contract loans be- (that are more likely to be larger enterprises) cause they reported not needing external were more likely to apply for loans than financing and preferred to use their own other enterprises (17% compared to 11% capital or other forms of financing such as overall), with 12% of these applications re- friends or family financing. Twelve percent jected (4 percentage points above average), of them made an attempt to contract a loan, and 5% still pending (2 points above aver- of which 8% said their applications were age). Trading companies, often smaller in turned down and 4% mentioned it was still size, were less likely to apply for financial pending. The remaining 4% did not have a credit, with 88% reporting that they did not clear idea why their enterprise did not have apply for loans. a loan. Larger companies made a higher A third of the sample (34%) were familiar number of attempts to obtain a credit and with Islamic finance and a tiny proportion 20% of them managed to access it; this pro- (5.4%) of them already used it for businesses portion fell to 10%, 12% and 6% respectively purposes (see figure 3.10). It seemed that en- for medium, small and micro enterprises. terprises in Benghazi (45%), in the Southern The Western and the Middle Areas were the Area (43%) and in the Western Area (46%) Figure 3.9  What Is the Reason for Not Having a Loan or Line of Credit Currently? (n = 447) Overall 85 8 3 4 Large 76 10 10 5 Medium 84 8 6 Small 84 9 3 Micro 90 3 3 I don’t need a loan/I did not apply Application was turned down Approval of the application is still pending Don’t know 16 Findings of the Enterprise Survey Figure 3.10  Are You Familiar with Islamic Modes of Financing? (n = 457) Overall 34 66 Middle 35 65 Tripoli 27 73 Western 46 54 Benghazi 45 55 Eastern 23 77 Southern 43 58 Yes No had more knowledge about Islamic financing and trade sectors for which the percentage than in the rest of the country (only 27% in was 7% and 6% respectively. It is worth not- the Middle Area for instance). Medium-size ing that the Southern Area had he higher enterprises were more familiar with Islamic proportion of enterprises reporting the use financing (50% of them were familiar) prob- of Islamic finance (8%) while few reported ably because larger enterprises had greater using it in Benghazi (3%) and none in the needs in conventional financing and smaller Eastern Area (0%); Tripoli and the Middle ones were less demanding for financial ser- Area (7% and 5%) where contributing the vices. Companies in the construction sector most the national average. were the most familiar (44%) while those in the trade industry had the most limited knowledge (28%) given their limited need 3.2. Dynamics of the for funding which did not enhance their Private Sector before awareness. Despite the limited knowledge, almost all the Crisis private enterprises expressed sympathy to- The following section presents an anal- wards Islamic finance as 94% said they would ysis of the dynamics of the Libyan private use it if it was established mostly for religious sector before the summer 2014 crisis, to un- reasons, in particular the fact that there is no derstand and provide a context for the cur- riba (interest rate), which can also be inter- rent crisis. As mentioned above, previous preted as an economic benefit for Libyans analyses showed that despite the continuous that prefer to see no interests for loans. climate of instability, the Libyan economy re- Six percent of respondents reported hav- sumed its march towards growth in 2012 and ing used Islamic finance in the past, in par- 2013, although it seems that this growth ticular for companies in the manufacturing started contracting before the summer 2014. Findings of the Enterprise Survey 17 3.2.1. Sales: Pre-Crisis Level negative growth over the period. Similar The Libyan private sector was characterized patterns were observed across sectors, by a global downward trend before the although the services sector performed ­ summer 2014 crisis. Despite the moderate ­ slightly better than construction and manu- growth observed during the first semester of facturing for instance. Some regions per- 2013, data suggested that the private sector formed better than others, in particular experienced the return of a downward trend the Middle, the Southern and the Eastern outlined by the fact that two thirds (66%) of Areas for which the decrease was below av- paneled firms saw the revenues of their sales erage, at 53%, 60% and 62% respectively, decreasing between the two first quarters of compared 81% for the Western Area. The 2013 and the two last quarters of 2014, be- Middle Area was positively impacted by the fore the burst of the recent crisis. The aver- dynamics of some companies in Misrata, age diminution of sales was of 50% over the and the south of the country experienced period (see figure 3.11). low-intensity conflict at that time which About 18% of enterprises kept a similar serves to explain their better score. More level of revenues, while only 13% of them surprising, the east of the country, and saw their sales grow. All types of companies Bayda in particular, proved more resilient presented similar results although micro that the west of the country it appears. enterprises—often trading and retail com- Furthermore, 56% of exporting compa- panies—had the greater percentage of nies (n = 36) reported a decrease in their ex- growth given that they often marketed lo- ports, while it remained at the same level for cally and were less exposed to big contracts. 22% of them and actually increased for less Medium-sized companies were impacted than 20%, showing that even external trade upon the most with 72% witnessing a had been impacted upon. Figure 3.11  When Comparing End of June 2013 and End of June 2014, Did Your Sales? (n = 457) Overall 13 18 66 Tripoli 8 16 72 Middle 19 25 53 Western 8 8 81 Benghazi 7 14 76 Eastern 23 12 62 Southern 23 18 60 Don’t know Increase Remain the same Decrease 18 Findings of the Enterprise Survey 3.2.2. Investment: Pre-Crisis security issues throughout 2013. The distribu- tion of investments by size was balanced Level across the panel (see figure 3.12), except for The deterioration of the business climate micro enterprises that were performing better started before the recent crisis as a relative than the rest (33% of “decrease” compared to majority (43%) of the sample had decreased 44% for the rest of the sample). their investments between June 2013 and June 2014, probably as a direct result of the fall in revenues. Nonetheless, a larger number 3.2.3. Employment: Pre-Crisis of companies (35%) kept the same level of in- Level vestment towards the beginning of 2014, The employment rate started dropping across showing that there was hope for a recovery the period as another direct consequence of of the activity. Around 16% increased their bad financial results, reducing staff was natu- investments during the period, showing a rally seen as a way to reduce the weight of rather optimistic approach while faced with payroll on the company’s costs. Indeed, if the climate of crisis. Just like for revenues of half the companies kept the same number of sales in this period, the Middle, Southern and employees, only 11% of them recruited while Eastern Areas had the best performing com- 39% reduced numbers altogether. A strong panies. In the region of Misrata, only 34% of correlation with the size of the company was companies decreased their investment over found as large and medium enterprises the period and about a quarter ­ increased it tended to reduce their staff more while micro (23%). The region of Benghazi showed greater enterprises were more likely to recruit with pessimism with only 7% of enterprises in- 18% of micro enterprises recruiting at least creasing their levels of investment. It is worth one additional employee across the period. noting that Benghazi had experienced serious Establishments in the construction and real Figure 3.12  When Comparing End of June 2013 and End of June 2014, Did Your Investments? (n = 457) Overall 16 35 43 Tripoli 12 33 48 Middle 23 39 34 Western 12 27 54 Benghazi 7 41 52 Eastern 12 38 38 Southern 28 28 38 Don’t know Increase Remain the same Decrease Findings of the Enterprise Survey 19 Figure 3.13  When Comparing End of June 2013 and End of June 2014, Did the Number of Employees? (n = 457) Overall 11 50 39 Large 50 50 Medium 10 39 51 Small 10 52 37 Micro 18 59 20 Don’t know Increase Remain the same Decrease estate and manufacturing sectors showed 30% reporting it as decreased and 24% as in- similar dynamics combining a level of re- creased. In reality, it was often complicated for cruitment above average, but a greater num- Libyan businessmen interviewed to assess the ber of companies also reducing staff. The number of competitors around them and to trade sector—composed of many micro en- follow the market in terms of new entrants or terprises—was mostly status quo as 68% of inactive establishments. Micro enterprises felt companies kept the same number of employ- that the number of competitors increased by ees over the period and only 25% of them 36%, almost three times more than the ones decreased their staff. identifying “decrease” (13%), confirming On average, interviewed establishments the specific dynamism of small structures. decreased their staff by 20% except for larger Medium companies were the most numerous establishments that decreased it by 47% per- to report a decrease in the number of compet- mitted by their larger overall staff numbers itors, and large companies appeared to think (see figure 3.13). that the market held steady with a similar number of competitors (50%), none (0%) of the latter reporting an increase in competi- 3.2.4. Competition: Pre-Crisis tion. Perception of competition decreasing Level was higher among companies working in Competition was reported to have remained construction and real estate given the concen- at an equivalent level with a slightly larger de- tration of large and medium sized companies crease depending on the regions and size (see in the sector. Enterprises in the manufactur- figure 3.14). Across the sample, more than a ing, services and trade sector—often micro third replied the number of competitors re- and small enterprises for the ­ latter—were mained the same across the period. This per- more likely to report a rise in competition. centage was rather balanced though, with Trade companies, for example, reported 20 Findings of the Enterprise Survey Figure 3.14  When Comparing End of June 2013 and End of June 2014, Did the Number of Domestic Competitors? (n = 457) Overall 11 24 35 30 Tripoli 15 19 30 37 Middle 11 32 35 22 Western 8 12 58 23 Benghazi 3 21 31 45 Eastern 4 35 54 8 Southern 33 38 30 Don’t know Increase Remain the same Decrease a 17% increase in competition across the pe- generally reported growth in revenues. riod, compared to 10% for the overall sample. The current negative trend is due to local- In addition, companies that reported a ized conflicts beginning in early 2014, in higher level of competition were more likely particular in the east, and the appearance of to have reported increased revenues post-cri- weak economic governance and policy. sis, with 31% reporting an increase of sales (compared to only 4% amongst companies who reported a drop in competition). Nearly 3.3. The Impact of the all companies that reported a decrease in Summer 2014 Crisis on competition described the Libyan economy in negative terms, while companies that re- the Libyan Private Sector ported an increase in competition were more The recent crisis has had a direct and balanced in their assessment of the economy. broad impact on the economy in general and Indeed, some companies emphasized that in- on the private sector in particular (see figure creased completion was welcome in specific 3.15). A strong majority (77%) of enterprises sectors, particularly for the trade sector. reported that the crisis had a direct impact During the year preceding the summer on their business, including 86% of enter- 2014 crisis, the Libyan economy started to prises from Benghazi and 81% from Tripoli, show signs of a downturn, with a general the two cities that experienced the most in- reduction in sales revenues reported by the ­ tense fighting during this period. sampled enterprises. Most companies saw a Companies of all sizes were hit equally by decrease in their level of investment and the crisis, while companies from the con- started reducing staff given the unstable struction, real estate and manufacturing sec- context. After the revolution in 2012 until tors were more likely to have experience and the first two quarters of 2013, enterprises impact, due to their greater number of assets Findings of the Enterprise Survey 21 Figure 3.15  Has Your Firm Experienced a Direct Impact from the Current Conflict (Started in the Summer 2014)? (n = 457) Overall 77 23 Tripoli 81 19 Middle 71 29 Western 77 23 Benghazi 86 14 Eastern 65 35 Southern 75 25 Yes No and the relative importance of production chain shortages—and the lack of liquidity when compared to enterprises focusing on and problems with inflation (e.g., rise in ex- trading or services. change rates) were also reported as main Different enterprises from the sample issues. While nearly a quarter of the sample ­ group experienced the shocks of the crisis in reported that they did not experience a di- different ways, and reported different “main rect impact as a result of the crisis, this issues” that arose as a result of the crisis: does not mean that these companies did not experience indirect setbacks resulting • 37% said that the main impact of the crisis from the general climate of insecurity and was reduced revenues instability. • 7% reported that the main impact was work stoppages • 10% reported that the main of the crisis 3.3.1. Regional Overview was issues with the supply chain (e.g., lack Overall, enterprises operating in Tripoli, of access to imported goods, petrol and Benghazi and the South of Libya appear raw materials due primarily to disruptions to have suffered the greatest impact from along the supply chain such as closures of the ongoing political and security crisis seaports or airports) compared to enterprises operating in the • 9% reported problems with staff, with for- Middle (particularly enterprises from Mis- eign workers leaving the country in large rata) and Eastern regions.4 Map 3.2 presents numbers and local staff unable to reach key impacts of the crisis by region, focusing their workplace due to poor security on physical damage to establishments or conditions other property, decreased number of em- A sharp fall in production capacity—as ployees, decreases sales, and office a direct consequence of labor and supply relocation. 22 Findings of the Enterprise Survey Map 3.2  Key Findings of the Impact of the Summer Crisis per Region Tripoli Area Benghazi Area Firm moved offices 33% Firm moved offices 48% Firm with physical damages 31% Firm with physical damages 34% Firm decreased staff 51% Firm decreased staff 45% Firm with sales decrease 77% Firm with sales decrease 86% Average revenues’ growth –41% Average revenues’ growth –57% Middle Area Western area Firm moved offices 18% Eastern Area Firm with physical damages 13% Firm moved offices 27% Firm decreased staff 35% Firm moved offices 27% Firm with physical damages 12% Firm with sales decrease 63% Firm with physical damages 1 5% Firm decreased staff 50% Average revenues’ growth –35% Firm decreased staff 19% Firm with sales decrease 85% Firm with sales decrease 54% Average revenues’ growth –53% Average revenues’ growth –37% Southern area Firm moved offices 26% Firm with physical damages 35% Firm decreased staff 45% Firm with sales decrease 75% Average revenues’ growth –50% Overall sample Firm moved offices 28% Firm with physical damages 25% 10% Figure below sample average Firm decreased staff 44% 10% Figure close to sample average (±3%) Firm with sales decrease 73% Average revenues’ growth –42% 10% Figure above sample average Note: Average revenues’ growth is calculated on firms reporting increase, stable and decrease of their sales, not only decrease. 3.3.2. Material Damages companies moved offices, most of them to About 30% of the companies had to move the surroundings of Tripoli (Ain Zara, Aza- their main office or a site of production due wia Adahmani, Tajoura), but a number of to the crisis, demonstrating the intensity of companies also moved to Misrata, Zliten, the fighting. A majority of companies moved Khoms and even Sebha and Obari. In the to another location within the same town other areas, enterprises that had to move (22%) while 6% moved their offices to an- mainly remained in the same city. Micro en- other town, the latter more likely to concern terprises appear to have moved less than large companies in Tripoli and Benghazi others—10 points below average at 19%— (see figure 3.16). Benghazi is the city that given the limited buildings, storage or other was the most impacted with this phenome- assets they need to protect. Companies of non given the fierce combats in the city, the trade sector and manufacturing sectors with about half of the sample declaring they moved the most with 34% and 33% of com- had to move of which 10% moved west, to panies respectively having moved offices or Misrata or Tripoli. A third of Tripoli-based production sites to protect their production Findings of the Enterprise Survey 23 Figure 3.16  Has the Firm Moved Offices or Production Sites because of Events Related to the Current Crisis? (n = 457) Overall 6 22 72 Tripoli 8 25 67 Middle 2 16 83 Western 8 19 73 Benghazi 10 38 52 Eastern 8 19 73 Southern 3 23 75 Yes, in a different town Yes in same town No capacity or inventories that often repre- foreign workers. Forty four percent of compa- sented their main assets. Companies of the nies reported that the number of their employ- remaining sectors were averaging at 25% ees decreased after the crisis. This reflects moving offices. different trends as many qualified foreigners In addition, one enterprise out of four suf- left the country in July and August 2014 while fered extra losses from material damages such some Libyans also preferred to seek protection as looting, theft or vandalism since July 2014 outside of Libya (mainly moving to Tunisia in particular in Tripoli, Benghazi and the and the Arab Republic of Egypt). Out of the Southern Area which likely explains why staff members who had to abandon their posi- companies of the two first areas were keen to tions, 70% of enterprises identified that work- move offices. Companies of the Southern Area ers were both foreigners and Libyans, while had less opportunity to move as they were fur- another 30% identified Libyan only. ther away from other economic centers unlike In addition, the remaining workforce was the coastal regions. Enterprises in the con- often reluctant to travel to the workplace struction and real estate sectors suffered 50% given the ongoing security situation and more than in other sectors due to the number many companies had to decrease costs of of physical assets prone to material damage production to reflect the decrease of reve- (buildings and construction sites). nues, hence reducing their staff. Forty eight percent of the enterprises had kept similar number of employees since the summer 2014, 3.3.3. Employment and Human of which micro and small establishments Resources were the most numerous. While small com- Employment suffered greatly from the crisis, panies had less flexibility to decrease their in particular for company employing staff, medium and large companies were 24 Findings of the Enterprise Survey Figure 3.17  Has Your Number of Employees Been Impacted by the Current Conflict? (n = 457) Overall 7 48 44 Large 4 42 54 Medium 10 32 58 Small 7 51 42 Micro 7 66 26 Don’t know Yes, increased No, remained the same Yes, decreased found to reduce their staff more frequently sample reported the revenue of sales to have (58% and 54% respectively for medium and decreased in the second semester of 2014. large companies against 42% and 26% for This comes in a context of economic gloom small and micro enterprises) (see figure 3.17). (see section 5.2) but the security situation Logically, sectors employing a high number undoubtedly accelerated losses; only 10% of of unqualified workers were the first to reduce them have been able to generate more reve- their manpower, in particular in the con- nues since the beginning of the crisis, mainly struction and the manufacturing sector. In companies in the trade sector, the food and the trade sector—composed mainly of micro beverage manufacturing and the private and small enterprises—a majority of compa- health industry. nies kept the same employment level (66%). Enterprises in Tripoli and the Middle and Companies reported to have decreased the Eastern Areas were performing slightly their staff by 20% on average, a ratio that was better than the national average while com- almost doubled to 40% when focusing solely panies in Benghazi, the Western and the on medium and large companies. Southern Areas were facing more difficulties. Large companies were more resilient as less 3.3.4. Economic Impact than 60% saw their revenues decrease (25% Since the recent crisis of the summer, about remained the same and 13% increased) com- 3 companies out of 4 have experienced pared to medium and small sized companies shortfall in revenues of sales. The main im- scoring 77% and 74%. pact of the crisis is the contraction of both On average, sampled enterprises have the demand and the production capacity that reported their revenues to have decreased reflected directly on incomes of companies by 60%, an average that was slightly less (see figure 3.18). Seventy three percent of the important for large companies for which Findings of the Enterprise Survey 25 Figure 3.18  Have Your Sales Been Impacted by the Current Conflict? (n = 457) Overall 10 15 73 Large 13 25 58 Medium 9 13 77 Small 10 14 74 Micro 13 18 66 Don’t know Yes, increased No, remained the same Yes, decreased it decreased by 50%. The total estimated in the whole Western Area (Misrata airport) decrease of revenues, including growing before being eventually targeted in turn. and stable companies, was estimated to Benghazi and Sebha airports remained be –42%.5 closed disrupting main supply routes to the Level of exports also fell down as a conse- main cities in the east and the south. Con- quence of the reduced capacity of enterprises nection by land was also limited due to the to produce and given general dysfunction of volatile security situation around Tripoli, ports. Exporting companies’ (8% of total pri- Benghazi and even Sebha and some border vate companies) level of exports decreased posts have been closed (Ras Jedir has been by 66% compared to their level before the closed several times by the Tunisian author- crisis. Most of them expected the level of ex- ities). More importantly, many international ports to increase (41%) but a large number companies supplying Libya had stopped (33%) were not sure about the future, outlin- their shipping activity to Libyan ports caus- ing a lack of confidence towards the future ing extended delays to receive goods. Trade for those companies. companies were particularly hardly hit by the disruption of supplies (68%) as well as manufacturing companies. Both sectors 3.3.5. Impact on Production were very dependent on imported goods Capacity and equipment. The majority of construc- A large majority of companies have suffered tion and real estate enterprises suffered from disruption of supplies since the crisis. from the problem (about 58%), although Fifty seven percent of our sample has not continued to perform closer to the national been able to receive goods, equipment or average because they sourced some of the machinery, normally because of the distur- raw materials locally. Services companies bance of the main air, land and sea trans- were the least impacted as less than half of portation hubs. The attack on Tripoli them suffered from this issue (47%). international airport led to a situation The Western Area was the most impacted where only one airport remained accessible as most of the enterprises there depended on 26 Findings of the Enterprise Survey the connection with Tripoli, which was re- Problems of employment and disruption peatedly disrupted during the conflict, and on of supplies have decreased the capacity of trade through the main ports. Benghazi and operation. Capacity utilization of produc- Tripoli came after given the conflict in the tive equipment (machinery, processing in two main cities, whereas the Southern Area the manufacturing sector) as well as hours suffered from the difficult connection of the of activity in the trade and service sectors main routes running south, supplying most have decreased for 56% of enterprises by an of the traders and manufacturers through average of 24% compared to pre-crisis level Sebha. The Middle Area—Misrata in particu- (see figure 3.20). The construction and the lar—was performing rather well with less real estate sectors experienced the biggest than half the sample concerned by the issue. decrease in production (–30%) while some Misrata had been set apart from the fighting sectors maintained their production levels, for quite a long time, a situation that might especially the private health sector (–2% in have changed after the attack on Misrata at average). On average, 77% of companies end of December 2014 though.6 No strong lost between 30 and 40 days of production correlation was found between disruption of or operation due to a dysfunction of some supplies and size of the company, the phe- kind relating to key infrastructure pivotal to nomenon touching companies from all size. their business. Insecurity or civil disorder, Three quarters of the managers reported power shortages and disruption of supplies an additional delay of between two weeks were particularly cited, while only 23% re- and one month (24%), one to two months ported that they kept their business run- (24%) and two to three months (24%) to re- ning without interruptions. ceive supplies and for 19% of them the delay Large enterprises reported to have kept was less than two weeks (10% between 7 and the same capacity of production, in particu- 15 days and 9% less than 7 days) while 8% lar those in the Middle Area (Misrata) reported a particularly high waiting process which performed better than the other areas of over three months delay compared to a whereas micro, small and medium sized normal non-crisis situation (see figure 3.19). companies had a stronger probability of Figure 3.19  Additional Days to Receive Supplies after the Summer Crisis (n = 255) 80 60 60 60 43.5 45 45 40 30 30 20 0 Total Tripoli Benghazi Middle Western Eastern Southern Findings of the Enterprise Survey 27 Figure 3.20  Percentage Decrease of the Capacity Utilization since the Crisis for Some Selected Sectors 0 –2 –10 –12 –20 –15 –24 –24 –30 –30 –34 –40 Total Trade Construction Education Health Food and Accomodation and RE beverage and food manufacturing services activities Figure 3.21  Compared to Last Year Has Your Capacity Utilization/Hours of Operation Changed? (n = 457) Overall 9 33 56 Tripoli 7 29 61 Middle 14 44 41 Western 4 27 65 Benghazi 14 86 Eastern 15 46 35 Southern 8 28 60 Don’t know Yes, increased No, remained the same Yes, decreased witnessing their production decrease. A in their production capacity, while 44% kept small proportion of these companies man- the same production levels and 14% even aged to increase the capacity utilisation7 after managed to increase it (see figure 3.21). the crisis (10%), in particular in the trade This sharp drop can be explained by the sector (14%). By location, Benghazi was fact that location sites were often circled by again the most impacted, much more so than combats, some roads were closed and cars the Western, Tripoli and the Southern Areas. were stolen or broken, preventing working The Middle Area resisted the most as only population to go to work and goods to circu- 41% of the companies reported a decreased late freely. 28 Findings of the Enterprise Survey 3.3.6. Impact on Competition average (16% and 15%) and only 36% of The level of competition weakened by about micro enterprises mentioned a decrease 50% according to managers due to a contrac- showing the relative dynamism of small and tion of the demand and difficulties faced to often informal actors. maintain activity. The decrease of sales in some Apart from in the Eastern Area (23%), a sectors forced a large number of companies majority of enterprises felt the competition to put their activity on hold. Large companies had decreased, in particular in the Western reported that they felt the demand decreased and Benghazi Area, for which about 65% of by 35% only due to the fact that they mainly enterprises reported a drop in the number compared themselves to peers that were more of competitors. In the Eastern and in the likely to resist the crisis than smaller actors. Middle Areas, a majority of companies felt Across the sample, 50% of the enterprises that the competition remained the same (re- declared that the number of their competitors spectively 46% and 40%) while this category had decreased by 50% in average, and espe- was particularly weak in the Benghazi, cially in the construction and real estate sec- Western and Tripoli Areas suggesting that tors where competition decreased by 58% most companies could feel a change of situ- (see figure 3.22). A quarter of the enter- ation. The Eastern and Benghazi Areas, par- prises (26%) felt it remained the same, 14% adoxically, experienced the highest levels of reported an increase and 10% could not say. increase (respectively 19% and 21%), proba- Large enterprises were keener on reporting bly due in part to the rise of some informal that the competition had remained the same businesses in the city. (42%), none ­ reported that it had increased and a large number simply did not know 3.3.7. Impact on Investments (21%). Small and micro enterprises felt a As shown in figure 3.23, the recent crisis slightly higher increase of competition than decrease in domestic also triggered a major ­ Figure 3.22  Has the Number of Domestic Competitors Been Impacted by the Current Crisis? (n = 457) Overall 10 14 26 50 Other 15 11 17 57 Services 14 15 27 45 Construction and real estate 12 25 58 Manufacturing 9 13 27 51 Trade 12 18 22 48 Don’t know Yes, increased No, remained the same Yes, decreased Findings of the Enterprise Survey 29 Figure 3.23  Have Your Investments Been Impacted by the Current Conflict? (n = 457) 6 10 24 60 Don’t know Yes, increased No, remained the same Yes, decreased investment for private companies. Sixty per- keeping stable levels of investments. Overall cent of paneled enterprises decreased their and across the sample, the investment crisis level of investment, on average by 60%, com- can be estimated at a 40% decrease of invest- pared to previous levels. A large amount of ments compared to the pre-crisis level. money was not invested back into the econ- omy, fuelling the further contraction of the 3.3.8. Impact on Financing activity for suppliers and sub-contractors. For 78% of enterprises, the crisis created ad- Twenty four percent of enterprises declared ditional restrictions in accessing finance and that their level of investments remained the foreign currency. A large majority of compa- same while only 10% had increased their nies explained that accessing finance became level of investment since the crisis. This in- more complicated since July 2014 (see figure vestment crisis is logical given the lack of 3.24). Access to finance has always been one stability required for companies to invest. of the key constraints for the Libyan private The results were similar across the different sector and in particular small and medium sectors, although trading companies were enterprises (SMEs) to develop. Accessing fi- the most likely to invest despite the crisis nance was ­ already identified as a major or (15% of them increased their level of invest- severe constraint for 60% of enterprises in ment). A sizable number of large companies the Libyan ICA of 2011. Access to finance had increased their investment during the has gotten harder for enterprises all across crisis—in the food manufacturing and the the sample, all of them reported to be equally construction sector—probably to compen- penalized by the problem no matter the re- sate for the damage of assets and to keep up gion or the sector (±5% from average), with with production (higher occurrence of com- the exception of large companies which suf- panies increasing investment in Tripoli and fered less often from additional difficulties in Benghazi where fighting was ­ intense). Big accessing currency, their financial perfor- regional differences were noticed; Benghazi mance 18 points below national average. experienced the greatest investment de- Similar effects were observed on access to crease (72% of companies) while the Middle foreign currency, a key topic for Libyan busi- and the Eastern Areas showed more resil- nessmen (see figure 3.25). Seventy eight per- ience with 38% and 34% of enterprises cent of Libyan private enterprises assessed 30 Findings of the Enterprise Survey Figure 3.24  Has Your Access to Financing Been Impacted by the Recent Events Related to the Current Crisis? (n = 457) 3 14 81 Don’t know Yes, easier No, same as before Yes, more complicated Figure 3.25  What Is Your Assessment of the Ease of Obtaining Foreign Currency as Compared to Before July 2014? (n = 457) 10 6 78 Don’t know Easier than before As usual Mild restrictions Significant restrictions that there were significant restrictions to ob- 3.3.9. Categorizing Impact tain foreign currency since the conflict broke While most companies felt an impact as a out and 10% deemed that the situation re- result of the crisis, some suffered more than ­ mained as before. The situation was reported others (table 3.1). By examining several crite- to be already tricky as Libyan businessmen ria, companies can be classified into three often get access to US dollars from the Libyan groups, based on the level of intensity with black market rather than through official which they experienced the crisis: low, me- channels. Very similar results were found on dium, or high. Companies reporting that the companies of different sizes and of different crisis did not have a direct impact on their sectors, to the exception of services compa- establishment or that reported a direct im- nies for which the negative impact of the cri- pact but have not moved offices nor experi- sis on foreign currency was slightly less enced physical damages were classified as important. The Area of Benghazi reported “low intensity.” Companies reporting to have the highest rate of “significant restriction” suffered a direct impact, moved office in the (93%) followed by the Eastern and Southern same town but not suffered from physical Areas (both 85%) while Tripoli (74%), the damages were classified as “medium inten- Western (77%) and the Middle Areas (79%) sity” while companies that moved offices to performed relatively better (see figure 3.26). different town and/or suffered physical Findings of the Enterprise Survey 31 Figure 3.26  Intensity of the Crisis by Region 100 13 12 12 22 28 28 33 80 60 54 59 65 Percent 55 53 43 59 40 20 35 29 25 23 19 23 14 0 Overall Tripoli Middle Western Benghazi Eastern Southern High intensity Medium intensity Low intensity Table 3.1  Key Enterprises’ Performance by Level of Intensity of the Crisis Firms reporting decreased Firms reporting decreased Additional delay for supplies Impact of crisis sales (%) staff (%) (days) Low intensity 54 22 30 Medium intensity 69 39 40 High intensity 70 55 60 damages were classified as “high intensity.” 3.4.1. Political and Economic The results show that a majority of firms Instability (55%) experience a medium intensity impact The most severe obstacles constraining from the crisis, as illustrated in figure 3.27. business in Libya are political instability and macroeconomic uncertainty. Under- 3.4. Main Constraints standably, the recent crisis is still in most managers’ mind, and the political deadlock to Growth at the time of the survey was also identified According to managers interviewed, the top by most managers as their main obstacle to three constraints to growth were political developing their business or simply to con- and economic instability, corruption, and the tinuing operations. Macro-economic un- high occurrence of crimes and theft. Access certainty, including the capacity of the to water, customs and trade regulations, and Libyan state to control the export of oil, of the ease of obtaining business permits were imports and to manage macro-economic the least reported obstacles. mechanisms (inflation, unemployment, 32 Findings of the Enterprise Survey Figure 3.27  Please Rate the Following Factors as Constraints to Your Enterprise’s Operation and Growth on the Following Scale (n = 457) Macroeconomic policy 56 26 8 6 Political instability 63 15 9 8 Corruption 57 21 7 10 Crimes and theft 49 16 9 16 Policy uncertainty 39 19 15 18 Informal sector 33 21 11 24 Uneducated workforce 30 20 15 23 Electricity 32 17 16 21 Courts/conflict resolution 35 12 7 30 Price of land 29 14 13 32 Transport 27 16 19 29 Internet service 26 15 24 24 Labor regulations 22 14 19 33 Mobile coverage 21 14 20 32 Access to land 21 10 12 44 Tax administration 18 12 16 42 Business permits 15 11 13 50 Customs and trade 15 9 16 48 Water 11 5 9 69 Very severe obstacle Major obstacle Moderate obstacle Minor obstacle No obstacle Don’t know/don’t apply reserves in the Central Bank) were also top 3.4.2. Corruption, Crimes, concerns. and Theft About 80% of the sample ranked the Corruption also ranked in the top three macro-economic uncertainty, political un- factors and it was reported by some busi- certainty and corruption as a major or very nessmen that informal gifts were accepted severe obstacle. Furthermore, political insta- at ports, airports and at other stages of the bility was the factor that had deteriorated the supply chain, a practice that seemed to have most over the course of the last two years, become normalized due to the absence of according to respondents. For 60% of panel strong institutions. The subsidies mecha- firms, political instability worsened given the nism, permitted by a poor management, escalation of the crisis in the country. Findings of the Enterprise Survey 33 enabled corruption to develop as confirmed policy as critical or at least major obstacles by Al Seddik Omar al-Kebir, Governor of for them. The lack of policy regulation en- the Central Bank of Libya (CBL) early 2015; compasses the lack of clear land policy, tax “these subsidies are very badly managed, and custom laws and even goes against and there is massive corruption” he said.8 showing a clear will towards industrializa- Corruption was the second largest factor that tion and diversification of the economy. The had considerably worsened over the past two unfair competition against informal enter- years according to sampled firms. A manager prises was leapt up in importance, in partic- in Ajdabiya confirmed that accessing finance ular for small enterprises which suffered was also polluted by corruption “a company directly from competitors that did not pay can access loans, but it all depends on con- tax and got access to the same goods; for ex- nection and paying bribes,” he reported. ample imported products through their links Crimes and theft also appeared to be of at the ports. critical importance as crimes have skyrock- eted in the wake of the summer crisis, with 3.4.4. Poor Public Services many businessmen reporting robbery, theft, In addition, most companies encountered dif- looting, burning and damaging of their as- ficulties while operating due to the poor public sets. This is likely to be worth several million services, in particular electricity, transporta- US dollars in assets for the enterprises in tion and internet services were mentioned as Libya. This was confirmed by half of the sam- severe and major obstacle for 40% to 50% of ple that considered this issue to have wors- the sample. Power cuts remained frequent and ened compared to two years ago, while 35% internet services were often interrupted, im- reported it to have held steady. By location, it pacting the operations of the business and appears that enterprises in the Eastern (81%), productivity of the staff. The range in signifi- Southern (78%) and Benghazi Areas (73%) cance of these factors was identified to be quite ranked crimes and theft as a more severe different from one enterprise to another, as constraint to growth, while companies in the about a third thought these issues had actually Western and Middle Areas were slightly less gotten better, another third thought that it had impacted (46% and 55%). In Tripoli, about not changed, and the remaining third thought 60% of enterprises reported it as a severe or it had worsened. Public services pretty much major obstacle while less than 40% identify it depended on the location of the respondents, as a constraint of smaller significance. as companies in Misrata and Tripoli mainly thought the situation improved compared to 3.4.3. Informal Sector the other areas where it tends to have wors- The lack of regulations and justice, the poor ened or not changed. It is worth mentioning quality of public services and the lack of that electricity, transport and water were re- skilled labor were also perceived as major ported to have improved for most enterprises obstacles to growth. Results suggest that the (about 30%) since two years earlier (mainly in lack of regulations impacted private firms as Misrata and Tripoli). well; 55% of respondents citing the practices Transportation routes were hindered by the of the informal sector and the lack of clear closure of airports which limited connections 34 Findings of the Enterprise Survey between major hubs of the country (Tripoli- judiciary solutions but without success. Forty Benghazi, Benghazi-Misrata, Tripoli-Sebha). percent of sampled firms estimated the prob- lem to have gotten worst, while another 51% thought it to have remained the same, con- 3.4.5. Lack of Skilled Workers sidering the absence of Justice to be a long When it came to skilled labor, Libyan man- standing problem since the 2011 revolution. agers all agreed that the country lacked a As for land prices, the pressure on land, skilled and ready-to-work labor force and and the uncertainty around land regulation deplored the attraction of the public sector and the existence of a property register has for young Libyans (where protection is pushed prices up. Surprisingly, access to land higher) or non-productive sectors (cafés, im- was not perceived as a major issue by busi- porting trade, etc.). Most skilled Libyans pre- nessmen (12 points below price of land when ferred to find job in big public companies or cumulating “severe” and “major” obstacles). travel abroad. The level of education in Libya It is worth noting that these two issues were did not meet with standards to prepare for not widespread across the sample as about high-quality engineer or technician profes- 30% of the enterprises did not see them as sions. Furthermore, Libyans refused to un- obstacles at all. Change in significance over dertake a number of jobs that they preferred two years shows that an equal number of to leave to foreign workers. This problem is firms considered the problem to have re- not new and results suggest the crisis did not mained the same while the other half believe have a great impact of this, as about 60% of it to have worsened across time. the sample considered the issues to have re- Access to land, which was one of the mained the same as two years earlier, while main constraints in the last ICA of 2011, is only a third thought it had worsened, proba- no longer perceived as a major obstacle; only bly due to the displacement of skilled 31% of the enterprise classified it as a major Libyans abroad. or very severe constraint while 44% did not consider it an obstacle to business. This con- 3.4.6. Access to Justice straint was also identified as having held steady and Land by the majority of our sample, therefore Courts and conflict resolution, and the price Libyans could have become accustomed to it. of land were also reported to be important Getting access to business licenses and per- issues with 47% and 43% of enterprises re- mits were not a major problem either, or at spectively citing these issues as very severe least not a main one, as 67% of those inter- or major constrains. The main problems with viewed did not ask for any permit recently, conflict resolution were the current status of and among the one who made a request, a Justice which was completely dysfunctional large majority could get it in less than 15 days. and did not address cases, in particular criminal cases due to the pressure on judges 3.4.7. Other Minor Constraints and prosecutors. The recent problems of Regulation of labor, mobile coverage, tax, criminality faced by Libyan businessmen business and customs institutions were per- might have pushed some of them to find ceived to be minor constraints to the current Findings of the Enterprise Survey 35 development. Enterprises did not associate flat rate, based on self-assessment and risk- the lack of skilled workers to the lax labor based auditing. The stamp duties and the regulations, viewing them as a minor obsta- “jihad” tax (4%) rate were completing the tax cle. Despite the social protection that they requirements for companies operating offer to employees, Libyan businessmen par- in Libya. ticipants were not longing for new regula- tions and seemed to be able to accommodate 3.4.8. Evolution of Constraints the existing ones even in the current context. Furthermore, some businessmen do not as Compared to Pre-2011 abide strictly by the labor procedures for all Revolution existing staff, in particular low-skilled for- When compared with the constraints iden- eign workers, which are contracted infor- tified in the 2011 ICA, it was clear that new mally. Unlike other public services, mobile issues have emerged in the wake of the coverage and water did not represent major post-revolution Libyan context that were issues for Libyan businessmen, except in the now the main constraints in businessmen’s Eastern Area where the mobile network was minds (see figure 3.28). Managers were cut off for several weeks due to armed asked to rank some general constraints in clashes. Water in particular seemed to work terms of significance to their business sufficiently well and did not slow down oper- growth and when isolating the “severe” or ations despite the fact that a number of water “major” obstacles over time, we observed basins were under stress in Libya and the ex- that crimes and theft had multiplied by isting water deficit was expected to worsen. three (from 22% in 2011 to 66% in 2014), It seems that the issue had been relegated transport and telecommunication (mobile from manager’s main preoccupation. coverage) more than doubled in terms of Some institutions were considered to not significance (from 18% to 42% and from be hindering business, but be for varying 18% to 35%). Macro-economic uncertainty, reasons. The regulations on trade and cus- which already ranked among the top three toms were performing rather well despite the constraints in 2011, had leapt up by 27 various delays in receiving goods. The tax points from 55% to 82% in 2014. administration was not considered an obsta- Corruption, thought to have developed cle mainly because it did not exist per se and in the absence of strong institutions, also in- did not constitute an additional weight on creased quite substantially as a key issue from businesses. Bother customs and tax regula- 44% to 78% of respondents classifying it as a tions were considered to have stayed signifi- major or severe obstacle. Justice and crimes cantly static for the last two years, suggesting resolution had also developed to become a Libyans got along with a system that was major constraint for 47% of respondents in hardly hit by the crisis. Tax rates in particu- 2014 compared to a level that did not exceed lar were ranking the highest in “remained a quarter of respondents’ concerns in 2011. the same” when asking Libyan enterprises to This likely goes hand in hand with the sharp identify significance of change in the past increase in crimes and theft, with an unsatis- two years. The tax rate system was modified factory resolution system in place for in 2010 passing the corporate tax to a 20% wrongdoers. 36 Findings of the Enterprise Survey Figure 3.28  Percentage of Firms Identifying Constraints as “Major” or “Very Severe” Obstacle Compared to 2011 ICA 78 Political instability n.a. 82 Macroeconomic policy 55 78 Corruption 44 66 Crimes and theft 22 58 Policy uncertainty 63 53 Informal sector 48 51 Uneducated workforce 33 49 Electricity 43 47 Courts/conflict resolution 25 42 Transport 18 35 Mobile coverage 18 32 Access to land 65 31 Tax administration 31 25 Business permits 35 24 Customs and trade 30 15 Water 27 2014 2011 Note: n.a. = not applicable. On the contrary, some constraints were of companies. Other obstacles, less inherent now found to play less of a significant role to the crisis, held steady, such as the practices for business managers, likely due to the rise of the informal sector, the policy regulation in conflict specific obstacles linked to secu- uncertainty and the tax administration. rity, stability and justice. Indeed, water, busi- ness permits and licensing, and customs and trade regulations were seen to be a less se- 3.5. Perspectives vere constraint than previously. More impor- 3.5.1. Employment Perspectives tantly, access to land, which ranked as a top Perspectives for employment remain rather constraint in 2011, was no longer consid- positive as about half of those sampled were ered as a severe constraint for a majority willing to increase their level of employment Findings of the Enterprise Survey 37 in the next year. About 47% of companies Managers were asked to identify the main were expecting to recruit at least a new em- constraints to hiring new staff members. The ployee to compensate the recent staff reduc- general security and economy situations tion. Large companies—67% expected their were noted as the most critical factors as well staff to increase, 20 points above average— as the availability of international flights (see would likely be the more active on the labor figure 3.30). An inflation of salaries and the market trying to recruit more to support low availability of skilled workers were also, projects. Companies of the construction and to a smaller extent, considered as important the real estate sectors also expressed their in- factors to be tackled to foster employment tention to recruit over the coming year, as (70% of the panel ranked these two criteria these companies were looking to develop as of critical or major importance). promising projects and to compensate of the Regulations on hiring foreign workers ap- destruction of assets. About 20% of the sam- peared to depend on the importance given pled enterprises did not know if they would by companies to this labor force in their recruit in the next year, demonstrating the business, as well as the level of formality as blurred situation for some companies that may companies hired foreign workers with- struggled to formulate a clear vision of the out following the regulations; still 57% of the future; this percentage reached its highest in enterprises interviewed considered the issue Benghazi (31% of “don’t know”) where per- as critical or of major importance, while 40% spective for the future remained particularly considered it to be moderate, minor or have uncertain. Twenty seven percent of the com- no importance at all (3% did not know). The panies estimated that their staff members less important factor is the risk of labor un- would stay at the same level in the year fol- rest or strike that was deemed as a factor of lowing the crisis, and only 6% forecasted a lower importance; strike are scarce in Libya further decrease of their staff (see figure 3.29). although several ones burst out in 2013 Figure 3.29  What Is Your Expectation for Your Firm’s Employment for One Year from Now? (n = 457) Overall 19 47 27 6 Other 11 33 43 13 Services 20 46 30 4 Construction and real 24 59 17 estate Manufacturing 19 46 27 8 Trade 14 46 31 9 Don’t know Yes, increase No, remain the same Yes, decrease 38 Findings of the Enterprise Survey Figure 3.30  Over the Next Year, How Do You Think the Following Factors Will Influence Your Firm’s Hiring of Additional Workers? (n = 457) General security 68 23 4 4 General economy 62 26 6 3 International flights 60 24 4 9 Wage inflation 42 29 13 12 Skilled workers 42 27 10 16 Regulations on hiring 32 13 21 Labour unrest/strike 24 20 9 34 Critical importance Major importance Moderate importance Minor importance No importance Don’t know mostly in the public sector (in state-run developing an investment plan. Large and schools in Benghazi, Libyan airlines employ- micro enterprises were the least optimistic of ees, etc.). But those appear to be of limited the panel firms; for large companies, invest- impact on investors and almost inexistent in ments often represented a lot of money as the private sector. they worked in businesses that were capital-extensive. Any decision linked to in- ­ 3.5.2. Investment Perspectives vestment needed to be deeply thought about, Domestic investment from private enter- in particular in a situation where crimes, prises should resume if conditions improve. theft and destruction of assets were frequent. A bit more than half of those sampled were Managers based in the Southern Areas were positive about the ability of the company to the most numerous in not knowing about increase investments in the next two years. the future of the company’s investments as On average, companies were looking forward it seemed that the economy in the area de- to increasing their level of investments by pended first on the capacity of trade to re- 60% and about 10% of the sample forecasted sume in the Northern Area; meaning firms doubling it in the near future. Investment in the north having confidence in their own from Libyan private companies should not capacity to create growth despite the chal- only increase the production capacity, but lenging circumstances. Construction and also enhance growth if the money is injected real estate companies had high expectations in the local economy, in particular in SMEs when it came to investment as 69% of them that are working along the value chains. forecasted it to develop in the next two years. Twenty seven percent of the sampled Manufacturing, trade and other services companies did not know yet whether they companies were slightly less ambitious with would be in position to reinvest, probably 51%, 40% and 33% respectively of companies waiting for the situation to stabilize before looking forward to increased investments. Findings of the Enterprise Survey 39 Notes 1. This analysis was based on a sub-sample of 5. Calculated on a sub-sample of n = 439 as some n = 224 interviews as some enterprises refused companies were not in position to estimate, or to communicate their accounting data. did not want to share estimate. 2. Data from the International Trade Center, 6. Most of the interviews have been conducted calculated on an 2009–13 average, http://www​ between November and December 2014. .­intracen​ .org/country/lybian-arab-jamahiriya​ 7. Capacity utilization can refer to production /­sector​-­trade-performance/. capacity for productive companies or oper- 3. Out of a sub-sample of 151 enterprises that ation capacity for other companies (hours of started a process to obtain a license. operation). 4. Provided that the sampled cities in the East 8. Interview of Al Seddik Omar el Kebir, were Bayda and Tobruk and excluded cities that Governor of the Central Bank of Libya (CBL), were probably more hardly hit such as Derna. African Banker, p. 52, 1st Quarter 2015 Issue. 40 Findings of the Enterprise Survey 4. Private Sector Mapping 4.1. Methodological Note the survey, and often have a broader defini- tion of a given sector, sometimes to include The following mapping exercise has public and mixed companies. Nonetheless, been conducted based on an extensive review some clear links could be found in the of existing literature on the Libyan private quantitative data to buttress the qualitative sector (see section 2.2), updated and comple- exercise and have been added to the analy- mented through key informant interviews sis, although the source of the data is al- (KIIs) with Libyan businessmen. More than ways clearly mentioned. In addition, the 40 in-depth interviews were conducted in sampling methodology used for the enter- Tripoli and Misrata during the last quarter of prise survey does not allow the analysis to 2014 and first quarter of 2015, covering the be nationally representative of each sub- general trends of the private sector as well as sector. Thus, the data shown must be con- the different sectorial patterns. The following sidered as indicative to help formulate the areas were discussed during the interviews: analysis extracted from secondary research • General Economic Dynamics and qualitative interviews. • Impact of the summer 2014 crisis in the In all of the following: dynamics of the private sector • Crisis refers to the crisis that started in • Main constraint to growth July 2014 around Tripoli and led to the • Sectorial Dynamics destruction of the main international air- • Regional Dynamics port of the city and the evacuation of • Perspectives of growth and investment most international workers; and The sizing exercise was approached • Revolution refers to the 2011 uprising based on the latest reliable data available against the previous regime of Muammar from different sources, but projected for Gadhafi. 2014 and discounted based on interviews. As a result, these estimations do not rep- resent an attempt to replace national ac- 4.2. Background on the counts, but only a “best-available” estimate of the Libyan economy disaggregated per Private Sector in Libya sector. The resulting figures are based on Libya has a medium-sized economy,  the author’s interpretation of these second- with a nominal gross domestic product ary and primary sources. (GDP) estimated at United States dollar While results of the enterprise survey (US$) 73.9 billion1 in 2013. The Libyan (see section 3) are used to complement the economy is characterized by two major sector mapping analysis, it should be noted dependency on the oil and gas flaws: over-­ that the sectors represented in the following (O&G) sector and a predominance of the section are not strictly the same as those in public over the private sector. The O&G Private Sector Mapping 41 sector was reported to account for approxi- and increased foreign investors’ rights to mately 66% of GDP and 90% of government enter a wider range of sectors (excluding the revenues in 2012, qualifying Libya as “one sectors of distribution, importing services of the least diversified oil-producing econo- and legal services). It also provided for tax mies in the world.”2 Accordingly, Libya dis- exemptions and other advantages for specific plays all the symptoms of the “Dutch projects, but this law was not fully imple- disease,”3 with high labor costs, a high so- mented before the revolution began in 2011. cial benefits bill and a largely undiversified Nonetheless, the liberalization process economy—despite the Gadhafi regime’s late was slow before being halted altogether by recognition of the importance of diversify- the onset of civil war. The Libyan Revolution ing government revenues.4 In addition, the and the protracted conflict that followed Libyan economy is largely skewed towards froze the economy, limiting the production the public sector with a total of 1.7 million5 and export of hydrocarbons and triggering public employees working directly for the the withdrawal of many foreign oil sector government or for government-owned stakeholders (e.g., British Petroleum, Total, companies, accounting for a wage bill of Statoil, OMV).8 The unclear regulatory US$21.6 billion,6 or 42% of the Libyan bud- framework that followed discouraged new get.7 In the 1970s and 1980s, the govern- investors and accelerated the development of ment’s central economic planning policies the informal economy. It seems that after the created state-owned retailers, hotels, ce- Revolution there was a slight return towards ment factories and steel industries that were a more protectionist mentality, of which fundamentally designed to control the Decree 22 of January 2013—which reduced Libyan economy. maximum participation of foreign compa- In the late 1990s, the Gadhafi regime real- nies to 49% (as opposed to 65% since ized the importance of diversifying the econ- 2006)—is an example. omy and the need to open some sectors to Since 2011, statistics on the Libyan econ- private interests and foreign investors. The omy have been largely unreliable due to the Libyan Economic Transition inaugurated the limited capacity of government services and withdrawal of the state from some economic the rise of informal activities. Despite the areas, just as new regulatory policies (for ex- lack of actual data, it seems from previous ample Law n°5 of 1997 for encouragement of empirical studies9 that the private sector ex- Foreign Investment) opening the country to perienced strong growth in 2012 and 2013, more Foreign Direct Investment (FDI). The mostly driven by construction and trading first wave of privatization began in 2003 and companies focusing on retail of consump- Decree No. 171 in 2006 increased this trend tion goods—largely informal—or the import/ by allowing foreign enterprises to invest in export of construction materials. The Libyan up to 65% ownership of joint ventures with private-sector is driven by consumption of a Libyans, for a minimum capital of 1 million population with a high disposable incomes Libyan Dinars (LYD) (approximately (US$20,076 per capita in 201310), giving rise US$0.75 million). Law No. 9 of 2009 for to strong demand for consumable goods, in investment promotion established the ­ particular food and beverages and house Privatisation and Investment Board (PIB) equipment. Libya’s Gini coefficient,11 42 Private Sector Mapping although perhaps poorly estimated, is not Libyans still tend to prefer the employ- very high (Libya ranked 55 out of 187 coun- ment security and social benefits typically tries in 2013), suggesting that GDP per offered in the public sector to the limited job ­ capita is rather well distributed amongst security and benefits of the private sector, the population. In addition, incomes have despite the potential for higher salaries. It is grown since the revolution, with an in- common for Libyans to work in parallel to crease of 200% of the minimum public sec- their government job, typically complement- tor state salary supporting growth after the ing their main activity with a family business Revolution. (mostly trade) or as an individual or small-­ The domestic construction sector has also scale and informal enterprise. Previous stud- been growing, led by small scale entrepre- ies14 have shown a general lack of neurs, while the tourism and catering sectors entrepreneurial spirit and an aversion to risk were identified as sectors with the highest taking: this, coupled with the extreme diffi- untapped potential, both relying strongly on culty in obtaining loans, has stifled growth in foreign workers (Egyptians, Tunisians, innovative start-ups and micro enterprises. Bangladeshis, etc.).12 Small and Medium Mainstream business culture instead steers Enterprises (SMEs) in the import/export Libyan entrepreneurs towards projects with sector—in particular on the northern coast- low-risk and low-capital requirements, line—showed a trend towards horizontal di- mainly trading activities or food services versification, and focused on trading (restaurants, cafés, etc.). In addition, the pri- different types of goods with few synergies vate sector is in need of foreign workers, the between the range of products offered. percentage of which varies across sectors. In addition to small enterprises, a few Nonetheless, construction, trade and tour- large private-sector champions coexist, ism enterprises reported using between 60 demonstrating the possibility of creating and 70%15 foreign workers, with Libyans and sustaining large private enterprises in only accepting and holding key positions Libya. The Husni Bey Group (HB Group), such as managers, accountants and Al Medina Misrata for painting products, engineers. Al Naseem for Food Industries or Al Rayhan for juices and food, are examples of private firms performing well in their given sectors 4.3. Sizing the Libyan while international firms were traditionally mostly concentrated around the energy Economy (Total, ENI) and construction sectors The Libyan economy has experienced sev- (Turkish, Korean and Brazilian companies, eral setbacks since the 2011 revolution. In albeit with most large projects currently 2010, real GDP was growing at a rate of 5%, on hold). with a fairly even balance between the hy- Nevertheless, employment continues to drocarbon (6.1% growth) and non-hydrocar- be driven by state-owned bodies, as the bon sectors (4% growth) (figure 4.1). The ­ private sector is estimated to employ only 2011 revolution caused the economy to con- around 350,000 people,13 representing 20% tract dramatically by 54%, only beginning to of the total workforce. recover in 2012 with restarted oil production Private Sector Mapping 43 Figure 4.1  Libyan GDP from 2010 to 2014 US$ billions 90 +136 –10 +47 80 81.9 79.0 70 74.8 73.9 60 –27 50 53.9 –54 40 30 34.7 20 10 0 2010 2011 2012 2013a 2014a 2015b a. World Bank estimates. b. Forecasts/data on GDP are based on IMF estimates. and export trade, which in turn enabled not merely flourishing, it [was] growing ex- other sectors to grow (non-hydrocarbons ponentially as it moved into areas hitherto growth was estimated at 43% in 2012). The the remit of the state.” GDP decreased moderately in 2013, but the Since then, the worsening security situa- non-oil sector kept growing by 10% in 2013, tion has prevented a return to growth and mainly boosted by domestic construction investment, a trend confirmed by the results and trading, driven by a relaxation of previ- of the enterprise survey. The reduction of oil ously restrictive building laws and codes, as production capacity in the east combined well as wage increases (which had a positive with reduced international oil prices (about impact on disposable income and therefore US$60 per barrel (Bbl) by end of November domestic consumption). In the meantime, 2014) contributed to a 51% reduction in hy- political turmoil in the third and fourth drocarbon revenues in 2014, while related quarters of 2013 led to reduced oil revenues activities were estimated to have decreased of 32% and a 10% decrease in overall GDP. by 12% mainly due to a diminished produc- The private sector continued growing until tion capacity and the general contraction of early 2014, which led the Libya Herald global demand. Libya’s GDP is estimated to Business Eye magazine stating in March have decreased by 27% in 2014, but may re- 2014 to state that “the private sector [was] bound by 47% in 2015 if the general 44 Private Sector Mapping situation stabilizes and oil exports reach 4.4. Structure of the 500,000 Bbls per day at an average price of US$53 in 2015.16 Libyan Economy In November 2014 and January 2015, the As previously mentioned, the Libyan Central Bank of Libya (CBL) released state- economy is dominated by the oil sector (rep- ments emphasizing the country’s fragile fi- resenting 59% of GDP in 2010 and 45% in nancial position. The sharp fall in oil 2011), controlled by the state through the production and exports combined with re- main public company the National Oil duced international prices also had a nega- Corporation (NOC) and several smaller sub- tive impact on Libya’s foreign exchange sidiaries. Nevertheless, international private reserve and savings. According to the CBL, actors do contribute to and participate in the “the Libyan economy is reaching a critical Libyan O&G industry. Such participation is point,” where expenditures are no longer often through consortiums, with the State covered by revenues and the level of subsi- maintaining control as the majority stake- dies was reduced by about 25% compared to holder. Table 4.1 illustrates the heavy depen- 2013.17 This will increase the costs of subsi- dence of the Libyan economy on oil, but it dized goods (energy, basic food, raw materi- also shows that the oil crisis has given more als, etc.), and negatively affect the space and importance to non-hydrocarbon accessibility and price of foreign currencies, economic activities. While these sectors have creating a difficult cash position for compa- likewise suffered from the crisis, they have nies with significant international exposure. also shown a higher degree of resilience. Table 4.1  Proportion of 2012 GDP per Broad Sectors (‘000 US$) Broad sectors Percentage Contribution to GDP in 2012 Oil and natural gas extraction 50 53,659,933 Public services, defense and basic social services 22 12,151,847 Real estate, and promoting activities 7 4,063,037 Wholesale and retail of vehicles and personal or domestics goods 6 3,281,152 Manufacturing industries 5 2,636,318 Transportation, storage and telecommunications 4 2,480,680 Construction 2 1,068,749 Electricity, gas and water supplying 2 1,001,641 Financial services 1 744,676 Agriculture and fishery 1 648,390 Hotels and restaurants 0 122,523 Private health and social care 0 97,781 Private education 0 78,955 Other social and personal services 0 68,517 Mining 0 49,747 Indirect financial services 0 -253,946 Note: Altai Consulting analysis based on data from the CBL for repartition of sectors, and IMF figures for 2012 GDP. Private Sector Mapping 45 Figure 4.2  Evolution of the Part of Hydrocarbons in the Libyan GDP US$ billions 90 80 70 60 54 50 44 40 37 37 33 30 28 30 19 17 20 16 10 0 2010 2011 2012 2013 2014 Hydrocarbons Non-hydrocarbons Total GDP Note: Data on GDP are based on Libyan Central Bank 2012 Annual Report. Data from 2013 to 2014 are based on IMF estimates. Data for 2014 are from January to November. The second most important part of the vehicles. This sector has proven to be quite economy after the O&G sector is the public resilient in the years following the services sector—which is also under state Revolution and resulting crisis, driving an control—including the defense sector, public important part of the moderate growth expe- health, education and basic social services rienced by Libya from 2012 to the two last sector, accounting for US$12.1 billion and quarters of 2013 (see figure 4.2). 22% of GDP in 2011. The public services Despite its fifth position in 2012, the man- sector is followed by real estate and promo- ufacturing sector remains quite small and un- tional activities, which have been impacted der-developed in Libya, despite the fact that to a degree by the crisis but have shown re- the country benefits from favorable conditions silience, accounting for US$3.2 billion in for processing activities, in particular access to 2011 and US$4 billion in 2012. cheap energy. In 2010 manufacturing was esti- Trading activities rank in fourth position, mated at US$4.2 billion and fell to US$0.7 bil- representing 6% of GDP, but also account for lion in 2011 before rebounding to US$2.6 billion the largest number of enterprises. As out- in 2012. Most of the added value of the sector lined by the enterprise survey, most trading was generated by state-controlled enterprises companies from the sample are small or active in heavy industry such as the Libyan micro enterprises located along the Libyan Iron and Steel Company (LISCO). The sector coast, and only 18% of them are medium or has two strong sub-sectors driven by private large enterprise, 10 points below the sample establishments: food processing and building average (28%). The sector is driven by con- materials production, both of which have sumer spending, and encompasses retail and been driving private sector growth. Notably, wholesale of personal or domestic goods and manufacturers in Benghazi and the Eastern 46 Private Sector Mapping region appear to have weathered the crisis, most of which is constituted by household- with 41% of surveyed (i.e., relatively accessible sized construction and repairs (often relying and active) firms from the region being man- on non-declared foreign workers, mainly ufacturing companies, 10 percentage points Egyptians). This is a key sector for growth in above the other regions. the Libyan economy as it has direct links to In sixth position, the transportation, stor- domestic manufacturers and import compa- age and telecommunications sector repre- nies who supply construction materials. sented US$2.5 billion in 2012, with respondents In total, electricity, gas and water supplies, reporting that telecommunications was the the financial sector, and agriculture and fish- largest among these three sectors. The size of ery represented between US$0.5 billion and the Libyan telecommunications sector, domi- US$1 billion in 2012, accounting for less than nated by two state-controlled operators (Al 2% of GDP, and are dominated by state-con- Madar and Libyana),18 decreased by 28% in trolled companies. These industries saw their 2011 due largely to damaged assets (it is esti- value reduced by 3% after the Revolution as mated that more than US$1 billion worth of added value in agriculture and fishery has pre- telecom infrastructure has been destroyed, in- viously been driven by the government sup- cluding 20% of the country’s cell sites and tow- porting bodies and big projects such as the ers). The sector has recovered fairly quickly man-made river project, while the 70,000 or so since the Revolution, and is deemed to be privately-­owned farms had limited productiv- driving a large portion of non-hydrocarbon ity due to the lack of support for private enter- growth in the country. LAP Green, a commu- prise. As outlined in a 2012 fact-finding mission20 nications solutions provider and subsidiary of on agriculture small and medium-scale agri- the Libyan sovereign fund Libya Africa Invest­ business, development has not been supported ment Portfolio was awarded “the growth story in the past. Consequently, most farmers (with of the year” in May 2014. Further, there are perhaps a few exceptions) have not engaged in plans to privatize one of the operators, creating processing and other value-added activities. In the first private mobile network in the country. addition, the limited availability of arable land In addition, about 25 Internet Services Provi­ and the uncertainty of rainfall in the country ders (ISPs) and 23 VSAT operators have been limit the sector’s potential. Main produce in- licensed to compete with the state’s former cludes vegetables, fruits, poultry meat, cereals monopoly, clearing the way for dynamic pri- and potatoes but production is insufficient to vate-led growth in the sector.19 cover Libyan consumption, meaning that The construction sector, composed of a about 75% of food is imported. Nonetheless mix of public and private companies, is the the sector employs between 6 and 8% of the sector that suffered the most from the 2011 workforce (in comparison, the oil sector only Revolution, decreasing from US$5.9 billion in employs about 2%). 2010 to US$0.9 billion (−83%) in 2011 and re- The remaining sectors of the Libyan econ- bounding to US$1.1 billion in 2012. The sector omy all accounted for less than US$0.1 billion used to be the second biggest in the country in 2011, representing less than 1% of GDP. before many projects were abandoned follow- These small industries include mining, hotels ing the fall of the Gadhafi regime. There has and restaurants, private health and social care, been strong growth in domestic construction, and other social and personal services. Private Sector Mapping 47 Apart from the mining activities, almost all in 2011, following the onset of civil war. of them depended on private enterprises that At that time, oil revenues had decreased by 14 struggled to achieve sustainable growth in a points from 59% in 2010 to only 45% in 2011, state-dominated market. Nonetheless private while they decreased by 16% in 2014 (from education and private health have shown en- 50% to 34%). Today, non-hydrocarbon activi- couraging signs of growth since 2011, driven ties drive private sector activity, although new by the purchasing power of Libyans and the enterprises are being created in some sectors. weakened state of public services. Of the main sectors mentioned above, whole- sale and retail trades are mostly composed of 4.5. Sizing the Private private companies (see figure 4.3), as are pri- vate education and private healthcare centers Sector (hospitals, clinics, etc.). Real ­ estate and con- The structure of the Libyan economy in struction activities are distributed between 2014 can be compared to the Libyan economy large public and private companies that Figure 4.3  Representation of the Libyan Economy in 2012 and Part of the Private Sector Public services, 85% defence and basic social services Electricity, gas and water supplying Telecoms and transport Oil and natural gas extraction 5% Agriculture and fishery Manufacturing Financial industries services 6% Construction Real estate Wholesale and retail 4% trade Private education, health and social care Exclusively public Mostly public Mixed Exclusively private Source: World Bank estimation based on CBL 2012 Annual Report and KIIs with private sector stakeholders. 48 Private Sector Mapping sometimes work together on projects. by public banks and most of the value in agri- Manufacturing companies are also spread be- culture is derived from large projects dedi- tween big state-owned enterprises (like LIDCO) cated to the export of goods (see table 4.2). and private industrial enterprises (Rayhan group, It is estimated that the private sector rep- for instance). The financial sector is domi­ nated resents between 4% and 15% of the economy, Table 4.2  Multi-Criteria Summary Table of Different Broad Sectors Estimated Average value in Average number number of International Sector Main source of financing 2014 (US$ of employees domestic exposure billions) suppliers Retail and 3.7 Large enterprises: 100 and Retail: • Self-financed Retail: High wholesale trade more 15–20 Wholesale: Medium enterprises: 10–15 Wholesale: Very high Small enterprises 3–5 (wholesale): 2–5 Transportation/ 0.4 Large enterprises: Above 20 • Self-financed Very high shipping 100 • Letters of credit Medium enterprises: 20 Construction 1.1 Large: 200 5–10 • Investors (large projects) Medium Medium: 30 • Loans (large projects) Small: 5–10 • State equity (large projects) • Self-financed (medium and small projects) Real estate 3.8 Large: 300 N/A • Investors (large projects) Medium Medium: 15–20 • Loans (large projects) • State equity (large projects) • Self-financed (medium and small projects) Building 0.2 Large: 200 and more 5–10 • State equity (large Medium material Medium and small: 10–25 enterprises) manufacturing • Self-financed (medium and small enterprises) Food and 0.4–0.8 Large enterprises: 200 2–7 • Self-financed High beverage and more manufacturing Medium: 30–100 Small: 5–10 Private health 0.14 Large enterprises: 100 20 • Self-financed High Medium enterprise: 30–50 Private 0.13 Large enterprises: 100 1 or 2 • Self-financed Low education Medium enterprises: 10–15 Accommodation 0.1 Large enterprises: 100 6–10 • Self-financed Low and catering Medium enterprises: 10–15 Small enterprises (cafés only): 5 Finance 1.1 Large: 500 and more 1 or 2 • State equity (large) High Medium: 50–100 • External equity (including foreign) • Loans Private Sector Mapping 49 Table 4.3  Dashboard of the Per-Sector Performance in 2014 Percent Sector % Private Sector in total value 2014 Growth ➡ Trade 90 −15% ➡ Transportation/shipping 60 −25% ➡ Construction 65 −25% ➡ Real estate 45 −30% ➡ Building materials manufacturing 80 −50% Food manufacturing 80 n.a. Private healthcare 100 ➡ ➡ +5% Private education 100 −40% ➡ Accommodation and catering services 50 −40% ➡ Finance 10 −5% Note: n.a. = not applicable. which would represent between US$2.2 and 8.1 billion in 2014.21 Husni Bey, founder and • Libya is reported to import 70% of chairman of the HB Group, considers “the all it consumes making the transpor- private sector to be worth 15% of GDP, while tation and shipping sectors a corner- Mr. El Seddik, Governor of the CBL esti- stone of the private economy. mated it to be worth 5% of GDP, figures that • Most large-scale construction proj- are hard to verify in the absence of national ects have been stopped due to the accounts, and which account for a small share political situation but the sector con- when compared to other world economies”22 tinues to show signs of growth where it can reach 40%. This emphasizes the driven by smaller—and often role to be played by private enterprises in the informal—companies. country in the coming years (see table 4.3). • Real estate companies tend to be rather large, and many foreigners are attracted to invest in the sector given 4.6. Per Sector Analysis the relatively large amount of money Libyans spend on housing Key Takeaways • Building materials manufacturing is • Retail and wholesale trade is driving one of the two main industrial activi- most Libyan private sector ties in Libya, along with food process- dynamism. ing, and focuses mainly on ceramics 50 Private Sector Mapping and retail trading and is composed of a very and cement. Food manufacturing large number of individual informal traders, companies are composed of both a small number of small retail companies— large national champions and smaller including medium size grocery stores—and pastry and flour manufacturers. about five large actors (above 100 employ- • The private health sector, private ed- ees). Trade includes all types of personal, ucation and the catering services domestic or professional processed goods sectors have been growing exponen- that are made available by traders on the tially, although they have been hit Libyan market, without any (further) pro- hard by the destruction of assets and cessing activity. This sector is key in a coun- lack of access to supplies, and these try that imports about 70% of what it sectors remain comparatively small. consumes. According to the International • The financial sector remains largely Trade Centre, main products imported were dominated by state-owned banks non-electronic machinery (e.g., gas tur- over the newer private banks. The bines), basic manufacturing goods (cement), lack of links between the financial transport equipment (automobiles), miner- industry and private enterprises is als (light petroleum), processed and fresh one of the main constraints facing food and medicaments.23 the Libyan economy. Wholesale trade has been boosted by im- ports from the EU that reached a record level The following chapter will focus on the of EUR 7.0 billion (US$8.5 billion)24 in 2013, main industries driving the private sector in outclassing their pre-revolution level and Libya, and reflect on the unique dynamics that showing the dynamism of Libya during the characterize each of those industries. It is by no post-revolution period. Italy in particular, means exhaustive of all economic activities in Libya’s biggest European partner, was re- Libya, in particular the ones with no or little ported to have trebled its exports since the involvement of the private sector such as O&G, revolution. Imports from the United States telecoms, energy supply, mining, or defense. also grew to US$837 million in 2013, a 25% On all of the following, estimation of size increase compared to their 2010 level (see and growth per sector is not based on recent figure 4.4). national data but on World Bank Group’s own calculation and estimates based on a combina- Size of the Sector. Nonetheless, the tion of previous Central Bank data, interviews value of imports is likely to have dramati- with Libyan professionals and ­ literature re- cally decreased in 2014 as Libyan companies views on each sector. The following estimates reduced their level of activity due to the on- do not represent official data on ­ national ac- going crisis. Libyan imports from the US de- counting, and do not replace World Banks es- creased by 38% (Year to November) timate on overall growth of GDP. compared to the same period in 2013 and this trend is likely to be similar with other 4.6.1. Retail and Wholesale Trade key trading partners. Main imports that have Background on the Sector. This been hit are services, machinery and equip- sector includes import, export, wholesale ment and food and raw materials. Private Sector Mapping 51 Figure 4.4  Value of Libyan Imports per Country of Origin US$ billions 35 30 30 26 26 25 23 20 15 11 10 5 0 2009 2010 2011 2012 2013 RoW imports United States Korea, Rep. China Turkey European Union Source: Data from Eurostat, the WTO Libya database, US Census Bureau on Exports and Imports and European Commission Directorate General for Trade. Data for the Republic of Korea, Turkey and China only available for 2014. Trading companies, while generally the country. The number of supermarkets, small in terms of number of staff (based on malls and shops skyrocketed in Tripoli and findings from the enterprise survey, with Benghazi and Libyans continued spending 82% being small or micro enterprises), tend their relatively high available incomes on do- to report relatively high revenues compared mestic products. Sustained growth in 2012 to their small size, with half reporting reve- and 2013—aided by the reduction of the cus- nues over US$1 million for the 2013 fis- toms tax—pushed trading volumes up by cal year (see figure 4.5). 10%. In Benghazi, for instance, there used to The value created out of trading activity be no malls, but since the overthrow of the re- represented US$3.2 billion in 2010 and gime five have been built and appear to have dropped to US$2.0 billion in 2011. The sector flourished. Three (Venice Mall, Hayah Mall then witnessed a steady growth, and the im- and the Mazaya Mall) opened in May 2014, port volume boomed by 10% compared to the while three others were under construction. pre-revolution volumes, according to a repre- Indeed, according to the Benghazi city coun- sentative of the Misrata Free Zone (MFZ), cil25 more than 200 shops opened in the city representing the biggest commercial port of between 2012 and 2014. 52 Private Sector Mapping Figure 4.5  Revenues of Sampled Firms in the Trading Sector—Brackets of US$ (n = 65) 14 29 4 32 18 ≤10,000 10,000–100,000 100,000–500,000 500,000–1,000,000 1,000,000–5,000,000 >5,000,000 The 2014 crisis has also touched a num- perspective for growth is good. If the situa- ber of trading companies, malls or super- tion stabilizes, growth compared to 2014 markets that have remained closed during could reach 35%—a 15% increase compared the conflict, resulting in reduced trading to 2013 levels (see figure 4.6). volumes. In the Western Area, managers interviewed reported a slight decrease of Structure of the Market and revenues in 2014 partly compensated by in- Competition. Stakeholders of the trad- creasing prices. A manager of the Husni ing sectors show differences from one sub- Bey Group mentioned the closure of two sector to another; there are a high number stores and the loss of a storage room that of individual traders that use networks in was burnt during the fighting; “we lost LYD Europe, Turkey or in the Gulf to arrange im- 410,000 during fighting due to robbery and ports and wholesale. These small businesses damaged assets,” he added. In the East represent a very attractive activity for Area, businessmen reported that the activ- Libyans who see the opportunity to sell high ity is almost frozen for the majority of re- added-value products with a minimum re- tail shops. quired capital. Trading agencies of this kind But the sector is one of the most resilient exist for almost all kinds of products, in- as Libyans are heavy consumers and retail cluding air conditioners, spare-parts for au- traders continue to cater to the basic needs tomobiles, construction materials and of the population, including foodstuffs and equipment or foodstuffs. Small retail compa- domestic products (home appliances, air nies aim at representing a larger company or conditioners, etc.). This is confirmed by data a brand to become its official agent in Libya from the enterprise survey, with 28% of taking advantage of the legislation that firms in the trading sector reporting that obliges foreign firms to enter into a partner- they did not experience a direct impact from ship with a Libyan national. The agency sys- the crisis, the highest percentage by sector. tem is very suitable for Libyans as it allows Nonetheless, as salaries are often not paid on them to avoid hiring highly skilled person- time due to the crisis, the demand has been nel for processing transactions (technicians reduced and supermarkets have reported to or engineers, for example), who are pro- have reduced their margin to keep clients vided by their international partners. The “satisfied.”26 The decrease in revenues can be lower number of required staff as well as estimated at only 15% across 2014 and the limited required initial capital and Private Sector Mapping 53 Figure 4.6  Estimated Value of the Trading Sector US$ billions 5 4.5 4.3 4 3.7 3.5 3.3 3.2 3 2.5 2.0 2 1.5 1 0.5 0 2010 2011 2012 2013a 2014a a. Estimates made by World Bank. the existence of a large demand—when not in many sub-sectors and own several shop- perturbed by conflicts—makes the environ- ping centers across the country. The HB ment highly favorable. These companies typ- Group, often quoted as the biggest private ically have less than 15 employees. company in the country, operates with 480 On the retail side, private supermarkets distribution vehicles in its business to con- and grocery stores are multiplying all over Libya, sumer branches and acts as the distributor of offering a large diversity of foodstuffs and do- many international brands for Fast-Moving mestic products. Clothing stores are growing Consumer Goods (FMCGs), pharmaceuti- at a similar pace, focused more on big cities cals (Procter and Gamble), commodities and and offering more and more garments from clothing (the wider group also has financial, international brands. A clothing retailer in real estate and industrial activities). The Tripoli highlighted that despite the boom in clothing retail branch however mentioned the supply of garments, the demand is still not the necessity to close 2 out of the 15 stores met, as Libyans have a large appetite for they distributed between Tripoli and clothes. In textile retailers as in supermarkets, Benghazi due to the crisis and the slight con- Libyans often work in management positions, traction of the demand since July 2014. while the remaining employees come from the Arab Republic of Egypt, Tunisia, Bangladesh Finance and International or sub-Saharan Africa. Exposure. Based on the findings from Bigger players in the retail industry—the the enterprise survey, trading companies are HB Group or El Ajmal Company—are present the least likely to take out loans or credit 54 Private Sector Mapping (only 2% of establishments reporting having Existing interventions taken out a loan). Nevertheless, interna- • The American-Libyan Council for Trade tional exposure is greater for wholesalers and Investment was created to enhance than for retailers as they are sometimes re- commercial exchanges between the two quired to purchase imported goods in for- countries, to regulate commercial issues eign currency (US dollars or Euros mostly) between the parties and remove con- but are paid almost exclusively in LYDs. This straints to trade. creates treasury problems and led Libyan traders to report that the availability US dol- lars was a main obstacle as the currency is 4.6.2. Transportation/Shipping getting harder to obtain through a formal- Background on the Sector. The ized and legal process through banks. Most transportation sector includes shipping com- Libyan businessmen regretted the difficulty panies, land carriers and air transporters of of obtaining foreign currency and explained which shipping companies represent most of they would likely have to purchase it from the added-value, while land transportation the Libyan black market. remains mainly informal and air transporta- tion still offers limited opportunities for pri- Specific opportunities vate enterprises with public companies • The sector cannot yet meet demand, de- leading the sector. The sector had been spite the number of competitors and re- booming until the Libyan revolution, reflect- cent crisis. ing the exponential demand for consuming • The sector is easy to enter with limited products. After it had dramatically decreased capital and attracts many young Libyans. in 2011, the Libya Herald reported from in- • There are a few national champions (e.g., terviews with shipping agents that the latter HB group) that are supporting growth recorded a quick return to growth; the vol- and employment, mainly in Tripoli and ume of exchanged products in ports even Benghazi. outclassed pre-revolution levels, explaining that “their best year before the revolution was 2010 but now they are doing double Specific constraints what they did then”27 according to Michel • Libya is dependent on imports but exports Cousins, a journalist specializing on the very few processed goods, demonstrating Libyan economy. In 2012 and 2013, growth the weakness of the manufacturing indus- was driven by the need for reconstruction try, hence wholesalers are often only material (cement), consuming goods (in- importers. cluding processed food and garments) and • A large base of the trade sector is consti- medical and electric equipment. tuted by companies that do not contribute Nonetheless, the sector was reportedly greatly to employing a well-paid Libyan still inefficient. Libya’s ports, with the excep- workforce. tion of Misrata, were often congested and • Many small retail shops, wholesalers or ships had to wait between 5 and 10 days to “individual businessmen” are not regis- find a berth, making Libya’s ports the slowest tered and work informally. and most expensive in the Mediterranean. Private Sector Mapping 55 The manager of Boatni, a soft drinks manu- by the state handling company, opening facturer in Benghazi explained that poor the way for private suppliers. Tripoli and port management was one of the main con- Benghazi ports are also busy, but their man- straints for the company’s development and agement problems have led to the develop- criticized this mismanagement. He added ment of secondary ports (such as Zuwarah that many companies were tempted to port). Indeed, some companies reported that bribe people at the ports to accelerate they preferred to dock at ports other than the process.28 Tripoli due to repeated negative experiences, such as port management and customs ask- Size of the Sector. The transportation ing for heavy fees and slowing down the pro- industry—classified with telecommunication ­ cess. A free zone project is on-going at and storage activities in the Central Bank’s Benghazi port to replicate Misrata’s model, annual reports—was not accorded an esti- but development remains slow due to admin- mated net value worth by the authorities. istrative procedures and the current conflict. Based on reports and discussions with man- The biggest shipping companies frequent- agers of the sectors, calculated estimates give ing Libya’s shoreline are often large interna- a total of US$370 million in 2014 (approxi- tional line agents like Farwa Shipping that mately LYD 500 million). According to a represents the Danish Maersk Group. shipping company in Misrata, the sector kept Smaller enterprises and trading companies growing in 2014 and was surprisingly resil- like Al Mashloun, a small shipping company ient during the crisis,29 despite many reports that operates with one or two rented ships, from companies of merchandise being are also present. blocked at ports and large delays in the sup- Since the revolution, there have been a ply process. number of new entrants in the shipping in- dustry, attracted by the resilience of the trad- Structure of the Market and ing activity. Relatively high initial capital is Competition. The sector is concentrated required, but the license to operate is consid- across the main coastal cities of Libya, ered easy to obtain, leading to reportedly with Misrata’s port—located in the MFZ— fierce competition in the Western Area. The representing 60 to 70% of the country’s total Eastern Area is less attractive to shipping exports in 2013. In 2014, the port was lines—excluding hydrocarbons exports— extended—work was carried out by the ­ and has been impacted by the security prob- Turkish company TML—with a new 804 lems in Benghazi, whose port had to be meter long quay enabling 19 ships to berth closed in November 2014 due to heavy fight- simultaneously and the ability to accommo- ing. It seems that some of these new entrants date larger vessels. The objective of the ex- have folded due to the current crisis and the pansion is to turn Misrata into a regionally market is once again coalescing around a competitive hub to attract more volume to smaller number of firms. Northern Africa and redistribute goods to The shipping industry does not provide Sub-Saharan Africa. As MFZ is managed as many jobs, as shipping agents do not usually an independent structure, it is not manda- employ more than 20 staff members (mostly tory for handling services to be undertaken Libyans). Nor is the associated value chain a 56 Private Sector Mapping serious employer, as shipping companies • Libyan ports cannot keep up with demand deal with only a few Libyan suppliers who for imported goods and synergies are not provide handling services, cleaning services created between ports to compensate and land transportation, the latter often shortfalls. being informal. In most companies, female • Obtaining a license to enter the market staff are limited to support functions. was reported to be too easy. As a conse- quence, poorly managed companies often Finance and International enter the market. Exposure. The shipping sector is logically • Growth in the sector does not trigger di- very exposed to foreign currency both in terms rect large employment opportunities for of fluctuation of prices and availability of ex- Libyans. currency, in particular to US dollars. ternal ­ There is a huge need for foreign currency and Existing interventions liquidity to pay for goods in ­ advance and load • The port of Misrata has been upgraded the ships, including ship leasing when needed. and the Benghazi Free Zone is being devel- Access to finance is limited (most companies oped by authorities; this should improve in the sector are self-financed) and dealing receiving conditions and shorten delays for with banks to obtain foreign currency has been ships looking to berth in the east. cited as problematic. 4.6.3. Construction Specific opportunities Background on the Sector. Until • The sector is the cornerstone of Libyan the 2011 revolution, the construction sector private sector growth, fueling the trade was booming due to large state-funded proj- system that relies on imported goods. The ects in housing, education, tourism and in- sector is very attractive to young Libyans frastructure. Gadhafi considered the latter to and could attract even more talent at a be a number one priority, and set aside management level in large distribution or US$200 billion for spending in infrastruc- import companies. ture between 2007 and 2008.30 In 2010 the • The sector is likely to draw more invest- sector was estimated to represent US$5.9 bil- ment to ports. MFZ followed by the lion before its total value was divided by six Benghazi Free Zone could create a new in 2011 due to the cancellation of large pub- dynamism in port management in Libya. lic contracts following the revolution. • The sector is quite resilient to crisis, sup- Throughout the following years, in particular ported by the continuous need for build- 2013, demand for construction increased ing materials, food and domestic products. due to political decisions to re-launch state- led projects and the need for new housing Specific constraints and reconstruction. In Benghazi alone, 247 • The sector depends highly on old and projects in housing and utilities, water and overwhelmed port infrastructures. Other sanitation, transportation, education, etc. regional ports, in Tunis for instance, are worth US$75 million were implemented in developing quicker and therefore are 2013 alone, according to the Benghazi Local more attractive to shipping companies. Council.31 The finalization of many of these Private Sector Mapping 57 projects was to come in 2014 but the recur- Until mid-year 2014, projects like the rent fighting in Benghazi and Tripoli and the Tripoli and Benghazi metro system and the evacuation of many foreign companies trig- Libyan railways project, under the supervi- gered a major backlash. sion of the Housing and Infrastructure Board (HIB) and the Ministry of Transport Size of the Sector. It is estimated that respectively, were still on the negotiating the sector lost 25% of its value in 2014, but table for a total value of US$16 billion. Both is in a position to rebound by up to 55% in projects very much depend on strong politi- 2015, representing a 16% growth compared cal will and on state capacity due to the un- to 2013 levels. predictable political and security climate. Construction is the sector with the high- The railways project plans to develop a 3,170 est percentage of medium and large enter- km network with lines linking the Tunisian prises, with 46% of the construction firms border to the Egyptian border and a north sampled reporting having above 20 employ- to south line linking Misrata to Sebha. ees, 18% more than the sample average. This Other big developments included sport in- is due to the necessity of having large num- frastructure projects to be built for the bers of staff to operate and also to compete Africa Cup of Nations (Libya has aspirations for relatively important development project to host in 2017). Most contracts have been (house, building, resorts, etc.). Unlike trad- granted to foreign companies—through ing companies, a majority of construction joint ventures controlled by the state or firms (64%) reported revenues below parastatal institutions. In 2014, the CBL ap- US$1 million (see figure 4.7). pointed a Danish company to build its new Figure 4.7  Estimated Value of the Construction Sector US$ billions 7 5.9 6 5 4 3 2 1.4 1.1 1.1 1.0 1 0 2010 2011 2012 2013a 2014a a. World Bank estimates. 58 Private Sector Mapping Figure 4.8  Revenues of Sampled Firms in the Trading Sector—Brackets of US$ (n = 54) 22 25 17 17 19 ≤10,000 10,000–100,000 100,000–500,000 500,000–1,000,000 1,000,000–5,000,000 >5,000,000 headquarters in Tripoli for US$96 million. Apart from the big projects, the housing Libyan firms can enter the market as distrib- sub-sector was also growing thanks to a relax- utors of building materials and construction ation of the property and building laws and equipment for international brands. In the need for housing and office reconstruction Benghazi, big projects include the Benghazi following heavy fighting. Maged Mahfoud, Free Zone, the refurbishment of the Managing Director of ATEX International, Corinthia and Ouzo Hotels, the Tatwir explained that growth was driven mainly by Towers and the new terminal of the Benina the private sector.32 He added that the domes- airport. Outside main cities, a US$530 mil- tic private sector is growing despite little to no lion contract has just been signed with a state support, showing that if there was a de- large Indian company to install water sys- velopment in government planning capacity, tems, drainage, and sewage and water treat- the sector would be subject to a boom. ment in Zliten. The company has five other Construction companies come in four projects in Libya valued at between US$70 broad types: and 380 million in Souq el Jomaa, Zwarah • Large state construction companies like and smaller towns (see ­ figure 4.8). the LIDCO often enter in joint ventures with international companies, possibly Structure of the Market and due to a lack of know-how and transpar- Competition. Most of these contracts ency on projects; are granted to international companies like • Large private international construction the German Gerkan Marg und Partner that and engineering companies often led by will be in charge of the construction of stadi- foreign, high-skilled staff supported by ums in Tripoli, Misrata and Tajoura even Libyans while the on-site workforce is though Turkish and Italian firms are leading often foreign (Egyptians, Bangladeshi and the market. The problem is that Libyan con- Sub-Saharan Africans); struction companies are not competitive • Small and medium Libyan companies, like enough to win bids over large projects. AL Ramlah, building high-­ specification Domestic employment can still be supported villas, residential compounds or malls; and by the sector as foreign promoters are bring- • Individuals or muqawaleen contracting to ing Libyan engineers, workers, site manag- private investors and domestic clients ers, legal consultants etc. on board. are often working in the informal sector, Private Sector Mapping 59 Figure 4.9  Perception of the Evolution of the Number of Competitors after the Summer Crisis (n = 457) 80 59 60 50 40 26 26 20 10 9 14 6 0 Don’t know Y s, incr s d No, r m in d th s m Y s, d cr s d Construction Ov r ll Source: Data from the 2014 Enterprise Survey. undertaking most of the unregulated do- The enterprise survey data confirm that mestic construction and reconstruction ef- access to finance is similar to other sectors as forts; they are using simple designs and small companies and individual promoters local materials. rely on their own funding means, whereas the biggest groups or state enterprises have Results from the enterprise survey show access to public funding and international that competition in the construction sector investors, making the requirement for credit has dropped more than in other sectors, with institutions less significant. 59% of construction companies reporting a decrease in the number competitors, 9% above Specific opportunities sample average (see figure 4.9). Construction • The sector can represent large revenues companies tend to be less resilient to the crisis (US$5 billion in 2010) and is likely to as the lack of development projects triggers a drive most of Libyan growth under the contraction of the number of actors. condition of a greater political stability; contracts signed are large and long-term Finance and International and likely to create synergies with Exposure. International exposure de- other sectors (trade, retail, sports, pends largely on the type of contract signed ­telecoms, etc.). with foreign companies: smaller projects can • There is room for SMEs, in particular source building materials that are available down the value chain for building materi- in Libya through importers or local manu- als manufacturers and importers, as well facturers and rarely employ highly-skilled as legal consultants, architects and engi- foreign staff that require salaries in foreign neering companies. currencies. Bigger companies, including • Construction projects represent an oppor- joint-ventures, are more likely to need US tunity for educated Libyans to find well- dollars or Euros, but are less at risk as the in- paid and strategic jobs in the sector as ternational partner is not short of foreign well as complete training with interna- currency and the Libyan state has enough re- tional companies subject to serves to guarantee large public contracts. high-standards. 60 Private Sector Mapping • Developing public-private partnerships companies invested in developing large-scale (PPPs) could be an opportunity to finance real estate projects in Tripoli such as the big development programs involving in- Palm City Resort in 2005 and hotels like the ternational actors for their expertise and Corinthia. Both projects have proven to be complying with Islamic finance principles. smart investments and continue to be the flagships of Tripoli’s modern real estate de- Specific constraints velopment. In 2010 in particular, a building • The sector relies on large state contracts boom saw the inception of a dozen projects that require political will and are depen- for apartment complexes to meet the grow- dent on a stable security context. As a di- ing demand for housing. Large contracts rect of result of the current crisis, funds were granted to Chinese companies that re- for infrastructure development projects main, until today, uncompleted. have been all but frozen for the time The sector represented the biggest non-oil being.33 The summer 2014 crisis and the activity before the revolution with a total political confusion created by the recent value of US$4.8 billion according to the conflict stopped the new dynamic towards CBL’s 2010 report. It seems clear the real es- large state projects and repelled most in- tate sector has suffered greatly from the suc- ternational actors. cession of crises in Libya, with many houses • The sector has a high potential for em- destroyed and families displaced. But the ployment but mostly depends on foreign steady return of people to Libya, the massive labor for on-site construction; there is still displacement of Libyans from their cities of a skill mismatch at the technical and man- origin and the lack of readily available hous- agement level that prevents large projects ing created an immediate increase of 10% in from being led solely by Libyans. housing prices just after the revolution, in • Property and building law remains uncer- 2011. Most state-led projects have been fro- tain and unclear, the absence of a property zen and international investors have with- register discourages international investors. drawn their money from big development projects, leaving construction sites empty Existing interventions (some of them became IDP camps) trigger- • Government has shown clear interest in ing a sharp fall in real estate to US$3.2 billion launching big projects again such as the in 2011. The following two years showed Tripoli and Benghazi metro project and signs of a relative return to stability and dy- the large railway project, or the new cen- namism pulling investors again into Libya tral bank headquarters. These are signs of and driving real estate up to US$4.1 billion the state interventionism to create growth in 2012 and to US$5.4 billion in 2013, reach- in this particular sector ing record levels due to the high demand and slow speed at which construction projects 4.6.4. Real Estate progressed creating a lack of housing units Background on the Sector. Before for a greater demand. the 2011 revolution, Libyan real estate was attracting foreign investors from Europe and Size of the Sector. It is estimated that the Gulf aiming to develop large construc- the sector decreased by 30% in 2014 (see tion projects. A decade ago, Maltese figure 4.10), but is expected to bounce back Private Sector Mapping 61 Figure 4.10  Estimated Value of the Real Estate Sector in Libya US$ billions 6 5.4 5 4.8 4.1 4 3.8 3.2 3 2 1 0 2010 2011 2012 2013a 2014a a. Estimates made by World Bank. by growing 50% in 2015—representing a 5% his firm was more successful than at any growth compared to 2013’s level—if substantial point in its history taking on simultaneously development is undertaken by the HIB and the Juliana Tower project on the Benghazi a political solution to the national crisis is seashore, and two luxury villa complexes, reached. employing some 300 staff members. Elhassa Recently, new projects have been de- is in the privileged position of having land signed such as the Palm Waterfront—a large and substantial capital, and the manager real estate project with hotels, apartments contrasted the company’s high performance and malls close to Palm City—and Medina post-revolution with its pre-revolution per- Tower, close to the Corinthia, for which con- formance. Other projects such as the reno- struction was planned to start early January vation of the Grand Hotel are still to be 2015. In Misrata, a massive investment of started. In parallel, a number of business- US$500 million was made in coordination men have recently launched a major prop- with the HIB, the Maltese MIH Group, and erty investment fund worth US$132 million, Misratan businessmen to build a resort with the first of its kind and Sharia-compliant villas, apartment, a clinic, a school, new that is expected to be oversubscribed.34 In shops, a 5-star hotel and a marina. Benghazi addition, the Ministry of Housing and also showed dynamism in 2013, as outlined Utilities launched 131 contracts with Libyan by the manager of Elhassa Construction contractors for a total of 30,000 housing who when interviewed in 2013 stated that units across Libya. 62 Private Sector Mapping Structure of the Market and for over construction of housing units that Competition. The sector is highly con- do not line up with demand in the future, centrated into internationally promoting in particular in the scenario of a succes- companies (the American AECOM for in- sion of crises. stance) and public-private partnership with a mix of capitals, including foreign investors. 4.6.5. Building Materials The size of projects and the required capital leave very limited space for small companies Manufacturing Background on the Sector. or informal businesses. Nonetheless, private Building materials is one of the largest sub- companies are called on to play a bigger role sectors of the manufacturing industry in through their own investment, when land is Libya. The building material manufacturing available. Indeed, Law 4 passed during the sector was estimated at US$1.3 billion in Gadhafi era limited ownership, and until 2010—driven by large construction proj- now, the lack of clear property title and rec- ects—before its size shrank after the revolu- ognized property rights remains a significant tion to US$200 ­million (see figure 4.11). constraint to private sector development. The sector grew the following years due to Access to finance is also linked to the legisla- renewed growth in the construction sector, tion under accessing land, rights of property in particular domestic construction leading and clear legislation, hence the limited fund to a strong 30–40% year on year growth for available for big promoting projects. manufacturers. By mid-2013, a small tiles Of the five real estate companies inter- manufacturer reported a daily production of viewed35 in for the enterprise survey, all of 1,500 square meters of tiles with all products them reported revenues above US$1 million being sold on a daily basis, proof of the dy- in fiscal year 2013, confirming that this sector namism of this national market and the un- tends to have a concentration of large firms. utilized potential for Libyan manufacturers. Specific opportunities At the beginning of the year, the de- • Many construction projects are still on mand reached 12,000 square metres of hold and require a more stable environ- marble but all orders were cancelled ment to be launched, although demand for due to the crisis. housing is high, pulling pulls prices up. Manager of a Marble Manufacturing • There is a strong political will to launch Company nationwide and local real estate projects. Libyan investors expressed their trust in Size of the Sector. Managers inter- the sectors and readiness to invest. viewed from building materials firms for the • There is a large room for public-private enterprise survey’36 reported a 50–70% de- partnerships to develop housing units and crease following the summer 2014 crisis; en- villa complexes. terprises of the Eastern Area were the most impacted. Across the country, enterprises Specific constraints faced difficulties in obtaining a supply of raw • The high demand for housing might trig- materials as shipments were being blocked at ger a real estate bubble and there is a risk ports. The sector was estimated to have been Private Sector Mapping 63 Figure 4.11  Estimated Value of the Building Material Manufacturing Sector US$ billions 1.4 1.3 1.2 1 0.8 0.6 0.4 0.4 0.3 0.2 0.2 0.2 0 2010a 2011a 2012a 2013a 2014a Note: World Bank estimates. worth US$200 million in 2014, ­ although reported to be above 600, a trend confirmed businessmen and local investors were opti- by the enterprise survey, where all building mistic that this technical industry could fuel materials firms reported to have less than the potential reconstruction of the country. 20 employees. The sector stimulates a num- In the last years, demand for construction, ber of sub-sectors that provides further em- including ceramic, paints, cement and bricks ployment such as handling, transporting was answered by small and medium sized materials or water supply. manufacturers across the country. The sector faces domestic competition from state-owned factories that can import Structure of the Market and raw materials at lower prices due to better Competition. The private building ma- foreign currency rates obtained from the terial sub-sector is composed of about six government, which decreases competitive- large partly-privatized cement factories, ness of private companies. Steel and iron seven large marble processors and around production is also under state control four major paints manufacturers and a large through the LISCO plant in Misrata; this number of family-owned ceramic, tile and production site was recently attacked by brick manufacturers. The marble, ceramic, Operation Dignity’s forces, showing the tiles and brick production is largely carried desirability of controlling the plant. out by family-owned SMEs, employing be- International manufacturing companies tween 10 and 25 employees (Libyan or are not present in Libya, although a Tunisian technicians) and supported by for- Chinese company recently showed interest eign workers. In the marble industry alone, in establishing a two-part cement plant in the number of small producers was Misrata and Zliten in order to compete 64 Private Sector Mapping with the national iron and steel plans, obtain raw materials, they have a strong but these plans were put on hold due to need for foreign currency. A big ceramic ­recent events. producer (with 240 employees) reported that Production of building material is insuf- loans were accessible for large companies of ficient to meet the Libyan demand, leading the sector, for which access external finance to the presence of a number of building is a necessity. “All companies of the sectors materials import agents. The sector is can have access to loans, because any busi- deemed to be promising in Libya thanks to ness our size needs it” he added. low production costs (subsidized energy Nonetheless, and Enterprise survey con- and water) and the availability of local raw firmed that access to loan remained limited materials (sand, rocks, etc.) but the quality as small and medium companies of the sec- of Libyan building materials is reported not tor manage to self-­ finance their activities. to be high enough to compete on the inter- national market. Libyans continue to im- Specific opportunities port cement and other building materials • The sector is attractive to Libyans and com- that meet higher quality standards (from posed of many SMEs. In addition, some Italy, Turkey, Egypt) and where specifica- big domestic players exist and seem to be tions are respected. able to compete with imported products al- The building paints sub-sector is domi- though they do not have a sufficient pro- nated by large companies such as the duction capacity to meet the demand. Misrata-based Al Medina Misrata group • The government has placed higher tariffs (about 70% market share in Libya in 201337) on imported products that should en- who appear to be the only suppliers able to hance local production. export in non-negligible quantity overseas. • The sector employs a small number of A ceramic producer in Tripoli mentioned educated Libyans (technicians, engi- that Brazilian and Italian companies ex- neers, etc.). pressed interest in Libyan marble, but that Libyan companies were unable to send the Specific constraints materials due to the sporadic closure of • The building material industry suffers ports. Overall, the sector remains dependent from unfair competition from public en- on domestic demand while remaining tied to terprises that have a larger access to for- foreign suppliers for technical equipment eign currency and at a better rate (facility and specific raw materials. Large construc- of access at US$0.3 for one LYD). tion companies such as El Hassa reported • Power shortages and a rise in the price of that they imported most of the raw materials fuel penalize production capacity and in- they need from Turkey, Italy, France and crease cost of production. Egypt, ­except for cement which was • Formal and large manufacturers depen- produced locally. dent on government contracts are doing little due to the government budget re- Finance and International strictions and political issue leading to the Exposure. As building material compa- government not issuing large contracts for nies must pay international suppliers to a long time. Private Sector Mapping 65 • Access to foreign currency will continue to the demands of the domestic market, al- to be an issue so long as businesses must though the sector is still growing moder- depend on imported materials. ately. Further, FMCG companies are facing international competition with products 4.6.6. Food and Beverage coming from Algeria, Tunisia and Europe. The development of large supermarkets and Manufacturing malls should bolster the currently weak dis- Background and Size of the tribution networks. A number of medium Sector. The food and beverage manufac- size manufacturers exist, in particular water turing industry is quite dynamic in Libya, de- and juice companies (Al Jafara) and sweets spite the weak agricultural production sector. and pastry factories (Al Aalem, Assahel, The food manufacturing sub-sector is one of Beit Al Demashqi) employing between 30 the main processing industries implicating and 100 people to produce and market their private enterprises. No accurate estimates products regionally (see figure 4.12). Results of the sector are available, but several busi- from the enterprise survey confirm that the nessmen of the sector, including pastry and food and beverage manufacturing sector is flour manufacturers, valued it at between rather balanced, with firms targeting differ- US$400 million and US$800 million in 2014. ent markets at different levels: national, re- gional or local. Structure of the Market and New entrants are penetrating the market, Competition. There are six large private especially medium-sized juice and flour pro- companies with important production ca- cessing companies, while the more established pacity in Libya, mainly beverages (Judi, Pepsi companies also continue to grow. The number and Rayhan), dairy products (Al Nasseem, of private flour manufacturers leapt to 54 in Mezraa) and edible oils. The sector has expe- 2014 compared to only 18 in 2010, according rienced strong and consistent growth since the manager of a flour factory, suggesting that the revolution, obliging a company like Al while competition has largely increased de- Nasseem—for dairy products—to open a mand may not yet have been met despite the new plant in 2013 that effectively tripled its series of crises. These findings are mitigated by capacity to meet demand. the results of the enterprise survey, where only According to several businessmen, cur- 30% of enterprises reported a decrease in com- rent production has reached a capacity close petition, 20% below the average, suggesting Figure 4.12  Repartition of Sampled Firm of the Food Manufacturing Sector per Size (per Number of Employees) 13 55 18 15 <5 5–19 20–99 ≥100 66 Private Sector Mapping that competition in the sector has been slightly and fish. The export of dates in particular more resilient to the crisis than in others. could develop a promising value chain in A manager of Al Jafara Company ex- non-coastal cities. plained that the company had decided to Women are not many to work in this sub- market their product to the west and had sector confirming that industrial production opened a new store in Janzour in 2013, al- remains rather exclusive for female staff in though this store had to close after the recent Libya. A professional of the sector inter- conflict. Aside from dairy and juice, other viewed by World Bank estimated the number food processing activities include pasta and of women working in food manufacturing bread production and water desalination companies to be less than 10% and restricted plants in Tobruk and Sousa, but these facili- to administrative tasks. ties appear to be state-run. Many food man- ufacturers also sell directly to the state, Impact of the Crisis. Food processing which remains the biggest client altogether SMEs have suffered significantly from the crisis (around 80% of commands). To succeed and as they have less capacity to respond to emer- indeed to survive, some depend on the ca- gency situations given their large dependence pacity of the state to pay its debts, and have on foreign workers; distribution networks and been negatively affected by the cash-flow is- the smaller shelf life of products. A pastry com- sues faced by the government in 2014. pany mentioned it lost 17 out of its 33 workers Larger food companies have 6–7 domestic (mainly foreigners) and had to stop production suppliers on average, including raw material during two months, representing a shortfall in importers (when not directly imported), pack- revenues of US$1.2 million. Sixty eight percent aging, distribution, cleaning services, security of food processing firms paneled in the enter- services and transportation, while SMEs rarely prise survey reported a decrease in sales (on have more than 2–3 and purchase raw materi- average a 35% decrease), with only 13% and als on local markets or import it from Eastern 20% stating that their business had grown or Europe (wheat for instance). Juice producers saw no change in revenue, respectively. have to import specific concentrated juices The rise in the price of raw materials and and vitamins from the European Union. the additional cost of power generators (to Libya imports 75% of its agricultural pro- compensate for lack of public electricity) duce38 but it has a great potential for export- considerably decreased their margins (see ing foodstuff, especially dates, olives, olive oil figure 4.13). Representatives from the Figure 4.13  Evolution of Revenues of Sales for Companies in the Food and Beverages Industry 13 20 68 Y s, incr s d No, remained the same Yes, decreased Note: Out of a sub-sample of 40 establishments sampled in the enterprise survey. Private Sector Mapping 67 company also highlighted that they had to quality—despite the tariffs on imported buy flour from the black market as there was goods. a shortage at the time of the interview. • A significant amount of capital is required Another company interviewed in Sebha to modernize factories, bring quality up to mentioned that in the south the situation international standards and avoid public had degraded significantly: the plant was health problems. robbed, two Turkish employees were badly injured and 6 technicians were forced to 4.6.7. Private Health leave the country. Background on the Sector. The Libyan health system is mainly public. The Finance and International state provides comprehensive health care Exposure. The sector is capital intensive services to all citizens free of charge through (especially regarding sanitary equipment) and primary health care units, health centers and access to finance was reported to be accessible district hospitals.39 for medium sized companies, as banks trust The key piece of legislation which gov- the food industry for which demand has been erns hospitals and clinics is Law No. 106 of continuously increasing and whose margins 1973 (the “Health Law”) that enacted the have been consistently high. Nonetheless, Libyan Public Health Code and governs the most small companies prefer finance them- establishment and operation of hospitals and selves for the sake of simplicity and the lack of the practice of medical professions. The de- readily available capital in the banking system. velopment of privately-held hospitals or pri- vate centers started in the late 1990’s, Specific opportunities encouraged by the foreign investment law of • The sector includes national champions 1997. Two hospitals are fully-owned and with readily-identifiable brands such as managed by foreign healthcare providers, in- Al Nasseem and Rayhan that are growing cluding the St. James Hospital in Tripoli, fast and creating synergies with local which opened in 2003 and is run by a SMEs. Maltese company, treating about 5,000 pa- • Large companies employ about 30% of tients a month. In addition, the Libyan gov- educated Libyans in management and ernment created a body, the Libyan technical positions. Company for Investment and Operation of • There are potential synergies with existing Medical facilities, to foster public-private food production such as dates or olives partnerships and manage operations of a that are exported internationally. number of medical institutions. The sector is highly regulated: the establishment of a pri- Specific constraints vate medical institution requires a license • Food processing companies have restric- from the Ministry of Health (MoH) and tive regulations on raw material import; prices are capped in application of the the government controls parts of im- Decree N°63 of 2008. Despite these barriers ported foodstuffs. to entry, a number of private medical institu- • There is a fierce competition among inter- tions were established and the sector contin- national brands—often of a higher ues to attract investors. 68 Private Sector Mapping Size of the Sector. The private This slight growth masks the difficulties health and social care sector was valued at faced by hospitals, clinics and pharmacies US$127 million by the CBL in 2010 before its that have suffered physical damage and de- size was divided by two the following year. struction during the 2014 fighting and expe- Interviews conducted by World Bank with rienced a shortage of some medicine. The private health centers’ managers led to esti- lack of medical supplies hampered the ca- mate that the sector has grown by 60% in pacity of private clinics to respond to a 2012, 30% in 2013 and about 5% in 2014 stronger demand for drugs. Nevertheless, in- despite the losses due to the current con- creasing needs for medication driven by the flict. Almost half (45%) of private health fighting, and the incapacity of many Libyans firms40 from the enterprise survey reported to travel abroad for treatment meant that a decrease of revenues (45% of them), far health centers remained busy. The sector re- below the sample average at of 73%, and the mains very dynamic due to the high amount sector was valued at around US$136 million that Libyans are happy to spend on health- in 2014. According to the manager of a large care services. private hospital in Misrata, private health Further, private investors are attracted by centers represented about 40% of the health a sector that is able to compete with the market (see figure 4.14). weak infrastructure and low-skilled staff Figure 4.14  Estimated Value of the Private Health Sector US$ billions 0.2 0.1 0.14 0.13 0.13 0.1 0.10 0.1 0.1 0.06 0.1 0 0 0 2010a 2011a 2012a 2013a 2014a Note: World Bank estimates. Private Sector Mapping 69 associated with the public health system, the Hospital Al Amal in Misrata that employs pushing some Libyans to find better treat- 150 people of which 60% are women and 30% ment abroad. “Anyone who falls ill at present foreigners (Filipino nurses, Egyptian staff, in Libya and who can afford it gets on the etc.). Jean-Claude Muscat, manager of the first plane to Istanbul or Tunis. No one St. James Clinic, confessed that finding “nurses trusts Libyan hospitals” confessed Dr. and care attendants (was) the biggest chal- Fatima Hamroush, former Minister of lenge,” emphasizing the need for training and Health in 2012.41 vocational centers to be able to replace foreign The Maltese company managing the St. staff with locally trained employees. For ex- James hospitals was planning to open a new ample, 27 nurses (almost all from the 50-bed private hospital in Hay Demashq in Philippines) at the Al Amal hospital quit due Tripoli with outpatient facilities, radiology to the current crisis; the hospital managed to and a surgery ward. The company prefers to continue operations with reduced staff. remain focused on developing in the capital The private healthcare value chain implies city and has no expansion plans in other cit- a large number of suppliers—a minimum of ies. It seems that in Tripoli, the number of 20 on average—such as drugs and medicine hospitals and clinics (Al Fatah and Al Khowa wholesalers (Al-Dawlya company for in- clinics) is enough to meet the local demand, stance), medical equipment importers, labo- but outside the capital quality healthcare re- ratories that provide diagnostics and medical mains rare. In Misrata, there are three small analysis (in Libya and abroad) and ambu- private hospitals with only a limited number lance services. Most of the equipment is im- of practice areas, and in Benghazi there is re- ported from Italy, Germany, Greece, Spain, portedly only one. The recent project to build Tunisia, Egypt, Serbia, the United Arab a 35-bed private hospital in Misrata specializ- Emirates or Turkey. Sector’s professionals ing in gynecology and obstetrics is a note- complained that the services provided by worthy development, but more investment Libyan hospitals were weak,42 forcing many is required in smaller towns. It was once patients to find ambulance services them- the MoH’s plan to bring foreign groups to selves and to conduct analysis and blood manage hospitals and clinics or to propose samples outside the main hospitals. Many co-­administration—to attract higher-skilled services could be improved along the entire staff by proposing a higher salary than the value chain, including the ongoing enhance- state-­restricted remuneration—but the project ment of training. Sub-sectors like medical was not allowed by the Prime Minister. It training centers and private universities are could have benefitted secondary town such as also doing well. The Libyan International Tobruk, Ajdabiya, Sebha and the Jebel Nafusa. Medical University of Benghazi reported training about 600 students in 2013, making Structure of the Sector and it the biggest private medical training center Competition. Private healthcare is one of in the country,43 but for demand to be met the top employers in the private sector, need- more training is required. ing between 30 and 50 employees to run an Based on results from the enterprise sur- average medical center, with bigger centers vey, competition remained strong in the counting well above 100 employees, such as ­ private health sector, with only 25% 70 Private Sector Mapping of companies reporting a decrease in the and 2014, caused by armed conflicts. number of competitors, far below the average The reconstruction of medical facilities of 50%, confirming that new hospitals and and equipment requires technical sup- health centers are being established in Libya. port and significant capital. • There is an increased demand in war-re- Finance and International lated treatment that hospitals cannot cope Exposure. Most private hospitals are pri- with and need specific equipment and vately financed by Libyan businessmen, technical expertise (trained surgeons for while a limited number of them manage to instance) to deal with. get credits through personal or business • Libya is still in need of essential medicines relationships. Starting-up a large hospital ­ and other medical supplies due to the (with about 100 employees) represents a closed supply routes through air and sea. US$15 million investment. None of the firms • Medical education is deemed poorer than from the enterprise survey reported having regional standards (compared to Turkey, taken out a loan in the recent past. Tunisia, Jordan or Egypt). Private health companies are very much • Public hospitals are free of charge for dependent on foreign currency to be able to Libyans and drugs are covered by govern- pay for medical equipment and imported ment health insurance, meaning the qual- medicine (although some are also supplied ity of public healthcare is determined by through commercial intermediaries), while cash flow and the availability of public revenues are in LYDs (local clientele). As a re- funds. sult, private clinics suffer a difficult cash posi- • The government is funding a system for tion and a strong demand for foreign currency medical treatment abroad which is facili- from banks or from the black market. tating Libyans to get treated outside the country and creating a shortfall of reve- Specific opportunities nues for Libyan private centers. • In the public health system, salaries are restricted by law but foreign companies can run Libyan hospitals with their own 4.6.8. Private Education salary structure, hence they can attract Background on the Sector. As doctors and nurse with higher standards. with the health system, the education sector Fatima Hamroush, a former Minister of depends overwhelmingly on the state which Health, explained that “the salary of a provides all forms of basic education. It nurse in Libya is below the social welfare manages schools, universities, higher techni- minimum in Ireland.”44 cal centers and vocational centers for about • Medical faculties are full of young 1 million students. The education system was Libyans, in particular women. The sector approved in 1984 and Law 18 for Education is a good example of gender inclusion. was adopted in 2010, opening education to private establishments and setting standards Specific constraints for opening public and private institutions.45 • Medical infrastructure has experienced Most Libyan managers interviewed two waves of serious destruction, in 2011 judged state education as incapable of Private Sector Mapping 71 bringing young Libyans up to professional modern facilities, better trained teachers and standards and called for an urgent reform of bespoke content with smaller classes. The pri- the education sector. The state budget for ed- vate education market is estimated to have ucation is about US$3.2 billion and about enrolled 100,000 students by the end of 2013, 92% of this goes towards salary and train- according to the Ministry of Education. ing46 as opposed to university development, equipment and scholarships. According to Size of the Sector. The sector was esti- 2012 national figures, education spending mated to represent about US$103 million still represented less than fuel subsidies. in 2010 and US$28 million in 2011, but In parallel, the country is experiencing a has grown rapidly in the years following the rapid development of private schools, colleges Libyan revolution. Interviews conducted by and universities. English-language classes are World Bank with stakeholders led to esti- a best-seller for young Libyans that are fully mate that the private education sector con- aware of the necessity of speaking foreign tracted by 40% in 2014, due to a reduction in languages to access better jobs. Private estab- the number of students applying for private lishments target Libyans interested in invest- education, with the security situation pre- ing in a higher quality education, conscious venting mobility and a lack of funds. The of the limitations of the national education market is currently estimated to be worth system. In general, private schools offer US$125 million (see figure 4.15). Figure 4.15  Estimated Value of Private Education Sector US$ billions 0.1 0.10 0.10 0.1 0.08 0.1 0.06 0.1 0 0.03 0 0 2010 2011 2012 2013a 2014a a. Estimates made by World Bank. 72 Private Sector Mapping In Tripoli, the trend toward moderate Starting-up in the sector does not re- growth of the sector compared to 2013 lev- quire large capital as few technical pieces of els (+20% in Tripoli in 2014) resulted in en- equipment or material are needed to invest. rolment levels reaching full capacity, Most establishments prefer local resources particularly in English-class schools. to run businesses, and hire Libyan teachers Private schools were also hardly hit by the to cut costs. As a result, the need for foreign summer 2014 crisis, a school manager re- currency is low and international exposure ported that 8 of their teachers—from the is limited. UK, and the US—left the country fearing a Private education centers have a very deterioration of the security situation. diverse number of staff members depend- ­ Problems of electricity and fuel made it dif- ing on the size of the institution. The ficult to provide continuous lessons during average number of permanent employees ­ the period. There remains a large growth is thought to be around 20 but with potential in other cities, including Benghazi higher employment capacity through the and Misrata, and even more so in the south hiring temporary teachers and instructors. of Libya driving a forecast of 100% growth The enterprise survey confirmed this find- throughout 2015. ing, where 30% of surveyed firms were me- This is confirmed by enterprise survey, dium-sized and 60% were small, suggesting where only 8% of private education firms that most have between 10 and 30 employ- reported an increase of their sales after the ees. The sector recruits a higher number summer 2014 crisis, while 69% reported a of female staff than the average Libyan decrease and 15% a stable level of reve- company, as teachers or in support nues. Thirty one percent of these compa- functions. nies have suffered from material damages, 5% above the sample average, also because Specific opportunities they tend to have bigger buildings to ac- • The demand for courses is very high and commodate classes. it seems that Libyans are aware of the ne- cessity to improve their level of education. Structure of the Market and The evacuation of many trained interna- Competition. Although the quality of tionals could be an opportunity for education is perceived to be better in the pri- Libyans to take positions in key sectors vate sector, Libyan private establishments with the necessary training. still have low standards—aside from interna- • Starting up a school requires limited capi- tional institutions such as the British Council tal and presents high margins. or Education First—and suffer from regional • The sector presents a high work inclusion competition. Libyans are tempted to go to for women and could drive female em- Europe, especially Malta, but also elsewhere ployment in the future. in the Middle East such as Jordan and Egypt where standards are higher, but so is the cost. Specific constraints Further, there is the possibility of obtaining • The crisis has forced many young Libyans generous scholarships from the state to sup- to review their priorities and abandon pri- port them making it abroad. vate education for other critical spending Private Sector Mapping 73 (health, travel, reconstruction, etc.), hence restaurants and cafés in the country and was the market was less dynamic in 2014. estimated to have a very small size before • Private education can propose higher the revolution, with only US$160 million in quality education than public institutions, 2010 before being reduced to a fifth of this but often at lower standards than interna- in 2011 in the wake of armed conflict (see tional institutions that compete to attract ­ figure 4.16). In 2012 and 2013, the sector Libyans (Malta, Jordan, etc.). witnessed growth in terms of investment in Accreditation and a quality insurance sys- tourism and the catering sector that were re- tem is necessary for new private institu- ported to be promising. An estimated 60% of tions to meet with quality requirements. hotels are public, the remaining private, and • The number of schools in Tripoli is high their number remains limited therefore often and the competition is fierce to attract full of Libyan businessmen. students as some school already benefit The number of hotels remains limited from a good branding. and therefore often full of Libyan business- men. Tourism in the sense of foreign visitors has not yet taken off due to the security situ- 4.6.9. Accommodation and ation in the country and the poor infrastruc- Catering Services ture to receive tourists, resulting in many Background and Size of the travel agencies converting themselves into Sector. The sector encompasses hotels, business travel agents. The sector is not very Figure 4.16  Estimated Value of the Accommodation and Catering Services Sector US$ billions 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0 0 0 0 2010 2011 2012 2013a 2014a a. Estimates made by World Bank. 74 Private Sector Mapping resistant in times of crisis and has from the Structure of the Market and lack of flights and the limited movement of Competition. Before the crisis, the Libyans during the fighting period. The number of cafés and restaurants dramati- manager of the Haroun Hotel mentioned an cally increased in larger cities, in Tripoli 85% decrease compared to 2013 as the hotel and Misrata in particular, where many was damaged and the small attendance rate. young Libyans have started cafés and small “When the country is stable, we are always catering services often with family capital. full” he added. The results of the enterprise survey suggest Even though the sector is anecdotic in the a reduced level of competition in the sec- Libyan GDP (0.2%), is has been a source of tor, with 76% of companies of the sub-­ optimism among Libyan businessmen that sector reporting a decrease in the number saw in Libya a great potential to welcome of competitors; nonetheless the demand for large numbers of domestic and international cafés and fast food restaurants is expected tourists thanks to the largest coastline in the to increase again as meeting in cafés is Mediterranean Sea, its ancient Roman and an important part of Libyan culture (see Greek ruins, and the Sahara. The resort proj- figure 4.17). ects in Misrata were reportedly the biggest Investing in the sector could be key to foreign investment scheme that remained ac- boosting Libyan employment in the private tive by the end of 2013, with a US$400 mil- sector as this industry is in need of a large lion value. The renovation of the Grand number of trained staff. Accommodation Hotel of Benghazi is also a sign of the will of and tourism is often described as one of the professionals in the sector to adapt their in- easiest ways to create quick jobs—in partic- frastructure to a future market. ular for unemployed youth. The Haroun Accommodation and catering firms inter- Hotel in Tripoli mentioned it employed 85 viewed in the enterprise survey clearly out- people, while the biggest hotels of the city lined the difficulties experienced by the can account for over 100. There are 5 large sector following the summer 2014, with 81% hotels in Tripoli, 3 in Misrata and 3 in of them reporting a decrease of their reve- Benghazi, and about 10 to 15 small hotels nues, 8% above the sample average, due to in each city employing at least 10 to 15 em- the contraction of the demand and limited ployees. The main obstacle to employment circulation during several weeks or months, are Libyans themselves, that show little at- depending on location. traction towards servicing jobs and prefer Figure 4.17  Evolution of Sales after the Summer 2014 for Firms of the Accommodation Sector 5 14 81 Yes, increased No, remained the same Yes, decreased Private Sector Mapping 75 to leave those to foreigners, mainly from Misrata or in the Western Area could be the Philippines, Bangladesh, Tunisia, Egypt promising. or Syria. • The cafés and restaurant boom witnessed Tourism will likely have to wait another in Tripoli could be repeated in other cities 5–10 years before really taking its expected (Misrata, Benghazi, Zawia, Sebha). place in the Libyan economy as one of the spearheads of diversification. Until then, the Specific constraints main challenges facing professionals of the • The sector generates few revenues and sector is to improve the quality of their ser- represents less than 0.5% of the GDP. vices and existing infrastructure to attract • The sector is not currently able to attract domestic and international businessmen in Libyans to work in hotels, restaurants and secondary cities such as Sebha, Zliten, even cafés, hence the sector is heavily reli- Ajdabiya or Zawia which suffer from a lack ant on foreign labor. of quality accommodation. • Persistent insecurity means regional desti- nations remain more attractive to tourists Finance and International (Tunisia, Egypt and Morocco) hence the Exposure. Access to finances is limited market remains focused on nationals for small cafés and restaurants but a larger (hence a limited growth) or businessmen. proportion of hotels have access to loans • The sector suffers directly from the poor (an estimated 20%), in particular well infrastructure of the country in particular known hotels that are easily generating rev- roads, power cut and slow internet speeds. enues in ­normal times. In addition, the sector does not suffer too 4.6.10. Finance much from a lack of foreign currency as Background on the Sector and most of the revenues and costs are spent in Structure of the Market. The fi- LYDs. In addition, the presence of a foreign nancial sector counts 17 operational banks clientele of businessmen (Turks, Indians, and and 4 state-owned specialized financial insti- Europeans) gives them direct access to for- tutions but is dominated by 5 state-owned eign currencies. commercial banks. It remains under-efficient but is progressively modernizing; some Specific opportunities banks (Sahara and Wahda) have been par- • The sector is able to create employment tially privatized (respectively to BNP in 2007 directly and all along the value chain in- and Jordan Arab Bank in 2010) while for- cluding catering, delivery, cleaning and eign stakes is increasing while fully private- transportation, although training is re- ly-owned banks (Sayara Bank for instance) quired and the industry need to be able remain small (see figure 4.18). The financial to attract young Libyan workers. Women sector is governed by the Banking Law N°1 of are a non-negligible part of the 2005 that allowed creation of private banks. workforce. The law has been amended by the Law N°46 • Libyans are in demand for family spots to of 2012 on Islamic Banking and in accor- spend holidays rather than go to Tunis, dance with sharia-compliant finance, Law Egypt or Turkey. Large local resorts in N°1 of 2013 stated the prohibition of interests 76 Private Sector Mapping Figure 4.18  Estimated Value of the Financial Sector US$ billions 1.2 1.0 1.0 0.9 0.9 0.8 0.7 0.6 0.5 0.4 0.2 0 2010 2011 2012 2013a 2014a a. World Bank estimates. in all civil and commercial transactions start- of country’s the political struggle. Finance ing January 1st of 2015 (it remains unclear is a sector employing a lot of women, whether the Law has become effective given mainly at support functions. Aman the situation). Bank for instance, reported that their As expressed by the Libyan British workforce was comprised of 60% women Business Council, “the creation of new banks in 2012.48 with international backing and no socialist legacy challenged the established institutions Size of the Sector. Financial services in Libya and encouraged the process of mod- (both public and private) were estimated to ernization with the introduction of new ICT be US$900 million in 2014, representing 3% systems, the launch of new products and ser- of the total GDP. Since 2013, most of the vices, and the development of a sales and credit system has been frozen and very few marketing culture.”47 There is room for private or no credit has been allocated to private investors to take larger stakes in the financial companies, in particular to SMEs. The public sector, in particular in insurance companies. banks do not really inject liquidity into the The main obstacle to growth is the lack market through loans, but only play the role of clear political strategy to modernize a of savings banks. Commercial banks have sector that is largely dependent on the US$65 billion in assets of which half is held Central Bank’s vision, a body in the center in certificate of deposit. Private Sector Mapping 77 The main problem remains the discon- conventional banking system in parallel nection between the banking system and (such as in the United Arab Emirates for the private sector where an inability to fi- instance). The system conversion would nance exists. “When we look at our banking ban any conventional bank from applying sector, one of the biggest challenges is the interest rates starting in 2015, despite inter- credit department” said the deputy gover- est constituting the main revenue of banks nor of the CBL, Sadiq Abdulkareem. Banks to date. do not trust the private sector, in particular since the laws inherited from the Gadhafi Specific opportunities era prevent them from serious measures to • The introduction of Islamic compliant fi- recover assets in case of problems with re- nancing could create room for new ser- covering loans. On the other side, Libyan vices and liberate Sharia-compliant entrepreneurs do not show great confidence credits to support the private sector. in banks and credit-institutions either. The • The sector has a small number of actors private sector has about US$12 billion held but with high employment levels, well- in cash at home or in the souk49 therefore trained and inclusive of female staff. Libyans have a greater capacity to self-fi- nance their projects than regional peers. Specific constraints Regulation of the finance sector remains • The banking sector lacks efficiency; no unclear; very few laws have been passed to link exists to support the private sector; regulate the sector since the revolution and hence, it is creating little value. several committees are still working on • Privately-owned banks remain very small these regulations. The CBL announced that compared to state-owned banks, many of them were to be issued in 2014 but • Regulations, in particular the application the political mayhem stopped the process of Islamic Financing, remain unclear. (the CBL still had two competing gover- Even newly created regulators target the nors at the time of writing this report). entire finance sector except for banks. Political will seemed intent on introduc- Hence, regulations do not help to create a ing an Islamic Finance system to the coun- link between the banking system and the try when the National Transitional Council private sector. (NTC) of Mustafa Abduljalil passed Law • Laws inherited from the Gadhafi era do No. 46. The perspective of having all banks not enable banks to take actions to re- converted to the Sharia-compliant system cover assets, resulting in an understand- in 2015 was stated as an objective that is able aversion to risk, in particular for now judged far too ambitious as experts private SMEs which are deemed too risky believe that converting the entire system compared to state projects. will undoubtedly face technical difficulties and needs time. The different options Existing interventions evoked are the full conversion of the bank- • Several programs have been developed, in ing system (like in the Islamic Republic of particular by the French embassy, but re- Iran, Sudan and Pakistan) or to keep a sults are still to be demonstrated. 78 Private Sector Mapping Notes 1. Data from the International Monetary Fund 15. From Key Informant Interviews (KIIs) with (IMF) and the World Bank based on early Businessmen in Benghazi and Misrata in July 2015’s estimations. 2013, Altai Consulting. 2. Libya Investment Climate: Enhancing Private 16. World Bank’s estimations: these estimations Sector Performance for Diversification and are hypothetical assumptions made by the Employment, World Bank, 2011, p. “i.” World Bank, taking a bullish perspective on 3. The concept of “Dutch Disease” refers to a the capacity of the Libyan state to resume pro- negative correlation between the development ducing and exporting in larger quantities. of natural resources exploitation and that of 17. CBL Statement on Public Finances, November other sectors (e.g., industry) and issues in ex- 2014. change rates. 18. A third operator, called Libya Phone was 4. Libya Investment Climate: Enhancing Private launched by the state-owned LTT in 2011 but Sector Performance for Diversification and has a very limited number of users. Employment, World Bank, 2011, p. 10. 19. Libya, Telecoms Mobile and Broadband, 5. From Interview with Ahmed Elumami, former Market Insights and Statistics, 2014. Ministry of Planning, Libya Herald Business 20. Agribusiness Development in Libya, A fact-­ Eye Issue 7, p. 20. finding mission, Centre for Development and 6. Exchange rate used 1 US$ (United States Innovation, W. Heemskerk, E. Koopmanschap. Dollar) = 1.25 LYD (Libyan Dinar). 21. Using an exchange rate of 1 US$ = 1.25 LYD. 7. Data from a conference organized in Tripoli in 22. Interview of Husni Bey, Business Eye Issue 7, December 2013 by the Ministry of Planning Libya Herald, April/May 2014, p. 32. and Institute of Planning. 23. International Trade Centre data calculated 8. http://www.reuters.com/article/2011/02/21​/­us on a 2009–13 average. http://www.­ intracen​ -bp-libya-idUSTRE71K1WY20110221. .­org/country/lybian-arab-jamahiriya/sector​ 9. Private Sector Research and Future Project -trade-performance/. Scoping in Misrata and Benghazi, Altai 24. Exchange rate used was a fixed rate as per 31 Consulting, 2013. Jan 2014, 1 EUR=1.215 US$. 10. World Bank Data, gross domestic product (GDP) 25. http://www.aawsat.net/2014/05​/­a rticle​ per Capita, public-private partnerships (PPP) 55331793. (constant 2011 international dollars) http://data​ 26. Reported by a supermarket manager in Tripoli, .worldbank.org/indicator/NY.GDP​.PCAP.PP.KD. early 2015. 11. “Measure of the deviation of the distribution 27. Business Eye Issue N°7, Libya Herald, March of income among individuals or households 2014, p. 1. within a country from a perfectly equal distri- 28. Interviewed by World Bank in Benghazi dur- bution.” http://hdr.undp.org/fr/content/­income​ ing the summer 2013. -gini-coefficient. 29. Note that the interview was conducted before 12. As of February 2015, foreign workers keep on the Shelling of Misrata by Operation Dignity living the country, in particular Egyptians fol- forces. lowing attack on their community. 30. Business Eye Issue 8, Libya Herald, p. 5, 2014. 13. Rapid Assessment of the Libyan Labor Market, 31. Benghazi Local Council quoted by Business World Bank, July 2012. Eye Issue 8, Libya Herald, p. 6, 2014. 14. Private Sector Research and Future Project 32. Business Eye Issue 8, Libya Herald, p. 4, 2014. Scoping in Misrata and Benghazi, 2013, 33. Interview with Al Seddik Omar el Kebir, Altai  Consulting and Rapid Assessment of African Banker, 1st Quarter 2015 Issue, p. 53. the  Libyan Labor Market, World Bank, July 34. Business Eye Issue N°8, Libya Herald, March 2012. 2014, p. 1. Private Sector Mapping 79 35. While five companies from the Enterprise analyzing constraints in the healthcare labor Survey reported that their main activity was market. real estate, these companies have been merged 43. From Altai Consulting’s interview con- into the broader sector of Construction and ducted with the Libyan International Medical Real Estate for the analysis of the section 3. University in 2013. 36. Three companies reported this activity in the 44. Extract from Interview with Fatima Hamroush, enterprise survey sample. Libya Herald Supplement, November 2012, 37. From interview conducted with chairman of p. 12. the company in July 2013. 45. Libyan Review of Higher Education, p. 2. 38. Libya 2010, Oxford Business Group, p. 216. 46. Business Eye Issue N°8, Libya Herald, March 39. Libya Country Cooperation Strategy, World 2014, p. 2. Health Organization, 2012. 47. http://www.lbbc.org.uk/display_event.php​ 40. Out of the enterprise survey’s sample, 20 en- ?event_id=45#sthash.ZL5nezun.dpuf. terprises fell into this sub-sector. 48. Libya’s Investment Needs 2013, Libya Herald, 41. Libya’s Investment needs 2013, Libya Herald, 2013, p. 14. p. 12, November 2012. 49. According to Mr. Akari, head of reserves at the 42. From interviews conducted for this study CBL interviewed by the Libya Herald, April/ and also from a 2014 Altai Consulting study May 2014. 80 Private Sector Mapping 5. Conclusions and Recommendations As was the case with the February 2011 actors. Nevertheless, such a resolution must revolution, the current crisis has had a severe be accompanied by the removal of existing negative impact on the Libyan private sector. barriers to growth by reforming the current While the economy recovered quickly fol- regulatory framework. lowing the revolution, and will likely recover The challenge for the Libyan government once the current political and security situa- and its international supporters such as the tion stabilizes, the impact of the current cri- World Bank is significant. The following rec- sis may be broader and more lasting due to ommendations are intended as a first step to damaged and destroyed infrastructure and addressing the inherited structural issues even weaker state institutions. Further, the facing the Libyan economy, as well as to ad- economic crisis will likely be compounded dress more recent issues that have developed the longer a political solution remains out to the current crisis. However, strengthening of reach. the investment climate in Libya cannot come Despite the current dire context, several only from changing national-level gover- areas of opportunity can be identified to sup- nance policies and introducing further tech- port the Libyan private sector. The first and nical advisory to a country that has already most important step for Libya is the develop- benefitted from various types of technical ment of state institutions and a government support. Like several other countries in the capable of taking effective and enforced deci- region, Libya benefits from a wealth of ad- sions. The challenge faced by this government vice on policy reforms, and a large body of and the country’s institutions, in particular recommendations, plans and strategies from the Central Bank, will be to reassure citizens, consultants on various elements of its eco- companies and investors of the capacity of nomic reforms. Regional experience suggests the Libyan economy to return to a positive that even where there is the political will to trajectory. reform, expert diagnostics are not enough to Policymakers will need to promote a pos- succeed in strengthening the investment cli- itive investment climate that can fast-track mate. Reform initiatives often lose momen- national and international investment, gen- tum due to the lack of institutionalized erate growth and foster job creation, in par- inter-ministerial coordination, open pub- ticular for the Libyan youth. In this sense, lic-private dialogue, efficient project man- addressing uncertainty about political power, agement, and effective monitoring.1 regulatory policies and the capacity of the As a result, the success of the interven- state to provide basic services and ensure se- tions proposed below is largely dependent on curity will be a priority. All managers and finding effective counterparts within Libya, owners interviewed were confident in the ca- who have the capacity to take decisions, the pacity of the country to develop quickly if ability to manage these interventions from the political situation is settled, an optimism beginning to end, and the support of high- that is shared by international development level policy makers. In parallel, civil society, Conclusions and Recommendations 81 prominent business owners and entrepre- Misratan business owner stated, an economy neurs, and youth also have a role to play in where “all sectors are likely to succeed.” Thus, promoting a more modern business spirit the interventions in table 5.1 focus largely on and in developing creative ways to stimulate organizing and coordinating activities to an economy that requires serious diversifica- build trust and coordination between private tion, with the goal of promoting, as one and public actors. Note 1. Libya ICA 2011, the World Bank, p. 71–72. 82 Conclusions and Recommendations Table 5.1  Conclusions and Recommendations Conclusions and Recommendations 83 Theme Identified constraint(s) Potential intervention(s) Rationale(s) Partners State and institutional level Political The current protracted - Provide continuous support to Libyan An economic crisis can only The International instability and conflict has a strong State and institutions emphasizing the worsen the political crisis community, insecurity negative impact on the decisive role that the economy can play in experienced by Libyans on the including UNSMIL, Libyan business climate. the return of stability in the country ground. The lack of financial The World Bank, It is weakening the state, - Continue capacity building efforts to help resources and the recession of Political Advisors polarizing its institutions, build strong institutions that can better the economy will have further and limiting public services resist a political struggle, in particular the consequences on the conflict Central Bank and the National Bureau of (risk of shortage, incapacity to Statistics and Census pay for salaries and subsidies) - Draw from rigorous impact evaluations of insurance schemes in comparable countries (e.g., Egypt, Arab Rep.) to test the merit of a similar scheme in Libya with the goal of reducing the impact of political risk Macroeconomic Inflation and access to - Support the government to take strong Controlling high inflation and Ministry of policy foreign currency are major fiscal and monetary policies encompassing regularizing access to foreign Finance, Central obstacles for enterprises’ current difficult situation and the need for currency would help private Bank, Technical growth. growth and inflation control. Policies should companies to regularize their Advisors US dollars can mainly be be clearly enunciated and pedagogically situation and develop trade found via informal channels explained to companies overseas - Support efforts to link tax collection to the National Identification system to increase fiscal revenues Private sector Current regulations and - Conduct Regulatory Impact Analysis (RIA) Improving investor confidence Ministry of development laws have limited impact to assess the real impact of previous will attract more international Economy, Ministry on reducing barriers to interventions and post-revolution laws and national actors to fund of Planning, private sector growth and provided the government officials have and develop large-scale Ministry of on attracting international enough technical capacity projects Labour, The World investors - Support different Ministries with technical Bank advisory to review and propose performance regulations to encourage private initiatives and a fair environment between competitors table continues next page Table 5.1  continued 84 Theme Identified constraint(s) Potential intervention(s) Rationale(s) Partners - Develop other independently-managed “misrata free zones” (MFZ) to attract investors and create synergies between manufacturing, transportation, shipping and international investors Regulatory The current situation - Develop a public e-registry of all - Greater knowledge of Ministry of uncertainty prevents policymakers regulations and design specific booklets for regulations and sanctions Economy/ from developing long-term investors in cooperation with the different would encourage enterprises Planning, PIB, the strategic plans ministries to encourage knowledge about to abide by it World Bank There is a lack of clear existing laws and regulations. The return of - Free access to public vision at the top level to political stability is a prerequisite to the information in particular steer economic success of such an intervention laws, executive regulations development - Set-up a mechanism to routinely monitor and data would increase the gap between de jure regulations and de transparency and reassure facto implementation to design a investors transparent and accountable system in which government officials are accountable for the service they provide to the private sector Corruption/lack Heavy corruption sends - Support the state in strengthening control Corruption and lack of legal Ministry of of transparency negative signs to investors mechanisms, provide technical advisory on enforcement create cuts into Finance, Ministry and create an unfavorable how to control corruption and enforce laws state revenues and generates of Economy, The business climate - Advocate among companies on the benefit a climate of unfairness for World Bank, of a transparent mechanism and the investors Technical Advisors constraint created by corruption at a larger and Corruption Conclusions and Recommendations scale Experts Informality Private companies suffer - Propose simplified mechanisms for Simplified registration and tax Ministry of from the practices of registration, reduce registration duties and procedures and reduced Finance, Tax informal actors that create provide tax incentives to freshly registered bureaucracy—combined with department, unfair competition companies to encourage informal more systematic sanctions— General Authority enterprises to enter the formal system have a lagging effect on both for Investment - Assess the impact of new tax rates (20% international investors and Promotion and flat rate) and the self-assessment domestic informal enterprises Privatisation collection system Affairs, The World - Assess the impact of the “one-stop-shops” Bank of Tripoli, Misrata and Benghazi on actual delays to register and capacity to fast track investors and informal companies to register Table 5.1  continued Conclusions and Recommendations 85 Theme Identified constraint(s) Potential intervention(s) Rationale(s) Partners Overwhelming State-owned companies - Support the PIB in identifying key sectors - Further privatization PIB, Ministry of public sector are driving most of growth where further privatization could help benefits transitional Economy, Libya in the country and private private enterprises, in particular SMEs economies when it promotes Enterprises, The champions as well as - Conduct value chain analyses and capital free and fair competition World Bank, private small and medium needs studies for sectors with strong - Higher concentration of External enterprises (SMEs) are potential for growth SMEs triggers an Consultants and scarce improvement of quality Researchers services and drives employment growth Overwhelming State-owned companies - Encourage Public-Private partnerships - PPPs contribute to National public sector are driving most of growth (PPP) through advocacy to the state and strengthen links between Champions, in the country and private propose conferences and working groups to the state and private Housing and champions as well as develop awareness companies and to creating Infrastructure private SMEs are scarce - Assess the existing regulatory framework public-private synergies Board (HIB), public for PPPs and develop or overhaul it to offer - Transferring ownership of companies, attractive conditions to encourage private State owned companies to Ministry of and public companies to enter into PPPs private actors generates Economy employment in transitional economies Lack of skilled Lack of Libyan skilled labor - Support the emergence of high standard - Increasing and optimizing Ministry of labor with good knowledge of business schools—including private the skillsets would drive Education, business practices schools—and create working groups to employment growth and Ministry of Mismatch between Libyan develop links with national champions and stimulate company creation Labour, Big graduates’ skills and students (internships or graduate among newly trained enterprises, available employment in programs). Prestigious international and Libyans Foreign Education Libya regional education institutions could Institutions oversee and sponsor some of these programs Access to Although Libyan banks - Develop projects with the Central Bank to - The private sector often Ministry of finance have begun to modernize, support the Islamic Finance component benefits from a performing Finance, the World they are still far from and to integrate it in the current banking financial sector and vice Bank, Banks exhibiting best practices, system versa which hinders further - Pursue projects to amend Banking Law - Improved competition would growth of the private No. 1 to attract more investors lead to better banking sector. services and help modernize the sector table continues next page 86 Table 5.1  continued Theme Identified constraint(s) Potential intervention(s) Rationale(s) Partners The Banking Law No. 1 - Pursue the Banking Modernization (2005) was to be amended Program for public and private banks but banks reported that through a global and detailed assessment they still were not allowed of the financial sector to reduce key to contribute to more than barriers 10% of a private company’s - Support and identify further possibilities capital Access to foreign for privatization in the banking sector to currency is limited improve competition - Allow banks to participate to more than 10% of company’s capital (change regulation)a - Support the development of private foreign currency exchange companies Access to land Access to land was the - Support the creation of an up-to-date Transparent access to land Ministry of main constraint for property registry (public e-registry) and and clear regulation is key to Planning, HIB, managers just before the create a working group to develop a more attract investors back in Libya Technical Advisory 2011 revolution, and the transparent and effective system to grant absence of clear land mechanisms continues to - Support the creation of a working group for hinder businesses the mapping and marketing of unutilized land based on cost of opportunity Access to Access to supply has been - Advocate for independent protection of Independence of ports— Political supplies disrupted at different transport infrastructure to further isolate including airports—and stakeholders, stages of the value chain, in the economic poles from the political crisis economic infrastructure is a security particular at ports, airports - Develop private and modern land perquisite for economic stakeholders Conclusions and Recommendations and during land transportation companies to transport stability, to keep businesses including militias, transportation goods running and to reassure line ministries, potential investors ports and airport management committees Access to Delays to receive goods - Stimulate more competition between ports Competition drives the quality Ministry of supplies from ports is reported to be to increase capacity and quality of of services and free zones have Economy, Ministry one of the largest in the services. Follow the example of Misrata proved to be a successful way of Planning, local Mediterranean area ports in developing infrastructure and to fast track investment in city councils, port support the development of a Free Zone in Libya (e.g., Misrata and Zawia) authorities Benghazi to create a second trading hub in the East Table 5.1  continued Conclusions and Recommendations 87 Theme Identified constraint(s) Potential intervention(s) Rationale(s) Partners - Simplify and streamline the customs Simplifying the process will clearance process to accelerate access to support the reception of goods goods for Libyan companies and to attract and encourage foreign more international companies to Libyan companies to export to and ports invest in Libya Business Libyans have few incentives - Learn from impact assessments of Stimulating a business Ministry of practices to start private businesses entrepreneurship development programs in creation spirit among Libyans Economy, Ministry other countries to understand what can be can encourage the young of Education, successfully implemented in Libya with generation to start companies Libya Enterprise, rigorous piloting and boost the private sector peer countries - Encourage government entrepreneurship Ministries, The programs to create incentives for start-ups World Bank (tax exemption, funding) and advertise such benefits in much needed sectors such as quality manufacturing; a clear set of rules and a transparent mechanism need to be in place to monitor these incentives so they are used as intended - Stimulate a “start-up” spirit by encouraging workshops, conferences and support scholarships and internships in countries that have developed similar business mind-sets Data Need for further sectorial Develop specific needs and barriers Sector by sector analyses, Ministry of management analysis to understand assessment for specific sectors that are likely particularly for key sectors, Economy, Ministry specific barriers to growth to support strong growth and employment would give stakeholders of Industry, The for each sub-sector (e.g., private health, private education, concrete next steps to reduce World Bank, manufacturing) barriers and encourage growth research companies Data The last comprehensive - Support the National Bureau of Statistics A up-to-date enterprise National Bureau management business Census was and Census in undertaking a new business database would help of Statistics and undertaken in 2006, before census to update data on enterprises and policymakers to tailor their Census, the World the revolution and the comprehensively map Libyan economy efforts towards specific Bank recent crisis, both of which post 2011 revolution sectors and locations; the have greatly influenced the census could be used as an economy updated base for tax collection and to fight informality table continues next page Table 5.1  continued 88 Theme Identified constraint(s) Potential intervention(s) Rationale(s) Partners Enterprise level Lack of skilled Few Libyans meet with - Coordinate with large enterprises to Internship and graduate Ministry of Higher labor international standards develop nationally-recognized and programs are key for Libyans Education, and big Libyan companies, prestigious graduate/internship schemes in to acquire international National in particular in the industry, possibly sponsored and supported standards in education and champions processing and by international companies or good business practices (including in the oil manufacturing sectors, organizations and gas [O&G] prefer to recruit foreigners sector) Access to Neither state-owned - Hold workshops with relevant government Private sector initiatives are Private Banks, finance companies nor private officials and banks to encourage private necessary to avoid an Ministry of banks managed to fill the actors in the financing industry to develop overdependence on the state Finance, the World finance gap and create specific funds for SMEs, in accordance with and to promote a private Bank links between the financing specific needs. A panel of SMEs could be economy mentality system and the private interviewed to identify these needs economy a. Article 77 of the Banking Law N°1 of 2005 specifying “the acquisition of the shares of another joint stock company in excess of 10% of the company’s paid capital.” Conclusions and Recommendations SKU K8421