Libya GB 2015

www.africaneconomicoutlook.org

LIBYA2015

Samia MANSOUR / [email protected] Economist, Regional Department for North Africa, AfDB

Sahar RAD / [email protected] Former Country Economist for Libya, AfDB

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2 African Economic Outlook AfDB, OECD, UNDP 2015

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Oil production fell during the first half of 2014 and GDP declined by 19.8%, butproductionlevelsbegantorecoverduringthethirdquarterof2014,soGDPisexpectedtoreboundby14.5%in2015,ifagreementisachievedtoopensomeofthemajoroilterminals.

Political and economic governance have collapsed,with the presence of two rivalparliamentsandcontinuedcontrolofoilresourcesbywarringmilitias.

Spatialdisparitieswereattheheartoftheinstabilitiesthathavesurfacedsince2011andaninclusivespatialstrategywillbeanimportantdeterminantofanydemocratictransition.

Overview

During the first half of 2014, mounting protests at major oilfields and export terminals led to a decline in production levels to as low as 155 000 barrels per day (bpd) by May 2014. Since hydrocarbons sales constitute over 95% of national revenues and this decline in production is well below the countrys long-term average of 1.6 million bpd there is considerable pressure to negotiate with militias controlling the main oil terminals. After an agreement to open some of the major terminals, official production started to recover from the third quarter of 2014, reaching 800 000 bpd in October 2014. However, fighting has closed the two largest ports, Es Sider and Ras Lanuf, while the western ports of Zawiya and Mellitah have also halted oil exports.

Fiscal sustainability continues to be in disarray because control over the major source of revenue has fallen out of official control. The combination of lower petroleum exports and the dramatic fall in the price of oil resulted in revenues down by 63% in 2014 (from a budget of 57 billion Libyan dinars (LYD) in 2013 to LYD 20.9 billion in 2014). The Central Bank of Libya (CBL) announced a budget deficit of LYD 25.1 billion (USD 20.9 billion) for 2014, around 49.1% of GDP. The 2015 budget deficit would decrease to 29.6% of GDP and financing the fiscal gap will be difficult as oil exports are not expected to recover any time soon. The instability in the governance structure, precariousness in the management of oil revenues and the growing division between the government and the CBL, meant that the 2014 budget was never approved. The CBL has been allocating essential expenditure to cover only the yearly public-sector salaries (LYD 23 billion) and subsidies (LYD 14.5 billion). All other ministerial expenditures are suspended until a legitimate government is formed.

Economic prospects depend on the political and security situations; the expected recovery in oil production could once again be derailed if they do not improve. The election of the House of Representatives (HoR) in June 2014, to replace the General National Congress (GNC) formed after the overthrow of the Qaddafi regime, has further deepened the countrys political divisions, with the various regional and tribal militias aligning themselves more closely with one or another parliament. With neither the militias nor the two governments having full coercive power, a security vacuum has emerged, undermining any form of economic activity and, in turn, highlighting the dire need for a broad-based process of political reconciliation.

The issue of spatial inclusion is at the heart of the volatile transition that Libya has experienced since the 2011 revolution. In fact, spatial exclusion, at various socio-economic levels, has undermined any form of national solidarity required for a move towards post-revolution democratic governance. The legacy of colonialism was the creation of an ethnically, tribally and socio-politically heterogeneous country, over which the Qaddafi regime had maintained control through force instead of a strategy of inclusion. Post-2011 Libya has therefore witnessed the rise of

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3African Economic Outlook AfDB, OECD, UNDP 20152

geographical, tribal and ethnic tensions. A resolution to such disparities and a process of national dialogue would be key elements of a successful political and economic transition.

Figure 1. RealGDPgrowth

-80

-60

-40

-20

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014(e) 2015(p) 2016(p)

Real GDP growth (%) North Africa Africa (%)%

Source: AfDB, Statistics Department AEO. Estimates (e); projections (p)

Table 1. Macroeconomicdevelopment2013 2014(e) 2015(p) 2016(p)

Real GDP growth -13.6 -19.8 14.5 6.3

Real GDP per capita growth -14.3 -20.7 13.5 5.1

CPI inflation 2.6 2.6 2.7 2.9

Budget balance % GDP -6.2 -49.1 -29.6 -14.8

Current account % GDP 13.6 -23.3 -17.5 -6.6Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Recent developments and prospects

Libyas economy was known previously for impressive growth rates driven by its oil and gas industry. This growth performance was seriously dampened by the 2011 civil war. The economy was disrupted by the shutdown in oil production and exports, as well as by the decline in oil prices.

In 2014, Libya marked a year of intensifying oil field shutdowns, economic decline, disintegration of central authority, and the rising power of regional and religious militias across the country. Armed groups (or their coalitions) that have increasingly aligned themselves with the countrys political parties or factions maintained control over the key oil production sites for the majority of 2014. There was a major decline in both output and revenues during the first half of the year, with the former reaching a low of 155 000 barrels per day (bpd) by May, well below the historical average of 1.6 million bpd. From January to November, crude oil production averaged 450 000 bpd, nearly 500 000 bpd lower than the 2013 average and 900 000 bpd lower than the 2012 average. However, thanks to a political agreement reached between Prime Minister Al-Thinni and armed militias to open some of the major oil fields and export terminals, official oil production

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began to recover by mid-2014 reaching 800 000 bpd in October 2014, although it fell to 350 000 bpd in December 2014 because of the deteriorating security situation.

Oil production and exports account for more than 70% of Libyas GDP but because of the crisis, both came to a complete standstill with the result that GDP contracted by 13.6% in 2013 and by 20.7% in 2014 before a potential rebounding by perhaps 13.5% in 2015. This forecast is based on the assumption that by 2015, increased political stability will reinstate oil production close to its 2012 level of 1.45 million bpd. However, it is important to emphasise that these forecasts hinge on the peaceful resolution of the internal security and political situation during the course of 2015.

With paralysis in the oil sector depriving the state of revenues, the budget deficit in 2014 reached more than 49% of GDP (LYD 25.1 billion), while the current account deficit exceeded 23% of GDP. The fiscal and current account deficits will not recover in 2015 and are expected to amount to 29.6% and 17.5% of GDP, respectively. This is due to estimated revenue losses of USD 10 billion (about 20% of GDP) in 2015.

Volatility in the petroleum sector has produced substantial budgetary pressure and resulted in further divisions between the government and the Central Bank of Libya (CBL). As the recipient of oil revenues, the CBL holds all the purse strings, including USD 100 billion in foreign-currency reserves. It is from the CBL that money is distributed and assets accessed across Libya. Political instability prevented approval of the proposed 2014 GNC budget that raised concerns over the long-term fiscal sustainability of government finances in the context of declining oil revenues in 2013-14. Total spending in the published 2014 budget was reduced to LYD 53.5 billion, down from LYD 58.1 billion in the 2013 budget. Expenditure in most sectors (services, development, and infrastructure) was reduced compared to 2013, with the only exception of spending on subsidies (on fuel, food, water, and electricity). The budget breakdown indicated a lower priority given to public works and infrastructure expenditure, while maintaining (and even raising) the spending on salaries and subsidies to avoid social discontent. Development expenditure occupied the lowest amount in total spending with an amount of LYD 7 billion, below the LYD 8.7 billion that appeared in the 2013 budget. More than a third of the budgetary expenditure (LYD 23 billion) was allocated to public-sector salaries, whereas LYD 13.5 billion was earmarked for subsidies an increase over 2013. However, according to the CBL, the proposed budget was based on unrealistic and ambitious assumptions regarding oil production. It had assumed output of more than 600 000 bpd, a level now unattainable as only two ports and offshore fields have escaped the fighting. The CBL, therefore, refused to support the proposed budget and instead has been allocating funds to cover only public-sector salaries and wheat and petrol subsidies estimated to amount to LYD 38 billion (USD 28 billion). All other ministerial expenditures have been suspended until a stable government is formed.

Since October 2014, the CBL has aligned itself with the militia-backed Tripoli government, providing it with more access to resources. Conversely, the Tobruk House of Representatives (HoR) government is said to be currently covering its costs with a LYD 250 million (USD 200 million) loan from the National Commercial Bank (NCB). It has requested LYD 150 million (USD 120 million) from the CBL for funding the armys campaign against terrorist groups and a further LYD 100 million (USD 80 million) for aiding internally displaced peoples (IDPs). However, it seems unlikely that the CBL will satisfy these requests. Foreign reserves and the currency will be under severe pressure in 2015 without a major policy change to lower the public wage bill and reduce the huge energy subsidies. The Tripoli-based rival parliament has announced that it is considering lifting fuel subsidies worth 20% of GDP. Such a move could increase government saving and reduce the fiscal gap that has been financed by drawing down on foreign reserves, none of which will remain in four years time at their current rate of utilisation in a climate of prolonged insecurity.

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Table 2. GDPbysector(percentageofGDPatcurrentprices)2009 2012

Agriculture, forestry, fishing & hunting 2.8 0.8

of which fishing

Mining and quarrying 54.7 65.6

of which oil 0.0 0.0

Manufacturing 6.3 3.2

Electricity, gas and water 1.5 1.2

Construction 8.8 1.3

Wholesale & retail trade; repair of vehicles household goods; Restaurants and hotels

5.0 4.2

of which hotels and restaurants 0.2 0.1

Transport, storage and communication 4.8 3.0

Finance, real estate and business services 7.7 5.6

Public administration and defence 8.0 14.8

Other services 0.5 0.3

Gross domestic product at basic prices / factor cost 100.0 100.0Source: Data from domestic authorities

Macroeconomic policy

Fiscalpolicy

The political instability in Libya and the absence of a stable government meant that there was no clear fiscal policy or strategy during 2014. Void of any administrative power and coercion, the ministries of finance of both rival governments did not have the capacity, resources or the political and economic vision required to develop a fiscal policy for the volatile economy.

Responding to the dire political and economic situation, on 8 December 2014, the CBL issued a statement on the weakened state of public finances, the heightened risks facing the country and mounting threats to future stability. Reflecting its responsibility to inform the public and provide advice to policy makers, the Central Bank called for immediate action in order to contain the widening fiscal deficit and protect the well-being of ordinary citizens.

The emergence of two parallel governments has further damaged the fiscal management of the economy and disturbed expenditure patterns. Lack of institutional co-ordination in the public sector is by far the most important impediment to effective and transparent financial management and monitoring in the economy. Given the declining power of the two governments, and the increasing control by militias of the countrys major source of revenue (oil), there is currently no systematic financial monitoring and management. Well-defined and transparent rules determining the inflows and outflows of Libyas sovereign wealth funds and the Budget Reserve Account (BRA) are also urgently required. Attempts at reform since the revolution have been sluggish and disrupted by the countrys ongoing political feud.

In 2015 and despite declining oil prices, it is expected that the budget deficit will improve from 49.1% of GDP in 2014 to 29.6% in 2015, mainly boosted by drastic cuts in expenditures implemented by the CBL. Such a scenario obviously remains highly dependent on the security situation in the country and the recovery of oil production.

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Table 3. Publicfinances(percentageofGDPatcurrentprices)2006 2011 2012 2013 2014(e) 2015(p) 2016(p)

Total revenue and grants 65.6 39.1 72.3 58.7 45.1 54.3 50.8

Tax revenue 2.5 1.6 0.7 0.7 0.0 0.1 0.6

Oil revenues 60.7 36.6 71.1 57.6 44.8 53.7 49.8

Total expenditure and net lending (a) 29.1 55.0 44.5 64.9 94.2 83.9 65.7

Current expenditure 13.4 44.6 39.0 55.0 77.9 75.7 58.8

Excluding interest 13.4 44.6 39.0 54.5 76.9 75.7 58.8

Wages and salaries 6.0 30.1 16.0 21.6 34.3 28.6 22.4

Interest 0.0 0.0 0.0 0.5 1.0 0.0 0.0

Capital expenditure 15.6 8.0 4.6 9.3 12.5 8.3 6.9

Primary balance 36.5 -15.9 27.8 -5.8 -48.1 -29.6 -14.8

Overall balance 36.5 -15.9 27.8 -6.2 -49.1 -29.6 -14.8Note : a. Only major items are reported.Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations

Monetarypolicy

The political and administrative deadlock has meant that there is no clear monetary policy. The Ministry of Finance that would be the main body responsible for setting the overall monetary policy agenda has not been functional since mid-2014. In addition, the conflict between the CBL and the HoR government authorities has deepened the disagreements over the direction of monetary policy. While by mid-2014 the HoR government put pressure on the CBL to release reserves to cover financing gaps caused by decreasing oil revenues, the CBL refused to obey, insisting that the foreign-exchange reserves are primarily intended for the countrys current and future investments. Despite substantial political pressures, the CBL has struggled and only partially succeeded, to maintain an independent monetary policy stance.

The CBL reports that inflation was 2.4% in October 2014, however, the rise in informal economic activity is likely to push up prices further. Average inflation was 2.6% in 2013, after major post-revolution increases of 6.1% in 2012 and 16% in 2011, primarily caused by war-related disruptions to economic activity. Disruptions to local transport infrastructure, including closure of the Tripoli airport, have further impacted on imports, raising the prices of consumer products across the country. Inflation is estimated at around 2.6% for 2014 and 2.7% in 2015. Broad money and credit growth have remained subdued throughout 2014 at 4% and 1% of GDP, respectively, in line with the slowdown in government spending and overall economic activity.

Economicco-operation,regionalintegrationandtrade

Libya is a member of several regional integration initiatives. It is a signatory to the Greater Arab Free Trade Area (GAFTA) and the Arab Maghreb Union (AMU), and is a member of the community of Sahel-Saharan states (CEN-SAD) and the common market for Eastern and Southern Africa (COMESA).

Before the upsurge of political instability in 2014, Libya had made headway in engaging in trade negotiations and signing agreements with regional and non-regional partners. Indeed, in 2013 Libya signed a Trade and Investment Framework Agreement (TIFA) that would provide a forum to address trade issues and help build trade and investment relations between the United States and Libya. Libya has also signed a partnership and co-operation agreement with Morocco aimed at strengthening trade between the two countries. Progress on these agreements has been slow, however, due to the breakdown of administrative and governance structures. Libyan Sovereign Wealth Funds (SWFs) with large investments across Africa could play a key role in Libyas integration with the African continent. SWFs, such as the Libya Africa Investment Portfolio, which have succeeded in remaining operational despite the countrys ongoing political

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turmoil, are in the process of institutional reforms in order to increase the scale and efficiency of Libyan investment and trade with the African continent.

Table 4. Currentaccount(percentageofGDPatcurrentprices)2006 2011 2012 2013 2014(e) 2015(p) 2016(p)

Trade balance 55.1 22.6 43.3 27.2 3.4 7.2 11.7

Exports of goods (f.o.b.) 78.4 54.9 74.5 62.7 58.2 59.3 59.3

Imports of goods (f.o.b.) 23.3 32.3 31.2 35.5 54.8 52.1 47.6

Services -4.3 -12.6 -8.4 -9.9 -19.0 -18.8 -14.2

Factor income -0.1 0.2 -2.4 -0.2 -0.2 0.5 0.6

Current transfers 0.6 -1.1 -3.4 -3.5 -7.6 -6.4 -4.6

Current account balance 51.4 9.1 29.1 13.6 -23.3 -17.5 -6.6Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Debtpolicy

Libya continues to have one of the lowest debt levels in the world. The public debt stood at 4.8% of GDP in 2013, compared to 4.1% of GDP in 2012. In other words, Libyas external debt stood at USD 6.319 billion at the end of 2013, compared to USD 5.28 billion a year earlier. When compared to the countrys foreign-exchange earnings over the same period, this amounts to a small portion of foreign-exchange resources. Reserves of foreign exchange and gold were around USD 120.9 billion in December 2013 and USD 118.6 billion in December 2012. In June 2014, foreign reserves amounted to about USD 109 billion.

However, the substantial declines in government revenues in 2014 left a sizeable fiscal deficit (49.1% of GDP) and raised the possibility of borrowing to finance expenditure. The government in Tobruk has already announced that it is operating based on loans from the National Commercial Bank. So far, in order to avoid further social breakdown, the two governments have maintained their salary and subsidies expenditures, despite the decline in revenues. However, if the oil revenues do not recover towards their long-term average, and in the context of the decline in international oil prices, there could be recurring gaps in government expenditure which may have to be financed through increased debt levels, especially in a context of using foreign reserves to finance the two governments deficits. Such situation would not be sustainable in the medium term.

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Figure 2. Stockoftotalexternaldebt(percentageofGDP)anddebtservice(percentageofexportsofgoodsandservices)

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4

6

8

10

12

14

16

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Outstanding debt (public and private) /GDP Debt service/Exports%

Source : IMF (WEO & Article IV)

Economic and political governance

Privatesector

Following the 2011 revolution, the Libyan authorities showed a stronger commitment to pursue privatisation than had the previous regime. Moreover, in January 2013, the government progressed on a new draft law for public-private partnerships (PPPs) that could open the way for alternative sources of financing for reconstruction projects. However, the gradual breakdown of the administrative structure in 2014, the coming to a halt of many institutional reform programmes, and the sharp deterioration in the security situation, have further constrained private-sector economic activity. Many private businesses have either closed down, or moved their operations to other countries, notably Tunisia.

According to the Mo Ibrahim Index 2014, Libya is one of Africas poorest performing countries in terms of business environment with an index value of 42.1 over 100 (or 43rd out of 52 countries); well below the continental average (53.3) and below the North African regional average (58.1). In relation to the regulatory environment for private-sector activities, the Doing Business Index 2015 ranks Libya in 180th position (out of 189 countries).

The business impact of the existing rules and regulation on FDI are extremely high, placing Libya in 135th position out of 144 countries in the world, according to the Global Competitiveness Index 2014-15. Libya also ranks very poorly in terms of prevalence of foreign ownership of businesses. The New Companies Law, which was introduced by the government in 2013, is bound to constrain the development of private-sector activity further. Under this law, Libyan shareholders can only issue up to 49% of a joint venture to a foreign partner (rather than 65% provided for in the 2012-Decree No. 103). With the reduction to 49%, many Libyan start-up ventures, which might previously have been funded by foreign investors, will no longer find foreign partners. Also, the new minimum capital requirement of LYD 1 million is a significant outlay for most companies, and will likely deter foreign companies from establishing in Libya.

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Financialsector

The financial sector remains in a rudimentary state and has not gone through structural reforms after the revolution. The CBL oversees the financial system, which is composed of a network of 15 commercial banks, the majority of which are state- or partially state-owned (85% of banking assets); four specialised credit institutions; five insurance companies; and a recently established stock market. The ratio of loans to deposits in March 2013 amounted to only 23.4%, reflecting weak lending to the private sector. Lack of technical expertise will continue to challenge the development of the financial sector. Licenses to foreign banks seeking to operate in Libya are unlikely to be issued by the CBL until a more permanent government and parliament are elected.

The volatility of oil revenues has had implications for the stability of the financial system. Although relevant data are not available, it is thought that, with many businesses shifting their operations abroad due to the security situation, the banking sector has felt the brunt of the current economic crisis. As a matter of public policy, bank lending to certain sectors, including agriculture and real estate, is given priority, which reduces the scope for lending to other sectors. In the medium term, as the government seeks to deepen the role of the private sector in the economy and encourage lending, the CBL is likely to lower its reserve requirement (currently at a high 20%) and may supplement this by cutting interest rates.

On 7 January 2013, the General National Congress (GNC) promulgated Decree No. 1, banning the charging of interest on loans granted to individuals. This decree is announcing the introduction and development of an Islamic banking and finance market in Libya. At the same time, it was further announced by the GNC that the same principles would start to apply to corporate loans, as from 1 January 2015. Additionally, under this law, a special fund was established to provide interest-free loans. This fund is to be under the supervision of the CBL. In December 2013, the Ministry of Economy established a new financial-sector regulator aimed at improving the transparency of the sector and supporting the expansion of Libyas small stock market. However, the lack of technical expertise and the political volatilities affecting the Ministrys operations have delayed the operation of this regulatory body.

Public-sectormanagement,institutionsandreform

The overall disintegration in public-sector management and co-ordination through the course of 2014 was worsened since the election of the House of Representatives (HoR) in June. The dismissal of the election results by the outgoing GNC, and the reconvening of the latter in Tripoli, has resulted in emergence of a dual governance structure in the country. This has made the task of managing the countrys resources, institutions and the overall economic and political transition even more challenging, with neither governments having full authority over the countrys political and economic landscape. Currently, there are no functioning ministries, and with no national budget approved, the state of public service delivery and security is under threat more than ever before. The occupation of many official ministerial buildings in Tripoli since last summer by the militias aligned with Tripolis GNC government has severely disrupted the activities of ministries in charge of providing critical social services, forcing them to relocate to the eastern city of Tobruk. Although the Libyan government which was in power until mid-2014 had initiated a series of Public Financial Management reforms with the help of international institutions since 2013, these efforts came to a halt by mid-2014 after the election of the HoR and the subsequent chaos in the countrys governance structure. The resulting security vacuum also led to the departure of the international bodies that were assisting Libya with its PFM reform programme, notably the World Bank.

One substantial impact of this governance breakdown is the lack of clarity about which government, that of Tobruk or Tripoli, is managing the countrys budget, and how much is being allocated to the various ministries. It is believed that since the election of the HoR and its associated government, the Central Bank has been channelling a monthly budget to the HoR

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ministries to cover basic salary and subsidy expenditures. However, more recently the increasing alignment of CBLs governing body with the GNC government in Tripoli has implied more resources being channelled to the latter, resulting in the HoR governments dependence on loans. Improving public-sector service delivery and institutional capacity building and reform will be priorities once a stable government comes to power in Libya.

Naturalresourcemanagementandenvironment

Natural resources, particularly hydrocarbons, play a major role in Libyas economic, geopolitical and environmental well-being and performance. Indeed, rivalry over control of this rich resource has fuelled deep and destructive tension among various regional and tribal militias across the country, bringing to an effective halt the countrys post-revolution transition. Since mid-2013, the management of this sector has increasingly fallen into the hands of militias associated with various political factions. As a result, there is uncertainty over the levels of production and revenues generated by this sector.

The intense fighting and attacks in Tripoli and Benghazi in July 2014 raised fears of an environmental disaster. By targeting the countrys oil storage and distribution infrastructure, including Tripolis largest storage tank that contains around 6.6 million litres of fuel, the warring militias could have brought about an environmental and humanitarian catastrophe. Aware of such consequences, the government at the time called for international assistance in fighting the blaze amid heavy fighting between rival militias.

The deteriorating political and security situation has reduced the priority and policy attention given to debates over environmental policies and regulations. Little progress has been made on the Green Oil Libya policies that were initiated as part of a large Libya Environmental Initiative aiming to protect the environment by pursuing high-quality waste-treatment solutions. In addition, the water-shortage problem has not been addressed for the last four years. Yet, this issue is important because Libya is Africas most water-stressed country, with minimal surface waters and no perennial rivers, and with only 95 m3 of available water per person per year.

Politicalcontext

Intensifying oil-field shutdowns, economic decline, the disintegration of central authority, and the rising power of regional and religious militias defined 2014.

Following months of delay, the House of Representatives (HoR) was elected in June, replacing the General National Congress (GNC) which had acted as the legislative body since July 2012. The election of the HoR was disputed by the Islamist factions who eventually helped the GNC to reconvene in Tripoli in August. Consequently, there are two rival governments in Libya linked to either the HoR or the GNC: the first one is in Tobruk, centred around the elected and internationally-recognised HoR, with a cabinet led by Prime Minister Abdullah al-Thinni who took the oath of office on 28 September. However, as the conflicts in Tripoli and Benghazi intensified, and the Tobruk government aligned itself increasingly clearly with the anti-Islamist supporters of the renegade General Hiftar, a second government emerged in Tripoli: the Islamist-dominated GNC headed by Omar al-Hassi and supported by a coalition of armed militias from Misrata and other western towns. The latter holds Tripoli and the countrys ministries. The dual administrations indicate the depth of administrative and bureaucratic chaos in the country and constitute a major challenge in the future.

To initiate a process of political reconciliation, the UN Support Mission (UNSM) in Libya brokered talks between representatives from both sides in Ghadames on 29 September. The talks resulted in an agreement to start a political process with a strong call for a complete ceasefire. However, the effectiveness of these talks are in doubt as they did not involve armed factions from Misrata or the rival militia allied to the western city of Zintan who battled Misrata forces

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in Tripoli for more than a month over the summer. As long as the different militias and groups are not included in the political negotiations and are, hence, unable to see the value of political reconciliation and co-operation, the conflict will continue. Further reconciliation meetings were subsequently organised by the UNSM in Libya. However, a Supreme Court ruling on 6 November 2014 declared the March amendment to the countrys transitional constitution and the subsequent government in Tobruk as illegal, deepening the rift between the supporters of the rival governments. The Tobruk-government, however, continued its administration despite the ruling, questioning the legitimacy of the Supreme Court.

Social context and human development

Buildinghumanresources

Libyas HDI for 2013 is 0.784 (in the high human-development category) positioning it in 55th place out of 187 countries and territories and an increase from the 1980 score of 0.641. During the same period, life expectancy at birth increased by 11.1 years, mean years of schooling increased by 5.3 years and expected years of schooling increased by 3.6 years. Libyas GNI per capita decreased by about 50.9% between 1980 and 2013. Over the last decades significant progress has been attained in health and education. The 2009 Millennium Development Goals (MDG) Report for Libya stated that the country was well on the way to attaining the MDGs by 2015. However, in the light of the recent political changes, it is unlikely that the MDGs will be fully achieved in 2015. The latest data (2008) showed that the enrolment ratio in primary education was about 98.2% of the total cohort and the infant mortality rate declined from 27 deaths per 1 000 live births to 17.6 deaths per 1 000 live births by 2008. Despite healthy HDI indicators, often originating from the important social subsidy and spending programmes, there has been a consistent lack of long-term strategic planning in the educational and health areas. In 2014, the quality of the education system in Libya has been affected further by the deteriorating security situation preventing a large number of education institutions from resuming activity even as of September. Increasingly violent clashes have forced many schools to shut down temporarily. In eastern Libya, fighting between militias prevented more than 60 000 students from attending their first day of school. In addition to accessibility to the educational services, the quality of education remains very low, particularly as the fighting has taken attention away from reform of the educational system and curricula. According to the Global Competitiveness Index (GCI) 2014-15, Libya ranked last out of 144 countries in the area of quality of the education system.

According to the GCI 2014-15, Libya ranks first out of 144 countries in HIV prevalence. The adult HIV prevalence rate is less than 0.2%, with 11 910 people estimated to be living with HIV/AIDS in 2011. In addition, Libya ranks 65th out of 144 countries in tuberculosis cases per 100 000 population and 91st in terms of the business impact of tuberculosis. Given the decline in the national health infrastructure, as well as the increasing difficulties in accessing medicines, there are high risks of a worsening of the situation in these areas.

Due to the current political situation, the Ministry of Health failed to implement institutional reforms, including the establishment of national health accounts, institutional capacity building and improved transparency and service delivery, launched after the revolution. Moreover, the dramatic decline in government revenues and spending in 2014 has threatened the state of social safety-net programmes.

Povertyreduction,socialprotectionandlabour

Despite being one of the richest countries in the world in terms of natural resource endowments, the unproductive structure of the economy, combined with regional and tribal inequalities have resulted in unequal access to oil wealth. As a result, according to some estimates about one-third of Libyans live beneath the poverty line. Moreover, since the revolution, and particularly

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during the course of 2014, political and economic developments have led to the deterioration of many ordinary Libyans living standards. The general decline in the countrys revenues, due to oil production interruptions, as well as the breakdown of the states governance structure, have severely hampered the public service delivery. Basic services, such as health and education, have suffered severely. With the emergence of the two governments, and in the absence of an approved budget, the Central Bank decided to allocate the budget on a monthly basis and only towards the most essential expenditure items, namely public-sector salaries and subsidies to prevent a severe social breakdown.

According to the ILO, workers rights to freedom of association and collective bargaining continue to be minimal, especially with a weak trade union system. Although Libyan labour law protects workers rights, including working hours, minimum wage and freedom of association, these are not always enforced. At the community level, social divisions have further deepened: in 2012-13 the government ran community-driven initiatives aimed at removing arms from the public domain, increasing electoral participation, and working towards post-conflict reconstruction. However, the increasing power and activities of the regional and tribal militia groups have emphasised the tribal, regional and religious fault-lines of the society, resulting in increasing social fragmentation that has been undermining the possibility of the emergence of new community-driven initiatives.

Genderequality

Libya still lags behind in terms of gender equality, especially where it relates to access to economic resources and the labour market. According to the 2013 Libya Status of Women Survey, the majority of currently or formerly married women do not have access to economic resources. Indeed, 59% do not personally have financial savings, 64% do not own items of high value such as a car or jewellery and only 12% own land or an apartment. Libya has a Gender Inequality Index value of 0.215, ranking it 40th out of 149 countries in the 2013 index.

Access to education is almost balanced between men and women. According to the 2013 Libya Status of Women Survey, there are almost as many women (32%) as men (33%) holding a university degree or higher. About 56% of adult women have reached at least a secondary level of education compared to 44% of their male counterparts. However, balanced access to education does not necessarily provide women with equal opportunities for employment. Female participation in the labour market is 30% compared to 76.4% for men. According to the Global Competitiveness Index 2014-15, Libya ranks 131st out of 144, in terms of womens participation in the labour force.

Other areas that are important for Libyas progress towards equal access to development opportunities, such as female political participation and inclusion in strategic decision-making, require further improvement. In 2014, 16.5% of parliamentary seats were held by women in the General National Congress (GNC). Specific projects were launched in 2014 to seek progress on these issues. The Dastoor project was launched in March 2014 on Womens day with the support of the European Union, and aims to support Libyan women and civil society organisations in the drafting and implementation of the new constitution.

Thematic analysis: Regional development and spatial inclusion

The issue of spatial inclusion is at the heart of the volatile transition that Libya has experienced since the 2011 revolution. In fact, spatial exclusion at various socio-economic levels has undermined any form of national solidarity required for a move towards a democratic governance structure. Colonialism bequeathed an ethnically, tribally and socio-politically heterogeneous country, over which the Qaddafi regime maintained control through force instead of inclusion. Once Qaddafi was removed from power, post-2011 Libya suffered the rise of geographical, tribal and ethnic tensions.

Libya

Libya


The 2014 total population is estimated to be around 6.25 million people over 1.77 million square kilometres, which gives it one of the worlds lowest population densities, with only 3.6 people per square kilometre. However, population density varies dramatically between the fertile Northern coastal strip (50 people per square kilometre) and the desert regions, where each person can lay claim to their own square kilometre.

A major characteristic remains the significant dominance of two cities: Tripoli and Benghazi, attracting the lions share of economic and political investment and development efforts. Tripoli is located in the northwest of the country, at the top of the fertile agricultural Aljfara plain. It is in the centre of several agricultural and urban regions and its coastal nature has allowed for the establishment of the most important port in the country. Benghazi is in the east, close to the richest oil fields, with available water and as established trade, education and social services. The two major cities remain the main centres for educational and health services. They account for 52% of the total number of university students and around 84% of the specialised hospitals. The two cities have also captured more than 75% of the total financial services, mainly banks and insurance companies. Victims of their rapid growth, however, they face several serious problems, such as congestion, pollution, housing shortages, lack of sanitation and unemployment. Slum areas have also emerged.

Libya has the largest oil reserves in Africa with an estimated total of 47.1 billion barrels according to Oil and Gas Journal (OGJ) as of January 2012. These reserves are distributed across five major onshore sedimentary basins: Sirte, Ghadamis, Murzuq and, offshore, Tripolitanian. With 80% of proven oil reserves located in Sirte basin, the eastern region also accounts for most of the oil output, accounting for more than 95% of the countrys revenues. However, Qaddafis regime, focused for decades on leveraging these revenues to develop the western part of the country, and more specifically the Tripoli area, which is the historical region for his tribe. As an illustration, the state-owned National Oil Corporation (NOC), Qaddafis instrument for managing the oil wealth, is in Tripoli, and not Benghazi. Following the 2011 revolution, strong opinions were expressed about relocating the NOC headquarters to Benghazi in order to ensure a more balanced distribution of the revenues to the east of the country.

What has driven spatial construction is, therefore, the geographical positioning of Libyas rich natural resources, chiefly hydrocarbons. For decades, Qaddafis policies increased spatial disparities leading to a polarisation between the east and the west of Libya. Other regions have been left behind in most government development plans, leading to deep regional resentments that are among the key drivers of the upheavals since 2011. The lack of structured inclusive development plans to ensure a minimum level of local investment of revenues has prevented equal access to natural, economic and political resources.

The tensions from the countrys vast spatial disparities have heightened since mid-2013, with the militias associated with tribes to the east occupying some of the countrys largest oil fields and oil terminals in order to exert pressure on the government for further inclusion in Tripolis political decision-making processes. With the emergence of parallel militias in the east and west of the country, and the emergence of two parallel governments in Tripoli and the eastern city of Tobruk, the country is not only more divided than ever before, but also the living standards, access to services and the long-term development prospects of all parties are more hampered than ever.

Further spatial inclusion and cohesion in Libya is the key to its successful economic and political transition. While political stability is required for an inclusive spatial strategy to be established, the latter is also an important prerequisite for the creation of a national dialogue and a return to political stability in the country. In the long-term, diversification of the countrys revenues and reducing dependency on hydrocarbon exports are important structural policies aimed at reinforcing the growth of other productive sectors. Developing Libyas production capabilities in specific areas, such as agriculture, ports and coastal development, will allow for

Libya

Libya


growth in the associated regions and, therefore, further social and economic inclusion of their populations. Until then, a gradual and carefully crafted process of national dialogue is required in order to resolve some of the deep-seated questions of access to, and participation in the countrys economic and political spheres.

Libya GB 2015

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Transcript of Libya GB 2015