The engines of the Libyan economy are as follows:
Energy: Libyan oil production averaged almost 1.7mbd in 2006. There are plans to double the current output to 3.6mbd. The projected output would place Libya among the world’s top six oil producers, based on 2006 US government figures. It is also rich in gas resources, producing 2bcf per day , though this potential has been less fully developed than its oil resources. Downstream oil capacity stands at 380,000 barrels per day through 5 domestic refineries. The country's proven natural gas reserves have remained largely unexploited, although gas has been produced and exported in small quantities since the 1970s. However, the second phase of the massive West Libya Gas Project (WLGP) came on stream in late 2005 and production is now set to rise rapidly. In the petrochemicals industry, Libya has significant assets in the ethylene chains, including a naphtha steam cracker and polyethylene manufacturing at Ras Lanuf. Libya also manufactures gas-derived petrochemicals such as methanol, ammonia and urea in Marsa Al-Brega.
Energy is the single most important sector for Libya in terms of its contribution to GDP, FDI and exports. Oil and gas accounts for more than 60% of national GDP, almost 80% of all FDI (as of 2003) and over 95% of exports (as of 2005). However, this capital intensive industry only accounts for 3% of total employment.
Libya continues to be rated as one of the best exploration spots in the world. International demand for Libyan crude oil and domestic demand for refined products are also expected to grow substantially. However, despite having a knowledgeable and experienced workforce in this sector, there are still insufficient energy professionals with modern front rank skills.
Tourism : Tourism can be an important source of economic and employment growth and is one area in which the government is keen to develop. At present, tourism remains underdeveloped. Annual tourist figures of 250,000 to 300,000 account for only 0.5% of the tourists visiting MENA countries.
Tourism sector has attracted more than USD 3 billion in 2005 in committed investment but uncertainties in government policy and administrative difficulties have prevented most of these investments from being realized. Libya has a vast and varied tourism asset base such as the ancient ruins in Leptis Magna and Sebraha, the desert city of Ghadames and the Green Mountains but human and financial capital in this sector need to be improved, along with physical infrastructure. Customer service standards in the tourism industry are poor. Existing tourism enterprises find it hard to scale up their operations due to lack of access to bank credit. In addition, Libyan visas take 1-4 weeks to be processed, reducing the attractiveness of Libya as a tourist destination. Libyan accommodation is the smallest in the Mediterranean region, at 21,000 beds, accounting for only 0.6% of the region’s capacity. There is only one hotel, the Corinthia Bab Africa Hotel that conforms to international standards.
Agriculture : Before the discovery of oil and gas reserves, agriculture contributed to about 25% of GDP. In 2003, it contributed about 4-5% of GDP and 7-8% of full time employment with many more engaged in this sector on a part-time basis. Despite heavy investment, the sector grew at only 2.4% annually between 1993 and 1999. Publicly managed production generally exhibits low efficiency and technology on the whole is obsolete. The only export growth area has been the fisheries.
It is unlikely that the agricultural sector can become a key contributor to exports or the economy as it is limited by scarce and expensive factor inputs. Less than 2% of the land in Libya is arable, most of it close to the coast in areas like Jabal al Akhdar and Cyrenaica to the east, and Jabal Nafusah and Jifarah Plain around Tripoli. While the government has aimed for self-sufficiency in food, giving the sector generous subsidies, there is no coordinated plan or strategy for the development of this sector. Almost all agricultural products are for local consumption. Libya remains a net food importer, importing about 75% of its annual food requirement.
Construction: Construction contributes only 4% of Libya’s GDP. However, it is one of the fastest growing sector with a CAGR of 11.6% between 1999 and 2003, and the second most productive sector after energy, with a GDP per worker of USD 22,000. The construction industry continues to be dominated by the GMR (Great Man-made River Water Supply) project. Plans to develop the Mataki district of Tripoli are progressing. A flagship luxury 400-room hotel called Burj al-Bahr is expected to be completed in 2008. There are also plans for the New Tripoli development, a massive residential, commercial and leisure development covering 2m sq metres in the north of the capital.
Nonetheless, there are problems to be overcome if this sector is to be developed. Skills and equipment are lacking and once again, companies do not have access to capital due to the undeveloped financial sector. Basic inputs such as cement and steel are not consistently available. The difficult regulatory environment restricts firms’ ability to operate, especially for foreign firms. For example, foreign firms are not allowed to be main contractors for residential and commercial projects. Foreign firms are also faced with problems in getting job visas for workers, minimum quotas for Libyan employment and restricted areas of operation. Foreign contractors have all experienced repayment problems, and in the past some contractors have been obliged to accept oil barter arrangements for completed work.
Banking and Finance: The banking sector is highly concentrated. In 2004, total banking assets totaled LYD 17.6 billion of which 15.2 LYD billion are held by 6 commercial banks, of which 5 are owned by the Central Bank. Libya also has 3 specialized banks: the Agricultural Bank, Bank of Real Estate Investment and Savings and the Development Bank, which aim to support the development of key economic sectors. The most successful example of private sector banks is the Bank of Commerce and Development, which opened in 1996 and is a limited shareholder company, offering conventional retail and business banking services. To date the only foreign banks with representative offices in Tripoli are the Arab Banking Corporation, Bank of Valetta of Malta and Suez Bank of Egypt.
LBES and GCR surveys rank Libya last among the survey countries on financial market sophistication and 105th among 111 countries on local equity market access. Intermediation and payments facilitation in Libya is still backward, with vast majority of payments made in cash. Investors are deterred by bureaucratic regulation and antiquated administrative procedures, as well as poor transparency and the heavy debt burdens of some state banks. In addition, there is currently no capital market, although in early June 2006, the Libyan economy and trade minister, Tayib al-Safi al-Tayib, said that the government had adopted a law to establish a stockmarket. There are very few ATMs in Libya and limited facilitation of credit card payments.
Libya has taken steps to reform the banking sector, with the implementation of the new Banking Law in Jan 2005. It emphasizes the independence of the Central Bank in line with international best practices, improving the capital adequacy ratio of commercial banks and strengthening the competitiveness of local banks amongst other objectives.
Libya’s other natural resources include gypsum, iron ore, potassium, sulphur and magnesium