Mohammed Bouazizi, a young unemployed graduate, started off a dramatic chain of events when he began to sell vegetables from a market stall in Tunis on December 17, 2010. When police seized his stall, he set fire to himself in protest and kick-started the Tunisian revolution. Tunisia was rapidly followed by the eruption of popular unrest in Tahrir Square in Egypt, and within a month, the first street protests in Benghazi were taking place. A few months later, the Arab Spring changed the political landscape of North Africa.
Libya is today seeking to re-establish a new normal. The revolution left a significant cost in terms of mortality and injury, in survivors’ suffering, and in economic damage and losses. It is premature to say that Libya has overcome this cost; the human cost is permanent while the economic cost will take time to be repaired.
It may even be premature to claim that Libya has fully restored security and the rule of law, but significant progress is being made towards this objective.
This is the time when Maltese business needs to be conscious of the opportunities in Libya, and aware of the risks inherent in doing business there. The economic cost of the revolution is also reflected in infrastructural damage, beyond the infrastructure gap that existed prior to the revolution.
Libya is facing a massive infrastructure ‘to do’ list: priority goes to the infrastructure supporting the oil and gas industry, and then follows onto transportation, energy, communications, housing, education and health. In 2012, Mohammed Jibril estimated the cost of necessary reconstruction at around $400 billion.
Does Libya have the money to pay for this infrastructure agenda? Libya’s economy has experienced some dramatic fluctuations over the past years. Understandably, its GDP declined by around 60 per cent in 2011, while it rebounded by some 122 per cent in 2012, according to the IMF.
The Libyan Congress has just approved a LYD66 billion budget for 2013, and this budget provides for major funds being dedicated to infrastructure. Libya holds three per cent of known global oil reserves, and it clearly has the resources to finance its own rebuilding programme without the need for recourse to external financial assistance.
The size and scope of the opportunity and the availability of supporting financing explain why so many companies from all over the world are enthusiastic about participating in this process.
Maltese businesses should analyse the situation and the attendant risks carefully before taking bullish decisions based on the prospect of profits. Doing business in Libya entails adaptation to a different culture and language, an uncertain security context, different systems of public procurement and exposure to country and currency risk. Compliance burdens in Libya may be unfamiliar, and businesses may not be geared up to remain abreast of the changing compliance landscape. Finally, carrying out profitable business in Libya still leaves profits on the wrong side of the Libyan exchange control regime.
All these and other more business-specific risks can be mitigated, albeit never eliminated. The security risk is perhaps the one that achieves highest public profile, although the security risks in the Western part of Libya have been largely mitigated by concerted government action.
Credit risk is an area that should never be ignored by Maltese business, especially when doing business overseas in an environment that may present unfamiliar decision making structures and regulations.
It is equally important to assess the ease of repatriation of profits – profitable business overseas can be discouraged by the risk of exchange fluctuations or by excessive restriction on the ability to pay dividends to parent companies. Any business considering opportunities in Libya would do well to seek professional advice.
The main points to consider are threefold: is the business in Malta in good shape and at the right point in its lifecycle when it can sustain international expansion? Is the perceived opportunity attractive enough, real enough, and sufficiently attainable to justify the investment of time and money in following it up? Are there reasonable strategies to assess the applicable risks, and to manage or mitigate them?
markbamber@kpmg.com
Mark Bamber is partner, advisory services, at KPMG in Malta.