Economy in Libya

Commentary: All the military groups operating in Libya, in the East and in the West, are linked to the war economy and inextricably tied to the parallel para- or totally illegal economy. The economic crisis, connected with the non-existence of a strong and credible central state, perpetuates the positive incentives for all those who take advantage of the state dysfunctions

The Libyan 50 dinar banknote. Photo: Bigstock

Strange to say, but the Libyan economy which, as is well-known - depends much, if not almost exclusively, on oil extraction and sale, performed very well in 2017 even at a time of falling prices - currently made more complex by the Covid-19 pandemic which has led to crisis in consumer countries. 

It should be recalled that the 2017 good performance of the Libyan economy came six years after the silly elimination of Colonel Gaddafi, with a + 67% extraction peak compared to 2016.

In 2018 it went much worse, with a 17.9% increase, but in 2019 GDP grew by 9.9% and currently, at the end of 2020, a 58.7% vertical drop in GDP is expected. 

Obviously there is an inextricable combination of severe internal political and military instability, pandemic-related crisis in consumer countries, as well as a different configuration of the struggle for world oil power, especially with the arrival of the U.S. shale oil. 

Basically, oil extraction and refining in Libya have almost stopped, except in the last few weeks, when some oil wells (such as El Sharara or El Feel, among the largest ones  Libya) are supposed to reopen "as soon as possible", as the Minister said. 

The two oil wells, however, are still controlled, by Khalifa Haftar’s LNA forces. Here is the clear link between political-military destabilization and the Libyan economic crisis.

Oil production fell by 0.1 million barrels per day as from April 2019, i.e. at the beginning of the clash between the GNA and the LNA, with a public deficit that reached 28.9% of GDP in 2019, but with inflation rate falling by 4.6% in 2019 alone, although expected to reach 22.3% by the end of 2020.

The oil barrel global cost is supposed to keep on falling also in 2021, but production in Libya continued to grow, at least until March 2020, which was the expiry date of the moratorium granted to Libya by OPEC. 

Nevertheless, the specifically political level of negotiations between Libya and OPEC - which is what matters - will be mediated mainly by Saudi Arabia, notoriously pro-Haftar, and the United States, often uncritical supporter of the Tripoli regime. A complex mediation.

However, both General Haftar’s LNA and, in many ways, the various katibe linked to Tripoli’s regime - often rather loosely - are business groups - mostly illegal - and, as always happens in these cases, constitute illegal monopolies guaranteed by the monocratic exercise of power and force.

Therefore the "mafiazation" of the economy is the obvious result of a central State which is absent, substantially unlawful or perceived as such.

General Haftar has imposed his monopoly mainly on the export of scrap metal and the sale of refined oil products. 

Many monopolies, ranging from food to the sale of technological materials, have been guaranteed more or less legally to Haftar’s LNA by the Tobruk House of Representatives. 

The activities for controlling and managing the routes of transit and sending of sub-Saharan migrants to Italy are mostly connected to the parallel networks of Haftar’s LNA, but also to Tripoli’s networks of Zawiya and the "Al Nasr Martyrs" group, always operating in that city. But there are entire sectors of the Defence Ministry, the Libyan Coast Guard, the Police and the Interior Ministry cooperating and contributing, directly or indirectly, to the big bipolar system of illegal migrant trafficking and smuggling. 

This is the second source of illegal income, after the smuggling of oil products. This is what happens when you destabilize an African coastal State, without any other project than the chatter of some French pseudo-intellectual on "human rights". 

It is the classic anti-Machiavellian paradox of modern politics. The heterogenesis of ends, as Giovanni Gentile put it. 

But Haftar’s LNA, in particular, also funds itself directly with banks: Libya’s Central Bank in the East has, in fact, backed the wages and material of Haftar’s troops for three years, with the local equivalent of at least 6.7 billion U.S. dollars.

Furthermore, with a view to funding the State and its armies, both Tripoli and Benghazi used the credits granted by merchant banks - often manu militari or through corruption or political-military connections. 

In 2018 alone, the government of Cyrenaica raised 7.9 billion U.S. dollars in loans, while the Tripoli area reached a budget of over 8.1 billion U.S. dollars only with loans from credit banks. 

As mentioned above, this share includes the role of corruption, which is huge and even affects the officials of the anti-corruption structure in Tripoli - to the tune of millions of dollars. Obviously this applies also to the East. 

With about 70,000 soldiers, Haftar’s LNA currently controls a larger territory than France, but the core of its financial operations is still the creation, on June 5, 2017, of the "Committee for Military Investment and Public Works", led by Air Force Colonel al-Madani al-Fakhri, whose leaders immediately began to extort money from Cyrenaica’s businessmen. In the West, the various military katibe of "martyrs" shared control over all trade and productive activities, sector by sector.

Based on what can be inferred from "open" local sources, the GNA has extorted at least 5-6 billion dollars from businessmen and traders in 2020 alone.  

Although Western propaganda always tends to see Haftar’s LNA as the den of all evils, the two forces are similar, as far as the illegal economy is concerned.

Furthermore, nobody knows how many counterfeit dinars were printed in Russia - possibly 4 billion, at least - with Gaddafi’s effigy, which passed through Malta, greasing many wheels. 

In May 2017, during the Ramadan, the banknotes printed in Russia were distributed particularly to banks in the South and in the East.

The idea, after all, was not bad. Libyans do not trust banks, under any circumstances, even when they make withdrawals. 

Hence, when it comes to paying wages and salaries, the rulers in both East and West hurry to print new money, which is easily exchanged with the banknotes probably printed in Russia.

So much so that if everyone accepts it at a lower value than the normal dinars, it becomes only a devalued currency, no longer counterfeit money.  

This is fine, even better than the official dinar, for the "grey" and "black" economy. 

Moreover, the financial-oil system does not directly support Haftar’s LNA, nor can it do so. 

Only the state-owned National Oil Company (NOC) - which is largely answerable to the West - has the possibility to sell Libyan oil, and only the Central Bank of Tripoli can accept the related payments. 

The fact is that all the military groups operating in Libya, in the East and in the West, are linked to the war economy and inextricably tied to the parallel para- or totally illegal economy.

The economic crisis, connected with the non-existence of a strong and credible central State, perpetuates the positive incentives for all those who take advantage of the State dysfunctions.

Dysfunctional and para-criminal economies are always based on three pillars: smuggling, extortion, theft of public resources and external patronage.

The latter can be of a Libyan potentate or, more often, of an "external player": Turkey, Egypt, the Russian Federation, France, Saudi Arabia, Qatar. Obviously Italy has disappeared from the Libya, since currently its foreign policy is little less than a joke.

The operations of all these countries’ Intelligence Services are largely rewarded by the business that becomes possible for the companies linked to all external Services, if they operate in Libya. The operations of the various intelligence agencies fund themselves on their own in Libya.

I have been told that, regardless of the external player, the operations of the various Intelligence Services generate 20-25% gains, which are guaranteed by the extortion ability of the various local katibe to which the external States refer. 

There is no return from a criminal economy which generates a failed state and, above all, eliminates any alternative legal option. 

In Cyrenaica, there is now a monopoly of the illegal use of force by Haftar and his LNA. It shows signs of overstretching and some old allies are showing signs of disillusionment. But soldiers from Darfur, Chad and even Mauritania could soon strengthen Haftar and allow a new offensive towards Tripoli, also considering the presence of Syrian jihadists in the GNA, sent by the Turkish Intelligence Service.

In the West, there is Tripoli and hence Fajez al-Sarraj’s government, often comically praised and hailed by Westerners. 

In this case, however, there is another factor of structural weakness other than the LNA: the factionalism of the various katibe and their often completely interested and always partial relationship with the government in Tripoli.

Therefore, the analytical pair with which to study the connections between Tripoli and Benghazi is Factionalism/Ovestretch. Here is the fundamental dialectic. 

Again using the very useful terms of the Mafia jargon, Tripoli’s militias are a "cartel", while in the East there is a monopoly of unlawful and illegitimate force which, however, struggles to make itself credible.

Moreover, factionalism is inherent in the Arab and, above all, Bedouin soul: "my brother and I against our cousin, my cousin, my brother and I against the stranger". 

Thinking about the Middle East with the typically Western and European idea of the Nation-State is a mistake that will lead us to far greater disasters than those caused by the Sykes-Picot agreement, narrated in an old book with the now famous title, A Peace to end all Peaces

Distribution of local gangs and oil wells, updated to May 2020, from: 
https://www.petroleum-economist.com/articles/politics-economics/middle-east/2018/map-libyas-conflict

Then there is the powerful “stone guest” of the Libyan economy that we must never neglect, namely China. 

It should be recalled that China abstained in the UN Security Council voting authorizing military intervention in Libya against Gaddafi and also criticized NATO's decision to create a no-fly zone. It even underlined the illegality of air strikes on the legitimate forces of Gaddafi’s regime. China was right.

Even when Gaddafi was in power, China was very active in Libyan infrastructure, as Libya paid very well. 

At the time of Gaddafi’s fall, China had as many as 75 companies operating in Libya, with a turnover of 18.8 billion U.S. dollars.

The workers concerned were mainly the 36,000 Chinese, but also the about 28,000 Libyan ones or even many immigrants (Egyptians, Tunisians and Algerians). 

Until 2011 there were 50 Chinese projects in Libya and it should be noted that Libya alone produced 3% of all Chinese oil imports, equivalent to 150,000 barrels a day.

At the time of West's maximum manipulation against Gaddafi, China always tried to maintain all its business connections, obviously rejecting the NATO military mission in its entirety.

Moreover, like the Russian Federation, China also rejected the theory - typically Western-style in its naivety and arrogance - of Responsibility to Protect, i.e. the universal rule - stuff for boy scouts or elegant socialites -whereby States can intervene directly and militarily in other States when the protection of "human rights" is needed.

However, who establishes and ascertains the violation of human rights? A French pseudo-philosopher, a former follower of Pol Pot, two articles in the New York Times or possibly the statements of an NGO invented at the moment (in this respect, the story of NGOs working for migrants from Libya to Syria would be very interesting) or the lamentation of some "intellectuals" who do not even know where Tripoli is on the map? 

Obviously, with a view not to being relegated to play the role of the only protector of the villain Gaddafi, China finally abstained in voting on the UN Security Council Resolution on Libya, but immediately recognized the National Transitional Council (NTC), as the only semblance of unitary Libyan government left. 

ENI also recognized it, well before others, exactly two days after the start of the insurgency against the Colonel, staged only by the East and by French submarines.

As early as the beginning of June 2011, China held its first meeting with Mohammed Jibril, the Head of the NTC. A few days later, the Head of the Department for West-Asian and Middle East Affairs of the Chinese government, Chen Xiaodong, visited Benghazi very carefully.

Obviously China pursues a policy of careful neutrality between the two factions, namely the GNA and Haftar’s LNA.

Officially China supports the GNA, which - in a Memorandum of Understanding (MoU) signed in June 2018 - even accepted that Libya would be part of the Chinese Belt and Road Initiative, albeit with some obvious twists in the map. 

China, however, has also excellent relations with Haftar and, above all, with the Tobruk House of Representatives. 

As to the Covid-19 pandemic, which - for those who know how to use it - is an opportunity for hegemonic penetration into the so-called "third" countries, China has rapidly included Libya in its humanitarian and health aid programs, which are currently envisaged for as many as 82 countries.

However, what is the profound logic of Libya's political and hence economic system? Unfortunately, we always see and interpret the non-Western world through the eyes of our often idiotic, fashionable ideologies. It is the biggest mistake we can currently make. 

As seen above, the fact is that Libyan institutions have always been sectarian and biased in Libya, but not less powerful for this reason.

The British Military Administration (1942-1951) built up a great deal of political-tribal mediations in Libya even equal, if not greater, than Gaddafi’s. They largely remained in place, even after the 1969 coup of the "Free Officers", organized by the Italian intelligence services in a meeting at Abano Terme.

Then there is the Senussi monarchy, originating from an Islamic esoteric sect, not from a specific family lineage of the monarch. 

The last King Idriss was ousted by the coup of the Nasserian and Third- World Socialist "Free Officers", led at the time by Gaddafi, who had been selected for that purpose by the Italian intelligence Services, during a comfortable meeting - I still remember - at an excellent hotel in Abano Terme. 

The Senussi monarchy originated from a strange esoteric organization that started from a wide Islamic heterodoxy and finally shifted to a sort of quasi-Wahabi Koranic normativism, which is not at all contradictory, as it would appear in the poor minds of Westerners, who see only the servile adaptation to Western pluralism or simple "fanaticism", old theme of the worst and naivest 18th century Enlightenment.

As we all know, Gaddafi's regime began in 1969, amidst counter-coup, attacks and adverse operations by the British intelligence services, which only thanks to Italy were wrecked. Revolutionary governments, however, choose only the faithful tribes, which are such because they are paid to be so. 

In the case of the Senussi, the Cyrenaica Defence Forces operated - and King Idriss boasted he had never been to Tripoli - made up of agents and employees of the British Intelligence Services. Also the People’s Social Committee of Executives had military roles. Gaddafi had no mercy, of course.

The Warfalla tribe made several unsuccessful attempts on Colonel's life. Therefore, after the attempted coup against the Colonel in 1991 it accepted a negotiation with Gaddafi.

Nevertheless, it was precisely because of the Gaddafian Jamahiriya (1973-1979) that the Libyan economic networks became ever more informal and sometimes tribal, but paradoxically ever less controlled by the Colonel's regime. 

Exactly those networks killed him and hence ousted him from power, although the poor informal military economic networks believed in the Western promises of an economy integrated in the world market and in an opening of Libya to foreign investment.

They wanted globalization, without too many disasters, but the West gave them a useless failed state, even for Italy.

Hence within the Great Socialist Jamahiriya of the Libyan Arab People there still were popular committees that dealt with economy and business, often very seriously - but without any coordination and control by Gaddafi’s leadership, except for the NOC.

There were GECOL (General Electricity Company of Libya), a separate committee, as well as LISCO (Libyan Iron and Steel Company), ESDEF (Economic and Social Development Fund) and ODAC (Office of Development of Administrative Complexes).

A great role was played by the free zone of the port of Misrata, and by an endless number of autonomous committees, even in the Security Services, which, however, were linked to the abstract and even scarcely “informative” structure of Jamahiriya

Generally speaking, the network of "people’s" Committees that managed the economy reported to the General People's Congress, but everything was obviously in the hands of Gaddafi and his most trusted aides and collaborators - who, however, did not succeed in getting the news in time or let some operations slip away, given the level of informality of the Libyan economy, already pathological at the time.

The only two organizations with some degree of autonomy were the Central Bank of Libya, established in 1956, well before Gaddafi’s coup - which, however, originated from a UN-established institution, namely the Libyan Currency Committee - and obviously the National Oil Corporation (NOC), created in 1970, immediately after Gaddafi’s coup.

There is also the Libyan Investment Fund (LIA), the Libyan Sovereign Fund that supports 15 other apparently autonomous funds or financial initiatives.

It was established in 2006. At the beginning, in the good years of oil revenues, LIA had an endowment of as many as 60 billion U.S. dollars.

Gaddafi's son, Saif-al Islam, was actually its leader. But, after the anti-Gaddafi "revolution", between 2005 and 2010, also the experts who seemed capable of privatizing anything arrived. Called by France, the United States, the Libyan elite itself, but not by Italy, of course.

At that juncture, given the solidity of the old informal Gaddafian economies and of those following the destruction of the Libyan State, the new Agencies of Libyan liberals arrived. Hence the Economic Development Board and the Privatization and Investment Board were established, in addition to the Public Projects Authority. 

You privatize when there is capital available, otherwise to whom do you sell in a failed state where those who have money are already out of Libya? 

As early as the phase in which the war between Eastern and Western Libya was starting to emerge, the local governments had to "enlist" technicians, experts, economists and business jurists to understand the intricacies of post-Gaddafi economic structures which, in any case, had developed - in their baroque and elaborate complexity - since the last years of Gaddafi’s life.

We could define Libya between Gaddafi and the two current governments as an overlap between the oil rentier States, the Socialist autocracies typical of the Third International and the chaotic and incoherent liberalization attempts that the Americans made in the old Socialist economies of the East after 1989.

This adds to the unpreparedness and factionalism of the new economic and political ruling classes that came to power after Gaddafi’s elimination.

The Colonel's technocracy was often better than the current ones.

No economic unifying criteria were visible among the various factions that fought and then managed the 2011 insurgency, but all this remained even in the years 2013-2015, when the high oil barrel prices gave hope that fresh capital would right the wrongs of an authoritarian planning that added to the factionalism of the economy and the Stock Exchange short-sighted naivety of post-Soviet liberalizations. 

Meanwhile, the mass of wages and salaries, in addition to subsidies, increases every year regardless of the amount of oil revenues.

There are therefore no quick fixes or effective solutions for a mechanism that is now so structured. 

The World Bank predicts that oil rents will be 47% of GDP by the end of 2021, but wages and salaries will increase by up to 49%.

Public subsidies for oil or food will be equally high, to the tune of 10.6% of GDP, but then how will debt be refinanced? 

In Tripoli - but the situation in Benghazi seems similar - the solution will be the cash advance from the Central Bank of Libya, in addition to the sale of Treasury Bonds, especially in Cyrenaica. 

 

Professor Valori is President of the International World Group