Business | Economy

Libya’s promised reconstruction bonanza fails to materialise

A year after Gaddafi was overthrown, British businesses are not returning

  • Guardian
  • Published: 18:45 August 26, 2012
  • Gulf News

  • Image Credit: REUTERS
  • Reuters Air of uncertainty People shop for traditional clothes in Benghazi, Libya. Foreign companies that are operating skeletal staff in the country say their executives refuse to bring families along.

Tripoli: Regatta is a large gated compound set aside for foreign business executives on the coast west of Tripoli. Most of its homes lie empty, many ransacked by militias, and sand blown in from the seafront forms little dunes on its roads. It wasn’t meant to be like this.

It is now a year since the fall of Muammar Gaddafi’s dictatorship, which triggered seemingly endless predictions by the likes of UK defence secretary Philip Hammond that British executives would be “packing their suitcases” to share in a reconstruction bonanza. Yet Regatta stubbornly refuses to become anything but a ghost town if not a laboured symbol for the state of Libya’s business life.

“Nobody is coming back here: it’s not safe,” admits one of the compound’s few residents, a German engineer. Those foreign companies that are again operating skeleton staffs say their executives refuse to bring their families.

In April, the UK’s ambassador to Libya, Sir Dominic Asquith, addressed a delegation of the Libyan British Business Council (LBBC) in Tripoli. The trade body reported to members that he “spoke vehemently of his surprise and disappointment at British firms’ slow response to the business opportunities”.

Then in May, UK-listed oil giant Shell added to the sense of disengagement when it said it was abandoning its wells and stopping exploration in Libya. Meanwhile, pumps supplier Weir Group has so far refused to return to Libya it had been working on a multimillion-pound power plant refurbishment in Misrata. Oil services firm Wood Group, which last week revealed it had just received a payment of $5.8m (3.7m) from the new Libyan government for work performed for the previous regime, is also cautious: “The pattern to look at [to predict how Libya will develop] is Iraq. There was a great deal of discussion about the potential there, but it is only now that people are starting to get engaged.”

However, the LBBC is slightly more positive when addressing the wider world. Director general Robin Lamb insists British firms are keeping their end up: “Someone said ‘where are the Brits?’, but we’re not lagging behind. There are three branches of Next, branches of BHS, Topshop, MS”

Among other hopeful signs is the return of BP which announced a deal to explore for Libyan oil in 2007 only to withdraw during the Arab spring. “We are preparing to pick up our exploration programme where we left off in early 2011 and we’ve started assigning contracts,” says a spokesman. “It will take time to rebuild our capabilities and we don’t expect any drilling to start until next year.”

Elsewhere, Heritage Oil, a FTSE-250 prospector, has long-term permits and licences to supply the country’s oilfields after acquiring a 51% share in oil services group Sahara in October. “Sahara is active but so far has not generated any revenues,” the company says. “We are working on various tenders and have held discussions with senior members of government and state oil companies.”

Still, none of these projects currently looks like forming part of the bonanza envisaged 12 months ago. So why is the reconstruction taking so long?

Security remains a problem: two car bombs earlier this month in Tripoli set nerves on edge. Tribal fighting also continues in towns to the south, and western diplomatic missions have been attacked in Benghazi, Libya’s second city.

“A string of assassinations, mainly of individuals linked to the Gaddafi regime, and attacks on western targets have sent a worrying message,” says Jonathan Terry of risk consultancy Maplecroft. “Libyan officials have repeatedly said that companies from countries such as Britain, France and the US who supported the intervention would be ‘rewarded’, but the extent to which this promise will be upheld has yet to be seen.”

For many, the slow progress is down to westerners not understanding the pace at which Libya works. One seasoned middle-eastern oil executive says: “The [Libyan] National Transition Council was very careful not to say it was going to give any long-term contracts until after a democratically elected government was formed. There was never going to be this rush for contracts.”

Elections took place in July, and though they passed off peacefully, a new cabinet has yet to be formed. “It’s taken a while for the Libyan government to get organised,” says Maryann Maguire of UK-based consultancy InterCultures.

Nowhere illustrates the stagnation better than Tripoli’s stock market. In a country supposedly hungry for reconstruction, financial traders should be rushed off their feet. Instead, they spend their days staring at chains of orange zeroes on big wall-mounted screens.

Brokers say the government, staffed by officials of the former dictatorship, is not equipped to make the transition to a free market. Stock market trading director Mohammed Salabi has a series of bulky files containing a model regulatory law drafted by his own officials and drawing on experience in bourses in London, Paris and New York. Even now, he claims, the administration has made no move to implement his regulations which, he says, would give investors confidence to buy shares.

“The economics minister still does not understand the importance of the Libyan stock market,” he says. “We made the regulations We cook the food, we make the dish, we give the fork and the knife and ask him please, just eat it.”

Yet other foreign firms are beginning to tuck in. France’s Nexans was recently awarded an 80m electric cable contract, and Germany’s Wintershall has begun work on a major new oil pipeline. “France, Italy, Turkey and Germany have a completely different culture to doing business,” says InterCultures’ Maguire. “British business culture is more reserved.”

Some nationalities have definitely demonstrated more corporate aggression in Libya, though it remains to be seen how effective these strategies will be.

Hans Meier-Ewert of the German-African Business Association made his first visit during the war, flying in five tonnes of medical aid and a plane-load of executives while fighting still raged. “We want to be the early bird,” he says. “It’s not important to have the deals immediately; its important we go and see them.”

Apart from British reserve, other more tangible barriers to Britain’s business remain. A regular complaint from companies is the line taken by the Foreign and Commonwealth Office, which counsels against “all but essential travel” to Libya. This bumps up insurance costs and puts firms off making the trip.

Still, the LBBC’s Lamb is optimistic, arguing that the bonanza is delayed, not abandoned. He hopes the new government will speed reform: “Our own advice is that going to Libya for business purposes is now ‘essential’,” he says.

The sales pitch certainly sounds alluring. After 40 years of idiosyncratic dictatorship, Libya’s six million people are hungry for everything from roads and hospitals to phones and fashion. The country has no railway and no public bus service. UK Trade and Investment estimates Libya will eventually spend more than 125bn on reconstruction.

“Libya is virgin land: any business coming here will be a success,” says Ehab Abdelo-Meged, manager of a branch of the US bakery chain Cinnabon the sole foreign-owned fast food franchise to open in Tripoli in 12 months. “Look at retail. All the guys here buy their clothes from aboard. Why would they go abroad if they could buy them here?”

If they could, no doubt they would. But sceptics wonder for how long fashion-conscious Libyans will have to literally embark on shopping trips, while others worry that the bloodshed may still have years to run. “Nothing will happen [commercially] until things settle down, and that could take years,” says one expert. “The Libyans are settling old scores and will probably go through further tribal battles, and possibly civil war.”

— Guardian News & Media Ltd

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