Companies treat Libya with caution

Posted on July 4, 2012

Libyan government forces©AFP

Government forces at Tripoli airport after its capture

As Libyans prepare to flock to the polls for the first time in 47 years, regional businesses are perusing the potential opportunities in the new Libya.

But just as election monitors fear that violence could compromise this weekend’s voting for a General National Congress, businesses are finding that poor security, confusing bureaucracy and rising corruption are posing serious challenges to those seeking first-mover advantage in a potentially lucrative market.

Alex Warren, a Libya analyst, says many foreign companies are delaying possible entry into the market until later this year.

Mr Warren, a director of research at advisory firm Frontier, says companies with pre-2011 contracts are reluctant to revive them until outstanding payments are made and terms of return clarified. Others are in limbo as their contracts face reviews over corruption concerns.

    “On the other hand, these companies understand the local dynamics in Libya better than those who are now exploring the country for the first time, and they may be more willing to take risks in order to get a foothold in the market,” he says.

    One such company looking to make an imminent return is US-based Hill Construction, which before the war was advising on a state building programme of 25 universities, including the rebuilding of two Tripoli campuses.

    Irvin Richter, the company’s founding chief executive, says Hill hopes to return to Libya within two months, but many contractors still need payments to be up to date before going back. “There won’t be much going on until a new government is in place, so I don’t expect to start working until after elections,” Mr Richter says.

    David Brodie-Stedman, the managing director of Hill Construction’s payment claims group in the Middle East and Africa, says about 15 Chinese companies are waiting to return to the market, but these contractors are believed to be owed as much as $20bn.

    He estimates outstanding claims may total approximately $40bn-$60bn across Libya, where the Chinese and Turkish companies were most active in construction before the fall of the regime of Muammer Gaddafi.

    Construction is a clear opportunity, but oil companies are most often identified as the most eager longer-term players, given the country’s untapped hydrocarbon reserves.

    The ruling National Transitional Council, having quickly returned production to prewar levels of 1.5m barrels a day, has talked of the country eventually producing 3m-4m b/d, but that will depend on overseas investment in new wells and expertise in enhanced oil recovery to maintain existing output.

    But Charles Gurdon, managing director of advisory firm Menas Associates, says overseas oil companies were burnt by the tough deals they signed during four auctions of exploration blocs held during the Gaddafi era. Shell recently decided to quit the country after failing to find sufficient reserves, raising question marks over Libya’s oil recovery.

    “The Libyans are in a competitive market, unless Libya becomes more commercial, companies will move elsewhere,” Mr Gurdon told a recent investment conference in Dubai.

    As well as harsh contracts, Shell cited security in its decision to leave, a factor that remains the most pressing concern for foreigners operating in the country.

    The armed militias who brought down the regime are turning their guns on each other, while tribal groups are settling scores.

    Security advisers say urban centres are relatively safe for workers, but rural regions can be dangerous amid a spate of “carjackings”.

    Scott Wilcox, a former Royal Marine who runs a regional risk management consultancy, points to attacks on diplomatic entourages and the capture of Tripoli airport by a militia last month. “When 400 people travel 300km to take an airport, this is clearly a serious security issue,” Mr Wilcox says.

    Rampant corruption, as much as the weak transitional council of the post-Gaddafi era, is having an impact on security, as well as governance. Mr Wilcox says a government official was recently kidnapped for four weeks for refusing to sign a corrupt contract.

    “Security is getting worse, partly because of corruption,” he says. “I don’t see it getting better as the militias all want cash, so there is risk.”

    Although Libyan voters are full of optimism for a better future, it is clear that the new government will have a mountain to climb to allay investor concerns and realise the oil-rich country’s economic potential.

    Fathi Akkawi, deputy minister of higher education, says it will take time to put the proper structures in place to boost security and lay out a sensible legislative framework.

    But with revolutionary ideals still coursing through their veins, officials say they remain determined to make corruption a historical vestige of the former regime rather than part of Libya’s future.

    “The revolution was against tyranny and corruption, but it will also take time to achieve well-organised, transparent governance,” says Aref al-Nayed, the outgoing Libyan ambassador to the United Arab Emirates. “However, we are on a sure road to it.”

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