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Libya Defence and Security Report Q3 2010
Business Monitor International, June 2010, Pages: 70
Business Monitor International's Libya Defence and Security Report provides industry professionals and strategists, corporate analysts, defence and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Libya's defence and security industry.
Political risks will continue to dampen business confidence in Libya. These include ongoing divisions between reformers and conservatives within the ruling elite; uncertainty over Colonel Muammar Qadhafi’s succession; Qadhafi’s political whims and the unpredictable legal environment; threats to social stability from youth unemployment and social unrest; and the threat of domestic terrorism. The rift within the regime appears to run between a largely business-friendly, reform-oriented camp led by Saif Qadhafi on one side, and the ‘old guard’ of ‘conservative revolutionaries’ and ‘rent-seekers’ on the other.
The country’s overriding foreign policy objectives have been to end its international isolation, foster closer economic ties to the West and fashion a role for itself as an African peace-broker. To this end it has renounced its nuclear programme and terrorism links, and compensated victims of the Lockerbie and French airliner bombings. However, such conciliatory moves are contrasted with other erratic and confrontational foreign policy decisions, such as the current diplomatic row with Switzerland. Although this dispute has lessened since March 27, when travel restrictions between Libya and the EU were mutually dropped, tensions continue. Libya’s foreign minister Mussa Kussa has claimed that international arbitration would be required to resolve the dispute. (Source: Agence France-Presse, March 28 2010.)
Such incidents make it difficult for Libya to shake off its ‘rogue’ image. In addition, the vulnerability of foreign business to political whims and the unpredictable legal environment continue to overshadow attempts to make the business environment more hospitable to foreign capital.
Much of Libya’s defence equipment dates back to the Soviet era and is in urgent need of upgrading and replacement. Several arms companies are undertaking feasibility studies into the possibility of developing relationships with the regime. The best example is the UK firm BAE Systems.
Russia has traditionally been the major arms supplier to Libya, going back to the Soviet era. In February 2010, Libya signed an arms deal to with Russia worth US$1.8bn, which was announced by Russian Prime Minister Vladimir Putin. The contract is believed to include 20 fighter planes, at least two S-300 air defence systems, several dozen T-90C tanks and other arms.
The growth potential of Libya’s defence industry is high. Libya will update and replace its obsolete Soviet equipment and arms import figures are expected to rise substantially over the next few years. Libya’s economic outlook is determined primarily by the energy industry. The economy is expected to return healthy real GDP growth over the next five years. We are forecasting robust real GDP growth of 3.8% in 2010 and 4.2% in 2011. However, our positive outlook is tempered by concerns that current patterns of investment spending are not having a major impact on productive capacity – much of the investment in the non-oil sector is flowing into the real estate sector and adding little to Libya’s long-term productivity.
In February, Libya’s main legislative body approved a law setting up a free trade zone on the country’s Mediterranean coast, with its own courts, stock exchange, and a 10-year tax holiday for foreign investors. The plan is aimed at attracting investment outside the country’s oil and gas sector. Real economic diversification, such as this, requires political will, which may increase as Libyan leader Muammar Qadhafi’s son, Saif Qadhafi, takes on an increasingly prominent role in the government, and looks most likely to be the next leader when his father steps down.
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