Monday,16 July, 2018
Current issue | Issue 1127, 20 - 26 December 2012
Monday,16 July, 2018
Issue 1127, 20 - 26 December 2012

Ahram Weekly

Mismanaged riches

Libya has been torn by the ambitions and limitations of last year’s revolution, writes Hassan Al-Kashawy

Al-Ahram Weekly

Despite the immense destruction that took place during the country’s October 2011 revolution, Libya could have had the best economic chances of all the Arab Spring states because of its vast oil resources which could quickly have erased the destruction caused by former Libyan leader Muammar Gaddafi’s attempts to thwart the revolution.
However, this seems to be easier said than done, since, more than one year after Gaddafi’s ouster in October 2011, Libya seems to be in much the same situation as the other Arab Spring states — overwhelmed and struggling to rebuild state institutions, among them the army and the police.
Nonetheless, the International Monetary Fund (IMF) has projected that the Libyan economy will grow at a record-breaking 122 per cent in 2012 after contracting by an estimated 60 per cent in 2011.
The country has now returned to oil production at 1.5 million barrels per day, close to pre-revolutionary output of 1.6 million barrels, up from an average of 166,000 barrels per day during the conflict period in 2011.
Meanwhile, inflation has stabilised at 15 per cent after reaching record highs in 2011 and 30 per cent in October 2011, according to official figures.
Yet, these rosy predictions hide many difficult truths about Libya’s economy and society and the nature of its resources. Like most oil-rich Arab states, Libya’s is a rentier economy in which the government distributes oil revenues in society according to an inverted pyramid shape.
Those closest to power receive the lion’s share of the revenues, while the rest of society receives the crumbs, and this comes at the expense of building a genuinely productive infrastructure and making robust investments in education, healthcare and scientific research.
The Libyan condition is in some respects worse than that of other oil-rich Arab states because it combines both social injustice and mismanagement in the absence of private initiative, as well as the results of the years of Western sanctions on the country in the wake of the Lockerbie bombing.
These factors, taken with the losses brought about during the uprising against Gaddafi, have created a worse economic situation than in the Gulf states, or Algeria, and one closest to the situation in post-conflict Iraq.
Gaddafi spent billions of dollars on political and military escapades and some revenue on industrial development projects, though these were mismanaged by a regime that combined the worst characteristics of nomadic values, the former socialist regimes and dictatorship.
Years of totalitarian rule in Libya resulted in an inflated public sector weighed down with bureaucracy, cronyism and Gaddafi’s utopian whims.
Meanwhile, there was no viable private sector to take the initiative as there was in the Gulf states. When economic reforms began a decade or so ago, the private sector was soon marred by favouritism and the corruption of the ruling minority, especially Gaddafi’s sons and their cronies.
Libya remained an unsafe destination for investment, including for expatriate Libyan investors, since it was under the rule of a maverick dictator whose own behaviour and the excesses of his followers could not be predicted.
This created an unusual economy in Libya that is unlike that in most other Arab countries. Under Gaddafi, rising oil prices funded extensive subsidies, making Libya a cheap country to live in. However, services deteriorated because of mismanagement and sanctions, and unemployment soared especially among young people since state investment was unable to absorb the large numbers of young people joining the labour market.
Despite the wealth of the state and the country’s small population, government salaries were not high, and many civil servants sought a second job as a result, which should have been unnecessary in what was the richest oil state in Africa.
It was these conditions that triggered the Libyan Revolution, and, although Libya had a higher standard of living than most other Arab countries, Libyan citizens rightfully felt that this was less than they had a right to, given the country’s wealth.
There was also clear discrimination in the distribution of oil revenues among the regions, tribes and classes, and, more importantly, on the basis of ties to the regime.
Post-revolution Libya inherited these conditions, along with a society that feels itself to be unshackled. The country’s revolutionaries want to reap the rewards of the blood that was spilled removing Gaddafi, and the people want to feel a difference after the Revolution for which they paid so high a price.
Although Libya does not have a definite economic policy, partly because the government, led by Ali Zidan, has not been in office long, there have been indications that the government, like its predecessor the National Transitional Council (NTC), has been succumbing to public pressure to distribute oil wealth on a rentier basis.
This was apparent when the NTC came to power after the Gaddafi regime fell and granted every citizen a bonus of about $1,000.
The move was similar to the measures taken by the Gaddafi regime, which had attempted to “bribe” the Libyan people by dispensing bonuses through the banks.
The ruling General National Congress has continued this practice, declaring that every Libyan citizen will receive a $1,000 bonus. There have been rumours that this will continue on a monthly basis.
These policies are harmful because they encourage consumption and discourage work. A wiser move would be to give the money to the most impoverished — families without bread-earners, orphans, widows, the families of the revolutionary martyrs and the injured, or even unemployment benefits for young people until they find work.
Instead, the government is telling Libyan youth to stop working as a result of its policies. The bonuses come at the expense of funds for investment and infrastructure, and it would be a better idea to give young people assistance or loans to start their own businesses.
It has been rumoured that the grants come from reserves inherited from Gaddafi deposited in banks around the world. Estimated at some $150 to $160 billion by some experts, these reserves are not replenishable, and it would be a mistake to spend them on consumption instead of investment.
One of the problems of combining democracy with oil wealth is that democracy started in countries where wealth was in the hands of the people and not the government. Historically, the middle classes have used democracy as a means to guarantee that the government will wisely spend any surplus wealth that these classes pay in the form of taxes.
As a result, the people themselves have directed the government towards economic prudence.
Unfortunately, in the case of oil-rich countries things have been different. Here, wealth is in the hands of the government, and the people use democracy to pressure the government into rentier spending, mostly unwise and ineffective in the middle- and longer term.
This is apparent in Libya, where reconstruction is being neglected instead of being made a priority, despite claims that huge amounts have been earmarked for reconstruction.
Mahmoud Jibril, chief executive of the now defunct NTC government, said that $480 billion had been allocated for this over the next 20 years, or $24 billion a year.
The problem in Libya is not poverty but defective infrastructure, an issue that has not been given priority because of the pressure from the people and the tribes to receive hand-outs from the country’s oil wealth.
Libya appears to be following in the footsteps of Iraq after the US occupation. As Iraq’s revenues multiplied with rising oil prices, there were dramatic jumps in the wages and privileges of Iraqis without a proportionate rise in the productivity of Iraqi workers.
This came at the expense of the reconstruction effort, meaning that even those Iraqis who have large incomes cannot really enjoy them because of the country’s dilapidated infrastructure and poor security, pushing many Iraqis to spend their surplus income abroad.

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