Country Report Libya March 2009

Outlook for 2009-10

• Political power will remain vested in the Libyan leader, Colonel Muammar Qadhafi. Libya will retain its unique jamahiriya (republic of the people) system, but the government structure will undergo slow, halting reform.
• Having positioned himself as the country's leading reformist, Saif al-Islam Qadhafi is best-placed to succeed his father, remaining prominent despite his 2008 claim to be quitting active political life.
• Relations with the US and the EU have returned to a normal footing since the lifting of international sanctions on Libya and the compensation payments for sponsoring terrorism, spurring much-needed two-way investment flows.
• The hydrocarbons industry will continue to underpin future economic growth. However, the government risks deterring international oil companies by inconsistent and unwelcoming policy.
• The Economist Intelligence Unit expects Libya's real GDP growth rate to fall to 3.5% in 2009, owing to lower oil prices, OPEC oil output cuts and the effects of the global economic downturn, before recovering to 5.2% in 2010.
• We expect inflation to fall to an average of 8.6% over the outlook period, as international oil and non-oil commodity prices, particularly for food, decline.
• A sharp fall in global oil prices and a Libyan oil output cut will push the current account into deficit in 2009. In 2010, however, it is forecast to return to a surplus of 8.1% of GDP, as both factors rebound.

Monthly review

• Colonel Qadhafi has secured the rotating leadership of the African Union but has failed to enthuse other members to move faster towards a "United States of Africa".
• The Basic People's Congresses convened in February to discuss the plan to abolish most government machinery and distribute oil revenue directly to the people, but in the event voted to defer implementation of the plan.
• The government has unexpectedly loosened strict media controls by pledging to allow the distribution of foreign newspapers and magazines, easing one of the world's toughest censorship systems.
• Economic ties with Italy have been further strengthened, as the state's Libyan Investment Authority has acquired an additional interest in UniCredit and launched a joint investment fund with Mediobanca.
• The government is continuing to play hardball with foreign oil companies, increasingly risking alienating overseas investors, by signing a new deal with Total halving the French oil major's stake in the concessions concerned.