Country Report Libya December 2008

Summary

Political power will remain vested in the Libyan leader, Colonel Muammar Qadhafi. Libya will retain its unique jamahiriya (republic of the people) system, although the existing government structure will be replaced.
Having positioned himself as the country's leading reformist, and having won the ear of Colonel Qadhafi, Saif al-Islam Qadhafi is best-placed to succeed his father, despite his announced intention to quit active political life.
Relations with the US and the EU have returned to normal since the lifting of international sanctions on Libya. The diplomatic rapprochement will draw much-needed foreign investment into the stricken state-controlled economy.
The hydrocarbons industry will continue to underpin future economic growth, although the authorities are pushing for greater diversification.
The Economist Intelligence Unit expects Libya's real GDP growth rate to fall to 5.1% in 2009, owing to OPEC oil output cuts and the global economic downturn, before recovering to 6.1% in 2010, as domestic demand remains strong.
We expect average inflation to fall to an average of 8.2% over the outlook period, as international oil and non-oil commodity prices decline.
A sharp decline in global oil prices, especially in 2009, and Libyan output cuts will cause the current-account surplus to narrow substantially to an annual average of 16.7% of GDP in 2009-10.

Rioting has broken out in southern Libya in protest against government moves to disenfranchise members of a tribe accused by officials of supporting neighbouring Chad. Around 11 people are believed to have been killed.
Libya and the EU began negotiations on the establishment of a comprehensive framework agreement in mid-November, which should lead to a further improvement in relations.
The government's fiscal surplus contracted in 2007, according to the latest annual IMF Article IV assessment of the Libyan economy. However, we estimate that the surplus was still at a massive 34% of GDP.
Little progress has been made with Colonel Qadhafi's plans to reform the structure of government. Some ministers have proposed alternative schemes, which the Libyan leader has rejected.
According to IMF data, Libya's GDP growth increased from 5.9% in 2006 to 6.8% in 2007. Oil continues to account for more than 50% of GDP.
IMF data have also shown that the bulk of new net investment in Libya over the past five years has been focused on infrastructure development.

This report covers the following industry codes:
SIC Code: 1;49;60;2834;80
NAICS Code: 11;22;52;3254;62