Country Report Libya July 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 structures of government will undergo halting reform.
• Having positioned himself as the country's leading reformist, Saif al-Islam Qadhafi continues to play a prominent role, despite his 2008 claim to be quitting active political life, and is best-placed to succeed his father.
• Following the compensation of the families of the Lockerbie bombing victims by Libya and the cessation of its weapons of mass destruction programme, relations with the US and EU continue to be rehabilitated.
• The hydrocarbons industry will underpin future economic growth. However, the government's inconsistent and unwelcoming policies risk deterring international oil companies.
• We expect real GDP growth to fall to 3.7% in 2009, owing to lower oil prices, OPEC output cuts and global economic conditions, before recovering to 5.3% in 2010 with accumulated oil revenue sustaining investment levels.
• We expect inflation to fall to an average of 6.6% over the forecast period, as international oil and non-oil commodity prices, particularly for food, decline.
• Lower average annual oil prices and a cut in Libyan oil output will cause a sharp contraction in the current-account surplus in 2009 to 12% of GDP. It will recover to almost 20% of GDP in 2010, as prices and output rebound.

Monthly review

• Colonel Qadhafi has made his first visit to Rome, which has helped further improve economic and political co-operation between Italy and Libya.
• The Al Ghad Foundation, an independent media company set up by Saif al-Islam, has been nationalised, eradicating the free media. Colonel Qadhafi has also launched a defamation lawsuit against three Moroccan newspapers.
• The National Oil Corporation has disrupted the sale of the Libyan assets of Verenex, a Canadian oil company, to a Chinese state oil company, encouraging negative perceptions of operating conditions in the energy sector.
• Libya has imposed a 10% import duty on Egyptian food commodities in another surprise step in the country's erratic trade policy.
• A Singaporean company has signed a Memorandum of Understanding for the construction of two major desalination plants, indicating that desalination will remain a central element in water supply.
• The state-owned steel company, LISCO, has announced plans to increase production to meet local demand and to enter foreign markets.

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22