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After years of enforced isolation, Libya is back in the international fold and Gulf investors are among the first wave of arrivals to be welcomed by Colonel Muammar Qaddafi. But is the former pariah state really ready to do business with the West?

As the first US secretary of state to visit Libya in 55 years, Condoleezza Rice might have expected at least a handshake upon her arrival.

Yet when Colonel Muammar Qaddafi ‘welcomed' her to his compound in Tripoli last month, Rice was left hanging by the Libyan leader, who ignored her proffered hand, dismissively gesturing her to a nearby sofa as he turned instead to the flashbulbs of the world's media.

If Libya is coming out of the cold, then it is doing so on its own terms. And while relations between the US and Libya are just barely cordial, the African state is more welcoming to Gulf investors with cash to spend.

Gulf companies are flooding into Libya, their execs travelling business class en route to the signing of multibillion-dollar real estate, energy, tourism and financial services deals.

In May this year HH Sheikh Mansour Bin Zayed Al Nahyan, the UAE's minister of Presidential Affairs and chairman of the Abu Dhabi Fund for Development (ADFD), entered into an agreement with Libya's Economic and Social Development Fund (ESDF) to form a joint venture company worth US$600m, to invest in property, tourism and energy projects in Libya.

Developers including Dubai's Emaar Properties, Qatar-based Barwa Real Estate Company and Bahrain's Tameer have all announced plans to enter the African state, while Gulf Finance House has signed a deal to build a $3.8bn ‘Energy City' in the city of Sabratha, adjacent to the Mediterranean Sea.

Not to be outdone, Abu Dhabi's First Gulf Bank has entered into a joint venture with Libya's ESDF to establish a new bank, ‘First Gulf Libyan Bank', while Masraf Al-Rayan, Qatar's second biggest Islamic bank by market value, has received regulatory approval from the African state's central bank to expand into Libya.

National Bank of Abu Dhabi is opening a representative office in Tripoli before the end of the year.

"There will be opportunities in real estate, financial services, infrastructure development, retail, telecoms - you name it," says David Butter, regional director for the Middle East and North Africa at the Economist Intelligence Unit (EIU). "Almost the whole gamut of economic activity provides potential for economic investment."

However, Gulf firms eager to benefit from the economic prosperity of a country that has spent much of the last half century in a stand-off with the West, will still have to contend with almost as many obstacles as there are opportunities.

"The difficulty is actually setting up the right kind of commercial structure for pushing those things forward," warns Butter. "It's still difficult for investors to tie up and conclude deals and I think there's still a persistent problem with the political environment, which infects the economic scene."

Libya has already flung the doors of its most lucrative sector, wide open. The African state holds the second largest oil reserves on the continent - around 3.4 percent of the world's total reserves.

More than 40 foreign oil companies are working in Libya, including Irving, Texas-based Exxon Mobil Corp, Los Angeles-based Occidental Petroleum Corp, The Hague-based Royal Dutch Shell Plc, London-based BP Plc and Rome-based Eni SpA.

"Given that there was such a long period in which investment was extremely slow - it wasn't sloped off entirely by sanctions but is was sloped down - the National Oil Corporation (NOC) has made a big push to draw in international oil companies for exploration and production," says Butter.

"The Libyan economy is booming and it's globalising," says A Mahdevan, a director at Star Petro Energy, one Gulf firm looking to benefit from decades of underinvestment in the sector.

"There are quite a few construction projects going on so facilities are improving and people are now finding it much easier to work here."

Dubai-based Star Petro Energy has entered into a joint venture with the NOC of Libya, to own and upgrade the Ras Lanuf refinery in the north of the country. The planned venture will be incorporated in one of Dubai's free zones, with offices in Ras Lanuf, Tripoli and Dubai.

"It is cooperation between two Arab nations, and culturally they have many things in common," continues Mahdevan. "We are welcomed with open arms - Libya is opening up pretty fast, and making efforts to ensure processes such as visa entries are functioning smoothly.

"We are bringing our technical capabilities, our management skills and the credibility that we have in the marketplace, to Libya," he adds.

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