Back in fashion

After years of enforced isolation Libya is back in the fold and Gulf investors are among the first arrivals.
Back in fashion
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By Andrew White and Alex Delmar-Morgan
Sun 05 Oct 2008 04:00 AM

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.

As the development of projects such as Ras Lanuf demand improved infrastructure and facilities, so the Gulf’s real estate sector has been quick to notice.

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.As an OPEC member, Libya's oil revenues generate over 50 percent of its total GDP and almost 95 percent of its total export earnings.

The official development assistance figures for Libya stand at $20.8m, of which only 0.6 percent comes from the US, while its overall debt has been recorded at $4.6bn, against its oil-related exports of $29.4bn.

The Ras Lanuf refinery became operational in 1984 and produces an estimated 220,000 barrels of oil a day, producing a total of 10 million tonnes of refined petroleum products a year for export to the US and Europe.

A lot of very basic projects have been held up for years, decades even, because of problems getting funding approved.

The $2bn upgrade is expected to take around five years to complete, and will involve revamping and refurbishment of the existing plant.

Following the Ras Lanuf deal, ETA Ascon Star Group - the parent company of Star Petro Energy - and its consortium partners Al Ghurair Investments are also pursing other deals in Libya's oilfield services, steel and cement industries.

"If you take the case of Ras Lanuf, the number of people who will be coming to work there will be substantially higher than it is now, so we need to increase the size of the township, as well as improve the roads and other facilities there," explains Mahdevan.

"We're also looking seriously at some medical centres and other infrastructural facilities, including building some hotels," he adds. "We want to ensure that the township is a pretty good place to live - and for that we need to have more houses and more facilities."

As the development of projects such as Ras Lanuf demand improved infrastructure and facilities, so the Gulf's real estate sector has been quick to notice Libya's economic resurgence - and lay the foundations for construction work across the country.

Dubai-based Nobles Properties is one such developer, and has signed a deal to build a $500m mega-project spread over 275,000 sq ft on the waterfront in the heart of Tripoli.

"We see great potential in the Libyan market and its outstanding level of economic competitiveness, which stems from a unique combination of attractions that cannot be found elsewhere," says Omar Ayesh, chairman of Nobles.

The Tripoli Towers project is in partnership with OYA Tourism Investment and Development, a unit of Libya's Economic and Social Development Fund (ESDF).

The preparedness of the Libyan government to seek partnerships with its Gulf partners is apparent thousands of feet above the ground, too.

In April this year, the UAE and Libya signed an air transport agreement to boost economic and commercial cooperation. The two sides also inked an initial agreement which will give Etihad Airways the right to run 21 flights to three Libyan airports of Tripoli, Benghazi and Sabha as of winter 2010.

Emirates Airline, meanwhile, started to fly to Libya in March 2001 with three flights a week. That has since increased to daily operations - four flights a week go direct to Libya and three go via Tunis. On each flight, there is rarely a space to be had in any of the 12 first class or 42 business class seats.

"Our revenues and passenger numbers from our Libya flights have risen between 25 and 30 percent in each of the last two years," says Emirates official Adnan Kazim. He adds that such is the demand for direct flights to Tripoli, Emirates is examining plans to increase their frequency.

"It is really opening up and the main focus for us has been businessmen and traders traveling to Dubai and to the Far East," he continues. "There are also more and more investors going to Tripoli, and so we have very few empty seats in our cabins on those flights."

Qaddafi and 38 years of ruleLibya's hardline leader Colonel Qaddafi has been a thorn in the West's side ever since he seized power in 1970.

Tensions increased between the North African state and the US during the 1970s when Qaddafi expelled all US oil firms from the country and banned US ships from Libyan waters.

Just months before the US cut all diplomatic relations with Libya in 1980, the American embassy in Tripoli was stormed by pro-Iranian revolution demonstrators.

Relations cooled further between the two countries during the 1980s. In 1986 the US froze all Libyan assets in its banks and, in the same year, bombed Tripoli and nearby military bases leaving 100 people dead.

America said the attack was in retaliation to the terrorist bombing of a nightclub in Berlin, which left 40 US soldiers dead. Relations then hit an all-time low in 1988 when a Pan AM jet blew up over the Scottish town of Lockerbie, killing 270.

Libya's stuttering economy was dealt a hammer blow in 1992 when the UN finally imposed sanctions. But seven years later, the first signs of a thawing of relations with the West emerged when Libya handed over two suspects in the Lockberbie bombing.

In 2003, the UN lifted sanctions and Libya accepted full responsibility for Lockerbie, agreeing to pay $2.7bn in compensation to the victims' families. In 2006 the US re-opened full diplomatic ties.

As a direct result of growing international interest in Libya, credit rating agencies are coming under pressure to cover the African state.

South Africa-based Global Credit Rating (GCR) is currently setting up a North African office - which it hopes will be operational by early 2009 - to look at countries including Libya.

"The Libyan economy will grow to such an extent that eventually we will have to be in there," GCR CEO Dave King tells Arabian Business.

Cyprus-based credit analysis firm Capital Intelligence (CI) has been approached by institutions including Abu Dhabi Islamic Bank, JP Morgan and Barclays, with a view to obtaining credit ratings for some Libyan banks.

CI covered Libya up until 2001, when it gave the country a BB- rating.

When senior analyst Peter McFerran visited Tripoli back in 1999, he came up against a hostile banking sector that seemed unwilling to cooperate with outsiders.

"I think they were under instructions or felt constrained by the [state] centralised system," he recalls. "It was as though they feared they would get into trouble for saying more than they should do, so they decided to say very little."

Today, he sees clear signs that the country is prepared to show greater transparency across its banking and financial systems.

Moreover, the raising of sanctions by the UN in 2003 has paved the way for the Libyan economy to fulfill its potential.

The move came after Qaddafi gave up chemical weapons and nuclear arms development, and agreed to compensate the families of 270 victims of the 1988 Libyan-linked bombing of Pan Am Flight 103 over Lockerbie, Scotland.

"[The US government] has said that the black marks have now been erased off the page, and I would expect conditions to become more supportive of private consumption and investment in the near future," he says.

"Imports of goods, everything from washing machines to motor cars, is likely to increase and thus consumer expenditure will also rise if the wealth is distributed among the population more evenly, of which there are signs," he adds.

And yet it will not all be plane sailing for those Gulf investors looking to make millions on the Mediterranean. For Libya to make the giant leap into the global market proper, there will have to be fundamental changes - and changes Qaddafi is unlikely to approve.

"We're still going to see blockages for investment in the country," warns Butter at the EIU.

"Within Libya outside of the oil and gas sector there's too much incoherence in the way the government is run for anything really to change. A lot of very basic projects have been held up for years, decades even, because of problems in getting funding approved.

"I think the mood has changed," he adds. "It's just been very slow to actually see any real reforms."

Of course, the key decision-maker remains Colonel Muammar Qaddafi.

And as evidenced by the cool reception afforded Condi Rice, an invitation to Libya does not always guarantee a warm welcome.

Libya is opening up - but Gulf firms will have to fight hard to gain access to the African state's most lucrative prizes.

Afriqiyah risingAfriqiyah Airways was founded in 2001, and last month began flying to Dubai for the first time. Based at Tripoli International Airport, the airline currently boasts a fleet of nine planes - but that figure is set to soar as Afriqiyah aims to carry one million passengers by the end of 2009.

"Our flights to Dubai started on 23rd of September, after we received our first long-range aircraft, an Airbus A319," says Khaled Sawese, commercial director at Afriqiyah Airways. "We anticipate it will be a very profitable route."

So much so, that the airline will take delivery of a new Airbus A330 in May - and dedicate it to the four-round-trips-a-week Dubai route.

"We will have flat-beds and video-on-demand, that will double our capacity on each flight," says Sawese. "We will also look to increase the frequency of our flights, if all goes as we hope.

"We are targeting both business and leisure passengers," he continues. "Many businessmen operate between Tripoli and Dubai, from small-scale to large-scale, and many families in Libya would like to visit Dubai to see it."

The carrier operates domestic services between Tripoli and Benghazi and international scheduled services to over 20 destinations in Europe, Africa and the Middle East. The airline expects to carry 655,000 passengers in 2008, and also has designs on routes to India.

"Our plan was to arrive in Dubai and then go to Bombay, but we have yet to make all the necessary arrangements for Bombay so we will start with Dubai," shrugs Sawese. "In the future we will go to Bombay and further.

"The government is encouraging Libyans to travel and to invest in partnerships with foreign companies in Tripoli," he adds.

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