Huge infrastructure development plans, a young, growing population and innovative ideas for tourism make Libya one of the world's fastest-growing new markets. Elizabeth Broomhall looks at the risks and opportunities in the country.
As football fans direct their attention to the south of the African continent, shrewd investors and business people around the globe are, this year, focusing on its north. One country in particular, for all its previous issues of sanctions and conflict, is now emerging as one of the most competitive markets in the world for construction contract wins.
Libya, with its colossal infrastructure requirements, house-building plans and generous tourism investment programme, is one emerging market that no GCC contractor can afford to ignore. Only recently, the government outlined its proposals to plough US $100 billion into infrastructure and housing in the next four years, with a view to revamping what it now calls ‘the gateway to Africa'. Shortly afterwards, a UK Trade and Investment study ranked the North African oil exporter as the fourth most attractive country in the world for companies to do business, between 2012 and 2014.
Evidently, this is what years of under-investment will do to a country, Libya having only properly restored its diplomatic ties with the West and opened up its market to international investors in the last five years. Subject to a number of economic sanctions by the US since as far back as the 1980s, not to mention UN sanctions from 1992, following the Lockerbie bombing, the country has been effectively cast-out of the development rat-race and allowed to slip into a period of stasis for more than three decades.
It wasn't until 2003 that Libya accepted responsibility for the Scotland bombing and agreed to compensate the victim's families, and only in 2004 that Libya mended its friendship with the US after Colonel Qadhafi decided to relinquish Libya's weapons development programme. By 2005, Libya was finally ready to do business again.
Today, back on the business map, Libya is offering huge opportunities for contractors, developers, consultants and suppliers from all around the world. Possessing the second highest gas and the third highest oil reserves in the whole of Africa, the country has a huge amount of foreign currency stores and plenty of available funds.
"The country is in a state of transition," says Tawfiq Abu Soud, executive director of Drake and Scull Water and Power division, which is currently trying break into the Libyan market. "This creates significant opportunities across most sectors, the priority ones being building and construction, transport and communications, water and environment and power and electricity."
Likewise, WSP's general manager for the Libya region, Markus Eek, says: "Libya is presently undergoing a comprehensive upgrading of general infrastructure including roads, rail, airports, harbours and housing, hence, there are a lot of opportunities in the civil engineering sector."
Interestingly, the sheer size and number of projects lined up for Libya are not the only factors that make it attractive. Again stemming from its lengthy lack of investment, an additional appeal is the high demand for specialist skills in sustainability - an area which international developers and contractors are well-versed in - as well as a strong desire to boost economic cooperation. Having withstood the economic downturn where many other countries did not, Libya's market is particularly tempting to construction contractors who have experienced cashflow and payment problems, providing a safe haven for those looking to escape less secure economies. And where companies are looking to expand beyond the GCC region, Libya may also act as a springboard into other African markets.
But perhaps the best thing about Libya is the opportunities for GCC companies specifically. Possessing a strong portfolio of projects in the aviation, transport and energy sectors, Middle East contractors and developers are in a good position to bid for these priority government contracts. With substantial experience in high-rise buildings, property and the general ‘sprucing up' of cities, they are equally well placed to contribute to the architectural overhaul required by Libya's increasingly young and student population - 50% of which are under the age of 20.
"At the moment there is a lot of infrastructure going on, but there are more and more towers being built in the centre of Tripoli, and tourism is one of the areas that Libya will be putting effort into soon," says Herve Hamelin, General Manager of Aconex Europe and Africa, which provides project collaboration software. "People are starting to realise that Libya has massive potential." Executives from UK firm SECBE, who advise companies on how to break into Libya, second this argument, citing ‘multiple hotels and resorts' currently being planned for the country's Mediterranean coastline.
These things, alongside positive Libyan-GCC relations, language and cultural similarities, as well as the fact that the UAE alone has already invested AED3.67 billion into the country, will be significant in driving a strong GCC presence across the North African region.
"In general the GCC construction sector has a higher awareness of ‘time is money', and a more modern approach to building execution," says a support manager for Doka North Africa, which has been present in Libya since 2007. "With sound Middle East knowledge, there are no totally unknown proceedings that cannot be dealt with."
No GCC company can deny however, that an abundance of difficult challenges during the initial phases of moving into a new market, are inevitable. Even international firm Jotun paints, a company used to moving into foreign markets, which has now started building a factory in Libya, found it tough. "It was not easy to penetrate the market in Libya, as it has a different cultural and business environment from the rest of the MENA region," said Ibrahim Amer, general manager of Jotun Libya. "Libya was not part of the globalisation process that changed and improved business environments everywhere."
Speaking about the market in comparison to other regions, he adds: "Libya is growing faster than the GCC at the moment, and the opportunities are higher, but the business environment is far less developed. There is still a long way to go to reach the level of development in the GCC. It is very similar to Algeria in this sense."
Problems related to the business environment in Libya have been identified by a number of GCC companies. While the country has a limited private sector, most firms in Libya are yet to have their own websites (the internet being a fairly new phenomenon) and there very few publicly announced projects. Credit cards are rarely used or accepted, telephones are unreliable and there are limited street names. There is also no public transport, marketing is done face-to-face rather than through advertising, and quality hotel space, according to Doka's support manager, is hard to come by. He says: "Compared to the UAE, especially Dubai, there is quite a difference in terms of comfort of living, availability, quality of infrastructure, and accommodation standards."
Probably less surprising is the sheer amount of bureaucracy and administration involved for foreign contractors and investors trying to move into Libya. As well as impacting on the developments themselves, causing delays and sometimes project cancellations, the link between politics and business and the complexity of the legal and tax systems, makes it difficult to do such things as register a business branch, import goods and materials, employ staff and manage taxation. "Libya has its own processes and procedures which are different to the West and UAE," says Hamelin. "It has its own rules which do not match people's experiences in the UK, France or Dubai."
More specifically, Eek says that getting a visa can be particularly difficult. "Visa is one major issue that all foreign countries have to deal with. It takes a lot of time and the rules tend to change pretty quickly."
Tawfiq Abu Soud from Drake and Scull, which is yet to win a project in Libya, refers to the issues around project tendering and goods importing. "The entire pre-tender process is very involved and time consuming, with much re-registration required for all the main government work providers. Importing of materials can be slow with frequent hold up of customs procedures and difficulties understanding tax laws, foreign trade and currency."
But according to solicitor Peter Morris from Systech Solicitors, one of the biggest barriers to market entry, regardless of the company and even the market itself, is the legal system. "With the current state of the construction industry in Dubai, many contractors are looking to expand their businesses into new international markets. Whilst this is clearly a prudent move, it could turn out to be a nightmare if a company doesn't do its research first. It pays dividends to spend some time first researching the legal framework of the target country to avoid potential pitfalls and unforeseen costs - which can mean the difference between success and failure."
He adds: "Only too often have ill-informed companies set off down the process of establishment abroad only to find they have been caught up by a legal issue that wraps them up in expensive litigation for years and destroys their profit, and in some instances, their company."
Across the board, experts suggest that one of the best ways to ensure this doesn't happen is to partner with a local firm. "The majority of countries require licensing of businesses that wish to operate in their country and the setting up of either a branch of the foreign company or as a local company," says Morris. "As with the UAE, there will often be a requirement to enter into a sponsorship agreement with a local partner or to establish a corporate vehicle in which a local partner must own a 51% share or more."
Other firms cite the importance of spending time in Libya, networking with the locals and making contacts in order to facilitate access to its unique market. "Contractors have to be prepared to invest time and money in multiple visits to the country, both to develop relationships and to find the right partners to work with," says John Ellis, the business development director from SECBE. "Wasted time can be spent not dealing with the right people."
Eek agrees. "Libya is a country where connections are very important indeed. It is slightly complicated for ‘beginners' knowing who is who in the jungle of clients."
Hamelin is of a similar view. "We [Aconex] have been in Libya for two years now, and have a team of about 15 people there. The first thing we thought important was to get local people to help with Libyan processes. In Libya, networking is very important."
For some companies, staffing in Libya has presented additional problems. Doka is one of them. Whilst well established in Libya today, one of its projects being the Burj Bulayla Tower in the capital Tripoli, the company found initial recruitment to be a challenge. "The process of performance and selection is difficult," says the Doka representative. "There are no recruitment agencies, and nearly all the common workforce in construction and service-related sectors comes from outside and neighbouring countries in the Middle and Far East. The sometimes quite fast-changing immigration laws also add an edge to mid-term staff planning."
On the contrary, Jotun says the problems are more related to getting technical, high-quality staff. "At the beginning we counted on Jotun employees from Egypt but now we are hiring local staff, and this is not a big challenge. 90% of the organisation are now Libyans and developing very well. What are not available locally are high-level and technical employees."
Overriding the challenges, the general consensus of advice from established and bidding firms is not to give up. Indeed, with demand only set to increase in the future, ultimately, the Libyan market can only offer huge opportunities for the GCC construction sector.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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