A new Libya is possible, but it needs economic reform

Libya should be one of the most prosperous countries in the Mediterranean. It has Africa’s largest proven oil reserves, around 48 billion barrels, a relatively small population, and an enviable geographical position between Europe and Africa's rapidly growing markets.

Yet for many Libyans, the reality is very different. Living standards are under pressure, public services struggle to function, and young people increasingly look abroad for opportunities.

It is tempting to blame all this on the political turmoil that has engulfed Libya since 2011. Political division certainly makes the situation worse. But the roots of Libya’s economic problems go deeper.

For decades, the country has operated an economic model built on an overwhelming dependence on oil revenues and a political economy initially introduced by Muammar Gaddafi in the 1970s, when he nationalised private businesses and greatly expanded the state's role in the economy.

Libya has never properly reformed that model. It now needs to take steps to create a more modern, liberalised, Western-style economy.

Meanwhile, Libya remains heavily dependent on oil for its income, and equally reliant on imports. Despite its extraordinary oil reserves, years of political conflict, blockades and underinvestment have constrained production and investment. This leaves the country dangerously exposed to oil price fluctuations.

The consequences of perpetuating this economic model are particularly serious for younger Libyans. The state has invested in educating doctors, engineers and other professionals, only for many to conclude that their prospects are better overseas.

Libya is losing precisely the skills it needs to build a more productive economy in a 'brain drain'.

There is no easy solution. Libya will eventually have to confront the need for economic reform, including encouraging private enterprise. The real choice is whether that transition is carefully managed or whether an economic crisis eventually forces change on the country.

That cannot happen without political change. Libya’s competing governments and institutions did not create the underlying economic model, but they make reforming it more difficult. Tough decisions require institutions capable of making them and, crucially, carrying them through.

Greater decentralisation should be part of the answer too. Libya is a vast country. Trying to manage its political and economic life almost entirely from the centre has failed. Municipalities should have greater responsibility for decisions affecting their own areas.

Diversification is also essential. Libya has clear opportunities to extract more value from oil through refining and related industries, though it needs to be realistic about where its advantages lie. Water scarcity limits the potential for large-scale agriculture, while a small domestic market constrains some forms of manufacturing.

The greatest opportunity, however, may be trade. Libya sits in the centre of the Mediterranean, immediately south of Europe and on the northern edge of a continent of more than 1.5 billion people. Free trade zones along its borders with its North African and Sahel neighbours could encourage investment, commerce and employment.

Libya could become an important trading and logistics hub connecting Africa and Europe.

A more prosperous Libya could also provide employment for workers from neighbouring countries, support regional economies through wage remittances, and help address some of the economic pressures driving irregular migration towards Europe.

With a credible government, greater transparency and economic reform, Libya could look dramatically different within five years. The alternative is to keep managing decline until the existing system can no longer sustain itself.

Libya has the resources to become one of the Mediterranean’s new economic success stories. What it truly needs now is the political will and structures to use them properly.

Hamza M Bait Elmal is a diplomat and economist from Libya.

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