So:
Libya, officially the Great Socialist People's Libyan Arab Jamahiriya, possesses a deeply ingrained oil economy, inflicting the nation with an almost curse of oil: cash wealth, specialized industry and a one way economy. Rising nationalist tendencies put into political structure by the original independence movement, altered, reconstructed and affirmed yet again in Muammar al-Qadhafi’s revolution set the stage for statist tendencies; Libya has nationalized the majority of its oil companies, only recently attempting to renew many world trade affiliations and awarding international, primarily US, companies exploration licenses (Vandewalle, “A History of Modern Libya”, xxvii). This resurgence of international trade and reemergence of privatization follows and occurs with the period of “Infitah” and “Consumer Infitah”, economic liberalization outlined in former Prime Minister Shukri Ghanem’s economic reform policies advocated during a General People’s Congress meeting in 2005 (Vandewalle, “A History of Modern Libya”, 191-192) based on past successes. This reform of Libyan economic policies takes center stage, becoming the main crisis Libya faces in the coming years as its oil economy has proven to be a hazard to infrastructure and citizens. As a result, the chains of oil and Libya’s plans for breaking them have come to define Libya, its economy, and their direction into the future.
Libya’s modern history begins with the breaking off of Italian colonialism. As World War II ended, Italy began to lose its grasp over Libya, with Britain pushing for Italy to recognize Libya’s independence. A constitution was drafted and adopted in October 1951, with a constitutional monarchy headed by King Idris I coming into power on December 24th, 1951 (Vandewalle, “Libya Since Independence”, xxiii). From the start Idris tried to promote a more unified Libya, but found the provincial ties of the citizens to their homelands (the three traditional divisions of Libya into Tripolitania, the Fezzan, and Cyrenaica) overpowering. Idris adopted a pro-Western foreign policy, relying on the United Nations Technical Board for a technical aid program that “emphasized the development of agriculture and education” (Libya: A Country Study, 38). Around the same time, Libya signed an agreement with the United States to give military base rights to the US in return for economic aid. This created the Wheelus Air Force Base installation, located at a strategic point near Tripoli.
It was in June 1959 that oil was first struck in Libya. Esso, now Exxon, found petroleum deposits in Cyrenaica with more discoveries following afterward. This provided a near immediate economic boom, “initiated by concession holders who returned 50 percent of their profits to the Libyan government in taxes” (Libya: A Country Study 39). 1963 heralded a new movement for nationalism, with the federal form of government replaced by a dominant central government with a monarch. Libya was enjoying a profitable portion of its life span, but as Arab nationalist tensions heated up around them, more and more Libyans took sides. This culminated in a strong reaction the June 1967 war between Israel and Arabian nations (Libya: A Country Study 40). As a nation, Libya supported Arab goals, but did not do much to promote them. Idris became alienated by his populace; his provincial dedication to Cyrenaica lost him points in the other provinces, while his lack of true support for Arab interests put him out of touch with citizens.
King Idris I lost his throne in a peaceful coup on September 1, 1969 headed by the Free Officers Movement, who were controlled by the Revolutionary Command Council (RCC) (Libya: A Country Study 42). The RCC was largely headed by Muammar Al-Qadhafi, who was quickly promoted to Colonel and commander in chief of the Libyan Armed Forces, and in early 1970 he became official head of the RCC as well as head of state. Soon, nationalization begins to occur in the name of socialism; Qadhafi and the RCC say they are acting in the best interests of equality and the nation, promoting nationalism to realize their socialist agenda. Oil companies begin being taking over by the state in 1970, when major laws come out concerning how oil companies must operate. Concurrently, the RCC’s anti-western agenda calls for the evacuation of US and British military bases in Libya, notably the Wheelus Airforce base. Qadhafi soon announces the creation of the Popular Congresses, followed shortly by the creation of the Arab Socialist Union. More and more personal liberties are taken away as the regime reinforces its power, including abolishment of the rights to stroke and to join political parties outside the single party, as well nationalization of more and more private businesses such as insurance, health and education. By the end of 1973, 51% of all foreign oil companies in Libya had been nationalized, and Libya had declared an embargo with the United States over its support of Israel (Vandewalle, “A History of Modern Libya”, xvii-xviii).
General People’s Congress (GPC) gained control over Libya with the abolishment of the Arab Socialist Union in 1976. The following year Libya is added to a list of potential enemies of the United States, hurting its foreign relations as Libya’s nationalization ran full speed; The RCC and GPC eliminate all private property in 1977. Libya’s Arab support grows as it forms a bond with Syria, accepting all Arab citizens and making Arab passports. In 1982, the United States places an embargo of all goods to Libya save food and medicine, finalized in 1986 with the halting of all Libyan exports and industrial/commercial contracts. The first period of Infitah was planned to combat this loss of foreign trade and support; almost immediately after a period of intense nationalization, privatization comes into vogue again due to a liberal economy being simply necessary to continue survival. The private sector was revitalized in a speech by Qadhafi celebrating the anniversary of the revolution (Vandewalle, “A History of Modern Libya”, xxii-xxv).
The coming two decades are a period of economic decline for Libya; Infitah works, but the revitalization is hardly enough to support an economy based almost solely around oil. Qadhafi remains popular among his people save for few minor, isolated rebellions. Libya’s international status declined more and more, with the UN Security Council boycotting commercial flights into Libya in light of Pan Am Flight 103. Libya’s reluctance to allow any investigation also caused more UN sanctions to be placed upon it in 1994, finally suspending most sanctions in 1998 after handing over the Lockerbie suspects. The early 2000’s brought the suspension of most embargos and sanctions by nations, particularly the United States, as nations rethought their evaluation of the nation. By 2005, the US had lifted all of its sanctions, and was even handed multiple new exploration contracts for oil.
Libya, despite its history, has proven to be somewhat stable, at least in macroeconomic indicators. It boasts a 58.33 billion US dollar GDP in 2007 (Libya at a Glance), with a $10,335 (PPP) GDP per capita in 2005 (UNDP Human Development Reports). Its GDP growth rate is steady, hovering around 6% in the period of 2005-2007 (Libya at a Glance). UNDP Human Development Reports indicate Libya to be middling to good in terms of human life standards, with a 13.6 poverty index, a 4.6% death rate before 40, and an 84.2% literacy rate. The macroeconomic standards are largely due to oil, however, with El-Kikhia noting that “less than twenty percent of the GDP is independent of oil and the oil sector” (92).
Oil has shaped nearly the entire development of Libya; while not the precursor for political revolution, it has brought on numerous economic changes in policy and infrastructure. From first being found by Esso in 1959, oil has been a primary monetary contribution to the economy. Originally, companies with concessions paid 50% of profits to the Libyan government. Discovery and exploitation of oil turned Libya into an independently wealthy, with access to its method of creating wealth. The money was earmarked used for extensive development of industry, but this money went first to the development of oil. Over time, this extensive redevelopment in oil left it the only modern and relatively advanced industry (Libya: A Country Study 136-141).
From 1961 to 1988, noticeably starting just a few years after the discovery of oil, Lybia’s agricultural industry declined from a total growth rate of 7.5% to 3.1% and per capita growth going from 3.4% to -0.6%. A slight rebound of agriculture occurred in the early 90’s, with production evening out to a middling 4.6% total growth (El-Kikhia, 95). Over almost three decades, Libya allowed for a major decline of one its most important industries. This is not to say that oil has proven to be unstable as a funding source, rather other standards of infrastructure have fallen. Oil production capability is repeatedly modernized and kept up to date, with expansion planned to increase oil production capabilities from 1.8 million bbl/d to 3 million bbl/d by 2010-2013 (Energy Information Administration Brief, 2). Libya is cash rich while developmentally poor (El-Kikhia), with profits coming from exporting 1.525 million bbl/d to countries such as Libya (38%), Germany (19%), Spain (8%) and now the US (7%) (Energy Information Administration Brief, 3) as well as revenues from nationalized oil companies and taxes on foreign now being allowed back in. Libya is a natural location for such high production and well-built infrastructure however, holding 39.1 billion barrels in reserves with a possible 8 billion left to be found (World Bank Economic Report, 13) as well as having incredibly accessible oil fields, with the best being able to extract oil for just a dollar a barrel (Energy Information Administration Brief, 4).
This almost blind focus on oil has crippled every other form of industry. El-Kikhia presents the decimation of Libyan industry as the result of the misuse and mismanagement of taxes and oil money, describing the Libyan economy to be “that of an import-based, parasitic rentier state, where domestic industrial production is insignificant” (92). Despite efforts by the government to buy up industrial plants, more and more are shutting down or simply never became active under Libyan control. This leaves citizens unable to purchase even basic commodities, and left without water routinely due to lack of any distribution or routing methods. Somewhat strangely, despite its decline but eventual mild return in the face of oil, agriculture remains untouched by Qadhafi’s regime. Qadhafi himself is the cause of this, due to “realizing the failure of his former agricultural policy…merely stating that ‘land belongs to God and anyone plowing it should benefit from its fruits’” (El-Kikhia, 93).
This policy of less government intervention has gained acceptance multiple times in Libya history, often under the guise of Infitah. Moving away from the initial socialist themes of Qadhafi’s regime, Infitah called for a new liberalization of the economy, put into effect several times in Libyan history. This created both economic and political reforms, with a market system creating a class structure between citizens in a hypothetical liberalized market placed. Vandewalle, in his A History of Modern Libya, summarizes the Infitah challenge, and that of Libyan economic liberalization as a whole, as representing
…a fourfold challenge to the regime: a need to create new institutions to regulate better and make economic transactions more transparent, to reform institutions whose primary goal often focused on simply distributing revenues gathered by the state, to introduce markets and competition for resources, and, finally, to contain whatever political fall-out the three previous sets of measures might entail (163).
If able to get past these challenges, Libya and its people may be able to throw off their dependence on oil due to a revitalization of the private sector. Most of the focus of the Infitah would go to supporting new private sector initiatives while cutting state spending through the devaluation of subsidies (Vandewalle, “A History of Modern Libya”, 163).
The Infitah program came about as oil exports came and declined and Libya faced an economic crisis. Originally, Libya had to figure out how it would distribute its newfound wealth as a nation. Oil booms came in 1973 and 1979, causing large amounts of cash to flow in from concessions. Libya chose to spend this money in the form of distribution to people and politics as opposed to setting up institutions within Libya to stabilize its infrastructure going into the future (Vandewalle, “A History of Modern Libya”, 162). Despite this fallacy of the future, Libya seemed to see itself as unable to run out of money, with even stagnant periods still bringing in money to the government and its officials and created state jobs for the people. The economy itself was inefficient, however, producing at miserable quantities and worker’s productivity being near null. Their internal economic problems were exacerbated by US unilateral sanctions instituted by Reagan which cut oil export profits and starting to bright to light what falling oil profits could do to the Libyan economy. The US sanctions are also proposed by Vandewalle to have forced Libya to “conclude deals with economic partners, particularly in the oil industry, it would normally have eschewed” (“A History of Modern Libya”, 153). These problems led into the need for reform, both politically and economically.
Infitah came primarily in two waves, one during the period of 1987 to 1990, and another in the 1990’s that gradually became generally accepted Libyan economic policy. The original wave came as a shock, with state run industry being the norm all across the nation. By lifting bans on retail sales and cutting worker subsidies, however, Libya produced “wage-earners” who opened their own businesses or found work in them. The government set aside its monopolies, attempting to stand by its policies (Vandewalle, “A History of Modern Libya”, 164). These reforms created the initial effects of liberalization: opening businesses and making the private sector seem profitable and alluring. Notably, the already untouched by the state agriculture industry even grew during this period, most likely a result of new markets for goods beginning to form and the country growing as an economic whole in a new path.
The second period of Infitah followed the example of the first, capitalizing on the small but sure revitalization that seemed to be occurring. Qadhafi himself spoke for this, arguing “public for a clear distinction between the private sector and the state…he suggested the closing of unprofitable state enterprises, the imposition of higher fees for state-provided services like water and electricity, and a reduction of the number of state employees” (Vandewalle, “A History of Modern Libya”, 164). Taking the burden off the state in terms of enterprise allows for profits to be distributed through a market system as opposed to simply being distributed at the government’s whims. In effect, industry was allowed to go through the reemergence of privatization and the Infitah in general.
Banks provided an interesting contradiction throughout the Infitah. For the most part, they had no actual funds, only being supported by the government. The banks’ management was told to loan to fund enterprise, effectively causing privatization to occur at the state’s expense. This situation had no great effect on the Infitah outside of the traditional role of banks in enterprise as lenders, but does provide an interesting microcosm of the initial wave of Infitah in general, “a hesitating, newly created private sector was allowed to provide and distribute what the state through its inefficient distribution system…could not deliver to Libyan citizens” (Vandewalle, “A History of Modern Libya”, 166). The economic revolution was put in the hands of the people, but enforced by government; this is not socialism, but it fits in the revolution’s ideal of letting Libya’s people shape their nation.
This is not to say that Infitah is a catch-all for Libya’s problems. Libya’s black market is crippling, with cheap electronics items being smuggled in to be sold at incredibly high prices, and government-run stores “where enterprising individuals buy goods and electronics at subsidized prices and sell them for what the market can bear” (El-Kikhia, 96). Foreign workers with permits also tend to take advantage of exchange rates, changing their dinars to dollars for massive profits. Foreign labor in general is hazardous to Libya, even outside the black market, due to over half the nation’s work-force being foreign. This leads to individuals only in Libya to supplement black market earnings, as well as Libyan citizens who cannot get jobs opened by the Infitah (El-Kikhia, 99). Rising costs to Libyan citizens due to such export and foreign swindles has many not being able to make ends meet, despite being above the poverty line. El-Kikhia sees this partly as the fault of the citizen’s, saying “Libyans do not want to work” due to years of government handouts and subsidies. Foreign labor is also described as “docile” and “well-paid”, and notes that the government even cuts into citizen’s production as “all Libyans above the age of eighteen and under the age of fifty-six have to comply when ordered to be at a certain place at a certain time” (103).
Economic reform is occurring once again in Libya, with Qadhafi in 2005 announcing a wide-spread and inclusive reform program. The time since Qadhafi took power has been filled with economic woes and various reform policies, none of which seemed to entirely alleviate the curse of oil. This new reform is in the shape of Infitah, but now with a new banner: consumer Infitah. The earlier periods of Infitah may have been successful at economic revitalization during their times, but did not structurally change the nation as much as could have been hoped. The ideal of consumer Infitah is the by-product of these previous reforms: the consumer is given the task of liberalization, and told to work in a market as best as possible. After nearly two decades of this, it is well ingrained in the mind of the Libyan consumer (Vandewalle, “A History of Modern Libya”, 192). In spirit, the Infitah is still occurring, still working to reform the economy in the vision of liberalization. This new reform, however, works to promote the role of the state as the sustainer of an economy; Libya will no longer let its people simply be, but it will not destroy the private sector. The government will become an institution of privatization, helping along the way to provide at least a structure to the, somewhat newly, privatized nation.
The biggest challenge remaining has been the constant challenge for Qadhafi: how to break the oil hold. For two decades, his Infitah has worked to try to reform the nation in a newly industrial form. Still, however, his mistakes along the way have been bought out by oil money, and still the average people are poor and without motivation to work. Libya will not cease being an oil producer in the near future, its reserves still incredible and oil still the main source of its GDP, but it will attempt to build up for a time when those reserves run dry. With the government as an institution now backing reform, this change seems more possible than ever, especially with world sanctions finally being lifted. Libya, should it follow the path it is attempting to set for itself, stands to become an industrial nation with an oil funded past. The Infitah set the stage, and now the actor’s in the government, in the people, and in the industry must play their part.
James Taylor
April 29, 2009
Libya: History, Oil and Infitah Works Cited
El-Kikhia, Mansour. Libya's Qaddafi: The Politics of Contradiction. Gainesville: University Press of Florida, 1997.
Energy Information Administation. “Libya.” Country Analysis Briefs. July 2007. 29 April 2009.
Federal Research Division. Libya: A Country Study. United States Government Printing Office, Washington D.C., 1989.
UNDP Human Development Reports. “2007/2008 Human Development Report.” 2008. 29 April 2009.
Vandewalle, Dirk. A History of Modern Libya. New York: Cambridge University Press, 2006.
Vandewalle, Dirk. Libya Since Independence: Oil and State-Building. Ithaca: Cornell University Press, 1998.
The World Bank Group. “Libya at a glance.” World Bank Reports. 9 Sept. 2008. 29 April 2009.
The World Bank Group. “Socialist People’s Libyan Arab Jamahiriya Country Economic Report.” World Bank Reports. July 2006. 29 April 2009.
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