Libya’s Future: Two Steps Forward & One Step Back?

1. Libya’s Future: Two Steps Forward & One Step Back? Charles Gurdon Managing Director Menas Associates www.menas.co.uk 3rd April 2008

2. Menas Associates’ long Libya track-record • Menas was founded by two Libya specialists. In the 1960s and 1970s they did development planning and water studies, (and wrote Libya’s official encyclopaedia for its schools) • Menas was established in the late 1970s to work on the Libya-Tunisia offshore border dispute. This was followed by the border cases against Malta and Chad, plus commercial arbitration cases for NOC • In the past 20 years we’ve done a wide range of strategic risk and due diligence consultancy projects on Libya for dozens of multi-national clients • Libya Focus monthly e-publication started in 1998 • Libya Politics & Security weekly e-publication began after 9/11 • For free samples and information contact info@menas.co.uk Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

3. Two Steps Forward… New Policies for Libya’s Economy & Politics Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

4. Major positive changes since late 2003 • Decision to dismantle WMD programme • Lockerbie issue is largely resolved • Bulgarian medics case was resolved • United Nations and US sanctions have been lifted • Improved relations with West and particularly with Europe • Some political liberalisation after the 2006 Benghazi riots • Talks with, and possible release of some, jailed Islamists • Four reasonably successful EPSA IV licensing rounds • Saif al-Islam Qadhafi’s economic reform programme • Monitor Group / LSE / CERA brought in to plan the transformation • Foreign investment actively is welcomed and encouraged Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

5. Recent Economic Development • GDP has risen quickly & consistently since 2002 and annual growth has averaged 8%-9% - albeit from a low base. • ..but this growth is mainly due to record world oil prices and high demand for Libya’s light sweet crude oil. • Until 2006, Libya seemed to be falling into SheikhShakhbut’s (former Abu Dhabi ruler) style of rule – i.e. hoarding the oil revenues under the bed. • At that stage the Leader was keen to • save oil revenues for hard times ahead; and • minimise the impact of oil revenues on the wider economy • But these policies have now changed Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

6. New Attitude to Economic Development • Since late 2006, Colonel Qadhafi has performed a 180o turn. • The Leader now recognises the need for major economic restructuring • The incentives for this include the forthcoming 40th anniversary of his 1st September 1969 revolution in 2009 • Qadhafi wants strong visual evidence of Libya’s economic development and progress, including: • A building programme in Tripoli • The completion of housing & transportation projects • Increased oil production capacity (3 million b/d) • The direct allocation of oil revenues to the Libyan people, (possibly US$1000 per month equivalent per family) • A streamlining of the public administration & bureaucracy Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

7. New Economic Policies • To achieve these objectives it is now necessary that: • The economy runs in parallel with the new set of political institutions • The Libyan private sector takes root and expands • Devolution is the keyword: out of State hands and into the Private Sector (including Qadhafi’s own family) • Following the March 2008 GPC a special commission has been established to lay the foundations for the new political structure & signpost the way ahead. It will report back in early 2009 • The commission’s permanent members are: • Mabruq al-Shamak (chairman, former PM and currently deputy PM) • Mu’atassim Qadhafi (Leader’s 4th son) • Husni al-Henshri (GPC Sec for human rights; hard-line revolutionary) • Suleiman al Shahumi, (Secretary for External Affairs in the General People’s Congress) Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

8. Commission‘s likely effects • Real authority will probably rest with Mu’atassim supported by Henshri • Neither are known for their liberal attitudes • Possible built-in opportunity for revisionism, if the Leader chooses to return the status quo ante before the 2008 GPC • Therefore it is not so much a step backwards as a retreat from democracy or constitutional reform • It is note-worthy that Saif al-Islam is not part of the process Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

9. Political Evolution? • If proposed political evolution takes place it will be a painful experience: • Its mere suggestion has been enough to create uncertainty • The plans imply the transfer of all major services and administration to a new and inexperienced Libyan private sector, except • Security Services • Interior Ministry • Foreign Affairs • No-one in the civil service is safe from cutbacks & redundancies • Even the oil industry is not immune from change • This will require considerable materials and manpower resources Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

10. Effects in Reality • The Leadership’s capacity to create semblance of popular representation amongst the public is not to be underestimated • “Changes” may simply be a vehicle to maintain control and camouflage Libya’s status – i.e. ruled by a benign strong-man • The Leader is possibly playing for time in order to resolve internal problems including the succession issue • Even if the intentions for change are genuine, the Jamahiriya is very short of expertise • Consequently Libya could miss the opportunity for modernisation Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

11. …but One Step Back But Old Problems Remain Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

12. Simultaneous Political and Economic Upheaval • Simultaneous and fundamental revision of Libya’s economic system and major political changes is probably impossible. • The lack of planning and short time frame for change makes serious change seem less likely • Libya’s finite resource base and limited economic capacity to absorb new projects may be exposed in the ensuing chaos. • The shortage of, or sub-standard, skilled labour will become apparent in most areas of activity • While the new policies may initially be applied successfully, there could follow a period of comparative chaos, which would be a step back. Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

13. Implications for Business • There will be no immunity from the old problems of Libya’s weak capacity to absorb new projects • Supply constraints over labour & material inputs will be severe: • Political pressure and harassment are a likely consequence • Large operators such as the IOCs will not be immune to this but they will weather the storm • The small operators often have weaker political representation • They will find it hard to compete for scarce inputs and may be squeezed out of the market. Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

14. The Wider Context • Other issues - such as the declining living standards - will be ignored unless they become an immediate threat to the stability of the regime • Expediency will prevail, especially if Saif al-Islam is out of the frame • Is he being kept in reserve to act as a saviour if these plans for fundamental change go horribly wrong? Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

15. Conclusions • Libya is attempting a simultaneous shift towards a new economic orientation and a new political paradigm but the outcomes are very uncertain. • 2009 marks the Revolution’s 40th anniversary which carries real significance for Qadhafi. • The proposed constitutional changes and economic upheavals will probably make only limited progress and may simply be a veneer to camouflage old habits. • Despite appearing to be a step forward in two fields, Libya’s current modernisation programme suggests a step back to an earlier age, designed to underpin the regime’s security. • The Leader will retain full control over the Central Bank, Armed Forces, and Foreign Affairs. Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008

16. Thank you for your attention www.menas.co.uk Libya's Future: Two Steps Forward, One Step Back?; Charles Gurdon Menas Associates Ltd, Middle East Association, London, 3rd April 2008