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Libya’s challenge

The performance of the Libyan oil industry over the past few weeks confirmed yet again the strategic significance of the industry and demonstrated once more that local problems could have worldwide implications.

Because of security problems and workers’ demands, oil industry facilities became an area and field of struggle and contention used by each to advance their cause, or what they perceive as their right cause. 
Such measures included closing down terminals and even production facilities that led eventually to reducing Libyan output from the peak of 1.6 million barrels per day (bpd) to as little as less than 200,000 bpd earlier this month.
Unlike the Iraqi oil industry, its Libyan counterpart did not take long to recover reaching the same level it used to have before toppling the country’s leader Muammar Qaddafi. 
However, the political and security instability led to deterioration of production volume to the extent that the country started to lose some $135 million a day and the finance ministry started to consider seriously tapping its foreign reserves to cater for the shortfall of revenues that have negative on the $54 billion budget.
With the growing sense of instability in the Middle East region, the decline of the Libyan production started to have its impact on world prices helped in pushing various benchmarks to high levels. However, with the return of the oil production to some 40 percent of its volume following the resumption of operations in both Al-Sharara and El-Fil oilfields with a combined output of 420.000 bpd by the end of last week. 
That improvement helped directly in softening the price level in addition of course to diminishing chances of a military strike against Syria.
Yet it remains to be seen the long-term impact of the political and security instability on the future of the Libyan oil industry. 
Given its huge reserves, the good quality of its crude and its proximity to consumer markets, Libya represents all the time some kind of a prize that various oil major and independent companies were keen to maintain their presence there or have access to the country’s industry.
Events of the past few weeks have led some foreign companies to reconsider their presence or shelve long term plans to increase their investments and even some like the US Conoco-Philips is looking for an exit, while others started to look for a more secure investment opportunity as the case of the Swedish firm OMV, which bought out a Norwegian Statoil interest in the North Sea for $2.7 billion. Whether this trend will accelerate or not depends to a large extent on the political and security stability.
However, the real challenge facing Libya is how to put the needed foundation and create the suitable environment that allows for the budding private sector to mushroom. 
Like all other oil producing countries, Libya is facing the tough job of diversifying its economic base. A quick survey points to areas of services and tourism as the potential sectors that can really provide good investment opportunities.
But more important than that is how to help create an entrepreneurship culture that allows for the mushrooming of businessmen, their projects and professional contribution. 
One of the biggest hurdles to overcome is the entrenched centralization mentality well maintained by the previous regime.
Oil revenues were used to consolidate that grip and that was made easy given the smaller size of the Libyan population to the extent that Qaddafi was joking sometimes it would be easier for him to keep people in their homes and simply distribute money to them.
That brings to the fore the issue of how to utilize the oil money and whether to follow the typical Dutch Disease, or what is known as oil curse. 
The small size of the population provides an opportunity in terms of fewer pressures to provide services and job opportunities.
The need to create a political system that accommodates all other forces and at the same time enable the business to flourish through an active private sector is the real challenge and looks the only way forward for future Libya. 
The way ahead will be more bumpy than easy as it involves the typical learning the hard way, not from a text book. But it is worth trying.

Article by Alsir Sidahmed,  Arab News.

This article was originally published here.

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