Libyan Investment Law: It has been proven that political development is a prerequisite for economic development. In other words, to stabilize a national economy, economic growth must be accompanied by political maturity. Political maturity, in turn, will attract external capital, which will stimulate the country’s development. The Soviet Union in its later stages provides an example. In the late 1980s, Mr. Gorbachev unveiled his reform program, known as “Perestroika,” which literally means “restructuring.”
Perestroika was declared without establishing a new political system that would go hand in hand with the economic restructuring to ensure social justice and equality of opportunity. Rather, the old Soviet political structure was maintained, with its overwhelming level of bureaucracy and lack of transparency.
Perestroika did not incorporate these basic tenets of good governance because it was primarily concerned with liberalizing the market. As a result, the Soviet political system failed to create a favorable environment for investment. Further, this is arguably the very same reason that led to the failure of the entire Soviet experience. Simply stated, a country must be politically stable, with its laws and decisions clearly defined and integrated, in order to succeed economically. In addition, it should have an independent, mature judicial system that responds and deals competently with the foreign investors complaints while safeguarding people’s rights.
The mere availability of capital, infrastructure, and investment opportunities does not guarantee stability. A country must provide tangible guarantees that ensure the maintenance of investors’ rights. Further, the announcement of the formulation and implementation of investment laws, as well as the designation of certain free trade areas, does not indicate the establishment of an investment environment or ensure the rights of the investor identified by the laws. One recurring legal challenge for investors is determining whether their counterparty qualifies as a state body or a commercial entity, an issue examined in our analysis of government entities under Libyan administrative law.
In 1975, a comparative economic study was published by the Organization of Economic Cooperation and Development OECD , An organization comprising the USA, Australia, and developed European countries. The study addressed the gap in economic growth between rich and poor nations and raised the question of whether this gap could be closed. The stuThe study’s main concern was: how many years would it take for Third World countries to catch up with the developed countries? The study’s authors chose to list the most developed nations of the Third World, as well as those that ranked lowest, including several Arab countries such as Libya, Saudi Arabia, Tunisia, Iraq and Syria. In addition, other countries listed were Singapore and China. Countries were rated on their economic growth between 1965 and 1974. Libya topped the list of Third World countries, with a growth rate of ,11.8%, followed by Saudi Arabia, with a growth rate of 11.6%, Singapore, 7.6%, Israel, 5.0%, Iraq, 4.4%, Turkey, 4.0%, while the economic growth of Malaysia and China was at 3.8%.
The study concluded that if Third World countries maintain the economic growth achieved in the previous period, they will be considered part of the 2 developed countries after a certain number of years. The study also concluded that Libya needed only two years to catch up with developed nations. The Kingdom of Saudi Arabia needed 14 years, Singapore needed 22 years, Israel needed 37 years, Iraq needed 223 years, Turkey needed 675 years, Malaysia needed 2293 years, while China needed 2900 years to catch up with developed countries.
Interestingly, the OECD study conducted in 1975 predicted that it would take 22 years for Singapore to join the ranks of developed countries. This prediction proved credible when the world recognized Singapore's admission to the advanced nations in 1997. Libya was not as fortunate.
Instead of maintaining the fiscal policies that would have sustained its level of economic growth at the time, the Libyan government decided to cancel the free economic system by abolishing all business licenses. Further measures by the Libyan government were to allow the government to control commercial and industrial activities, while preventing the private sector from practicing its commercial and industrial professions. As a result of the state-run economy, the atmosphere encouraged lackadaisical business practices and the institutionalization of bribery, as well as the constant looting of public funds. Instead of announcing Libya’s arrival at the level of first-world countries, Libya sank into a deep abyss of political, administrative, and economic corruption.
After many years of self-imposed economic isolationism, the former Libyan regime decided to open up to the outside world by announcing a wide array of investment opportunities across various fields. The response was well received by both Arab and foreign investors. Free Zones were identified, and laws were enacted that guaranteed most of the investor benefits, including tax exemptions and the transfer of profits abroad.
However, as with the Soviet experience, the former regime was intentionally not concerned with the establishment of a free political and economic system that ensures equal opportunities, fair competition, and reduced corruption. Rather, the regime used economic openness as an opportunity to grant close cronies the right to receive all the capital and business opportunities coming from abroad, and to use them for their own personal interests. Administrative corruption became rampant, and public funds were used unlawfully. These circumstances led to resentment of political oppression and economic deprivation, which culminated in the popular revolution that brought down the former regime.
After the Libyan people's victory over the old regime, the new Libyan leaders have begun to restore the country to the ranks of stable, politically sophisticated, constitutional countries. Because Libya remains a Third World country rich in natural resources, the use of foreign expertise is essential to its success. Foreign expertise and advanced technologies will be needed to help Libya exploit and market its natural resources and to develop its infrastructure. This is particularly relevant in strategic sectors such as renewable energy, where Libya possesses significant untapped potential. Such capital and expertise should be welcomed by the Libyans to operate within a well-defined framework of cooperation and mutual benefits.
As there is a current debate in Libya about how to attract foreign capital and technical expertise, there must be stronger administrative efforts than just legislation. Clear rules must be established for integration and for regulating the economic relationship between the country and foreign capital. All rules must take into consideration the legal rights of foreign investors. Also needed are laws that set out the procedures for open tendering to ensure the highest degree of transparency.
In conclusion, the relationship between a country that invites foreign capital and foreign investors should be based on transparency and the highest level of shared interests for both parties.
See also:
Identifying Government Entities under Libyan Administrative Law
Investing in Renewable Energy in Libya
