Libya's once-strong economy stalls

Almost overnight, a new Libya replete with opportunities even under the oppressive rule of Moammar Gadhafi, has morphed into a country with an uncertain future.

Towering above the Libyan capital's coastline, the sleek silver Marriott Hotel opened three months ago as the latest symbol of the North African nation's oil-fueled investment boom. Ten days after its Feb. 15 opening, however, it shut its doors as mass unrest engulfed the country and quickly turned violent.

The 36-floor tower, built to host foreign investors in a time when hope of economic growth abounded in Libya, sits empty. Almost overnight, what had come to represent a new Libya, replete with opportunities even under the oppressive rule of Moammar Gadhafi, morphed into a symbol of the country's uncertain future.

This gas pump in the rebel city of Ajdabiyah, defaced with a caricature of Gadhafi, hints at the disdain average Libyans have for their leader's economic stewardship. ((Finbarr O'Reilly/Reuters))

It is going to be a long time before the Libyan economy can start recovering, said Parag Khanna, a senior fellow at the New America Foundation, a Washington-based think tank. He said any hopes to "turn the place into a new, sunny south of France" are now a long way off.

The popular uprising that erupted in February, and the subsequent battles between rebels and forces loyal to Gadhafi, brought to the fore the frustrations of ordinary Libyans demanding a better life. Those fighting Gadhafi said they want freedom, but also economic opportunities long elusive because of rampant patronage and nepotism.

After three months of fighting, Libya is roughly split into a rebel-controlled east and a Gadhafi-run west, with shifting frontlines and pockets of resistance against the regime in western Libya.

In the areas where Gadhafi remains in control, the economy has virtually come to a halt because of a toxic mix of sanctions and war.

Hundreds of thousands of foreign workers, once the backbone of the economy, have fled. International sanctions have dried up oil export revenues, or 80 per cent of the Libyan government's income, according to the CIA's World Factbook.

Libya, a nation that once produced about 1.6 million barrels per day of crude, is now pumping out a trickle of that volume. Meanwhile, a NATO-enforced no-fly zone and partial naval blockade have curtailed imports.

Even the few perks that Libyans enjoyed under Gadhafi's regime are fizzling.

Day-long gas lineups

Gas stations have become battle grounds, with the country's heavily-subsidized gasoline in such short supply that soldiers guard the pumps and motorists can wait for days for their turn to fill their gas tanks.

The shortages stem from both the sanctions and Libya's earlier policy of having configured refineries to produce more of the more profitable export products, like jet fuel, rather than gasoline, said Christopher Boucek of the Carnegie Endowment for International Peace.

But the troubles are equally visible throughout the economy.

Retail sales have dropped amid the uncertainty, and some shop owners in battle-scarred towns don't even bother to roll up their metal store shutters in the morning. The Libyan dinar is depreciating, with one dollar trading at 1.85 dinars on the black market, compared to the official 1.2 dinar per dollar exchange rate.

Prices for staples like noodles, tea and milk are up, and the cost of a pack of Marlboro cigarettes has doubled, a major irritant in a nation where smoking is commonplace. Inventories in shops have thinned, and those who live within driving distance to the Tunisian border stock up there.

Only few ships with clearly non-military cargo, such as rice, have docked in the port since March, while NATO vessels turn back those carrying dual-use goods such four-wheel-drive vehicles, said the head of the Libyan coast guard.

The exodus of foreign workers has brought construction to a standstill.

In Tripoli, idle cranes dot the skyline and deserted building sites stretch over several city blocks, while posters on the perimeter walls still advertise planned glass-fronted shopping malls and apartment towers.

This supermarket in Tripoli, shown to journalists on a guided government tour, is well-stocked. But reports from elsewhere in the country suggests that's not the case everywhere. ((Louafi Larb/Reuters))

The unraveling of the economy is perhaps as much a product of its shaky foundations as of the fighting. There are no official unemployment figures, but the CIA estimates it ran as high as 30 per cent in 2004. Some 75 per cent of food has to be imported. A politicized education system has failed to produce a skilled labour force, analysts say.

Gadhafi "spent so much oil money on Third World causes, on protecting himself," said Paul Sullivan of Georgetown University. "He wasn't taking care of his people."

The scenes are a stark contrast to the sense of optimism, at least among privileged Libyans and foreign investors, that had prevailed after Libya began five years ago to claw its way back from nearly two decades of international isolation and sanctions.

While they may sound a death knell for Gadhafi's 42-year rule of the country, it's unclear how soon the sanctions could erode his ability to stay in power. Gadhafi has weathered such sanctions before and he is not without resources.

Libya's assets abroad — about $120 billion US, according to Libyan Finance Minister Abdulhafi Zlitni — have been frozen, but the country has almost 144 tons of gold reserves, much of which is believed to be inside the country.

Contingency reserves "are going to last for quite some time," Zlitni said last month.

Unless Gadhafi has major stockpiles of hard currency, he will eventually run into trouble, experts say. The Libyan leader is said to have hired African mercenaries to bolster militias loyal to his sons and the regular armed forces.

Libyans, themselves, are loath to speak openly to foreign reporters in the western part of the country. Journalists there are routinely accompanied by government escorts and the prevailing fear of reprisals is enough to silence open criticism. But fitful glances speak louder than proclamations that everything is fine.

A 20-year-old trader from the Libyan coastal town of Sabratha said he used to import wares from Turkey and Syria for his clothing shop, but hasn't done so since February because the difficulties of travel and delivery. He crossed into neighbouring Tunisia with his 26-year-old travel companion, who said sales at his perfume and cosmetics shop have dropped 40 per cent. Both spoke on condition of anonymity for fear of reprisals.

Libyan business people faced similar problems when sanctions were first imposed in 1992 to force the handover of two Libyan intelligence agents wanted in the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland. The attack killed 270 people, most of them Americans.

"For most people, life was a grind," Georgetown's Sullivan said.

Gadhafi eventually complied and turned over the suspects, and by 2006 Libya was emerging from its sanctions-induced cocoon.

Foreign investment began pouring in, and with it hundreds of thousands of foreign workers who filled jobs Libyans weren't trained for or didn't want — from collecting garbage to building homes.

Years of underdevelopment had created a huge demand for housing and infrastructure, and annual construction fairs have attracted scores of foreign companies since 2008.

Even with the unrest, some companies remain eager to return and stake a spot in rebuilding.

Among them is South Korea's Shinhan, which was building 10,000 apartments with 2,500 South Korean workers in Libya. The company said it was waiting to get clearance from Seoul on when it could return.

At the 370-room Marriott, Libyan employees still water the lawn in anticipation of an eventual resumption of business.

"Once things settle down, we expect to operate the hotel," said June Farrell, a U.S.-based spokeswoman for the company. The Marriott's core customers were to be business travelers, "as the country was developing," and that hasn't changed, Farrell said.

"We expect it (the hotel) one day to be a pillar of the Tripoli business community," she said.