Global Market Brief: Libya Plans for Economic Reform, Increased Tourism

5 MINS READJan 31, 2005 | 07:31 GMT
Libyan officials presented a package of economic reforms during the World Economic Forum in Davos, Switzerland, on Jan. 28. Tripoli is set to encourage development in the tourism sector — which has already generated interest from foreign corporations — and to make it the country's second-largest industry after oil and gas. The move is one that will greatly benefit Libya economically, especially if proceeds from tourism are not squandered. At present, Libya's tourism sector is practically nonexistent. More than a decade of sanctions enacted by the United States and European Union prevented direct travel and business dealings with the country, although the oil and gas industry — still only a shadow of its pre-sanctions self — was able to develop minimally through third-country involvement. In 2004, however, both the United States and the EU lifted travel and economic sanctions against Tripoli. Foreign corporations are extremely interested in developing Tripoli for travelers. Several European companies — including Italy's Gruppo Norman and the British company Ldorado — have signed deals worth hundreds of millions of dollars to develop Western-style resorts along Libya's Mediterranean coast. Gruppo Norman will invest $268 million to build a resort near Libya's border with Tunisia, while Ldorado will spend an estimated $2 billion to build four hotel complexes near the city of Tobruk. The construction arm of South Korea's Daewoo will also invest $100 million in a resort in Tripoli. A source at the U.S. Department of Commerce says several major U.S. hotel companies have expressed interest in building in Libya and are in the planning stages for similar resorts. Around 80 percent of Libya's population lives in a strip of land along the Mediterranean, and the coast is considered a prime location for resorts. One source with extensive business experience in Libya described the beaches as comparable to the Italian Riviera, and Greek and Roman ruins are prominent tourist attractions. Libya offers the added bonus of security; because it is a police state permeated by security forces at every level, crime, especially against Westerners, is nearly nonexistent. Libya is attractive for another reason: There are very few large, Western-style tourist resorts on North Africa's Mediterranean coast. Tunisia is already a popular destination for European tourists — of the 6 million visitors to Tunisia in 2004, more than half were Europeans. By comparison, only 350,000 tourists visited Libya in 2003. Libyan resorts might also be able to lure domestic travelers in search of a vacation — Tunisia received more than 1.1 million Libyan tourists in 2004. One area in which Libya will receive a boost from tourism is the development of its infrastructure. Much of Libya's infrastructure is a holdover from the Italian colonial era and has been updated very little since the 1960s, before Col. Moammar Gadhafi took power. Only Tripoli International Airport meets Western standards, and reconstruction of ports has been on pause for at least a decade after sanctions were implemented against the country. While roads are functional for the most part, there is no rail system — it was dismantled after World War II — and most visitors travel by domestic air carrier. Western-style resorts will bring demands for better roads, airports, ports and electrical service. Resort developers are likely to contribute a significant portion of the money needed to build roads connecting hotels to cities and travel hubs and a functional electrical system. Although development is likely to be limited to the areas surrounding resorts, it will nevertheless be aided by structural improvements being made simultaneously to airports and ports. For example, BAE Systems has signed a joint deal with the Libyan government to develop and upgrade Libyan airports, while other European firms are developing the ports at Sirte and Tripoli. With the development of tourism, Libya has the opportunity to add a significant amount to its gross domestic product (GDP). Libya's GDP is only about $20 billion (most of which comes from oil and gas); although estimates of revenue from tourism are not available, that figure could be upped by as much as 25 percent in just a few years. Egypt, a nearby country with a strong tourism sector (more than 7 million visitors in 2004), estimates that it will show revenue of $6.1 billion for 2004. Tunisia received $1.6 billion in revenue for the same year and Morocco had tourism revenue of $3.8 billion from its nearly 5 million visitors. All of Libya's tax revenues flow directly into Tripoli. In the past, that meant tax revenues from tourism and other industries flowed directly into the hands of the Gadhafi family, but with the opening up of the country there will be international scrutiny and likewise more accountability for where its money goes. So, Libya has a second potential cash cow — after the energy industry — in tourism. Included in the reform package offered in Davos is a plan to liberalize the economy in hopes of making it more competitive with others in the Middle East and North Africa. If the Libyan government uses the tourism revenues wisely, it will be able to reinvest in other industries like manufacturing and telecommunications and widen the opportunities for economic growth — and perhaps become financially able to upgrade such things as the country's aged infrastructure.

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