Libya: Country Briefing - Essay Example

Although political instability and the change of governance is oftentimes a key determinant in many firms seeking to establish themselves elsewhere for fear of losing key investments, there is also a strong impetus on the part of the would-be investor to seek to capitalize on such a situation to gain key resources that would otherwise be priced far out of reach of the would-be investor due to the pricing structure that a more secure and stabile political structure would provide (Northouse, 2010). For this very reason, this brief analysis will consider the case of Libya approximately 1 year after the death of longtime leader Muammar Gaddafi and the end of the Libyan Civil War that lasted from February of 2011 to October of 2011. Furthermore, the author will seek to draw practical inference with respect to a firm seeking to add a new venture within the nation of Libya. In order to accomplish such an analysis, the author will examine key practical information regarding the history, culture, recent events, currency stability, quality of life and best practices which could serve to give a new start up a key advantage in attempting to break into such a market. With respect to the topics that have been raised, this author will first consider the important factors of history and culture as they relate to the newly re-defined state of Libya. Prior to the deposition and murder of the longtime leader, Muammar Gaddafi had ruled Libya for a period of over 40 years. This fact in and of itself may not immediately appear to be important to the reader; however, the length of the rule combined with the rather hostile nature of the regime meant that very few if any foreign firms could operate within Libya. Rather, the very few outside firms that sought to do business in Libya had to meet a plethora of conditions and joint ownership by the “Peoples Jumahariya” (entities that loosely resembled people’s soviets) (Adler, 2008). Due to such a rigid set of metrics governing whether a firm could seek to gain entry into such a market, the result was that few foreign firms had either been interested in or able to develop a competitive advantage or turn a reasonable profit within the country. This history of course must be juxtaposed with the fact that after the Libyan Civil War, which concluded upon the death of Gaddafi near the end of October 2011, a form of representative parliament with an elected prime minister now exists. This change has meant that the laws of business have been changed to more fully coalesce and coincide with those that are exhibited throughout much of the rest of the world. Furthermore, due to the fact that Libya has a constitution for the first time since its existence as a state, there are strict rules associated with the ownership and use of private property; both by domestic citizens and foreign nationals interested in investing into the economy. Such a delineation of the rules associated with property ownership has meant that the Libyan nation has become infinitely more open to investment and business. However, due to the political instability that is evidenced by high rates of intra-militia conflict and tribal disputes, Libya still presents itself to be a large risk to the would-be investor. Similarly, with respect to the culture, Libya is of course a North African nation that is almost exclusively Islamic; with the exception of small pockets of Christians and an exceedingly small Jewish community. This Islamic heritage helps to provide a common culture between that of Egypt, Libya, Tunisia, and Algeria where an otherwise uniform tradition and culture would be quickly broken based upon key ethnic differences. However, the religion itself is a key asset to the region as it provides helpful/key linkages with neighbor states and a level of Arab unity that would otherwise most certainly not exist. Ethnically, as has been stated, Libya is predominately Arab with Bedouin tribes making up less than 20% of the total population. Similarly, as with the neighboring states, spoken and written language is that of Arabic. Libya itself is comprised of approximately 5.6 million people who are almost entirely along the Mediterranean Sea. Yet, it should be clarified that although the majority of the population can be considered Arab, it is nonetheless highly tribalized (CIA 2012). This is evidenced by the fact that nearly every city is governed by a different familial tribe that traces its ethnic and geographic roots in the region back many hundreds, even thousands, of years. This works at a specific disadvantage to a would-be investor due to the fact that this highly tribalized form of identity does not lend itself well to a sense of national identify. Furthermore, a lack of national identity on the macro level makes it exceedingly difficult for a business to gain entry into a market that cannot necessarily be described under the umbrella term of “Libyan”. Rather than there being one Libya in which a firm may seek to invest, there are in fact many hundreds of different Libyas that exist on the micro level. Additionally, as one can reasonably expect, the sparse population (as evidenced by the fact that only 5.6 million people inhabit the 17th largest nation on earth) is indicative of the fact that nearly 90% of the entire nation is covered by desert. For the would-be investor these facts all bear notice due to the fact that water resources are scarce even with such a low population (CIA, 2012). Although heavy manufacturing is well known to be heavily reliant on water resources, this is not the only form of business development that would suffer from Libya’s overall lack of potable water supplies. The Gaddafi government attempted to remedy such a situation by tapping into vast, ancient water aquifers under the Sahara desert. However, these will eventually run dry as they are a non-sustainable source of water. Once this occurs, the overall water supply problems that are indicative of Libya and other North African nations will only serve to be compounded. Although one might be tempted to assume that the overall wealth of the nation was severely hampered by the civil war that took place, one would be wrong in overstating the effect of the war on the ability of the nation to continue to generate revenue from both its oil and natural gas industries. Although it is true that the infrastructure of the nation experienced extreme damage as a result of NATOs aerial bombardment combined with the armed ground conflict between the Libyan rebels and the Gaddafi regime, great strides have been implemented to rapidly repair the damaged infrastructure and create a business friendly climate in which foreign investors can take courage in the quality of such services. Furthermore, one of the fastest repaired sectors of the Libyan economy has been the damage to the oil and gas extraction systems. Due to the fact that both sides were fighting for control of the country, both sides were also equally aware that no matter who the victor was to be, the oil and gas industries would continue to define the economic strength that the country would experience. As such, neither side (inclusive of NATO as it helped the Libyan rebels) sought to focus on any type of material damage to the oil and gas extraction mechanisms that were extant within the economy. This has meant that repair to these mechanisms and a return to normality post-war has severely lessened an otherwise painful recovery period that would have been experienced had a large degree of damage to these integral sectors been accomplished. The level of economic non-diversification that is exhibited in Libya currently should be something that would give the would-be investor pause with reference to seeking to establish a presence in the country (Bardy, Drew, & Kennedy, 2012). For instance, the oil and gas industry makes up nearly 40% of all total exports and GDP for the nation. As such, the price fluctuations of these commodity markets directly affect the performance of the overall economy. In this way, a foreign firm is oftentimes subject to the performance of these specific fields of export commodities to set the tone and tenor of how the domestic economy reacts to outside stimuli. Furthermore, the inability of the economy to diversify itself and provide a stable economic system means that the remainder of the economy (inclusive of any expansions that a would-be investor might be tangentially interested in) will likely suffer from the ebb and flow of commodity pricing more so than in a more diversified and storied economy. A further determinant the potential investor should be mindful of is the overall standard of living and quality of life that is exhibited within the country. Although Muammar Gaddafi was an autocratic dictator, one of his strongest qualities was that he built Libya from one of the poorest North African economies into the wealthiest during his 40 year rule. As such, Libya experienced a GDP per capita comparable to that of Spain and/or New Zealand as soon as the late 1980s. Naturally, as one might expect, this GDP per capita has been greatly reduced as a function of the reduced capacity of the Libyan economy to continue to produce and export oil and gas to such a high ratio as was experienced before the civil war. However, notwithstanding these facts, the quality of life in Libya remains much higher than in many other parts of North Africa or the African continent in general. The final determinant to economic stability and overall country analysis is the fact that the Libyan economy has recently began to operate under a new Libyan dinar. As with any currency change, this affects the exchange rates that were previously experienced within the old economy and the old currency. As such, the preceding information with respect to a change in the nation’s currency presents a fundamentally uncertain and seemingly unstable environment for any investor. Furthermore, there is a lot of disagreement within the new Libyan government with respect to the degree of Libyan foreign/external debt that will be honored by the new nation. As a way of understanding how this will instrumentally affect the currency situation, one need only imagine that Libya would be responsible for paying off large amounts of Gaddafi era debt in terms of their own domestic currency. One potential way to do this would be purposefully devalue their currency as a means of debt repayment. Although such a situation is not likely to occur, it is not beyond the realm of possibility and should be something that the potential investor keeps within their mind as a possible eventuality (Correia, 2012). Lastly, due to the factors that have been presented herein, it is the advice of this author that any would-be investor seek to engage the new Libyan economy in a highly cautious manner. Although great opportunities are likely to exist within the economy of a re-emergent Libya, the risks associated are equally high. For this reason as well as the host of other factors that have been mentioned, an interested investor or firm would likely best have their interests served by seeking to minimize their total exposure to risk within the factors herein listed by only allocating a small investment within the nation (Gichure, 2006). Rather than putting forward a high amount of capital for investment and development, a modest expansion or presence in the transitional nation would likely bet the best idea at the current juncture. Due to the fact that Libya is currently still a nation in development and attempting to regain its economic footing after the events of the Libyan Civil War, there remains a high degree of opportunity for would-be investors within the region. This high degree of potential is only tempered by the high degree of risk which exists as well. As this analysis has discussed a great degree of existential determinants on the future prospects that a business operation might find within the country, it has also discussed some of the key threats and drawbacks that would be experienced either directly or tangentially as well. References Adler, N. (2008).International Dimensions of Organizational Behavior. (5th ed ed.). Mason, OH: South-Western Cengage Learning. Bardy, R., Drew, S., & Kennedy, T. (2012). Foreign Investment and Ethics: How to Contribute to Social Responsibility by Doing Business in Less-Developed Countries. Journal Of Business Ethics, 106(3), 267-282. doi:10.1007/s10551-011-0994-7 CIA - The World Factbook. (2012, October 8). Central Intelligence Agency. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/ Correia, C. C. (2012). Capital budgeting practices in South Africa: A review. South African Journal Of Business Management, 43(2), 11-29. Gichure, C. (2006). Teaching Business Ethics in Africa: What Ethical Orientation? The Case of East and Central Africa. Journal Of Business Ethics, 63(1), 39-52. doi:10.1007/s10551-005-1129-9 Northouse, P. G. (2010). Leadership: Theory and Practice. Thousand Oaks, California: Sage Publications. Read More