ANALYSIS-Libyan liberalisation rests on shaky foundations

Reuters

Thu 6 Nov 2008, 10:22 GMT

By Tom Pfeiffer

TRIPOLI, Nov 6 (Reuters) - Four years after the United States lifted sanctions on Libya, advocates of a free market are locked in a struggle with powerful state apparatchiks to decide the country's future.

Leader Muammar Gaddafi has said the oil-rich north African OPEC member has no choice but to adapt to the global economy to preserve the benefits of the "Islamic Socialism" system he introduced after seizing power in 1969.

Restrictions on private capital have been eased and Libyans in cushy government jobs are being encouraged to retrain and set up businesses with the help of cheap state loans.

But local analysts say parts of the revolutionary, military and tribal elite, some of whom benefit from state monopolies, are resisting changes in education, health and utilities.

"There are still diehard socialists within the system and others with simple vested interests," said Sami Zaptia of Know Libya, a Tripoli-based business services firm.

"We may have to wait a generation before we can steam ahead with real economic reform," he added.

A visit to the Mediterranean capital Tripoli suggests some change is afoot.

The skyline is changing as new hotels spring up to cater for an influx of foreign businessmen drawn by the promise of lucrative contracts to upgrade ageing infrastructure.

The government says it aims to recruit 1 million foreign workers, including Bangladeshis and Sri Lankans, in the next five years to build homes, universities and roads.

Libya's leading champion of change is Gaddafi's son Saif al-Islam, who holds no official government position but proved his influence by taking a key role negotiating the country's emergence from diplomatic isolation.

The fact that Saif is outside government makes him a free agent, yet some experts also see that as a weakness.

"The fact that there is no official call for reforms is an obstacle," said political analyst and university professor Mustafa Fetouri.

"Officially, what we are doing is developing the country -- not because we are reforming, but because we are out of the boycott and the political complications with the West are behind us so we can pay attention to development," said Fetouri.


SKILLS FAILURE

Libyan-born academics and economists who have been encouraged to return from abroad to help shape their country's future seem daunted by the scale of the task.

Libya's universal education system has achieved better literacy levels in the population than other Maghreb states but they say it is failing to develop specialised skills.

Students might study accountancy or management for years but end up unable to work as accountants or managers.

An even greater challenge is to instil ambition, creativity and a work ethic in a population accustomed to receiving phantom state jobs, government advisers say.

An Economic Development Board has a target of training hundreds of entrepreneurs but insiders say early attempts have largely failed.

That's left some wondering who will work in the technology and business parks due to be built with mostly foreign labour.

Projects announced in recent years suggest Libya wants to replicate the success of Dubai, Qatar and Abu Dhabi, which have diversified oil-reliant economies by drawing foreign expertise to build free-trade zones, business services and new industries.

But foreign analysts say Libya needs to reform state institutions first.

"In those places there is some respect for the rule of law and a judiciary independent enough for foreign companies to feel confident putting capital there," said Geoff Porter, an analyst at Eurasia Group. "I don't think Libya has the same thing."


ONE MAN

Libyan liberalisers have a powerful champion in Saif al-Islam, whose influence, even outside government, is not disputed.

But he remains only one man, and uncertainty has clouded the outlook for change since he hinted in a speech on Aug. 20 that he would withdraw from an active political role.

"Whatever slant you put on it, I think this announcement was bad news," said Zaptia. "If we had a vibrant stock exchange, I think the market would have nose-dived that day."

Gaddafi, complaining about ineffective ministries and corrupt officials, said in March the government should hand oil wealth directly to the people so they can choose where to get basic services.

Experts say the government will probably avoid cash handouts and instead channel funds through an economic and social development fund that would give the poorest 1 million Libyans a share in wealth-generating assets.

The move could lead to a much bigger role for the private sector in health, insurance, education, utilities and housing.

But they say the plan, originally set for next year, could be delayed as it may be risky to enact a major restructuring of the administration in the middle of the global financial crisis.

And there remains scepticism in the country towards change that could throw old certainties into doubt, and some suspicion of the returning Libyan-born academics and their foreign colleagues who are trying to push through the changes.

"Many well-educated Libyans who lived in the country through the hard times are not happy with these 'imported' reformers being given key roles," said Fetouri. "These people are not actually accepted yet within the larger society." (Writing by Tom Pfeiffer; Editing by Jonathan Wright)