The April 1999 handover of the two Libyan suspects in the 1988 Pan Am 103 bombing, to be tried before a Scottish court seated in the Netherlands, is perceived by many, including most European powers, as a major turning point in Libya's relations with the rest of the world. But this is not the only positive foreign-policy action undertaken by President Muammar Qadhafi since April 1999. He has also paid compensation to the family of Yvonne Fletcher, the British police officer killed by gunfire from the Libyan embassy in London in 1984, and reportedly paid France $33 million in compensation for the UTA French plane shot down over Chad in 1989.1 Thus, Qadhafi has addressed the three outstanding demands of the U.N. Security Council resolutions for the lifting of the international sanctions on Libya. The result has been the suspension of the U.N. sanctions since April, although the United States has maintained its own unilateral sanctions on that country. Why has Qadhafi changed his policy now, after seven years of resisting all forms of international pressure? I postulate the thesis that the two suspects were handed over and the other concessions and reparations were made this year for two reasons. First, Qadhafi had the domestic political situation in Libya well under control, having silenced most of his opposition. Second, the economic situation was deteriorating rapidly, due primarily to plummeting oil prices, which reached $10 a barrel at one point at the end of 1998, threatening the survival of the Libyan regime. Qadhafi, therefore, no longer feared the domestic political repercussions of handing over the two suspects. He did, however, fear the repercussions of the rapidly deteriorating economic situation and needed to open up the system in order to attract foreign capital.
POLITICAL DIMENSIONS OF THE PROBLEM
Since the mid-1990s Qadhafi had been battling Islamists in a little-publicized conflict that, while not as violent, bore a marked resemblance to the one raging in neighboring Algeria. Many of those militant groups had been founded in the 1990s, perhaps inspired by their Algerian and Egyptian counterparts. They included Al-Takfir wa al-Hijra (Apostasy and Migration), Al-Tabligh (the Warning), Harakat al-Shuhada al-Islamiya (the Martyrs' Islamic Movement) and al-Jamaa al-Islamiya al-Muqatila (the Fighting Islamic Group).2
Throughout the nineties these groups were active in Libya and abroad, publishing material that discredited the Libyan government and attempting to destabilize the regime. There were numerous reported incidents in Libya of assassinations, attacks on military posts, and ambushes of government dignitaries attributed to or claimed by militant Islamist organizations. The Fighting Islamic Group claimed a number of operations inside Libya since 1995, including a May 1997 attack on a military post, when it reportedly seized 100 machine guns. The Martyrs' Islamic Movement claimed its members attacked some security posts in Benghazi in February 1997, killing a number of security officers. It also claimed to have attempted to assassinate Qadhafi in June 1998. 3
It was not only the Islamists who were threatening the Qadhafi regime during the nineties; the army was also disgruntled. In 1993, a military group headed by a colonel reportedly attempted to assassinate Qadhafi in Bani Walid, 100 miles southeast of Tripoli. The plot failed; 1500 people were arrested and hundreds killed. The reasons for the attempted military coup are many, including the perennial annoyance of unpaid salaries, the cutting of officers' perks and overseas training, cuts in weaponry purchases and the consequent loss of operational capability, and the continuous rotation of top officers from one unit to another to undermine group loyalty.4
In the nineties as in the eighties, Qadhafi faced opposition from two other sources, the tribes -principally in Cyrenaica - and the ideological parties and movements operating primarily outside the country. Throughout the 1990s, there were reports of tribal uprisings quelled by government security forces. Members of the Warfalla tribe, for instance, were accused of a 1993 attempt to overthrow the regime. Eight members were executed in January 1997, while five others were given long prison sentences for allegedly being spies.5
The "secular" opposition such as the National Front for the Salvation of Libya, which operates primarily outside Libya, is still perceived as a threat to the regime. It was, however. much more active in the 1980s than in the 1990s, when it seemed to be torn by internal divisions and discord and when some of its members joined the Islamist opposition. Other threats to the regime included incidents not necessarily linked to an organized opposition, like a prison mutiny in 1996 and a display of public discontent at a soccer game in Tripoli that same year, when spectators chanted anti-Qadhafi slogans. Both were forcefully put down.6
What has changed since 1998? It is clear that Qadhafi has cracked down severely on the opposition and has succeeded, at least on the domestic front, to repress it. He has recently admitted as much. In comments to Al-Hayat newspaper in August 1999, Qadhafi acknowledged apparently for the first time, that there had been an Islamist opposition in Libya. He described it as a movement of young people who had been trained and paid by Americans to fight the Russians in Afghanistan and who, on their return to Libya, had resumed their destructive habits. But, he added, "This group was finished easily and quickly."7 The Economist reported at the end of October 1999 that Libyan security forces had checkpoints every 20 kilometers along the main roads of Jabal al-Akhdar in Cyrenaica and the city of Benghazi. Scorched hills around the city are evidence, according to locals, of the fierce fighting that has taken place between government forces and Islamist guerrillas since 1996. According to the Economist. even today opponents of the regime admit that armed resistance has "dwindled to the odd shootout between policemen and diehard insurgents hiding in the hills."8
Human-rights organizations and State Department reports decry the repressive measures used to put down insurrections and muzzle opposition. These include "extrajudicial, arbitrary or summary executions"9 as in the case of the Warfalla tribal leaders; arbitrary arrests and long detention without trial, such as the arrest of 100 professionals in Benghazi and other major cities in June 1998 on suspicion of supporting the Libyan Jamaa Islamiya; systematic torture and inhumane treatment of prisoners; abduction or elimination of political dissidents such as Mansour Kikhya, who was kidnapped in Cairo in 1993 after attending a meeting in Washington, DC of Libyan opposition groups.10
The Libyan government has also passed a set of very broad laws that increase the rights of the state over individuals, groups and communities. Such laws include the 1994 Purge Law to fight corruption, which allows the state to crack down on private businesses, confiscate ''excessive" private assets and '"redistribute" them to the poor. Another law stipulates the death penalty for those whose "life endangers or corrupts socie ty."11 A 1996 law applies the death penalty to those who speculate in foreign currency, food or clothing when the country is in a state of war or blockade. A March 1997 collective punishment law entitled the "Charter of Honor" allows for the punishment of "any group, whether large or small" that sympathizes, harbors, protects or in any way aids "criminals," a term that could mean practically anyone the state disapproves of. This law permits the punishment of whole tribes, villages or even towns suspected of harboring a so-called "criminal" by cutting their access to water, food, fuel, electricity, telephone lines and other basic utilities.
Through all these mechanisms, Qadhafi succeeded in silencing most of his domestic opposition. He therefore no longer had to fear political fallout from turning over to the Scottish authorities the two suspects, one of whom was a member of the Megariha tribe, a mainstay of his power. As long as he did not have the political situation under control (as was the case between 1992-1998), he feared that surrendering the two men would be viewed in Libya as an act of cowardice, of caving in to international pressure, and would give fuel to his opponents' claims as they attempted to overthrow his regime.
THE ECONOMIC DIMENSION
Qadhafi may have had the domestic political situation under control by the end of 1998, but certainly not the economic one, since Libya's economy depends primarily on revenues from the oil sector, and those revenues are based on global market prices over which Qadhafi has no control. By the end of 1998 and early 1999, oil prices plummeted to $10 a barrel at one point. The impact was devastating. IMF figures suggest that Libya's export income in 1998 plunged to $5.7 billion down from $9 billion in 199712; and some U.S. government reports estimate that in 1998 GDP growth rate was minus 1 percent.13 The year 1999 did not seem any more promising than 1998 (although, of course, has changed), and the U.N. sanctions were making all goods more expensive to buy, especially as Libya is completely dependent for its basic needs on the outside market and imports about 75 percent of its food. Since a lot of the dissatisfaction in Libya is based on economics - unpaid salaries, decreased education, health and housing subsidies (mandated by the fall in revenues), cuts in army officers' perks, shortage of basic goods - the deteriorating situation (following the plummeting oil prices) could have seriously aggravated the political situation. It was, therefore, imperative for Qadhafi that the sanctions be lifted so that the prices of consumer goods would fall and foreign capital return to revitalize the ailing . economy.
Once Qadhafi had handed over the two suspects and settled the French and British claims, the U.N. sanctions were suspended. This immediately led to a burst of economic activity, primarily with Europe, but also with the Middle East, Russia and Asia. Qadhafi invited foreign investors to come in, and they began to flock to Libya in large numbers. According to foreign diplomats living in Libya, the sanctions were a great excuse for everything in the economy that was not working. IMF reports put inflation at 15 to 20 percent and unemployment at 20 to 30 percent.14 The government has managed real its oil sector prudently and has resumed paying state salaries, but it has delayed some projects and held up payments to this foreign companies (including South Korean, Egyptian and Turkish contractors). It has an estimated foreign debt of $4-5 billion, of which $2.5 billion is owed to Russia for arms purchases. Its foreign reserves are estimated at $4-4.5 billion and do not include substantial assets frozen in the United States. This picture is not too grim, and the rise in the price of oil this year will certainly boost the economy.15 Since the U.N. sanctions were suspended last April, Libya has been active in promoting its image as a place that is good for business. In Tripoli in early September 1999, the Libyan minister of economy and trade, Abd al-Hafidh Zlitini, talking at the opening session of a symposium on "Prospects for International Investment and Trade in Libya," stated that Libya needed to invest $35 billion between the years 2001 and 2005 to reach the target of an annual growth rate of 5 percent a year (the growth rate of its neighbors Egypt and Tunisia). He added that 60 to 70 percent of that money would come from public funds, the rest would come from local and foreign investors. He then delineated how those funds would be used: $6 billion for the hydrocarbon sector, $6 billion for the power sector and $8 billion for the water sector. The rest would be spread out over other sectors, such as telecommunications and transport. Zlitini added that the total investment needed for the next 20 years would be an estimated $150 billion.16 These are figures that attract foreign business.
In fact, the Libyan government has been actively planning these developments for a while and is moving quickly. Its National Oil Corporation (NOC) has designated 80 onshore and offshore blocks as open areas for international oil companies to explore under Exploration Production Sharing Agreements (EPSA). In early November 1999, it awarded a European consortium of oil companies an EPSA for a new block called M4 covering an area of 12,300 square kilometers. A Saudi private oil firm, Nimir Petroleum Co. Ltd, started drilling operations in a shared Tunisian-Libyan offshore oil block in the Gulf of Gabes in August 1999. Tunisia and Libya had already done business with Nimir Petroleum and the consortium to which it belongs, including Petronas of Malaysia. 17
Other developments related to the hydrocarbon ·sector include the signing of a contract with an energy and communications technology firm, Nessco, to install a fiber-optics system that would link the Zueitina command center with oil and liquefied-petroleum gas plants across northern Libya. The project should lead to the development of a full telecommunications infrastructure and allow Zueitina to monitor power-generation systems throughout the northern region of the country.18
Libya's NOC and the Russian company Zarubezhneftegazstroy reportedly signed a contract in October to build a branch of the Khums-Tripoli gas pipeline in Libya. This is part of a very ambitious project to build a system of pipelines to cover the whole country linking Libya to Egypt and Tunisia. 19
In October 1999, Libya and Russia resumed military-technical cooperation. Russia may now export up to $500 million worth of armaments and military equipment to Libya, a sale which would have been prohibited under the previous U.N. sanctions.20 Earlier this summer, a Libyan delegation visited Russia and China to discuss contracts to rebuild the country's transport infrastructure. Libya appeared interested in buying some Russian aircraft for the national airline and include the Chinese in the very ambitious project of building a national rail way.21
As early as May 1998, Libya put out tenders to build a multibillion-dollar railway network that would link Libya's easternmost town of Um Saad on the Egyptian border with its westernmost town of Ras Jadir on the Tunisian border. The railway would also have an axis linking Al-Hisha in the north to Sabha in the south, stopping at Libya's southern mines and its northern Masrata iron and steel complex. A French company has reportedly been awarded a $20-million contract to build part of the infrastructure needed for this project, and an Egyptian company signed a multimillion dollar contract to build a tranche of the railway. 22 The ultimate ambition is to link up all the national railways in North Africa in a network extending from Morocco to Egypt.
With respect to transportation, Airbus Industrie announced in October 1999 that Libya was planning to buy 24 of its single aisle, widebodied planes. Libyan Airlines has been grounded for so long that it is unable to provide international flights. Aviation experts say it could be two years before the airline can resume full international operations, as the whole sector needs to be revamped including airports, pilot training, equipment, etc.23
Another sector of the economy that Libya intends to develop is tourism. For the first time since Qadhafi came to power 30 years ago, Libya is advertising its hidden treasures, trying to bring in tourists to visit its Phoenician, Roman and Byzantine ruins, its prehistoric cave engravings and its magnificent beaches. However, according to some reports only two of Libya's hotels and a half dozen restaurants meet Western standards. There are few souvenir shops, no alcoholic beverages (served legally, that is), and no organized packaged tours. Despite this, in 1996 there were reportedly 88,000 tourists, mostly from Europe, who apparently like to rough it. The Libyan government is inviting foreign investment to develop its tourist infrastructure.
Over the years, Libya has invested abroad in an attempt to increase its revenues beyond the hydrocarbon sector. One of the places it has invested most in has been Italy. It bought thousands of gas stations in the 1980s and 1990s and stocks in many Italian companies. This trend has accelerated since the suspension of the sanctions. In September, Libya made a formal request to boost its stake in Banco di Roma, Italy's fifth most important bank, from 5 percent to at least IO percent and appears to have the support of the chairman of the bank, Cesare Geronzi. Libya is also seeking to become an important shareholder in ENI, Italy's largest oil and gas company. The Libyan Arab Foreign Investment Company (LAFICO) has indicated that Libya is also interested in increasing its holdings in FIAT, Italy's largest car manufacturer.24 Libyan-Italian ties were reinforced in October when the first board meeting of the Libyan-Italian Joint Stock Company took place in Tripoli. It has a capitalization of about $28 million, half paid by each partner, and a Libyan president, Rejeb Misellati, a former member of FIAT's board of directors, and an Italian deputy president, Mario Barone. The latter is also a deputy president of the Arab-Italian Bank, which specializes in funding Italian companies that are awarded contracts from Arab countries, particularly Libya. This joint stock company is described as a "junction box" for all the business transactions and investments that develop along the Rome-Tripoli axis."25
Italy is thus ensuring that contracts will be awarded to Italy and that, when new business opportunities in Libya arise, Italian companies will be the first to know. In fact, the Milan-based weekly Famiglia Christiana reporting on this new joint-stock company, lists the various sectors in which Italian companies can invest in Libya: "the construction industry, road building, the fertilization of desert areas, the establishment of the textile industry, the manufacture of machine tools and the building up of foreign mass tourism..."26 It also states that there are three Alitalia flights a week from Rome to Tripoli, and another three from Milan, all solidly booked.
These are examples of some of the business Libya is doing with various international partners. The British have resumed diplomatic relations with Libya and there have been British trade missions to Libya, starting in July, which included such respectable companies as Lloyds Bank, and Tate and Lyle.27 And the French are not far behind. Egyptians and Tunisians have been doing business with Libya throughout the seven years of sanctions and have certainly benefited from the business that came their way during those lean years. Morocco is resuming trade with Libya, in the expectation that Libya will provide Morocco with $100 million worth of crude oil and be repaid in goods rather than currency, a barter deal that appears to satisfy both sides.
CONCLUSION
What are Libya's economic prospects? Will the handing over of the two suspects achieve Qadhafi's goal of stabilizing the domestic situation? The November 1999 issue of the Economist Intelligence Unit (EIU) in its business outlook on Libya predicts that the suspension of the sanctions should begin to ease the bottlenecks in various sectors of the economy. The EIU expects foreign investment to provide momentum for faster growth, and real GDP growth to reach 5 percent in both 2000 and 2001. The Libyan government has also said it would pass a new petroleum law this year, a measure that would certainly attract new foreign investments in that sector. Finally, EIU anticipates that the current-account deficit will fall from $2.2 billion in 1998 to $350 million in 2000 and rise again to $688 million in 2001.28 The suspension of the sanctions should also make imported goods cheaper and easier to get, making life easier for the average Libyan. On the other hand, if the government decides to devalue the dinar once again 29 the price of consumer goods will increase. Although beneficial to the economy in the long run, a devaluation will hurt the Libyan consumer in the immediate future and create some problems for Qadhafi domestically.
Overall, however, the lifting of the sanctions and the opening up of the Libyan economy may prove to be the panacea Qadhafi has been searching for to strengthen his regime and lower the level of discontent in Libya. The model he may want to adopt for the new millennium is one that has worked elsewhere in the region: a relatively open economic system steered by a politically repressive regime.
Finally, although it is always risky to attempt to predict Qadhafi's behavior, he does seem intent to build a solid relationship with the European Union. He would like to see Libya included in any multilateral agreement between the European Union and the Maghreb and is willing to pay the price, even if that means flinging Libya's doors wide open to capitalist ventures.
1 Alistair Lyon, "Airbus Deal to Revive Crippled Libyan Airline," Reuters from Cairo, October 8, 1999.
2 On this topic see my chapter "Political and Economic Developments in Libya in the 1990s", in Yahya Zoubir, ed., North Africa in Transition: State, Society, and Economic Transformation in the 1990s, (Gainesville, FL: University Press of Florida, 1999.)
3 Associated Press from Cairo, August 28, 1999.
4 See Deeb, "Political and Economic Developments in Libya."
5 U.S. Department of State, "Libya Country Profile on Human Rights Practices for 1998," released by the Bureau of Democracy, Human Rights, and Labor, February 26, 1999, p.6.
6 Ibid.
7 Quoted in the Associated Press from Cairo, August 28, 1999.
8 The Economist, 30th October 1999.
9 U.N. Report of the Human Rights Committee, concluding observations at its 1720th meeting, November 2, 1998.
10 Ibid.
11 Ibid.
12 Alistair Lyon, "Oil Price Rise gives Libya Temporary Respite," Reuters from Tripoli, September 10, 1999.
13 U.S. Government, CIA, World Factbook 1999,"Libya". www.odci.gov/cia/publications/factbook/ly.html.
14 I have some doubts about the unemployment figures because of Libya's large foreign work force.
15 Lyon, "Oil Price Rise."
16 Reuters from Tunis, September 2, 1999.
17 Abdelaziz Barrouhi, "Petronas, Saudi Nimir Drill in Tunisia/Libya Oil Block", Reuters from Tunis, August 16, 1999.
18 "Libya Business Update", North Africa Journal, Tunis, October 22, 1999.
19 "Russia/Libya Sign Agreement on Pipeline," North Africa Journal, Algiers, October 26, 1999.
20 North Africa Journal, October 22, 1999.
21 BBC World Service, June 15, 1999.
22 Abdelaziz Barrouhi, "Libya in Railway Network Project," Arabia Business, May 30, 1998.
23 Lyon, "Airbus Deal."
24 Bloomberg report based on article in Corriere della Sera, September 13, 1999.
25 Ibid.
26 Silvano Guidi, "Tripoli a Wonderful Land for Business," in Milan Famiglia Christiana, 11 October 1999 ( in Italian).
27 BBC News, July 2, 1999.
28 Economist Intelligence Unit, "Business Outlook - Libya", November 3, 1999.
29 The Libyan dinar was devalued by 16 percent at the end of 1998, to LD .45 to $1.
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