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DE RUEHTRO #0039/01 0141732
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P 141732Z JAN 10
FM AMEMBASSY TRIPOLI
TO RUEHC/SECSTATE WASHDC PRIORITY 5683
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHTRO/AMEMBASSY TRIPOLI 6235

UNCLAS SECTION 01 OF 10 TRIPOLI 000039 
 
SIPDIS 
 
STATE FOR EEB/IFD/OIA AND NEA/MAG; STATE PASS USTR (BURKHEAD); 
LONDON AND PARIS FOR NEA WATCHERS; USDOC FOR ITA/MAC/ONE (MASON), ADVOCACY CENTER, AND CLDP (TEJTEL, TALAAT); CAIRO FOR TREASURY 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD KTDB LY EPET OPIC PREL USTR ECIN
EINV 
SUBJECT: LIBYA: INVESTMENT CLIMATE STATEMENT 
 
REF: STATE 124006 
 
TRIPOLI 00000039  001.2 OF 010 
 
 
INDICATORS FOR LIBYA: 
 
¶1.  Indicators: 
Transparency International: Libya is ranked 130 on the 
Corruption Perceptions Index. 
Heritage Foundation: Economic Freedom Ranking: 171 
World Bank Doing Business: Libya is not ranked 
Millennium Challenge Corporation: Libya is not ranked 
 
OPENNESS TO FOREIGN INVESTMENT 
 
¶2. In recent years, Libya has taken a number of steps to 
encourage foreign direct investment, with its current initiative 
dating back to the mid-1990s. Since that time, Libya enacted 
numerous laws and regulations intended to improve the Libyan 
business climate and increase its attractiveness to foreign 
investment. This effort has been modestly successful; foreign 
companies are returning to do business, and Libya has been able 
to draw substantial interest from foreign investors, 
particularly since the lifting of UN sanctions in 2003. This has 
included billions of dollars in investment in Libya's energy 
sector. Libya has also embarked on vast new development 
projects, including plans to spend 150 billion Libyan dinar (LD) 
(approximately US $123.4 billion) on public works, much of it in 
infrastructure and housing, over the next five years. 
 
¶3. Through Law No. 5 (1997), "Encouragement of Investment 
Decision," the government attempted to diversify its 
hydrocarbons-dependent economy, encourage technical training of 
Libyan nationals and enhance regional development. Sectors 
targeted under this law include - but are not limited to - 
agriculture, industry, tourism, services and health. The 
provisions of Law No. 5 attempt to lower the tax and customs fee 
burdens on qualifying companies. Under the law, imported 
machinery, tools, and other capital equipment are exempt from 
all customs duties and taxes; any equipment, spare parts, or 
primary materials needed for the project operation are exempt 
for a period of five years; the affected project is exempt from 
income tax on its activities for a period of five years from the 
date of the commencement of production or work; goods directed 
for export are exempt from excise tax and from the fees and 
taxes imposed on exports; stamp duty tax on commercial documents 
are exempt; and finally, profits from a project will enjoy the 
same exemption if reinvested. A 2006 General People's Congress 
(GPC) amendment to Law No. 5 lowered a 50 million Libyan dinar 
(approximately US $41 million) floor on investments qualifying 
under the law to LD 5 million (approximately US $4.13 million) 
(LD 2 million if 50% or more of the project is owned by Libyans). 
 
¶4. The Libyan Foreign Investment Board (LFIB) was created as the 
implementing agency for Law No. 5. The LFIB was replaced in 2009 
by a similar organization, known as the Privatization and 
Investment Board (PIB).  This organization's mission is to 
oversee and regulate foreign investment in Libya's aging and 
obsolete industrial base, which is characterized by an absence 
of national industrial planning, obsolete technology, poor 
management, shoddy maintenance, slow restructuring and 
over-employment.  The function of the PIB is essentially to 
serve as the screening mechanism for foreign direct investment. 
While PIB's mandate theoretically includes investment-promotion, 
its activity is generally limited to processing foreign 
investment inquiries, except those related to tourism or the 
Misurata Free Zone. (Note: Applications for investment in those 
sectors should be directed to the Tourism Committee and the Free 
Zone Authority, respectively. End note.) This organization aims 
to be a "one-stop shop," assisting with issues related to 
customs and immigration, taxes, and labor for those companies 
entering under Law No. 5. PIB approval is required for a broad 
array of operational issues for projects undertaken under Law 
No. 5, including the disposal of imported materials, transfers 
of investment capital outside of Libya at project completion, 
and employment of foreigners when qualified Libyans cannot be 
hired. 
 
¶5. Libyan legal requirements on foreign companies present 
challenges with respect to operational activities. Non-Libyans 
cannot, as a rule, own land. (Note: A provision of Law No. 5 
does allow for foreign rental and ownership of land for project 
work, although this has not been widely observed in practice. 
End note.) "National Treatment" provisions do not exist for 
foreign investors. The local content requirement is such that 
foreign companies must hire a number of Libyans to at least 
match the number of expatriates on staff. In the oil sector, 
Libyans put forward for employment with foreign companies often 
 
TRIPOLI 00000039  002.2 OF 010 
 
 
lack formal qualifications or applicable practical experience, 
leaving companies to either invest a considerable amount of 
resources on extensive training and mentoring or to pay 
employees who do not contribute to the company's productivity. 
 
¶6. The promulgation of Law 443 on November 14, 2006, 
fundamentally changed the way that foreign businesses in the oil 
services, construction, industry, electricity, communications, 
transportation, agribusiness and marine sectors can structure 
themselves and operate in Libya. Among other measures, new 
foreign entrants seeking to establish themselves in these 
sectors of the Libyan market are required to establish joint 
venture companies with a Libyan entity. Law 443 liberalized the 
strictures of earlier regulations by allowing foreign companies 
to retain up to 65% ownership of these entities. The law does 
not apply to representative offices (which do not have the right 
to conduct negotiations or enter into contracts), and to 
entities formed under Law 5 of 1997 or Law 7 of 2004 (governing 
tourism projects). 
 
¶7. Some political screening of foreign investment takes place, 
and the political equities significantly influence decisions on 
government procurement.  In 2007, senior Libyan officials made 
public statements directly linking successful foreign bids on 
development projects to the health of bilateral political 
relations. There is also strong evidence that large government 
and quasi-government tenders are awarded for political reasons, 
often in tacit exchange for deals perceived to demonstrate 
Libya's return to the international community. Similarly, large 
tenders are withheld when political relations are not perceived 
to be positive. This has a trickle-down effect on private sector 
business transactions, which can be made more difficult by 
Libyan government interference.  The Committee for Audit and 
Oversight reviews all contracts involving government funding, 
and exercises considerable influence over the political vetting 
of foreign companies seeking to enter the Libyan market. 
 
¶8. Foreign firms are subject to special taxation arrangements, 
including the Stamp Tax, which places a special tax of 0.5-3 
percent on the value of items procured by foreign firms in 
Libya, and the Jihad Tax, which applies a 4 percent tax on 
corporate profits. Corporate tax rates are subject to 
interpretation, and are often a matter of negotiation between 
the company and Libyan tax authorities, particularly for larger 
companies/projects. Law No. 5 (1997) does provide some tax 
benefits for companies conducting work in Libya that falls under 
its terms, but requirements to receive these benefits are not 
clearly defined in the law. Furthermore, several standard forms 
of tax relief are not provided, resulting in high withholdings 
and income taxes. 
 
¶9. The government began a program of privatizations of 360 
state-owned enterprises in 2004, a process that is ongoing. 
Although foreign entities are allowed to participate, they must 
do so under local rules, which include employment protections 
for Libyan workers and divesting shares to a wide number of 
individual owners (with a preference for Libyans). 
 
CONVERSION AND TRANSFER POLICIES 
 
¶10. From February 1999 to December 2001, Libya maintained a dual 
exchange rate, with the official rate pegged to a Special 
Drawing Right (SDR) at the rate of 1LD=.608 SDRs. State import 
agencies effected transactions using the official rate. Since 
2001, the Libyan Dinar has been unofficially pegged to the U.S. 
Dollar (allowed to float within a specified band). With a 50% 
devaluation of the official rate in 2002, the two rates were 
effectively unified. A further 15% devaluation took place in 
June of 2003. In June of the same year, Libya agreed to the 
terms of IMF Article IV consultations, which called for, among 
other things, advanced import requirements and an end to the 15% 
exchange tax and subsidy. 
 
¶11. Individuals with residence permits are permitted to hold 
foreign currency in Libyan accounts. Non-residents working in 
Libya may open domestic accounts in which to hold earnings. 
Central Bank approval is required for all other credits to 
non-resident accounts. Per-transaction withdrawals are limited 
to 5,000 USD in cash and 10,000 USD in travelers' checks (Note: 
Traveler's checks are not widely accepted in Libya. End Note). 
 
¶12. The right to open an account in a convertible currency in a 
Libyan commercial bank is provided for companies entering Libya 
under Law No. 5. The Libyan Banking Law (Law No. 1 of 2005) 
allows any Libyan person or entity to retain foreign exchange 
 
TRIPOLI 00000039  003.2 OF 010 
 
 
and conduct exchanges in that currency. Libyan commercial banks 
are allowed to open accounts in foreign exchange and conduct 
cash payments and transfers (including abroad) in foreign 
currency. Commercial banks operating in Libya may grant credit 
in foreign exchange and transact in foreign exchange among 
themselves. Entities engaging in foreign exchange must be 
licensed by the Central Bank. Foreign exchange facilities are 
available at most large hotels and airports, and ATMs are 
becoming more widely available. The importation of currency must 
be declared at time of entry. It is illegal to import or export 
Libyan Dinars in any quantity. 
 
¶13. Most firms seeking to receive payment for services/products 
in Libya operate using Letters of Credit (LOCs) facilitated 
through foreign banks (often based in Europe). Foreign energy 
companies remitting large sums often make arrangements for 
direct transfers to accounts offshore. There have been reports 
of difficulties arranging LOCs with Libyan entities, owing to a 
range of institutional inefficiencies that slow the closure of 
deals, causing them to collapse as prices rise and deadlines 
slip. 
 
EXPROPRIATION AND COMPENSATION 
 
¶14. The Libyan government has a history of state expropriation 
of private property, including the assets of foreign companies. 
These actions were most prevalent during the 1980's, taken 
largely for ideological reasons, and included the 
nationalization of whole industries with the stated purpose of 
greater wealth distribution among the population. These 
activities appear to have fallen out of practice as a tool of 
government policy, although regime rhetoric in early 2009 
involving the possible nationalization of the oil sector in 
light of falling world oil prices has brought the issue back to 
the fore.  In recent years, the Libyan government has taken 
steps to expand the rights of Libyans to operate private 
enterprises and buy and rent property. 
 
¶15. Several high-profile expropriations made in the energy 
sector have been resolved through a process of negotiations 
between the government and the affected companies. With the 
advent of a series of economic reforms and efforts at greater 
transparency since 2004, the prospect for government 
appropriation appears to be in decline. There have been other 
instances of compensation by the state for expropriated 
property, but figures related to the terms provided are not 
available. 
 
¶16. With the imposition of Law 443 of 2006, local ownership is 
essentially enforced for most foreign entities seeking to do 
business in Libya, as well as many established before the law 
came into effect. While this law boosts the percentage of 
foreign ownership when compared with previous regulations, it 
requires that at least 35% of non-Libyan businesses be 
controlled by Libyan individuals or companies. This law has made 
competent Libyan partners in all sectors a highly valuable 
commodity for foreign investors, providing ample fuel for 
rent-seeking behavior in many sectors of the economy. 
 
DISPUTE SETTLEMENT 
 
¶17. The Libyan court system consists of three levels: the courts 
of first instance, the courts of appeal (also known as the 
courts of cassation); and the Supreme Court, which is the final 
appellate level. The GPC appoints justices to the Supreme Court. 
Special "revolutionary courts" may operate outside the court 
system to try political offenses and crimes against the state. 
"People's courts," another example of extrajudicial authority, 
were abolished in January 2005. A decree providing for state 
security courts was propagated in late 2007, and security courts 
were established in spring 2008.  Matters related to personal 
law in Libya's justice system are nominally based on Sharia law. 
Other issues, including the commercial code, are largely based 
on Italian law, much of which dates to the 1950's. 
 
¶18. Libya is not a signatory to the U.N. Convention on the 
Recognition and Enforcement of Foreign Arbitral Awards (The "New 
York Convention"). In the case of commercial disputes, most 
foreign entities currently opt to try cases before the 
International Chamber of Commerce, the judgments of which Libya 
has a history of respecting. 
 
¶19. The law governing agencies specifies cases in which a 
contract may be terminated by either party. Otherwise, local 
courts will rule on the legality of the termination and/or award 
 
TRIPOLI 00000039  004.2 OF 010 
 
 
compensation to the injured party. Contracts are only exclusive 
if thus specified in the agency contract. Some agent-company 
disputes have reportedly been settled through direct appeal on 
the part of the foreign company to the General People's 
Committee of Industry, Economy, and Trade. Given the relative 
newness of the private sector, little precedent exists in this 
area. 
 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
 
¶20. Libya is not a member of the WTO. Libya's application was 
received by the WTO on June 10, 2004. The General Council 
established a Working Party on July 27, 2004, and Libya is in 
the process of preparing its complete file for membership.  Many 
of Libya's key supporting documents are in Arabic; translating 
these into correct, technically accurate English has been a 
significant impediment, according to Libyan trade officials. 
 
¶21. Under the terms of Investment Law No. 5 (1997), approved 
projects receive a 5 year corporate income tax holiday (eligible 
for possible 3 year extension), exemption from corporate taxes 
and stamp tax on legal documents, exemption from customs duties 
and taxes on imports on project materials (5 years), and 
exemption from excise taxes for exported goods derived from the 
project. These incentives are only available for projects 
approved by the PIB for implementation under Law No. 5. They do 
not apply for projects disapproved by the PIB, or to foreign and 
domestic investors implementing projects outside of Law No. 5 
(joint stock companies, Libyan agents, etc). Foreign firms and 
individuals generally have a more difficult time than Libyan 
nationals accessing credit from Libyan banks. 
 
¶22. Offsets are often a part of large foreign investment deals, 
particularly in the energy sector. "Corporate responsibility" 
and local staff training programs are common requirements for 
successful concession bids, and training programs in particular 
are generally essential to win bids on most Libyan government 
contracts. These programs can range from the training of a 
handful of local staff up to multi-year programs exceeding US 
$50 million for large energy companies. Also, some foreign firms 
have moved beyond these measures to bankroll much larger 
development projects. For example, following the October 2007 
10-year extension of its holdings in Libya, Italian energy firm 
ENI Spa announced that it had signed an MOU with the Qadhafi 
Development Foundation to provide US $150 million for the 
building of hospitals and schools, and for the preservation of 
historical sites. Offsets of this type are very likely to remain 
a part of the business landscape for the foreseeable future. 
 
¶23. Regarding visa matters, current U.S. and Libya visa policies 
are based on a framework of 'general reciprocity.' U.S. citizens 
are usually issued single-entry visas, and frequently encounter 
significant delays and complications in obtaining visas.  Visas 
must be obtained prior to travel to Libya; they require an 
invitation or sponsor, and can take up to several months to 
process. Residence permits are often difficult for foreign 
workers to obtain, and usually require several trips in and out 
of Libya. U.S. visitors to Libya should expect to wait weeks to 
months for issuance. Libyan visa practice is subject to change 
without notice, and can also be influenced by political factors. 
For example, in November 2007, Libya re-implemented an existing 
regulation requiring a stamped Arabic translation in all 
passports. This requirement lacks clarity, is not applied in a 
uniform fashion and was implemented without prior warning. In 
December 2008, the Libyan Embassies in London and Paris began to 
require that visa applicants appear in person and submit a 
lengthy list of supporting documents.  This requirement was also 
imposed without prior notice, and was imposed worldwide in 2009. 
 In addition, political tensions between Libya and Canada in 
2009 resulted in Libya's withholding of visa approvals for 
Canadian citizens.  In the summer of 2008, a member of the 
Qadhafi family was arrested in Switzerland, and as a result, 
Libya detained two Swiss businessmen for a year and later 
charged them with visa violations (as well as tax charges).  As 
of January 2010, they still were not permitted to leave Libya 
and their cases were going through the Libyan court system. 
Further information on visas can be found in the 
Country-Specific Information for Libya at the State Department 
website: 
http://travel.state.gov/travel/cis_pa_tw/cis/ cis_951.html. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
¶24. Laws and regulations on investment and property ownership 
allow domestic and foreign entities to establish business 
 
TRIPOLI 00000039  005.2 OF 010 
 
 
enterprises and engage in remunerative activities. However, the 
regulatory and legal environment is complex, and there is a 
systemic bias which favors government sector companies and 
Libyan firms over foreign entities. Foreign companies have 
several options for operating in Libya, including the 
establishment of joint ventures/joint stock companies, 
representative offices or to enter Libya under the terms of Law 
No. 5. However, foreign investors are increasingly being 
encouraged to form joint ventures with Libyan entities in 
accordance with Law 443 of 2006. In practical terms, this has 
restricted the terms of foreign entry into the market. 
 
¶25. Since 2004, foreign nationals and companies are allowed to 
lease property from private Libyan citizens. Rights to land 
ownership are possible only for foreign companies entering Libya 
under the terms of Law No. 5. There is considerable ambiguity in 
both the public and private rental markets; many aspects of 
these arrangements are left to local officials. Market 
distortions exist for various supplies related to housing, 
including industrial and construction supplies, and there is a 
lack of transparency in the distribution of these materials. The 
return of foreign companies and investors to Libya in 2003 has 
fueled a rapid increase in the price of rental housing and 
office space, and set off a construction boom. This has 
generated additional pressures on prices and building materials. 
 
PROTECTION OF PROPERTY RIGHTS 
 
¶26. Libyan property rights are complicated by past government 
policy actions and a weak regulatory environment. The Libyan 
government eliminated all private property rights in March 1978, 
and eliminated most private businesses later in the same year. 
The renting of property was declared illegal, and ownership of 
property was limited to a single dwelling per family, with all 
other properties being redistributed. Reduced rate "mortgages" 
were paid directly to the Libyan government, but many Libyans 
were exempted from these payments based on family income. This 
process, and the destruction of official property documents that 
followed several years later, has greatly complicated subsequent 
efforts to gain clear titles to property throughout Libya. 
 
¶27. Trademark violations are widespread and violators are adept 
at producing credible fakes. U.S. brands are at the present time 
extremely vulnerable to such activity, for their presumed high 
quality and Libya's lack of direct experience with the "real 
thing." The entry of several U.S. firms (most often through 
agents) has served to curtail some of the worst abuses related 
to their product lines. The General Authority for Products 
Control has established branches in seven Libyan cities, but 
they are primarily focused on health and safety issues. The 
Embassy has noted several cases in which foreign firms 
successfully pursued claims against trademark infringements by 
local (Libyan) companies. 
 
¶28. While Libya is in the process of applying for entry to the 
WTO, it is not currently a member, and thus is not a party to 
the Agreement on Trade-Related Aspects of Intellectual Property 
Rights (TRIPS). The IMF has called upon Libya to bring its IPR 
regime in line with international best practice, and the General 
People's Committee for Industy, Economy and Trade is reportedly 
making a renewed effort to deal with the problem, although clear 
evidence of progress is not apparent. 
 
TRANSPARENCY OF REGULATORY SYSTEM 
 
¶29. The Libyan regulatory system is not transparent; the 
function and responsibilities of Libya's myriad government 
institutions are opaque and often contradictory. Transparency 
International ranked Libya 130th out of 180 countries ("1" 
indicating least corrupt) in its 2009 Corruption Perceptions 
Index.  Libya's legal and policy frameworks are similarly 
difficult to navigate. The issuance of licenses and permits is 
often delayed for significant periods for unspecified reasons, 
and such applications often appear to be adjudicated in a 
subjective fashion.  The lack of transparency and clearly 
delineated lines of decision-making within Libyan institutions 
have fostered an environment in which graft and rent-seeking 
behavior are common. 
 
¶30. Accurate, current information on the Libyan market and key 
commercial regulations is difficult to obtain. There are no 
non-governmental organizations present in Libya to help 
facilitate regulatory transparency. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
 
TRIPOLI 00000039  006.2 OF 010 
 
 
 
¶31. Libya's banking system is dominated by four banks, which are 
owned in full or in the majority by the Libyan Central Bank 
(Jamahiriya Bank, which merged with Umma Bank in 2008, Wahda 
Bank, Sahara Bank, and the National Commercial Bank). These 
banks constitute almost ninety percent of Libya's banking sector 
assets. All of these banks have capital of at least 100 million 
Libyan Dinars, and two of them (Wahda Bank and Sahara Bank), 
were recently privatized. France's BNP Paribas acquired 19% of 
Libya's Sahara Bank in July 2007, and took operational control 
of the bank. The deal also included an option allowing BNP 
Paribas to purchase additional shares of up to 51% of Sahara's 
capital over the next three to five years. In November 2007, 
five foreign banks were shortlisted for the privatization of 
Wahda Bank, including French, Italian, Jordanian, Bahraini and 
Moroccan institutions; the Arab Bank of Jordan was selected. The 
Arab Bank of Jordan bid on a 19% share of Wahda Bank, with the 
option to increase their ownership to 51% in three to five 
years. The Central Bank announced in October 2007 that it would 
merge Umma Bank and Jamahiriya Bank into a single entity; that 
process was completed in 2008, although there are still branches 
open under the banner of each bank. The Central Bank also owns 
the Libyan Foreign Bank, which operates as an offshore bank, 
with responsibility for satisfying 
Libya's international banking needs (apart from foreign 
investment). In addition, there are four specialized banks owned 
by the General People's Committee for Finance: the Agricultural 
Bank, Real Estate Investment Bank, Development Bank and Reefi 
Bank. There are also four substantial private banks (Bank of 
Commerce and Development, Amen Bank, Al-Jimaa al-Arabi Bank and 
Wafa Bank) and forty-eight smaller regional banks. 
 
¶32. The availability of financing on the local market is weak. 
Libyan banks offer limited financial products, loans are often 
made on the basis of personal connections (rather than business 
plans), and public bank managers lack clear incentives to expand 
their portfolios. Lack of financing acts as a brake on Libya's 
development, hampering both the completion of existing projects 
and the start of new ones. This has been particularly damaging 
in the housing sector, where particularly small-scale projects 
often languish for lack of steady funding streams. 
 
¶33. The Libyan banking system is currently undergoing a 
substantial modernization program to upgrade available 
services/products, deal with large numbers of non-performing 
loans, establish a functioning national payments system, 
facilitate the use of non-cash payment instruments and institute 
new standards of accounting and training. While foreign banks 
are technically able to enter the Libyan market under the 
Banking Law of 2005, the Central Bank has sought to delay their 
entry until the reform process has taken hold. 
 
COMPETITION FROM STATE OWNED ENTERPRISES 
 
¶34. Private enterprises are allowed to compete with public 
enterprises under the same terms and conditions with respect to 
access to markets, credit, and other business operations. 
However, since approximately 80 percent of the economy consists 
of public sector entities, most large companies are 
government-owned and therefore, are the only companies that have 
the required capital to form joint ventures with foreign 
partners.  SOEs are active in all sectors in Libya and 
especially in the Energy, Telecommunications, and Construction 
sectors. 
 
¶35. In terms of corporate governance, most state-owned 
enterprises (SOEs) have a ten-member board of directors.  The 
company's senior management reports to this board, which in turn 
reports to a government Minister (called a Secretary in Libya). 
In reality, most important decisions are made by the high-level 
government officials who instruct the senior management. 
 
¶36. Libya has a sovereign wealth fund (SWF), known as the Libyan 
Investment Authority (LIA), which was established in 2007.  The 
LIA is ultimately overseen by the prime minister, with an 
11-member board of trustees.  According to the International 
Monetary Fund (IMF), the LIA invests mostly abroad although some 
of its investments are being channeled to the domestic Libyan 
oil sector and to the Libyan Development and Investment Fund 
(which has holdings of 16 billion Libyan dinars or approximately 
US $13 billion).  This fund was established in March 2009 in 
partnership with the Central Bank of Libya and the private 
sector. 
 
¶37. Neither state-owned enterprises (SOEs) nor Libya's sovereign 
 
TRIPOLI 00000039  007.2 OF 010 
 
 
wealth fund (LIA) are required by law to publish an annual 
report.  The practice, however, is for SOEs to produce financial 
statements but not to have them independently audited.  These 
companies primarily undergo internal audits and are not reviewed 
by independent, third-party auditors. 
 
CORPORATE SOCIAL RESPONSIBILITY 
 
¶38. While the term "Corporate Social Responsibility" is not 
well-known in Libya, the general concept of companies helping 
local charities and members of the community in need does exist. 
 For example, one state-owned enterprise provides office space 
to an organization that assists children in need of cancer 
treatment.  Many foreign companies have programs with 
communities and officials to address needs in healthcare, road 
safety, and education.  While most firms follow generally 
accepted CSR principles, the extent to which they follow the 
OECD Guidelines for Multinational Enterprises is unknown.  Firms 
who pursue CSR are viewed favorably by the general public and by 
officials. As noted above, elements of "Corporate Social 
Responsibility" and local staff training programs are common 
requirements for successful bids in the energy and construction 
sectors. 
 
POLITICAL VIOLENCE 
 
¶39. Libya has experienced political violence.  In December 2008, 
demonstrators threw rocks at the Egyptian Embassy in protest of 
Egypt's policies in connection with events in the Gaza Strip. 
The Mauritanian Embassy was also targeted.  Protests in the city 
of Benghazi in response to the publication of cartoons depicting 
the Prophet Muhammad in a Danish magazine on February 17, 2006, 
resulted in the deaths of at least ten people and severe damage 
to the Italian consulate and a number of businesses. U.S. 
interests in Libya have not been targets of political violence 
since the reestablishment of diplomatic ties in late 2003. 
Peaceful demonstrations, small and large, do occur periodically. 
 
¶40. The Government of Libya takes active measures to maintain 
public security, and to prevent terrorist attacks. Recent 
worldwide terrorist alerts have stated that extremist groups 
continue to plan terrorist attacks against U.S. interests in the 
Middle East region, including Libya. Visitors to Libya should 
consult the Department of State's latest travel information on 
Libya and the region at: 
http://travel.state.gov/travel/cis_pa_tw/cis_ pa_tw_1168.html. 
 
CORRUPTION 
 
¶41. Despite high-profile campaigns designed to draw attention to 
the issue, corruption remains widespread in Libya. It frequently 
takes the form of openly solicited or thinly veiled requests for 
valueless intermediation (i.e., rent seeking) or outright 
payoffs. This could include approvals for basic bureaucratic 
processes, such as required permits and services provided only 
by the government.  Given the state of bureaucratic inefficiency 
and low salaries for government employees in Libya, these types 
of transactions are generally viewed as a necessary part of 
doing business by local operators. Moreover, there is a general 
public perception that such interventions are essential to 
ensure the best pricing, service, etc. This tendency serves to 
reinforce the importance of personal connections and insider 
knowledge in the conduct of day-to-day business operations. 
 
¶42. While there are quasi-governmental organizations in Libya, 
non-governmental organizations (NGOs) do not exist in practice. 
There are no international, regional or NGO "watchdog" 
organizations present in Libya. Several websites critical of 
government corruption are operated by Libyan opposition groups 
located outside of the country. Libya is a signatory to the UN 
Convention Against Corruption (UNCAC), but there has been little 
evidence of its implementation. 
 
¶43. The government has established the "Administration and 
Oversight Board" as the responsible Libyan agency for the 
oversight of government activities for the prevention of corrupt 
practices. There has also been a public push for transparency on 
the part of high-ranking government officials. A series of 
speeches by Muammar al-Qadhafi during late 2006 set out a 
four-month window for all officials occupying senior government 
positions to declare all of their earnings and assets or risk 
unspecified punitive action by the state. In January 2007 this 
deadline was extended for several months, and there were reports 
of arrests of leading businessmen on allegations of corrupt 
practices. Out of 4,600 files of senior government officials 
 
TRIPOLI 00000039  008.2 OF 010 
 
 
that were reviewed, 150 were suspected of corruption, and out of 
those, 20 were referred to the courts for judicial action. 
However, there was no clarity as to whether these actions were 
directly related to Qadhafi's ultimatum. The Libyan leader and 
his son, Saif al-Islam al-Qadhafi, did address corruption in 
broad terms in a number of other public remarks made in 2007 and 
2008, and called for greater accountability. 
 
BILATERAL INVESTMENT AGREEMENTS 
 
¶44. There are no bilateral investment agreements in force 
between the U.S. and Libya. USTR and Libya are negotiating a 
Trade and Investment Framework Agreement (TIFA) which is 
expected to be finalized and signed in 2010.  Libya has also 
stated its interest in concluding a treaty for the avoidance of 
double taxation with the U.S. 
 
¶45. Libya has concluded a number of bilateral economic 
cooperation agreements with EU member states, and with Turkey, 
Tunisia, Kenya, Singapore and others. The terms of these 
agreements vary, ranging from MOUs with no binding aspects to 
more substantial agreements that grant "most favored nation" 
trade benefits, joint investment funds, and the abolishment of 
visas for Libyans and the other country. Libya has concluded a 
number of tax treaties, including a new agreement with the UK in 
late 2007. 
 
¶46. Libya is a member of the 1989 Arab Maghreb Union (AMU) 
linking Tunisia, Algeria, Morocco, Mauritania, and Libya. The 
AMU's stated objectives include the encouragement of free 
movement of goods and people, revision and simplification of 
customs regulations, and movement towards a common currency. 
Nominally, AMU mandates duty-free trade among its members. 
Disputes between AMU members have prevented significant progress 
within the group. Libya is also a founding member of the 
Community of Sahel-Saharan States (CEN-SAD). CEN-SAD's 
Secretariat and the CEN-SAD Bank for Investment and Trade are 
both headquartered in Tripoli. CEN-SAD is dedicated to creating 
an economic union among its 23 member states, although it has 
not made great progress toward this goal. Citizens of CEN-SAD 
member countries are afforded the use of dedicated immigration 
stalls upon arrival at Libya's major airports. 
 
¶47. Libya is a part of the Greater Arab Free Trade Area (GAFTA, 
also called PAFTA, Pan Arab Free Trade Agreement) and the 
Euro-Med Partnership (EMP), also known as the "Barcelona 
Process," a dialogue between the European Union and 12 
Mediterranean countries. The Barcelona Declaration of November 
27, 1995 outlined goals of reducing political instability and 
increasing commercial integration. In 1999, 27 EMP partners 
agreed to admit Libya contingent on Libya's accepting the 
Barcelona acquis. In February 2004, Libya announced its 
intention to join the Barcelona process in full, but no formal 
Libyan request has been made to date. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
¶48. President Bush waived bans on Export-Import Bank activities 
in Libya on February 28, 2006, and EXIM has conducted two visits 
to Libya since that time. EXIM offers financing assistance to US 
export projects with Libyan government-owned entities in three 
areas: the aviation sector, project finance (requiring 
predictability and hard revenue streams), and projects backed by 
the full faith and credit of the Libyan government (i.e., a 
"sovereign guarantee") for loan repayment. 
 
¶49. OPIC does not as yet offer financing or guarantees for U.S. 
business activity in Libya. A senior-level OPIC delegation 
visited Libya in 2005 to discuss with Libyan authorities a 
proposed bilateral agreement, and the 
Deputy Foreign Minister met with OPIC officials in Washington, 
DC in 2007 to discuss the issue further. 
 
LABOR 
 
¶50. While official figures put the unemployment rate at 13%, 
unofficial estimates place the real rate at 30 to 40%. Libya's 
labor force numbers about 1.3 million persons, roughly 31% of 
whom work in industry, 27% in services, 24% in government and 
18% in agriculture. Despite laws prohibiting moonlighting by 
civil service employees, many government functionaries hold 
multiple jobs. The majority of Libyan women hold some form of 
employment outside the home. Libyan labor law stipulates minimum 
wage, working hours, night shift regulations, dismissal and 
training. Laws governing dismissal are reasonably strict, and 
 
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favor the employee. 
 
¶51. Foreign workers make up a significant percentage of the 
Libyan labor pool, particularly in the service industries and 
manual labor jobs. During the 1980's, the Libyan government 
increased pressure on foreign workers and contractors, which it 
saw as consuming valuable foreign exchange and contributing to a 
growing unemployment problem. In 1983, 560,000 foreigners worked 
in Libya; by 1986, the number dropped to less than 200,000. As 
oil revenues rebounded in the early 1990's and Libya increased 
its profile on the African continent, al-Qadhafi announced an 
"open borders" policy, prompting a massive influx of 
work-seekers from Chad, Ghana, Niger, and other Sub-Saharan 
African states. Unable to find work in Libya, many of these 
immigrants have continued northward and have contributed to the 
economic migrant problem in Southern Europe. Migrants from Egypt 
also make up a sizable portion of Libya's informal labor force. 
With mounting pressure from the EU, and rising unemployment at 
home, Libya has in the past resorted to deportation. In early 
2007, officials announced a series of measures to reduce the 
presence of illegal workers in Libya. In late 2007, the Egyptian 
border was temporarily closed to migratory workers. The 
Secretary of the GPC for Manpower, Employment and Training has 
called on all Libyan and foreign employers to ensure the 
legality of their employees under Labor Law No. 58, including 
the warning that failure to do so will result in punishment 
ranging from fines, to withdrawal of work permits, to 
imprisonment. 
 
¶52. Law No. 15, passed in 1981, capped government salaries at 
between 150 and 500 Libyan Dinars (LD) per month, depending on 
grade. There had been no cost of living adjustment from that 
date until 2006, when several changes were instituted to raise 
minimum salaries in the public and private sectors. GPC Decision 
No. 277 of 2006 established basic government salaries at the 
following levels: 130 dinars for persons without dependents, 180 
dinars for families with two members, and 220 dinars for a 
family of three of more members. Additional GPC Decisions during 
2007 raised minimum salaries for other categories of employees, 
including those with advanced degrees and technical skills and 
corporations not financed by the central government, and removed 
a pay cap in place for many types of work outside of the public 
sector. There were also targeted pay raises for, inter alia, 
Libyan employees of state energy companies, healthcare workers 
and teachers. 
 
¶53. Independent trade unions and professional associations are 
illegal in Libya. While workers do not have the right to form 
unions, they are allowed to participate in an organization 
called the National Trade Unions' Federation, created in 1972. 
Collective bargaining does not exist in any meaningful sense, as 
labor law requires government approval for all related actions. 
 
¶54. Unemployment is a major policy concern for the Libyan 
government, particularly in light of an expected increase in the 
pace of privatization, which would inevitably release large 
numbers of state-salaried employees into the market.  In 
addition, 78,000 students graduate from Libya's state-run 
universities and enter the labor market each year.  Proposals 
have been discussed for the creation of mechanisms such as an 
early retirement fund, vast re-tooling/re-training programs, and 
the creation of some form of social safety net. There have been 
some government actions to provide shares in public and private 
companies to "those Libyans deprived of wealth," as well as the 
announcement by Saif al-Islam al-Qadhafi of the institution of 
government-funded savings accounts for Libyans born after August 
¶2007. Also, in January 2007, the GPC coupled its announcement of 
the liquidation of 400,000 Libyan government positions over a 
three-year period with news that the incumbents could either 
draw their regular salary or take a US $43,000 loan designed to 
finance start-up costs of a small business. 
 
¶55. The government directly intervenes in the hiring practices 
of foreign companies operating in Libya. For example, a 2006 
decree ordered that all foreign oil companies must hire a Libyan 
national Deputy County Manager and Finance Manager. In August 
2009, the government decreed that all foreign branch companies 
must hire Libyan general managers, but the government has 
inconsistently applied the rule.  The National Oil Corporation 
also regularly assigns both qualified and unqualified Libyan 
workers to foreign energy companies. Foreign companies have 
generally responded to the imposition of unqualified workers in 
one of two ways: paying these individuals without expecting them 
to work, or undertaking an extensive training program to bring 
them up to a basic industry standard. Companies also receive 
 
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lists of unemployed workers from the General People's Committee 
for Manpower and are requested to voluntarily find positions for 
them. 
 
FOREIGN TRADE ZONE/FREE TRADE ZONES 
 
¶56. Misurata, 210 km east of Tripoli, is the location of Libya's 
sole operating Free Trade Zone (FTZ). Projects in the free zone 
enjoy standard "Five Freedoms" privileges, including tax and 
customs exemptions. At present, the zone occupies 430 hectares, 
including a portion of the Port of Misurata. As of the end of 
2008, the infrastructure for the free zone was still under 
development. Dubai's Jafza International signed an agreement 
with the Misurata FTZ Authority in October 2007 which commits 
both sides to explore the possibility of forming a joint 
venture, or granting Jafza a 30-year concession of over the FTZ. 
Later in the same month, Libya's General People's Committee 
announced plans to allocate roughly US $700 million to upgrade 
the free zone's facilities. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
 
¶57. Reliable foreign direct investment statistics for Libya are 
currently unavailable. Foreign energy companies have invested 
billions of dollars in the Libyan oil and gas sectors since the 
lifting of UN sanctions in 2003 and U.S. sanctions the following 
year. Libya has announced vast new development projects, 
including plans that it would spend 150 billion dinars ($123.4 
billion) on public works over the next five years. The Libyan 
government has embarked on an ambitious plan to upgrade its 
infrastructure, and construction is underway to build new roads, 
airports, railroads, and housing. 
CRETZ