KIME Middle East Studies
중동경제연구소 Korea Institute of the Mideast Economies
Seek after Truth, Based on Facts
* This paper was read at the 3rd International Symposium of the Middle Eastern and Islamic Studies for the 21st Century, Hankuk University of Foreign Studies (Seoul: Korea), 26 March, 2005
Libyan Economy in the New World Order
Libya is a country in North Africa (Maghreb), bordering the Mediterranean Sea, located between Egypt and Tunisia. Libya has been described as an accidental and reluctant state. It was created in the aftermath of World War II at the behest of the Great Powers, its three culturally diverse provinces - Tripolitania, Cyrenaica, and Fazzan - loosely joined under the monarchy of King Idris. Independence occurred in 1951. Oil was discovered in 1959, soon to be followed by extensive investment by western oil companies. After the 1969 revolution, a 12-member Revolutionary Command Council (RCC) was established and one of its first actions was to demand the withdrawal of U.S. forces from Wheelus Air Force Base near Tripoli. Washington acquiesced. During the 30 years since then, relations between the U.S. and Libya have been marked by one crisis after another.
Libya has been known as The Great Socialist People's Libyan Arab Jamahiriya (state of mass) since April 1986. Libya exists today as an isolated and distrusted nation, its economy strained by the cumulative effects of a depressed oil market and the UN sanctions imposed for its alleged complicity in the bombing of a Pan Am 747 over Scotland. The Libyan economy depends primarily upon revenues from the oil sector, which contribute practically all export earnings and about one-quarter of GDP. These oil revenues and a small population give Libya one of the highest per capita GDPs in Africa.
UN sanctions were suspended in April 1999 and finally lifted in September 2003 after Libya resolved the Lockerbie case. In December 2003, Libya announced that it had agreed to reveal and end its programs to develop weapons of mass destruction, and Qaddafi has made significant strides in normalizing relations with western nations since then.
Qaddafi, however, has a unique philosophy of The Third Universal Theory in his Green Book. The Third Universal Theory attempts to develop a practical alternative to communism and capitalism. This theory has some contradictions to coexistence with capitalist economy, as like introducing privatization. As you know, the Libyan economy that is socialist-oriented economy depends primarily upon revenues. Westerners must know the fact that Libya has some problems to introduce the opening market and the capitalistic economy. This paper aims to examine the characteristics of Libyan economy in the New World Order. Hence this paper deals with the New World Order and economic sanctions, Libyan economy and its characteristics, and Third Universal Theory and oil.
1. The New World Order
The use of UN sanction must be viewed within the context of the word order that came into existence after the disintegration of the Soviet Union and the collapse of communist regimes in Eastern Europe. It was only with this so-called New World Order that the UN Security Council gained the practical ability to impose sanctions. The dynamics of international relations under the New World Order, in fact, have not only enable sanctions to be imposed but also shaped the character, content, and sustainability of sanctions. Events in the Arab World, moreover, carry particular relevance to conceptions of the New World Order: much of the early debate on the New World Order was engendered by the international reaction to Iraq's occupation of Kuwait in August 1990. There is good reason, therefore, to be attentive to the links between the New World Order and UN sanctions.
Those same leaders as bringing into being a more stable and peaceful international order projected the New World Order, pronounced by Western leaders in 1989, one built on democratic values and the free market economy. The bitter antagonism between East and West, the nuclear confrontation, and the rivalry for strategic preeminence and ideological hegemony would all be able to work through the United Nations to create a world order reflecting democratic values and a deeper respect for human rights, wherein attempts to disrupt the new international harmony would be met by collective action channeled through international organizations. The so-called end-of-history thesis was sometimes built into this perspective. The world was seeing the victory of liberal democracy; beyond that there would be no further political system that could evolve. Wherever liberal democracy was not yet established, it would be within the foreseeable future. There was, ultimately, no alternative system that could challenge it1).
The positive view of development in the international order tends to be held by the governments of the major Western powers. A substantial part of the world's population, however, sees the New World Order in much less positive terms. And negative critiques of the political-economic order today are to be found in both Western and non-Western countries. There is a significant difference, however, in the manner in which Western and non-Western critiques are expressed. The former tend to describe the development as the product of global forces that have damaging effects on all societies: a process of globalization - set in motion by the characteristics of international capitalism - that is increasing social and economic inequality nationally and internationally, creating high levels of unemployment, polarizing society between the unemployed and the over employed, forcing wide-scale migration, and leading to social disjunction. Non-Western critiques, in contrast, tend to associate the perceived negative aspects of the New World Order less with impersonal global forces and more with a rejuvenated Western dominance. The United States is seen as the guiding force in, and the main beneficiary of, this reassertion of Western hegemony, the loss concentrated in non-Western world. The New World Order, then, represents a new Western dominance, an imposition of the values and interests of Western governments and corporations on the world, not a move toward the harmonization of the values and interests of the world's different population group2).
The New World Order has provided the opportunity for sanctions to imposed and created conditions for them to prove ineffective. On the one hand, the dynamics of the New World Order are such that leading Western powers have been able to orchestrate the imposition of UN sanctions. On the other hand, negative reactions to the New World Order destroy the international credibility and perceived legitimacy of sanctions. The scene is set for prolonged struggles in which the populations of sanctioned states suffer massively. The relevance of the global balance of power is further demonstrated by the transformation of attitudes that occurred at the end of 1980s. Prior to 1990, it was the Third World that espoused giving the UN a more central role in the resolution of international conflicts and advocated the use of economic sanctions to maintain international law and human rights. The perception was that problems of minority rule in southern Africa and the Israeli occupation of the West Bank and Gaza could be resolved only by international pressure on the recalcitrant governments concerned, that coordinated economic sanctions could lay the basis for change, and that the appropriate channel was the United Nations. The Western powers respond with skepticism. Since the end of Cold War, however, the roles have reversed. Today Western governments promote the use of the United Nations for imposing sanctions. They purvey these measures as the proper means through which international transgressors can be isolated and controlled3).
2. The Role of Oil in the 21st Century
The world economy is growing rapidly, and more than 5 billion people are now going to be energy consumers, however modest this consumption may be at the outset. The Arab and Muslim world, which has for one century been cynically and systematically prevented by the Western powers from fully participating in this emerging global capitalism, is now, by uniting and embracing unconventional warfare, poised to force its way into this economy and regain its place in history and the world.
The world order4) which formed out of World War II and the cold war is now visibly decaying, setting in motion an unmistakable movement - though one characterized by a good deal of discretion and secrecy - by many nations and emerging powers to find their natural place in the new world, in the new arrangement of international affairs. The powers of this new world will be struggling to gain access to the energy, the markets, the labor, as well as to the commodities and raw materials which capitalism and global commerce require. Around the world tension is visibly rising, and tempers are fraying. There is little doubt that the history of the world is entering a new and violent phase. A peaceful era is coming to an end.5)
The facts which give this 21st century race increasing excitement and urgency are all too plain, and while they are rarely featured in the popular press around the world, they are of course in the public domain6). Ensuring American access to Middle Eastern energy resources is a vital national interest of the United States. All US presidents refer to the American interest in access to Middle Eastern oil as vital. The US will do whatever is necessary to protect this interest. Middle Eastern energy is vital to us because the geography of world energy production is very uneven7).
Iraq has 11 percent of the world's proven oil reserves, and 2 percent of the world's proven gas reserves. Only Saudi Arabia has more proven reserves of oil. Iran possesses 9 percent of the world's proven oil reserves, and 16 percent of the world's proven gas reserves. Only Russia has more proven reserves of gas. Libya has 3 percent of the world's proven oil reserves, and 1 percent of the world's proven gas reserves. Together, these countries possess 23 percent of the world's proven reserves of oil, and 19 percent of the world's proven reserves of gas.
By comparison, the North Sea region contains roughly 2 percent of the world's proven oil reserves, the countries of the former Soviet Union 6 percent, and the entire Western Hemisphere 17 percent. So these other major oil-producing regions contain together only about the same amount of proven oil reserves as Iraq and Iran alone possess. And these other regions are believed to have fewer unexplored resources than the countries of the Middle East.
The current actual production of Iraq and Iran, however, is far below their production capacity, and much less than the total production of the other major regions. In 1998, Iran produced roughly 5 percent of the world's total oil, Iraq 3 percent, and Libya 2 percent. By contrast, the North Sea produced 9 percent of the world's total oil, the United States 13 percent, Mexico and Venezuela 9 percent, and the countries of the former Soviet Union 10 percent.
Global energy demand is projected by the Energy Information Administration to increase by 50 percent between now and 2020. EIA predicts that of total world energy consumption in 2020, 37 percent will be oil, 29 percent will be gas, 23 percent will be coal, and 11 percent will be from other sources. So the world will be very dependent on those areas with substantial oil and gas resources.
American consumption of energy is high, and rising. Although Americans make up less than 5 percent of the world's total population, they consume 25 percent of the world's energy. US consumption is forecast by the Energy Information Administration to increase by 20 percent between now and 2020. At the same time, American production of oil is declining. So our dependence on imported sources is likely to increase in the coming years.
The race for the oil and gas of the world is under way in the 21st century because the prices of two powerful and indispensable, indeed critical, commodities in the world economy are behaving contrary to expectations.
Economic sanctions have been imposed on Iran, while both economic and military sanctions have been imposed on Iraq. Both regimes are implacably opposed to Washington's unconditional support of Israel, and both oppose the presence of American armed forces in the region. Iran's economy suffered greatly during the 1990s, when oil prices were low, but since the first months of 1999 and the dramatic rise in the price of crude, Iran's economy has been growing rapidly. Indeed, it is now booming.
In the view of Americans and Europeans, the African continent is the veritable "last frontier." East Asia. China, which will become a major consumer of energy and whose vibrant and powerful economy will become the stimulant and engine of Asia's growing economic might, is being targeted by American strategists for destruction.
With more than one billion people - many of them with sophisticated skills and education - eager to enter the world's booming economy, China has come to be seen in US as a "threat" to America's dominant position in Asia. The Chinese will need close ties to the major oil-producers in the Persian Gulf. The Arabs and the Chinese will perhaps begin to see themselves as inextricably linked in an alliance of sorts, though this relationship may in the early stages be solely based on a commercial and economic foundation8).
China as well as Asia will need great amounts of energy and petroleum. If Asia fails to secure access to this energy its economic development will be slowed or stunted.
Europeans would also like to become heavy importers of Russian gas and oil. With this growing conflict in the Balkans, which deeply involves the Slavic nation, the relations between European and Russian statesmen may face considerable strains. America fought the cold war and spent great wealth in this struggle attempting to prevent Europe and Russia from joining together. Now, in the new world which is forming, Russians consider themselves Europeans - and are pledging to join the EU, use the euro, and base their future commerce on the sale of Russian energy resources.
3. Economic Sanctions against Libya
Libya's experience with sanctions began in 1973, with measures taken to prohibit certain types of military sales to Libya9). The US government blocked the delivery to Libya of eight Lockheed C-130 Hercules planes. These measures were in part a response to Libya's alleged involvement in international terrorism, but they were also linked to the perception that Libya was becoming less accommodating to US interests. On 6 May 1981, US government closed the Libyan people's bureau in Washington, D.C., alleging that the Libyan regime was supporting international terrorism, subverting African government (Chad), and operating a hit squad to assassinate Libyan opposition figures in the Unites States. The US government's perception that Libya was disruptive to US interests and the stability of US allies was accurate between 1981 and 1986. At this time Libya was intent on countering US influence and positions and was prepared to use both conventional diplomatic instruments and instruments outside international law in order to confront the United States and its allies. The confrontation was thus willed by both sides: The United States was eager to strike at a regime that was undermining its influence, and the Libyan regime was eager to confront the growing US involvement and military presence in the Middle East. Furthermore, the Libyan regime by its own admission sought to assassinate prominent Libyans who were opposing the regime from the outside, and the United States beginning in June 1981 was supporting "authorized clandestine political work with Libyan exiles in order to form a legitimate opposition to Qaddafi10).
The triggers for new US sanctions were the bomb attacks on the Rome and Vienna airports on 27 December 1985. Relations between Great Britain and Libya had broken off in 1984 after the killing of police officer Yvonne Fletcher. In spring of 1986 Libya came under increasing pressure as the confrontation with the United States took a decidedly military edge. Another terrorist attack on 2 April 1986 - the bombing of a Berlin disco frequented by US service personnel - caused the United States to move from sanctions to military action and the European Community to impose some limited sanctions on Libya11). For three years following the 1986 bombing of Libya, there were few new allegation of Libyan complicity in terrorism and no new military or economic measures taken by the United States. In 1990s, however, the Unites States tightened sanctions against Libya. These were directed at Libya's ability to operate within the international economy12).
For two years following the bombing of Pan Am 103 over Scotland on 21 December 1988, the suspicions of British and US investigators centered on the involvement of radical Palestinians linked to Syria and/or Iran. The first suspicions of Libyan involvement were made public in early October 1990. After completed investigations and simultaneous indictment proceedings in the United Sates and Britain, an indictment was issued on 27 November 1991 specifically naming two Libyan suspects. The United States, Britain, and France issued a tripartite declaration demanding that Libya hand over the two suspects for trial in Scotland or the United States and that Libya satisfy the requirements of French justice over the UTA bombing. The Libyan government rejected handing over the accused, asserting it would be incompatible with Libyan sovereignty. Notwithstanding Libya's attempts to justify its refusal to hand over the accused, the United States, Britain, and France brought the issue before the UN Security Council. On 21 January 1992, the council passed Resolution 731 and urged the Libyan government "immediately to provide a full and effective response to those requests so as to contribute to the elimination of international terrorism." Despite the efforts of Libya and of the Arab League, The Security Council proceeded, on 31 March 1992, to pass a resolution enabling international sanctions to be imposed on Libya. Resolution 748 instructed members of the United Nations to impose a series of measures against Libya beginning 15 April. The measures were mandatory, as the resolution was passed under Chapter 7 of the UN Charter. In the absence of any change in the Libyan position during 1992 and 1993, the United States, Britain, and France sponsored a new resolution tightening the sanctions on Libya at the end of 1993. Security Council Resolution 883, passed on 11 November, provided for the freezing of Libyan financial assets abroad and banned the export to Libya of selected equipment for downstream operations in the hydrocarbon sector13). In July 1996 the US increased its pressure on Libya when the congress unanimously approved a controversial Iran and Libya sanctions act, which aimed to further weaken the Libyan economy as a penalty for that country's alleged support of international terrorism14).
An official assessment of the economic impact of sanctions on Libya, prepared under the auspices of the Libyan secretariat for foreign liaison at the beginning of 1998, put the cost at about $24 billion. An Arab League report prepared in mid-1998 and covering the period up to the end of 1996, put the figure at $23.5 billion. The main areas of loss, according to the latter report, were the energy sector ($5 billion), the commercial sector ($5.8 billion), the industrial sector ($5.1 billion), the transportation and communications sectors ($2.5 billion), and the agricultural sector ($337 million). However, the real effects have been more complex and nuance, and cannot be conveyed by simple monetary figures15). Over most of the 1970s and 1980s, the public sector proportion of the economy grew steadily as the private sector proportion shrunk (see <Table 2-1>).
<Table 2-1> Comparison of Public and Private Sector Investment, 1970-1997 (%)
Source: Niblock, Tim, "Pariah States" & Sanctions in the Middle East, Iraq, Libya, Sudan, ((Boulder: Lynne Rienner Publishers), 2002, p. 63.
Libya extradited two men suspected of the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland in April 1999. In response the UN suspended economic sanctions against Libya that had been in place since 1992. US sanctions, including the Iran-Libya Sanctions Act (ILSA) remain in place, preventing investments of US$40m or more, in the country's oil and gas sector. On July 27, 2001 the US congress voted to extend these measures for a further five years.
In an interview with TIME on 14 Aug 2003, the Libyan ruler, Qaddafi said his country would accept responsibility under international law for the 1988 terrorist bombing of Pan Am Flight 103 over Lockerbie, Scotland, which killed 270 people. In exchange for Libya's admission and payments of $2.7 billion to the families of victims, he said, the UN sanctions that have blocked the world from doing business with Libya would be lifted and eventually the US would end its own sanctions and remove Libya from its list of state sponsors of terrorism. Qaddafi described a new world order in which the US and Libya were natural allies in the war against Islamic extremism.
Significantly in December 2003 President Qaddafi announced the country's intention to abandon plans to develop weapons of mass destruction, allowing International Energy Agency inspectors access to nuclear development sites. This move was widely applauded by both the UK and US governments and is seen as yet another concession on the part of the Libyan government keen to see the end of US sanctions. In December 2003, Libya's Qaddafi declared to renounce the development of WMD (weapons of mass destruction) including nuclear weapons. In accordance of Libya's action, George Bush administration release economic sanctions completely on Libya in September 2004.
1. Before the Revolution in September 1969
Libya has few natural resources apart from oil. Efforts to develop agriculture took place, historically, in settler enclaves often disrupted by national resistance to colonialism or by the ravages of the Second World War. The desert battles of the early 1940s were reported and celebrated by the Allies as though such massive conflicts occurred in a featureless terrain bereft of local people: in fact, the battles totally disrupted what little agricultural progress had been made in the region, bringing famine and desolation to tribes that had been made to suffer greatly by the many foreign incursions throughout the twentieth century16).
In earlier times the Libyan economy, though frequently shaken by foreign conquest, had a more varied aspect. Herodotus gave some indication of the extent of Libyan fruit growing and livestock production, and settled agriculture was known to thrive under the Roman occupation. There was extensive trade in raw materials and manufactured goods, mostly produced outside North Africa, though most of indigenous peoples were pastoralists or farmers.
The Italian occupation in the early-twentieth century, and the subsequent bouts of war and Western colonialism, forced the collapse of the ancient trans-Saharan trade routes through Fezzan and the costal towns. The Italians tried to introduce state-sponsored agriculture but it operated in a hostile environment and was inevitably accompanied by the destruction of tribal oases and the disruption of traditional farming practices. When oil was discovered there were further dramatic consequences for agriculture. Labour was attracted to the lucrative oil sector of the economy and the traditional problems associated with poor soil, an inadequate water supply and uncertain weather were compounded by a manpower shortage. During the colonial period there had already been a draft of labour from the rural areas to the regions of urban development funded by the Italians; but what was labour trickle soon escalated to a torrent when serious oil prospecting began in the mid-1950s17). Farmers from northern Tripolitania, shepherds from all over Cyrenaica and the Sirtica, the Oasis-tenders from Fezzan - all were attracted to the oil camps and the urban areas where rapid development promised high wages, even for unskilled or semi-skilled labourers. The oasis-gardens went untended, the farms were neglected, and the desert encroached on reclaimed land18).
2. Green Revolution and Libyan Economy
Libya's post-independence economic progress can be divided into four periods. The first period began with Libya's gaining of independence in 1951, included the discovery of oil in 1957, and ended in 1961. The second period dates from 1961, when oil exports moved the country into the forefront of the world's economies. The September 1, 1969, military coup d'éat marked the beginning of the third period, a period that saw Libya change from a Western-oriented capitalist country into a strongly nationalist, anti-Western , socialist state. This period also witnessed the government's growing intervention in the economy, which was largely financed by the booming oil revenues of the 1970s. Falling world oil prices in the early 1980s ushered in the fourth phase of Libya's economic development. The falling prices have dramatically reduced government revenue and caused a serious decline in economic activity19).
The question of agricultural reform was one of the first topics that Qaddafi confronted after the overthrow of monarchy. On 22 September 1969, three weeks after taking power, Qaddafi declared the agrarian reform in a speech at Sebba. The state quickly took over unused land as a prelude to redistribution and measures were introduced to prevent the local sheikhs from acquiring more land: the trial leaders were prevent from taking over small landholding and so encouraging the migration of dispossessed farmers to the urban centers. This was seen as an essential first step to including the traditional cultivators and herders to stay on the land and remain involved in agricultural production. The land held by the residual Italian setters was then confiscated under the decree of 21 July 1970 and placed under the authority of the new Department of Land Reclamation and Agrarian Reform. In 1973 further measures were introduced that represented a further break with traditional practices. The traditional policies had increased crop outputs in some sectors but there had been no incentive to expand the area under cultivation. Through the mechanism of the 1973-83 Ten Year Intermediate Agricultural Development Plan, the revolutionary government intended to use effective state capitalism to expand agricultural production. The plan20) stimulated the direct development and organization of agricultural production, encouraging at the same time the establishment of farming settlements21).
The various development schemes involved building windbreaks, dams, pumping stations and water reservoirs; trees were planted on land close to crop areas as a protection against wind damage. The Great Man-made River Project, of which Muammar al-Qaddafi is the official 'Architect', is planned to convey many millions of cubic meters of water a year via multiple pipelines from ancient artesian wells in the southern desert, the site of a vast water stratum, to the coastal areas dedicated to agricultural production. The Great Man-made River Project was conceived partly to bring much needed irrigation to many areas. It is not difficult to see why many Libyans view the Great Man-made River Project as 'a dream long cherished by writers and scientist, a dream of an abundance of water'. The Project is already showing many benefits but it will be years before its full significance can be accurately estimated22).
After the 1969 revolution, state intervention in the economy increased, in accordance with Col Qaddafi's ideas of 'Islamic socialism'. Apart, however, from the nationalization of distribution and marketing of petroleum in Libya in 1970, the government refrained from directly taking over petroleum company assets until the dispute with British Petroleum (BP) in 1971. In September 1978 and the first two months of 1979, a large number of private companies were taken over by worker's committees. Similarly, in 1979, all direct importing business was transferred to 62 public corporations, and the issuing of licences was stopped. In March 1981, it was announced that all licences for shops selling cloths, electrical goods, shoes, household appliances and spare parts were to be cancelled, and that by the end of the year all retail shops would have to close. Retail activity became controlled by state-administered supermarkets. The whole Private sector was to completely abolish by the end of 1981, to be replaced by people's economic committees. These plans were never implemented according to the schedule, and by the late 1980s Qaddafi was extolling the virtues of private enterprise.
Relations with the USA worsened, and in March 1982 President Ronald Reagan banned imports of Libyan petroleum to the USA, and halted all exports to Libya other than food and medical supplies. Libya's perceived interference in the affairs of other nations (notably Chad) and its alleged association with international terrorism had further significant economic repercussions in January 1986, when President Reagan 'froze' Libyan assets in the USA and banned all trade between USA and Libya. In addition to Libya's increasingly isolated position among both African and Arab states, during 1980s Libya's economy was severely restricted by the effect of low prices for petroleum consequent on the global oil glut23).
At the second summit meeting of the Union of the Arab Maghreb (UMA)24) held in Algiers in July 1990, closer economic ties between the member sates were proposed, including the establishment of customs union before 1995. Moreover, a rapprochement with Egypt in October 1989 facilitated plans for wide ranging economic integration and cross-border co-operation. This relationship was one factor in Libya's decision ultimately to abide by UN embargo that was imposed on Iraq in August 1990 because of its invasion of Kuwait. Another factor was Libya's need to take full advantage of the sudden rise in world oil prices.
Economic reform was at the heart of the Libyan revolution, though economic philosophy has changed from one phase of development to another. The 'Green Revolution25)', investment in the industrial infrastructure, a radical shift in the management of oil resources - all signalled a departure from pre-revolutionary patterns. Libya will continue to rely on its oil resources, despite all attempts at industrial diversification; and here there are mixed expectations.
3. The Characteristics of Libyan Economy
At the time of independence, the Libyan economy was based mainly on agriculture, which was divided more or less evenly between field (including tree) crops and livestock products. Agriculture provided raw materials for much of the country's industrial sector, exports, and trade; employed more than 70 percent of the labor force; and contributed about 30 percent of the GDP, dependent on climatic conditions26).
The economic change between independence and the 1980s was dramatic. In 1951, on the eve of independence, Libya, underdeveloped and backward, was characterized by the United Nations (UN) as perhaps the world's poorest country. Experts predicted that the country would have to be supported for years by international grants-in-aid while it organized itself to try to live within its own meager means. However, in less than 25 years, Libya had turned into a rapidly developing country with accumulated net gold and foreign-exchange reserves equivalent to upward of US$4 billion and an estimated annual income from oil revenues of between US$6 and US$8 billion27).
The Libyan economy depends primarily upon revenues from the oil sector, which contributes practically all export earnings and about one-quarter of GDP. These oil revenues and a small population give Libya one of the highest per capita GDPs in Africa, but little of this income flows down to the lower orders of society. In this statist society, import restrictions and inefficient resource allocations have led to periodic shortages of basic goods and foodstuffs. The non-oil manufacturing and construction sectors, which account for about 20% of GDP, have expanded from processing mostly agricultural products to include the production of petrochemicals, iron, steel, and aluminum. Climatic conditions and poor soils severely limit farm output, and Libya imports about 75% of its food requirements. Higher oil prices in 1999 led to an increase in export revenues and helped to stimulate the economy. Following the suspension of UN sanctions in 1999, Libya has been trying to increase its attractiveness to foreign investors, and several foreign companies have visited in search of contracts28). Libyan Economic Indicator is shown <Table 3-1>.
<Table 3-1> Libyan Economic Indicator
Sources: CIA, The World Factbook, 2005.
The government dominates Libya's socialist-oriented economy through complete control of the country's oil resources, which account for approximately 95% of export earnings, 75% of government receipts, and 30% of the gross domestic product. Oil revenues constitute the principal source of foreign exchange. Much of the country's income has been lost to waste, corruption, conventional armaments purchases, and attempts to develop weapons of mass destruction, as well as to large donations made to developing countries in attempts to increase Qaddafi's influence in Africa and elsewhere. Although oil revenues and a small population give Libya one of the highest per capita GDPs in Africa, the government's mismanagement of the economy has led to high inflation and increased import prices, resulting in a decline in the standard of living.
Libya's gross domestic product grew in 2001 due to high oil prices, the end of a long cyclical drought, and increased foreign investment following the suspension of UN sanctions in 1999. Despite efforts to diversify the economy and encourage private sector participation, extensive controls of prices, credit, trade, and foreign exchange constrain growth. Import restrictions and inefficient resource allocations have caused periodic shortages of basic goods and foodstuffs.
Although agriculture is the second-largest sector in the economy, Libya depends on imports in most foods. Climatic conditions and poor soils severely limit output, while higher incomes and a growing population have caused food consumption to rise. Domestic food production meets about 25% of demand. The U.S. Government has prohibited the importation of Libyan crude oil into the United States since March 1982, as well as strict controls on U.S.-origin goods intended for export to Libya. On January 7, 1986, the U.S. imposed economic sanctions against Libya which broadly prohibit U.S. persons from engaging in unauthorized financial transactions involving Libya, including, in part, the following: the export to Libya of all goods, services, or technology; the import of goods or services of Libyan origin; engaging in the performance of a contract in support of an industrial, commercial, or government project in Libya; or dealing in any property in which the Government of Libya has any interest. The economic sanctions also prohibit U.S. persons from working in Libya.
Although United Nations sanctions were suspended in 1999, foreign investment in the Libyan gas and oil sectors has been severely curtailed due to the United States' Iran and Libya Sanctions Act (ILSA), which caps the amount any foreign company can invest in Libya yearly at $20 million (lowered from $40 million in 2001).
Libyan officials in the past three years have made progress on economic reforms as part of a broader campaign to reintegrate the country into the international fold. This effort picked up steam after UN sanctions were lifted in September 2003 and as Libya announced in December 2003 that it would abandon programs to build weapons of mass destruction. Libya faces a long road ahead in liberalizing the socialist-oriented economy, but initial steps - including applying for WTO membership, reducing some subsidies, and announcing plans for privatization - are laying the groundwork for a transition to a more market-based economy. The non-oil manufacturing and construction sectors, which account for about 20% of GDP, have expanded from processing mostly agricultural products to include the production of petrochemicals, iron, steel, and aluminum. Climatic conditions and poor soils severely limit agricultural output, and Libya imports about 75% of its food29).
EIU has revised the forecasts for 2004. The slowdown in government consumption growth is not likely to be as marked as previously projected as the government continues to enjoy sustained high oil earnings. With oil output - and hence export volumes - now also rising more strongly, real growth is expected to reach 3.9%. With continued oil production expansion now expected in 2005, growth will pick up to 4.3%, driven mainly by rising investment in Libya's hydrocarbons sector. With the easing of US trade sanctions, we assume that the economy will be boosted by reinvigorated commercial interest from abroad, with international companies keen to make the most of the opportunities provided by Libya’s dilapidated infrastructure. This will bolster already growing confidence in the Libyan economy stemming from the lifting of UN sanctions, from which the economy will start to see real benefit in 2005. Growing confidence, as Libya attracts more foreign investment, will also boost both government and private consumption, with the only constraint on growth coming from the increased volume of imported inputs, although with most imports being ploughed into development projects, these will be of longer-term benefit. Libyan Economic Forecast for 2004-05 is shown in <Table 3-2>.
<Table 3-2> Libyan Economic Forecast for 2004-05
Source: EIU, Country Report, Libya, 2005
1. Third Universal Theory30)
The Third Universal Theory was an attempt to develop a practical alternative to communism and capitalism, both of which Qaddafi, like many Arab nationalists, found unsuitable for the local environment. Initially, the theory condemned both systems as monopolistic, communism as a state monopoly of ownership and capitalism as a monopoly of ownership by capitalists and companies. Later in the decade, the revolutionary government adapted a centrally controlled economy and pursued a path to socialism more fundamental and extreme than that of its Arab neighbours. In the beginning, Qaddafi grouped the United States and the Soviet Union together as imperialist countries intent on expanding spheres of influence in the Middle East; but later he increasingly drew a distinction between the foreign policies of the superpowers31).
Qaddafi based on the Third Universal Theory on the twin pillars of nationalism and religion, which he described as the paramount drives moving history and mankind. Nationalism in general was a product of the world's racial and cultural diversity, and was thus viewed as both a necessary and productive force. Arab nationalism in particular was considered to have rich and deep roots in the ancient past. Because the Arab nation was the product of an age-old civilization which was in turn based on a 'heavenly and universal' message, namely Islam, Qaddafi' argued that the Arab nation had both the right and the duty to be the bearer of the Third Universal Theory to the World. The advocacy of an alternative path, or third road, between communism and capitalism was common to many Islamic reformers and Islamic ideologies in the twentieth century.
In April 1972, the first session of the Libyan Arab Socialist Union declared Islam the single source of human values and civilization and termed the struggle against the imperialist-Zionist alliance a holy war. In December 1978, the Libyan General People's Congress passed a resolution stating that one of the grounds for the abrogation of Libyan citizenship was the abandonment of Islam for another religion. Qaddafi concluded that 'it is wrong to be an Arab and a Christians at the same time. The prophet of the Arabs is Muhammad, and the Quran came down in the Arabic Language'. In this manner, Qaddafi firmly rejected the doctrine of secular Arab nationalism developed by Syrian Christians over one hundred years earlier. Similarly, he adopted a position opposed to Michel Aflaq of the Syrian Baath Party, who had argued that Arab nationalism comprehended Islam but was superior to it. Qaddafi emphasized the order's fundamentalist's elements in the early years of revolution in large part to establish his own religious credentials and thus enhance the legitimacy of the regime. At the same time, he discouraged the formation or revival of religious lodges and brotherhoods, and pursued socio-economic and political policies which reduced the residual power and prestige of Sansui movement32).
In the early, highly nationalistic phase of the revolution, Qaddafi initiated a programme to reinstate the Islamic law(Sharia)33). In October 1971, a law was promulgated which established a commission to review existing Libyan law with a view towards eliminating rules that violated the Sharia as well as devising projects for reinstating fundamental Sharia principles. The commission's greatest impact was in the area of criminal law; however, not all the traditional features of the Sharia in this area were revived. Some of the principles of Sharia law regarding aleatory contracts and interest charges were also revived; but the new laws were drafted in such a way as to avoid conflict with Western commercial and investment practices. Minor changes in the law, for example making the state responsible for collecting the Islamic alms tax(Zakhat), were also enacted.
Not all of these early changes to the legal system enhanced the prestige and application of the Sharia. The separate jurisdiction of Sharia courts was abolished, leaving secular courts to sit on Sharia matters; and the venerable Islamic institution of the family Waqf, a form of trust established to provide income for family members, was abolished. Modest reforms to the law of marriage and divorce were also enacted which reduced the sway of the Sharia and modified it in its remaining areas of application. Great publicity was given to the reinstatement of Sharia law; but by 1974, when the trick of enabling legislation had dried up, the Libyan legal system as a whole was not markedly more Islamic. Moreover, in some areas the Westernizing process continued. For the next few years, Qaddafi focused on publicizing and implementing the Third Universal Theory as outlined in the three volumes of the Green Book published after 197534).
Qaddafi's initial approach to Arab nationalism, Islam and government was primarily in terms of the use of Islamic precepts, as opposed to Islamic organizational structures, for state purposes. Later, reformist elements of that approach - such as a progressive role for Islam, the rejection of the hadith, the transcendence of God and the purely human role of the Prophet - were employed to reduce the role of religious leadership and bring Islam under closer control of the revolution. While Qaddafi's concept of Islam was increasingly divergent from that of Nasser, his use of the Islamic component of Arab nationalism had much in common with Nasser's. Both Qaddafi and Nasser went beyond secularism in an effort to make Islam an internal and external instrument in support of the revolution. In later year's, the Islamic character of Qaddafi's Arab nationalism and the supposed universal elements of his Third Universal Theory became increasingly paradoxical. Qaddafi's response was to continue to emphasize the centrality of Islam to Arab nationalism while downplaying Islam's role in the Third Universal Theory. In any case, his argument that the Third Universal Theory was the basis for a new world order centered on the Arab nation logically resulted in Islam having a central role35).
2, Green Book
Qaddafi's domestic agenda was based on his philosophy of government, expounded in 1973 as the Third Universal Theory and later published in three volumes in his Green Book, a rambling treatise that sets out Qaddafi's theory of and the course of history. Qaddafi defines his purpose as "the comprehensive solution of the problems of human society so that the individual may be materially and spiritually liberated ... a final liberation to attain his happiness." The Green Book remains the clearest expression of Qaddafi's credo to this day. That calls for Arab unity. Convinced that his cause is morally correct, he feels it is his duty to bring about Arab unity - by whatever possible means - even if fellow Arabs do not respond to his cause36).
In volume 1, Qaddafi claims to have the final solution to the problems of governing and government. Democracy is the goal, but he rejects both capitalism and communism as well as any other system to obtain it. All such theories, he says, are unfair to minorities. Political parties are bad, too, because, according to Qaddafi, the party acts as a dictatorship. Direct democracy is the only answer, although he gives rather vague directions on how that is to be carried out. He uses the term Jamahiriya (state of the masses) and became part of the official name of the country in 1977. In this new political society, the people are to be grouped into congresses, each one choosing a leader. Together, all these leaders choose committees to replace the one government. Major policies are to be decided by the General People's Congress37). In Libya's new society, there is no private ownership or property, and no private corporations. All corporate wealth is to be distributed evenly among the people38).
In The Solution of the Economic Problem (volume 2 of The Green Book), Qaddafi states the basic problem as the fact that all workers are slaves because they exchange their work for money. To solve this problem, the worker must become the consumer, a partner in the process of production. A worker should work not to create a profit but only to satisfy basic needs, which Qaddafi said are a house, an income, and some means of transportation. In the 1970s, laws were passed that gave each Libyan citizen the right to own one house or some land on which to build one house. Today, no Libyan can own a house that is rented to someone else. Actually, no Libyan can own land either, because it is collectively owned by everyone, although Libyans and their heirs have the use of the land. Eventually, according to Qaddafi's economic theory, a sort of barter system will be established in Libya and money will be abolished. However the barter system and abolishment of money have not occurred in modern Libya. Qaddafi also speaks of a time when industrialization in Libya will free workers from mundane jobs. Educated engineers and technicians will do the necessary work. Because of this necessity, all Libyans will be educated so that illiteracy will disappear.
The Social Basis of the Third Economic Theory (volume 3) covers Qaddafi's philosophy on general subjects such as history, religion, and society, as well as more specific topics such as women, minorities, education, and sports. He argues that the two main forces in history are nationalism and religion. He blames a clash of religions for most of the world's problems and promotes a single religion as the best way to achieve harmony and strength. Qaddafi, of course, believes that Islam is the religion that all Arab nations should establish, although he never mentions it by name39).
3. Qaddafi and Oil
Qaddafi's revolution was financed by Libya's oil. Before the coup, Qaddafi was one of many Libyans who complained that the wealth in oil was not tricking down to the average citizen. Like others, he charged that too much oil money made its way into the pockets of the King and hid royal entourage. It was true that salaries went up, but so did prices on nearly everything. Qaddafi realized that oil exports not only improved the standard of living in Libya, but could be used as a political tool against his enemies. For instance, during the October 1973 Arab-Israeli War, he joined those who cut back oil shipments to the West and did not raise levels to the United States until the following year. By 1974, Qaddafi's government controlled 60 percent of Libya's oil40). As an example of what oil has meant to Libya, in 1951 when it achieved independence, workers averaged between twenty-five and ninety dollars a year. Oil was discovered in 1959, and by the middle of the 1960s, the average income was about fifteen hundred dollars a year41).
The Libyan economy remains almost totally dependent on oil export, and few serious attempts have been made to reduce that dependence. Less than twenty percent of the GDP is independent of oil and the oil sector. The economy continues to be that of an import-based, parasitic, rentier state, where domestic industrial production is insignificant. Most of the industrial plants bought by the central government after the revolution, at great cost to the Libyan taxpayer, remain inactive, for reasons ranging from poor maintenance and lack of spare parts to inefficient management and pilfering of industrial resources42).
The Libyan economy is unique in North Africa. Whereas Algeria, Egypt, Morocco, and Tunisia all have large populations, considerable agricultural potential, and well-established industrial bases, Libya possesses few of these advantages. It does however, have abundant energy resources - primarily an attractive type of light low - sulfur crude oil as well as some natural gas. Given the country's small population (about 5.6 million in July 2004 est) and considerable petroleum - derived income, the Libyan economy has more in common with those of the small oil-exporting Persian Gulf states than with those of its North African neighbors.
In an interview with TIME on 14 Aug 2003, the Libyan leader, Qaddafi said his country would accept responsibility under international law for the 1988 terrorist bombing of Pan Am Flight 103 over Lockerbie, Scotland, which killed 270 people. Qaddafi described a new world order in which the US and Libya were natural allies in the war against Islamic extremism. He said Libya would be a much better friend than a certain oil-rich Arab monarchy an obvious reference to Saudi Arabia that encourages religious fanaticism.
With the easing of US trade sanctions, EIU assumes that the Libyan economy will be boosted by reinvigorated commercial interest from abroad, with international companies keen to make the most of the opportunities provided by Libya's dilapidated infrastructure. This will bolster already growing confidence in the Libyan economy stemming from the lifting of UN sanctions, from which the economy will start to see real benefit in 2005. Growing confidence, as Libya attracts more foreign investment, will also boost both government and private consumption, with the only constraint on growth coming from the increased volume of imported inputs, although with most imports being ploughed into development projects, these will be of longer-term benefit.
US oil companies are eager to return to Libya, where they produced more than a million barrels a day before Reagan administration sanctions forced them to withdraw in 1986. Major U.S. players there were Occidental Petroleum and the so-called Oasis Consortium of ConocoPhillips, Marathon and Amerada Hess. Libya also seeks to diversify its economy and wants investment in manufacturing, health, tourism, other services, agriculture, infrastructure and aviation. Libya emphasized the country as relatively safe compared with the emerging market in Iraq. But Libya keeps the economy of largely state-run. Despite the recent easing of US economic sanctions against Libya, US businesses face numerous obstacles to investing in the North African nation.
Despite the recent easing of US economic sanctions against Libya, US businesses face numerous obstacles to investing in the North African nation. Libya has required foreign companies that want to set up branch offices to sign a letter certifying that they have no business dealings with Israel. Such a certification is illegal under US law. That will be an effective block on US participation in the Libyan economy.
Libyan leader, Qaddafi gave to the privatization Programme in 2003, allowing his government to push ahead with the necessary reforms. The government later announced that a total of 360 companies would be privatized between 2004 and 2008. The capital of 54 of them expected to be opened to foreign investors in July 2004. Libyan Prime Minister, Shukri Ghasnim said in an interview in July 2004 that "just under half of 360 state firms earmarked by the government for reform had already been privatized, Libya has begun the process of developing the private sector, and one hundred and sixty public companies have been transferred to the private sector and major international firms have been invited to take part in this privatization." He also mentioned that the Libyan economy would offer some attractive investment opportunities in all sectors ... especially in gas and oil.
Accepting the 1988 Lockerbie bombing and abandoning WMD programmes in December 2003, Libya has paved the way to cooperate with Western countries, especially the United State. Anticipated results, however, have not been done with Western countries till now. Although Libya made efforts to reform, Westerners think that these efforts are insufficient for their needs in the New World Order. Practically investment in Libya has some legal problems. Libyan economic system is very weak to cope with capitalistic economy in the New World Economic Order. Libya must open the market more and introduce capitalistic system. Only if Libya accepts the role of the New Economic Order, Libyan economy will develop as like the Gulf Arab states because Libya has a good and great amount of oil. Above all Libya's effort to participate in the New Economic Order is important to develop its economy.
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World Affairs Monthly, July 2004. http://www.worldaffairsmonthly.com 05/02/17
1) Niblock, Tim, "Pariah States" & Sanctions in the Middle East, Iraq, Libya, Sudan, (Boulder: Lynne Rienner Publishers), 2002, p. 2.
2) ibid. pp. 5-6.
3) ibid. pp. 11-12.
4) World war was to bring America into this lucrative business, and the West's extraordinary monopoly over the majority of the world's proven petroleum reserves continued without serious disruption - until August 1990.
5) World Affairs Monthly, July 2004. http://www.worldaffairsmonthly.com 05/02/17
6) ibid. 05/02/17
7) 2/3 of the world's proven oil reserves are in the Middle East. 1/3 of the world's proven gas reserves are in the Middle East.
8) ibid. 05/02/15
9) Although UN sanctions were not imposed on Libya until 1992, this was not the beginning. The United States applied its own sanctions to Libya well before that, and some sanctions were applied by European Community countries as well.
10) Niblock, Tim, op.cit., pp. 27-29.
11) The US military action involved air raids on targets within Libya, including Qaddafi's residence in the Azizia barracks in Tripoli. The clear intent was to assassinate the Libyan leader from the air. Qaddafi narrowly avoided injury, but his adopted daughter died in the attack.
12) ibid. pp. 30-31.
13) ibid. pp. 35-41.
14) Europa, The Middle East and North Africa 2003, 49th edition, (London: Europa Publications), 2002, p.762.
15) Niblock, Tim, op.cit., p. 63.
16) Simons, Geoff, Libya, The Struggle for Survival, (London: Macmillan), 1996, p. 182.
17) When Libya achieved independence in 1951, workers averaged between twenty-five and ninety dollars a year. Oil was discovered in 1959, and by the middle of the 1960s, the average income was about fifteen hundred dollars a year.
18) ibid. pp. 182-183.
19) http://countrystudies.us/libya/57.htm 05/02/17
20) The Plan was involving twenty-seven agrarian projects and working in conjunction with a Three-Year Intermediate Development Plan and a Five-Year Transformation Plan.
21) ibid., pp. 226-227.
22) ibid. pp. 228-231.
23) Europa, op.cit., pp. 774-775.
24) UMA was formed in February 1989 and comprising Algeria, Libya, Mauritania, Morocco and Tunisia. In May 1993 Col Qaddafi advocated the introduction of a law to guarantee foreign capital investment in Libya. In July 1993 representatives of some 250 Libyan and Tunisian companies met in Tripoli to discuss proposals for improving economic cooperation between two countries, including the possible establishment of new joint ventures.
25) The Green Revolution is aimed at developing large areas of agriculture to produce complete self-sufficiency in food. In the early 1950s Libya was officially rated by the United Nations as the poorest country in the world. Today, it is one of the wealthiest in African countries. About The Green Revolution, You can see more details in Simons, Geoff, op.cit, pp. 225-231.
26) http://countrystudies.us/libya/58.htm 05/02/17
27) http://reference.allrefer.com/country-guide-study/libya/libya69.html 05/02/17
28) http://www.informationblast.com/Economy_of_Libya.html 05/02/17
29) CIA, The World Fact Book, 2005.
30) By late 1972 Qaddafi had begun to give the tenets of his strain of Arab nationalism a theoretical foundation with the articulation of what came to be called The Third Universal Theory (or Third International) Theory. The universal Theory is divided into three parts: The Solution of the Problem of Democracy (Volume 1 of The Green Book), The Solution of the Economic Problem (Volume 2), and The Social Basis of the Third Universal Theory (Volume 3). You can read the complete text of all three parts of the GREEN BOOK by Mu`ammar al-Qaddafi in http://www.geocities.com/Athens/8744/readgb.htm or http://www.mathaba.net/gci/gc27/.
31) St John, Ronald Bruce, Qaddafi's World Design, Libyan Foreign Policy, 1969 - 1987, (London: Saqi Books), 1987, pp. 28-29).
32) ibid. 29-30.
33) At the time, the legal system that prevailed in Libya was drawn early from French models and was similar to that in Egypt, Syria and Iraq, although it also reflected Italian influence due to Libya's exposure to Italian law during the colonial era.
34) ibid. p. 31.
35) ibid. pp. 32-33.
36) Naden, Corinne J. and Blue, Rose, Muammar Qaddafi, (New York: Lucant Books), 2005, p. 36.
37) General People's Congress is a body that Qaddafi actually established, which has met yearly in Libya since 1976.
38) ibid. 38-39.
39) ibid. pp. 40-42.
40) Concerning on the development of Libyan oil industry, see Gurney, Judith, Libya, The Political Economy of Oil, (Oxford: Oxford University Press), 1996, pp. 8-15.
41) ibid. pp. 42-44.
42) El-Kikhia, Mansour O., Libya's Qaddafi, The Politics of Confrontation, (Gainesville: University Press of Florida), 1997, p. 92.
Publisher: Korea Institute of the Mideast Economies (KIME). Editor: Dr. Seong Min HONG.
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