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BusinessWeek: The Opening Of Libya

MARCH 12, 2007  

Harvard professor Michael Porter is helping to restructure the economy, but skepticism abounds

Mohamed Zeyani is a baby-faced 27-year-old with slicked-back hair. He is also a new phenomenon in Muammar al Qaddafi’s Libya—an entrepreneur. With his 25-year-old brother Ali, Zeyani opened the Al Sahab Training Center three years ago in the up-and-coming Bin Ashour district of Tripoli. The center is now teaching English, computers, and business skills to about 130 employees of local companies and multinationals such as Occidental Petroleum Corp. (OXY ) and Italian oil giant ENI. “We chose the field of education because we felt there was a big need,” Zeyani says as he looks in on classrooms crowded with women in head scarves and young men in suede jackets. His annual revenues have already doubled, to $1 million, and he’s thinking of setting up an executive MBA program.

Entrepreneurs in Libya? Isn’t this the pariah state where everything is run by so-called peoples’s committees and until recently private property was severely restricted? The answer is that Qaddafi has wised up—at least partly. He began changing course a few years ago when oil prices were low. The Libyan economy was close to collapse after more than a decade of U.S. and U.N. sanctions brought on by his reckless actions, such as the 1988 bombing of Pan Am Flight 103 over Scotland. After the U.S. invaded Iraq and toppled Saddam Hussein in 2003, Qaddafi settled his differences with Washington and abandoned his weapons of mass destruction programs.

Since then, foreign oil companies have been piling into Libya, and Tripoli has started to revitalize the economy. Much of the progress is due to an unusual partnership with Harvard Business School professor and competitiveness guru Michael E. Porter, who is advising the Libyans through Boston consultancy Monitor Group. For the past two years, more than a dozen Monitor consultants have been working in Libya, studying the economy and running a three-month leadership program intended to create a new pro-business elite. So far, 150 Libyans have graduated. The people in the course “were real role models, starting businesses, contributing to society,” says graduate Yazid el Shaari, an engineer at Canadian-Libyan joint venture Veba Oil Operations.

Porter was persuaded to take the job by Qaddafi’s son, Saif al Islam. The former London School of Economics graduate student is a lean man who favors expensive European suits and Western-style economic reform. Since first meeting Saif at several dinners in London, Porter has traveled to Libya three times and met top government officials, including the elder Qaddafi. “I didn’t take this on because this is a big economy,” Porter said in an interview at Tripoli’s glitzy Corinthia Hotel. “It was very symbolic. If this can be successful, then other countries will be able to change.”

It’s a monumental task. Libya is behind the curve in just about everything. Moreover, the country’s economy is more dependent on oil and gas than just about any other. The industry, which employs only 3% of the workforce, accounts for over 60% of gross domestic product—a higher share than in either Saudi Arabia or Kuwait. Even though Qaddafi, who has ruled since 1969, is taking the chains off the private sector, unemployment is still estimated to be as high as 35%, and the streets of Tripoli are filled with loitering young men.


Yet there’s a buzz in the Libyan capital these days. Developers are eyeing the spectacular beaches west of the city, and real estate prices have doubled in the past year. “There is definitely an undercurrent of motion,” says Abdulla Boulsien, a London-based Libyan who is scouting real estate and IT deals for Tuareg Capital, a private equity fund set up to invest in Libya and Algeria.

Even if it’s not entirely open for business, Libya seems to be worth the trouble. After all, the country has oil and gas income approaching $40 billion per year, some $60 billion in the bank, and an attractive location across the Mediterranean from Sicily. So far, the biggest action is in energy. The Oasis Group—which includes ConocoPhillips, (COP )Marathon Oil (MRO ), and Hess (HES )—paid Tripoli $1.8 billion two years ago to return to the Libyan fields that the U.S. government forced them to give up in 1986.

Occidental Petroleum Corp. also reclaimed its old Libyan acreage in 2005, paying $133 million up front. The company was the big winner in the first of three auctions that the Libyans have held for new exploration rights in the past two years, paying $90 million and committing to an additional $125 million in investment. Exxon Mobil (XOM ) and Chevron have also picked up acreage in the auctions. And Royal Dutch Shell has agreed to a major gas deal. “We believe Libya will be a very interesting country to work in for the next five to ten years,” says Tawfiq A. Mohamed, chairman of ete-laf Oil Services Co., a Tripoli-based company that performs oilfield construction work.

More tourists, too, might be drawn to Libya. An hour east of Tripoli lies one of the world’s great ruined cities, Leptis Magna. Among the largest Roman settlements in Africa, it’s well-preserved and promises to be a key attraction. But getting a decent hotel room or a table at one of the better fish restaurants in Tripoli is a challenge. Oil companies have booked blocks of rooms permanently. And the U.S. Embassy, which reopened last year, is using a floor of the Corinthia as a temporary base while its diplomats find a building site.

The growing stream of businesspeople and visitors is gratifying to hotelkeeper Mohammed Mesbah. He runs the Zumit Hotel, a spectacular hostelry built next to a Roman arch dedicated to Marcus Aurelius in Tripoli’s old city. Mesbah recently spent about $400,000 renovating the colonnaded structure, which was built in 1816 to house traveling merchants. “I figured my vision may be four or five years ahead of its time,” says Mesbah. But he’s already fully booked on most nights.


None of this means Libya is likely to turn into a new Dubai. Libyan society, which has lived for decades under Qaddafi’s revolutionary populism, probably isn’t ready for that degree of opening. “To change from a socialist culture to a private culture is a big project,” says Saleh Zahaf, a lawyer who advises would-be foreign investors. “It requires a generation.”

Porter complains that reform ground to a halt last year after Monitor recommended a big commitment to education and training and investment in energy, tourism, trade, and construction. One reason: a backlash against proposed layoffs of public-sector workers. A planned privatization of a public-sector bank called Sahara also failed when investors rejected the government’s valuation.

Qaddafi and his son needed more time to build consensus. Over the past year, they have gradually replaced hard-liners in the government. On Feb. 22, Porter joined Saif in Tripoli to announce the launch of a Libyan Economic Development Board designed to speed government decision-making and boost private enterprise. Saif also promised to more than double compensation for state employees, whose salaries have been frozen at low levels for years. (A typical engineer, for example, makes about $400 a month.) And while he wants to shrink the state sector by some 20%—or 180,000 workers—those who leave will be given three years’ salary, plus loans of $23,000 to start businesses. “We need to change from a state economy to an open economy,” Saif told reporters, “but without it being out of control.”

This balancing act is likely to continue as Libyans wait to see whether Qaddafi is truly serious about reform. “We are getting more comfortable, but lots of people don’t feel confident,” says one Libyan businessman. For decades, Qaddafi confiscated businesses and homes and treated enemies with brutality. Fear still lingers in the Tripoli air, and hotel rooms and restaurant tables are said to be bugged. Moreover, Saif isn’t the only Qaddafi son with his father’s ear. Saadi, a former professional soccer player, and Mohtassem, the chief of intelligence, also vie for influence.

But many business leaders believe the regime is finally listening. In 2003, a group was allowed to form a business council, which successfully lobbied for lower interest rates. Recently, council members prevented a project to build what they considered to be an overpriced flour mill that was backed by Maltese investors. Instead, a cheaper $15 million Libyan-backed facility got the green light. “We were kept out of [projects in] our country for years, and we want it back,” says Abdalla M. Fellah, a former council chief who will invest in the mill.

Foreign investors in Libya will have to reckon with such nationalistic sentiments, so future deals won’t come easily—just as nothing in Libya does. But the reward—a foothold in one of the world’s great oil producers—is well worth it, many foreign executives believe. As Mohamed Zeyani says: “Something is happening. It may be slow, but it is happening.”

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