End of the socialist experiment

Libya: End of the socialist experiment

Badcock, James

As Libya prepares to rejoin the world economic order, its charismatic leader Muammar Ghaddafi has announced a complete overhaul of the domestic economic model. James Badcock has the details

One by one North African countries have abandoned the ideal of state-controlled industry generating wealth to be distributed by the state. Yet, it still came as something of a shock when Colonel Muammar Ghaddafi announced the end of the 34-year experiment in Libyan socialism.

Libya’s Leader of the Revolution called for the “abrogation of the public sector”, blaming previous poor performance on “unqualified employees who do not care about their country’s interests” as had been the case in the Soviet Union. Such a reference suggests that Ghaddafi believes that the goal of socialism remains but the means used to bring it about have failed.

In his speech to the General Peoples Congress, Ghaddafi went further, stressing “the need to avoid capitalism and exploitation”, in the event of the public sector being broken up. He re-affirmed the need to establish a “people’s socialism, or even people’s capitalism”. Most importantly, he explicitly included Libya’s state-owned oil wealth in the impending liberalisation project, in addition to banking, airports, roads and any other public utility currently run by the state, while insisting that the management style of the future service industries be collective, not exploitative.

The hint of an invitation to multinational oil companies to return to Libya has galvanized Western government policy makers in a hasty redrawing of their attitudes to this once ‘pariah’ country.

UN trade sanctions, first imposed in 1992 and which included a ban on flights, weapons sales, oil-related exports to Libya and general freezing of international funds, were suspended in 1999 when two Libyan security agents were released for trial. One was eventually found guilty of the Lockerbie bombing.

The announcement of future privatisation anticipated the major steps taken in August to solve the issue of responsibility and compensation for the 1988 Lockerbie plane bomb attack.

After months of speculation over an apparently imminent deal, Libya finally fulfilled its side of the bargain by signing an agreement worth $2.7bn with the families of the 270 victims of the bombing of Pan Am flight 103. Two days later, the next detail was accomplished when Libya delivered a letter to the UN Security Council formally accepting responsibility for the Lockerbie attack. Nevertheless Libyan diplomats continued to insist that the deal had to do with lifting the sanctions and should not be construed as an admission of guilt.

The deal signed in London offers $10m in compensation to each family. The money has already been deposited in a Swiss bank account, but will only be paid out as each sanction is removed.

The first installment of $4m will arrive as soon as UN sanctions are lifted. A further $4m payment is dependent on the US lifting its own sanctions, and a final $2m sum will be freed if Washington removes Libya from its list of states which sponsor terrorism.

It was hoped that in a matter of days a UN resolution dropping sanctions, tabled by the UK, would be agreed. But no sooner had Libya’s generous financial terms over Lockerbie been confirmed than other international claims on past Libyan involvement in terrorism began to be voiced.

First the French, as members of the Security Council with the power of veto, announced that they would be pursuing greater compensation terms with Libya over the explosion of UTA flight 772 over Niger in 1989, in which 170 people died. France had previously accepted a much smaller compensation deal, not negotiated directly with Libya, but ordered by a Paris court in 1999.

The 1986 bombing of a Berlin nightclub was another notorious terrorist incident ascribed to Libya and now, tacitly at least, accepted by that country as their responsibility. In August, Ghaddafi’s International Foundation for Charitable Associations, headed by Ghaddafi’s son Seif, agreed to pay compensations to the families of the victims of the explosion. Over 200 people were killed.


Negotiations over UTA compensation proved hard, but by the end of August, Ghaddafi confidently announced, while commemorating the 34th anniversary of his revolution, that the deal was settled and that Libya was “opening a new page in its relations with the West.” France confirmed the agreement on September 11 and the next day resolution 1506, co-sponsored by Britain, Ireland, and Bulgaria, got the consent of 13 members in the Council, with only France and the US abstaining. UN sanctions had finally been officially lifted.

We can now expect to see a rush to compete for larger market shares in Libya’s oil sector. US companies will be playing catch up. European oil firms have been involved in Libya since the suspension of UN trade sanctions, but the US administration has so far stuck to a continuation of its own embargo on commerce, although as a gesture of goodwill it has said that it will not obstruct the lifting of UN barriers.

Technically, however, the US could attempt to scupper increased international investment in Libya by invoking the 1996 Iran-Libya Sanctions Act (ILSA), which allows Washington to punish foreign firms that invest more than $20m per year in Iran or Libya’s energy sectors. In practice no sanctions have ever been imposed under these provisions.

There is sure to be extensive lobbying behind the scenes towards a softening of Washington’s tough stance on Libya. The Oasis consortium, which includes Houston-based Marathon Oil Corporation and ConocoPhillips, had been working on Libyan oilfields until sanctions were first imposed after the Lockerbie disaster. Until now, their right to that oil discovery has been held in trust by the Libyan Government.

This trust is due to expire in 2005 giving Tripoli the chance of offering the concessions to other companies. Libya’s battle-plan against the US has now become one of inclusion rather than exclusion behind the stubbornly closed doors of the all-embracing state sector. To draw President Bush’s administration and its oil-dealing sponsors back into the Libyan market, Ghaddafi is armed with both the tempting carrot of oil reserves and the punishing stick of being able to withdraw a US company’s rights to that mineral wealth.


By way of demonstrating that his announced U-turn was not merely for show, Ghaddafi instigated a government reshuffle two days later. Mubarak al-Shamekh was replaced as Prime Minister by the former Minister of the Economy and Oil Exports, Shukri Ghanem.

A further pointer to the switch in Ghaddafi’s attention from international political affairs and prestige to domestic economic success was the removal of the post of Minister for African Unity from the government portfolio, being merged with the Foreign Ministry. Thus Ghaddafi’s long-standing ambition of converting Africa into a united political entity continues its grip on his mind.

The next step in the transformation of the Libyan economy into one welcoming to all-comers was the unification of the exchange rate, ending the multiplicity of rates formerly allowed. Previously, the official rate was used by the state and its companies, while another exchange rate was used for private companies and citizens who needed foreign currency to travel, study or seek medical treatment abroad.

Prime Minister Ghanem’s first speech on taking up his post gave further indications that there was a new mindset at the heart of the Libyan administration. Like its North African neighbours, Libya wants to become a member of the international trade community, with the ultimate badge of membership being inclusion in the World Trade Organisation (WTO). Ghanem referred to the launching of Libya’s bid to join the WTO as an event which would, he said, “start very soon”, following the lifting of UN sanctions.

The process could be a long one, however, bearing in mind that Algeria has been waiting 17 years to be accepted as a WTO member, something they hope will become concrete in the coming year. In the short term, Libya seems to have opted for an increasingly mixed economy, echoing the public/private investment policies of many European social democratic governments, such as Prime Minister Tony Blair’s so-called ‘Third Way’ experiment in the UK.

Speaking in the same vein as his President, Ghanem emphasised the gradual nature of the proposed reforms to the economy: “The private sector will carry out a greater role but that does not mean the role of the public sector will end abruptly in a single day. They will complement each other.” On the key topic of oil, responsible for a quarter of the country’s GDP and practically all its export revenues, the new Prime Minister noted that the public sector would not disappear, but would work side by side with private investors, continually opening doors “for more cooperation and for better reforms”.

It remains to be seen whether ordinary Libyans or Western powers will benefit from the opening up of Libya’s markets. In Ghaddafi’s eyes, it represents a kind of honourable truce after decades of conflict: “We have our dignity and we are not interested in money. ” It is an admission that could bring increased opportunities to Libya, particularly as Europe and North Africa draw ever closer in economic ties.

Copyright International Communications Nov 2003

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