Bloomberg

Oil-Rich Libyans Won’t Need Financial Aid in Post-Qaddafi Era

August 23, 2011, 8:57 PM EDT

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By Alaa Shahine and Vivian Salama

(See EXTRA for more on the Libyan conflict.)

Aug. 24 (Bloomberg) -- Libyan rebels needed NATO’S military might to bring Muammar Qaddafi’s rule to the brink of collapse. About $50 billion in cash abroad means they can do without foreign aid to rebuild the country after a six-month conflict.

Air strikes and logistical support from North Atlantic Treaty Organization forces helped reverse the tide in Libya, stopping the advance of Qaddafi’s troops on rebel strongholds and allowing the opposition to score military victories that culminated in a sweep into Tripoli this week.

As the rebels hunt Qaddafi and his remaining followers in the capital, world leaders such as German Chancellor Angela Merkel are urging the release of frozen Libyan assets abroad to help in the transition to democracy. Those assets and Africa’s largest oil reserves set Libya apart from neighboring Tunisia and Egypt, which sought outside financial aid after popular revolts ousted their leaders this year.

“We don’t need loans,” former Libyan Central Bank Governor Farhat Bengdara, who broke with Qaddafi’s regime in February, said in an interview in Dubai. “Libya has huge financial resources and oil reserves. What it needs is the cooperation of the international community to lift the freeze on Libya’s assets aboard.”

The Libyan economy suffered as much as $15 billion in damage during the conflict, according to Bengdara’s estimates. An economic recovery and the release of frozen assets will depend on how fast the rebels can stabilize the country and establish a government, say analysts including Paul Sullivan, a professor at the National Defense University in Washington.

Bank Deposits

The central bank and the Libyan Investment Authority, the country’s sovereign-wealth fund, have about $168 billion in assets abroad. About $50 billion of that is in bank deposits in European countries including Germany, the U.K., France, Italy, Portugal, Spain, Sweden, Belgium and the Netherlands, Bengdara said. The two institutions also hold about $40 billion in U.S. and European government bonds, he added.

The resources will offset the losses that the economy has incurred, according to Suliman Al Shahomy, chairman of the Libyan Stock Market, who broke with Qaddafi’s regime in February.

“The infrastructure hasn’t been destroyed,” he said in a telephone interview from Cairo.

Oil and equity investors rejoiced after the rebels entered Tripoli. The prospects of Qaddafi’s four-decade rule ending helped shares of Eni SpA, the biggest foreign investor in Libya, Ansaldo STS SpA and Total SA gain. Brent oil fell, narrowing its record premium to the main U.S. grade, on bets Libya’s output will recover.

No Debt

Libya doesn’t have outstanding debt. The conflict prompted Fitch Ratings to withdraw all of its credit ratings on Libya on April 13, citing “extreme political instability” and the loss of oil production.

Libya’s oil output, at about 1.58 million barrels a day before the revolt according to Bloomberg data, slumped to a trickle after fighting broke out, according to the International Energy Agency. Output may reach as much as 350,000 barrels a day within three months “if we’re lucky,” said Samuel Ciszuk, the London-based senior Middle East and North Africa energy analyst at IHS Global Insight.

“Until we see stability, it will be hard for the oil industry to recover,” Ciszuk said by telephone. “It’s all about bringing what is there back on stream as soon as possible. Some will be a bit hard to bring back on stream. There’s been some long-term damage to some of the older oil fields because they were shut down in a rushed and disorganized manner.”

‘Sudden Takeover’

Even so, oil production will recover more quickly than forecast after the “sudden takeover” of fields and export facilities by rebels, Goldman Sachs Group Inc. said in a report this week. Libya will probably boost supply to 585,000 barrels a day in the next 12 to 18 months, Goldman said.

Qaddafi came to power after he toppled Libya’s monarchy in a 1969 military coup. His attempts to export the self-styled revolution to other countries put Libya under U.S. and United Nations sanctions in the 1980s and 1990s. Qaddafi’s government also was accused of sponsoring terrorism, and a Libyan man, Abdel Basset Al-Megrahi, was convicted of the bombing of a Pan Am airliner over Lockerbie, Scotland in 1988.

After 2000, Qaddafi renounced terrorism and gave up a nuclear-weapons program. That led to international sanctions being lifted and boosted the economy, which expanded 4.2 percent in 2010, according to the International Monetary Fund.

Oil aside, the economy offers investment opportunities in industries including tourism, mining, agriculture financial services, according to Bengdara, 45.

Unicredit License

International and Arab banks including HSBC Holdings Plc, Standard Chartered Unicredit SpA and Mashreqbank PSC had applied to set up units in the North African country. Unicredit, Italy’s biggest lender, said in August last year it had won a license.

“Libya can become the star of the region,” Bengdara said. “Libya’s economic output, which was about $80 billion before the revolution, can easily double in no longer than 10 years.”

Even so, lingering protests, labor strikes and political bickering in Tunisia and Egypt show that the transition toward democracy in Libya may not be easy, Raza Agha, a London-based economist at Royal Bank of Scotland Group Plc, said in a report on Aug. 22. In fact, Libya may have a harder time, according to Sullivan of the National Defense University.

‘Gutted the Government’

“Libya may have the toughest transition of all of them in North Africa,” Sullivan said by e-mail. “Qaddafi gutted the government and there is really seems to be almost no understanding amongst many there about how to transition to a vibrant economy and democracy. Platitudes and hopes are not policies that can be implemented.”

Uncertainty about the nature of the post-Qaddafi government may also delay the release of frozen funds, Stuart Levey, a former U.S. Treasury undersecretary, told Bloomberg Television’s “In Business with Margaret Brennan.”

Having the assets still frozen can be used “as a point of leverage for the United States and its allies to ensure that they have a legitimate government they can trust in Libya they can give this money to,” Levey said.

--Editors: Eddie Buckle, Andrew Atkinson
To contact the reporters on this story: Alaa Shahine in Dubai at asalha@bloomberg.net; Vivian Salama in Abu Dhabi at vsalama@bloomberg.net
To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net; Claudia Maedler at cmaedler@bloomberg.net