Libya’s ‘Must-Visit’ Economy Snares BP, U.K. Investors in War

Renaissance Group (RNCG) fund manager Justin Farr-Jones flew to Tripoli last May with a British investment delegation that promised to give “unique access” to Libya’s financial leadership.

The economy was opening up after Prime Ministers Tony Blair and Gordon Brown had both met Libyan leader Muammar Qaddafi, whose son Saif completed a doctorate at the London School of Economics. Abdel Basset Al-Megrahi, the only person convicted of the 1988 bombing of Pan Am flight 103, was freed in 2009.

“It was actually a must-visit economy,” said London-based Farr-Jones, whose firm focuses on emerging markets. “I really did feel that Libya was on the brink of reform.”

A year later, all bets are off after fighting erupted in Libya. London-based oil company BP Plc (BP/) evacuated workers. U.K. Trade & Investment, a government export organization that last year said Libya was “potentially the fourth-most attractive overseas market,” closed its office in Tripoli along with the U.K. Embassy. The outcome of the conflict matters to British companies.

“There can be no real stability in Libya until Qaddafi goes,” said Oliver Miles, a former U.K. ambassador to Libya and deputy chairman of the Libyan British Business Council. “The creation of a democratic system in Libya would be the best outcome for the Libyan people and for businesses.”

Blair in Libya

Blair opened Libya to British business with his “deal in the desert” in 2004 with Qaddafi, who promised to abandon a nuclear-arms development effort, to destroy stockpiles of chemical weapons and renounced terrorism. Three years later Blair was back in Libya to announce BP’s return to the country more than three decades after Qaddafi nationalized the oil industry. The country had “huge new commercial opportunities” for British business, he said then.

As political links between Britain and Libya increased, more than 150 U.K.-based companies from BP to clothing retailer Marks & Spencer Group Plc (MKS) arrived to start or prospect for business. Farr-Jones, 35, was among finance executives from London-based fund managers Schroders Plc (SDR) and Aberdeen Asset Management Plc and HSBC Holdings Plc (HSBA) scheduled on the visit to Tripoli, which was organized by the Libyan British Business Council, according to the group’s website.

“The rapprochement between Libya and the West, and Al- Megrahi’s transfer, indicated that the prospects for privatization would be bigger and that Saif would assume the reigns in a way that would be positive for Libya and investors,” said Farr-Jones of Renaissance Group, an asset- management and investment-banking firm based in Moscow.

‘No Illegality’

Groups such as the Libyan British Business Council and the London-based Middle East Association boosted trade along with companies such as London-based British Arab Commercial Bank, which is 83 percent-owned by Libya, and UKTI, which had five people in Libya dedicated to promoting business.

“There was no illegality in doing business with Libya before the UN sanctions were announced,” Robin Lamb, director general of the Libyan British Business Council and a former U.K. ambassador to Bahrain, said in an interview. “As a trading nation, our economy depends on doing business around the world. If we were to condition whether to do business with nations based on whether we approved of them, then our balance of payments and the jobs of many people in the U.K. would suffer.”

U.K. Exports

U.K. goods exports to Libya rose 51 percent to 423.3 million pounds ($693 million) in 2009, UKTI said in a report last year. The U.K. was Libya’s fifth-largest trading partner in the European Union in 2009 after Italy, Germany, France and Spain. Libya has Africa’s largest oil reserves.

“Today, Libya is back on the business map,” the trade agency said in its report. “Change is in the air in Libya.”

The report didn’t say the nation is a dictatorship. “Libya’s political structure is unique,” it said.

“Life is never dull!” said the report, which has since been removed from the agency’s website.

Ibrahim Sahad, secretary general of opposition group the National Front for the Salvation of Libya, and his deputy, Mohammed Ali Abdallah, said Libya needs international businesses to invest in the economy. They remain critical of the legitimacy Blair’s actions gave to Qaddafi.

“Companies who wanted to do business in Libya would have to do deals with Qaddafi and his sons and associates, and those businesses would lobby for Qaddafi in their home countries and help boost the international legitimacy of the regime,” Sahad said in an interview. “That is the devil’s chain.”

A Blair spokesman didn’t respond to three e-mails seeking comment.

Licenses Revoked

Britain has revoked at least eight export licenses to Libya relating to weapons since fighting broke out. In the year to Sept. 30, 2010, U.K. companies were given licenses for exports to Libya of technology for the use of infrared or thermal imaging equipment, crowd-control ammunition, small-arms ammunition and tear gas, a panel of U.K. lawmakers said last week. In 2009, they were licensed to export artillery computers, combat shotguns, military-cargo vehicles and communications equipment.

The present U.K. government and its predecessor “misjudged the risk” that governments such as Libya and Bahrain would use arms exported from Britain to suppress their own citizens, the committee said in its report, without identifying the companies.

BP planned to invest more than $2 billion exploring for oil and gas in Libya. The country “will be one of our major growth areas,” Peter Manoogian, then a director of BP Exploration Libya Ltd., told Bloomberg News in 2008. “We hope it will be a new profit center for us.”

BP on Hold

The U.K.’s biggest oil and gas producer has pulled its non- Libyan employees from the country, spokesman Robert Wine said. BP also declared a force majeure on fuel purchases from Tamoil SA, Libya’s overseas oil refiner, he said. Tamoil sued BP over the stoppage in some European countries. Force majeure is a legal clause enabling companies to miss contractual obligations because of circumstances beyond their control.

“We just have to monitor the situation,” Wine said. “We were at the beginning of an exploration program.”

HSBC and Standard Chartered Plc (STAN) last year bid for a Libyan banking license, losing to UniCredit SpA (UCG), Italy’s biggest bank. HSBC’s representative office in Tripoli is closed and its two non-Libyan employees have left the country, spokesman Patrick Humphris said. Standard Chartered doesn’t have an office in Libya, spokesman Shaun Gamble said.

Marks & Spencer

Marks & Spencer’s store in Tripoli opened in 2008 and employs about 30 people, spokesman Philip Sorensen said. “The store was closed as a precautionary measure when the protests began in Tripoli in February,” he said. “It has subsequently reopened. We continue to monitor the situation closely.”

Doing business in countries such as Libya isn’t necessarily a breach of human rights, according to John Ruggie, a professor at the Kennedy School of Government at Harvard University and the United Nations secretary general’s special representative for business and human rights.

“The main concern of a company would be to make sure that it does not cause or contribute to human-rights abuses,” Ruggie said. “Mere presence in a country where other parties may violate human rights, or paying taxes to a government that may do so, generally does not implicate the company itself.”

As an example of how investment may help Libyan people, Renaissance’s Farr-Jones pointed to Libya’s Economic & Social Development Fund, which was started to help low-income families buy shares in state-owned companies. BP’s Wine said the company was investing $50 million to train Libyan oil workers.

Cameron Policy

“Normalization also benefitted the Libyan people by ending their international isolation and allowing economic development and reform to get under way,” the Libyan British Business Council’s Lamb said. “British companies in Libya were involved in the building of hospitals and universities.”

U.K. Prime Minister David Cameron’s decision to support the rebels helps redeem the errors Blair made, the National Front for the Salvation of Libya’s Sahad said.

“I am sure BP will have its share in Libya,” he said. There will be no change in that regard, especially after the situation now, where David Cameron has acted.”

“The British came to help,” he said.

To contact the reporter on this story: Simon Clark in London at sclark4@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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