Editorial Board

To Rebuild Libya, Start With Transparency on Oil Revenues: View

Five months after rebels killed Muammar Qaddafi and a year after a Western-Arab air campaign intervened to help defeat him, Tripoli reopened its stock exchange Thursday to signal that Libya is again open for business.

True, just nine companies listed to trade their shares when the tiny exchange opened, three fewer than before the uprising. But Libya is the richest of the countries that unseated dictators during the Arab Spring. Elections to a National Assembly are set for June, with a new constitution to follow. Sitting on Africa’s largest oil reserves, this desert nation the size of Alaska should have excellent prospects for rebuilding its economy and using the proceeds to help found a democratic society.

So, was the North Atlantic Treaty Organization intervention a success? With debate rising over whether to intervene to stop the bloodshed in Syria, Libya’s example is being cited as a model to follow.

Things could be going a lot better. Libya’s economy remains a shambles after shrinking by 60 percent last year, according to International Monetary Fund figures. Corruption is rife and the transitional authorities are weak, ineffectual and non-transparent. Hundreds of militias remain armed, and some continue to arrest and torture alleged Qaddafi collaborators with impunity. A recent bid for autonomy by the country’s oil-rich east has raised the specter of disintegration. The “open for business” slogan that Libya’s interim leaders like to tout is still for investors with strong stomachs.

Libya doesn’t necessarily require quantities of financial aid -- it’s reeling back an estimated $168 billion in frozen Qaddafi regime assets and turning oil spigots back on -- but it could use more help with building the institutions needed for a functioning democracy and market economy to take root.

Many of the challenges Libya faces are inevitable for a country that endured 42 years of dictatorship and does not yet have a government with the legitimacy of an electoral mandate. The U.S., France and the U.K. are wisely keeping a low profile, while the United Nations has taken the lead with what it calls a “gradual, light-foot approach.” It has 65 international staff on the ground.

The U.S. is spending about $40 million to help secure Libyan weapons depots and help with disarmament, a necessary but insufficient focus. The European Union is assessing how to support civil society and improve border security. The UN did vital work in advising on the draft of an election law. These are all important efforts, but they are unlikely to be enough. To give a rough comparison, more than a decade after NATO’s last big all-air military intervention in Kosovo, the international staff of the scaled back Eulex institution-building operation there varies from 1,400 to just under 2,000. Kosovo is the size of Delaware and has a population less than a third of Libya’s.

A major focus should be on improving transparency. Libya’s wealth has the potential to create a large middle class, reducing the appeal of Islamist political movements. Oil production is back up to about 1.2 million barrels per day, from 1.77 million bpd before the uprising. But oil money can also tear the country apart, triggering mistrust of governments that handle the gushers of cash, as well as grabs for regional control of energy assets. This challenge could prove to be Libya’s biggest.

The National Transitional Council, the self-appointed body formed to represent the opposition to Qaddafi during the uprising, isn’t up to this task. It doesn’t disclose its membership or decision making. The state makes money from foreign oil producers mainly by exporting oil under production-sharing deals. But there is no auditing trail to verify how much money is reaching the central bank, relative to the amount of oil exported. Many recent protests against the council have focused on this issue of transparency: Libyans want and need to know where their oil revenue is going.

The way forward is through better auditing and transparency, posting verifiable figures on the internet that trace revenues from the oil companies to the government budget and out. The Extractive Industries Transparency Initiative, a body setting international standards, invited Libya to sign up in December, but hasn’t yet had a response. Foreign companies working in Libya can help in this area, publishing contract terms on the web to promote a culture of transparency and public trust.

But none of the Libyan stock market’s dreams of expansion will be realized until the security situation is brought under control. The transitional authorities in Tripoli have lashed out at eastern appeals for autonomy and are trying to attract militias to join a centralized police force and army. Both are mistakes. Libya, a country dominated by tribal and regional loyalties, needs to be decentralized to survive. It makes more sense to turn militias into local police forces than to try to centralize them. The east’s calls for autonomy, meanwhile, should be met with dialogue, rather than threatened with force.

Qaddafi left Libya an institutional wasteland, and Libyans are only beginning to build a new state. The risk is that with the more immediate challenge in Syria, the world’s light touch leaves Libya largely on its own. That would be unfortunate. Libya’s progress, or lack thereof, will remain an influential example as Syria unfolds.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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