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WEEKLY NEWSLETTER
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Libya
Index
At the time of independence, the Libyan economy was based
mainly on agriculture, which was divided more or less evenly
between field (including tree) crops and livestock products.
Agriculture provided raw materials for much of the country's
industrial sector, exports, and trade; employed more than 70
percent of the labor force; and contributed about 30 percent of the
GDP, dependent on climatic conditions.
For the most part, agricultural resources were limited to two
comparatively narrow stretches along the Mediterranean Sea and a
few desert oases. The cropland had been maltreated, and the pasture
had been overgrazed. Erosion was common, production methods were
primitive, and close to a quarter of the agricultural area was held
on a tribal basis and was being used inefficiently. Rainfall was
unpredictable, except that usually it was scarce and ill-timed.
When the rains did come, however, they were likely to be excessive.
Groundwater was in short supply in the agricultural areas. In some
locations it had been so excessively drawn upon that it had become
brackish or saline and was no longer suitable even for agriculture.
Because the country has no perennial rivers, there was only limited
potential for irrigation and even less for hydroelectric power. At
the time of independence, the apparently abundant subterranean
water supplies located in the Lower Sahara had not yet been
discovered. Even if officials had known about the water, its
presence, while encouraging, would not have been very helpful in
the short term because of lack of development funds and inadequate
transport and storage facilities. In 1986, although agriculture
contributed a very small share to the GDP, it still provided
employment opportunities for a large portion of the population and
was therefore still important (see
table 24, Appendix). Shortage of
water was the main drawback to expansion of cultivable land, but
reclamation and irrigation schemes and the introduction of modern
farming techniques held promise for the future.
At the time of independence, Libya possessed few minerals in
quantities sufficient for commercial use, although iron ore was
subsequently found in the Wadi ash Shati in the south-central part
of the country. In turn, because of the absence of coal and
hydroelectric power, the country had little energy potential. In
the modern sense, Libya had practically no industry and, given the
limitations of the agricultural sector, could produce few exports
to be exchanged for the import commodities the country needed.
At independence, illiteracy was widespread, the level of skills
was low, and technical and management expertise and organization
were at a premium. (The lack of sufficient numbers of skilled
Libyans in the labor force remained a problem in the 1980s; despite
large sums of money having been spent on training Libyans, the
government still relied on foreign workers.) A large part of the
national life was lived under nomadic or seminomadic, rather than
settled, conditions. The high birthrate added to the country's
poverty. The rapid population increase strained the agricultural
economy and resulted in the drift of excess unskilled laborers to
urban centers, but these centers, too, lacked sufficient adequately
paid employment.
In terms of resources, including human resources, the outlook
at independence was bleak. Throughout the 1950s and early 1960s,
international and other foreign agencies--mainly the United States
and Italy--continued to finance the gap between Libya's needs and
its domestic resources. The foreign community was not in a
position, however, to undertake an across-the-board and sustained
development program to set the economy on a course of immediate
self-sufficiency. During much of a 1950s, the country's
administrative apparatus was unable even to utilize all the
resources made available from abroad.
During the decade after the discovery of petroleum, Libya
became a classic example of the dual economy, in which two separate
economies (petroleum and nonpetroleum) operated side by side. For
practical purposes, no connection existed between them except that
the petroleum companies employed limited quantities of local labor
and paid a portion of their profits to the government in royalties
and taxes. The financing and decisions affecting the activities of
the petroleum economy came not from the domestic nonpetroleum
economy but rather from outside the country. Although this sharp
dichotomy was in the process of relaxation after 1965--perhaps
especially after 1967-- it appears not to have been attacked
conceptually, at least not with fervor, until after the 1969 change
of government.
The laissez-faire arrangement came to an end with the military
coup d'état of September 1, 1969. The previous government's
personnel and much of its administrative framework were scrapped,
and the oil companies were put on notice that they were overdue on
large payments for unpaid taxes and royalties. In other respects
affecting the economy, the new government marked time, except for
its policy of "Libyanization"--the process of replacing foreigners
and foreign-owned firms in trade, government, and related
activities with Libyan citizens and firms. In mid-1970, the
government embarked on a program of progressive nationalization.
In addition to establishing at least a temporary veto power
over the activities of the oil companies, the nationalization
program included sequestration of all Italian assets, socialization
(state ownership) of the banking and insurance system,
Libyanization of all forms of trade, and steady substitution of
Libyans for foreign administrative and management personnel in
resident foreign concerns--another aspect of Libyanization. In the
petroleum sector, the government put a constantly increasing
financial bite on the companies. By the end of 1974, the government
either had nationalized companies or had become a participant in
their concessions and their production and transportation
facilities. The regime thus had a larger share of the profits than
under the previous royalty and tax arrangements. However, despite
varying degrees of nationalization of foreign oil firms, in 1987
Libya was still highly dependent on foreign companies for the
expertise needed in exploitation, marketing, and management of the
oil fields and installations that remained the primary basis of the
country's economic activity.
After 1972 the government began supplementing its policy of
nationalization with an ambitious plan to modernize the economy,
modeled largely on neighboring Algeria's experience. The key
component of this plan was an intensive effort to build industrial
capacity, placing a special emphasis on petroleum-related industry.
The industrialization program had two major goals: the
diversification of income sources and import substitution. In this
latter respect, the plan met with some success, as several
categories of imports began to decline in the late 1970s.
In 1981, when oil prices started to fall and the worldwide oil
market entered a period of glut, the present phase of independent
Libya's economic history began. The decline in oil prices has had
a tremendous effect on the Libyan economy. By 1985 Libyan oil
revenues had fallen to their lowest level since the first
Organization of Petroleum Exporting Countries (OPEC) price shock in
1973. This fall in oil revenues, which constituted over 57 percent
of the total GDP in 1980 and from which, in some years, the
government had derived over 80 percent of its revenue, caused a
sharp contraction in the Libyan economy. Real GDP fell by over 14
percent between 1980 and 1981 and was continuing to decline in late
1986. The negative trend in real GDP growth was not expected to
reverse itself soon. .
The decline in real GDP placed great strain on government
spending, reduced the level of imported goods available in Libyan
markets, and increased Libya's debt repayment problems--all of
which combined to lower living standards. The decline in oil
revenues also caused the Libyan government to revise its somewhat
haphazard way of making economic policy decisions, because it no
longer possessed the financial resources to achieve its many goals.
Thus, during the early and mid-1980s, development projects were
subjected to a more rigorous cost and benefit analysis than during
the easy money time of the 1970s. As of 1987, however, it was too
early to judge the effectiveness of the government's response to
falling oil revenues.
Data as of 1987
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