Libya - Overview of economy

After about 5 centuries of colonization by the Ottoman Empire, Italy, Britain, and France, Libya became an independent monarchy in 1951. In 1969, Colonel Muammar Qadhafi staged a coup (an internal military uprising against a government) and established a republic. During its first decade, the new regime nationalized all foreign businesses and weakened the private sector through nationalization, confiscation, and "spontaneous" seizures of private factories by workers. The private sector was confined to retail trade, but the shortage of investments in the late 1980s forced the Libyan government to ease laws restricting its activities. Nevertheless, the private sector is still limited to small-scale activities in agriculture, retail trade, and manufacturing. Various legal and practical restrictions have prevented its rapid expansion, including the absence of respect for private property reflected in the periodic arrest of merchants and shopkeepers, and confiscation of their businesses.

Libya has a single-product economy, which survives on exports of hydrocarbons (oil, gas, and their refined products), accounting for 94 percent of exports in 1998. Thanks to these exports, since the 1960s Libya has had trade surpluses and a small foreign debt (US$3.9 billion

in 1999) compared to its foreign exchange reserves (US$7.28 billion in 1999). However, the economy is highly vulnerable to fluctuations in oil prices, which directly affect government revenues. The Libyan government has been successful to a great extent in creating an infrastructure , but it has failed to establish viable industry, agriculture, and service sectors. In particular, it has failed to diversify the economy through establishing desired heavy industries. As a result, the Libyan economy is still an oil-based economy.

Internal and external factors have prevented the economic growth of Libya. Inconsistent planning, frequent changes in government economic policies, and the government's weakening of the private sector have been the major internal factors. External factors include periodic low oil prices, which have deprived the Libyan government of financial means needed to implement fully its development plans. In addition, the imposition of American sanctions in the late 1970s, 1980s, and 1990s on Libya for its alleged involvement in terrorism has limited Libya's income and its access to foreign technology and investment. Additionally, the UN-imposed sanctions on Libya in the 1990s over Libya's refusal to hand over for trial 2 Libyan suspects implicated in the 1988 bombing of a Pan American jetliner further worsened its economic situation. Libya's improving relations with Europe following the suspension of UN sanctions in 1999, and high oil prices have eased pressure on its economy as reflected in a jump from a 2 percent growth rate in 1998 to 5.4 percent in 1999, and to an estimated 6.5 percent in 2000.

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