Author: eulyadmin

Earlier this week, Tripoli Public Services Company and Oilinvest finalised an agreement to plant one million trees in Tripoli to generate carbon credits. This initiative complements the Libyan Ministry of Planning’s broader goal to plant 100 million trees by 2030, and parallels the National Oil Corporation’s campaigns in Al-Assa and Al-Jufra.

With Libyan companies like OilInvest targeting net-zero emissions by 2050 and carbon credits increasingly discussed, it prompts the question: Are carbon credits on track to become a significant industry in Libya?

What is a Carbon Credit?

A carbon credit is a certificate or permit which represents the right to emit one ton of carbon dioxide (CO2) or the mass of another greenhouse gas equivalent to one ton of CO2. Carbon credits are generated from projects that reduce, avoid, or capture emissions. These projects can range from renewable energy, energy efficiency upgrades, to forest conservation and afforestation. The main purpose of carbon credits is to incentivize reductions in emissions of greenhouse gases into the atmosphere.

What is the Difference Between Carbon Credits and Carbon Offsets?

While the terms are often used interchangeably, carbon credits and carbon offsets represent distinct mechanisms within climate regulation frameworks. Carbon credits, also known as carbon allowances, serve as permissions that allow entities to emit a specified amount of CO2—typically one ton per credit. These credits are integral to cap-and-trade programs enforced by governments, which impose limits on emissions and mandate reductions over time. In contrast, carbon offsets involve the removal of CO2 from the atmosphere through activities like reforestation and are primarily traded on voluntary carbon markets.

How Does a Cap-and-Trade System Work?

A cap-and-trade system is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. A central authority (usually a governmental body) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent their right to emit a specific amount. Companies that need to increase their emission allowance must buy credits from those who have excess. Over time, the overall limit on emissions is gradually reduced, thereby lowering the total emissions and encouraging sustainability and innovation in pollution control.

What Benefits Do Carbon Credits Offer to Businesses?

Carbon credits serve as a versatile financial instrument for businesses, facilitating compliance with evolving environmental regulations in a cost-efficient manner. By purchasing them, companies can meet emission targets without immediate capital investment in new technologies or making any change, thus optimizing short-term financial outlays.

Furthermore, businesses that actively reduce emissions can monetize these efforts by generating and selling carbon credits, creating an alternative revenue stream. Engaging in the carbon market not only leverages financial benefits but also enhances a company’s environmental reputation, attracting eco-conscious investors and customers, which in turn strengthens market positioning and potentially increases shareholder value.

How are Carbon Credits Produced?

Step 1: Project Development and Feasibility Assessment

Projects initiate with identifying potential projects based on their ability to significantly reduce or sequester greenhouse gases. For example, Whitecap Resources employs an advanced CO2 sequestration method that injects CO2 into depleted oil fields, which not only securely stores CO2 but also enhances oil recovery—a process known as Enhanced Oil Recovery (EOR). This dual-benefit approach must be evaluated against strict criteria set by standards such as the Verified Carbon Standard (VCS) to ensure it contributes verifiable environmental benefits and aligns with regulatory frameworks for carbon trading.

Step 2: Technical Validation

A detailed technical review and validation by an accredited third party follows feasibility studies. The validator examines the project’s methodology for capturing or reducing emissions, ensuring that it adheres to international standards and methodologies. For sequestration projects like those of Whitecap Resources, the validation process scrutinizes the integrity of geological storage sites to confirm permanent CO2 containment and assesses the monitoring strategies for accuracy and reliability in measuring trapped CO2 volumes.

Step 3: Monitoring, Reporting, and Verification (MRV)

Post-validation, continuous monitoring involves precise data collection regarding the actual amount of CO2 captured or emissions reduced. This step is critical in substantiating the claimed carbon reductions. In the context of Whitecap Resources, this would include monitoring the volumes of CO2 injected, the pressure and integrity of the injection sites, and any potential CO2 leakages. The collected data is then reported and subjected to independent verification to ensure compliance with initial projections and ongoing performance benchmarks. Verification is intended to affirm the project’s impact on reducing atmospheric CO2, underpinning the credibility of the resulting carbon credits.

Step 4: Certification and Issuance of Carbon Credits

Once verified, the project is eligible for certification, wherein verified reductions are formalized into a financial instrument. Representing one tonne of CO2 equivalent either reduced or sequestered, each credit is serialized to assure traceability and authenticity. This serialization maintains market integrity, preventing double counting and ensuring that each credit can be tracked back to its origin. These credits are then listed on carbon markets, where they can be traded. Investors and companies purchase these credits to offset their emissions, contribute to global emission reduction targets, and enhance their corporate sustainability profiles.

What Are the Primary Markets for Carbon Credits?

Traded on two principal platforms, these are: the compliance market and the voluntary market – each serving distinct functions and caters to different participants.

Compliance Market

Under stringent regulatory mandates from national or international environmental authorities, this market functions through cap-and-trade systems. Total allowable emissions are periodically capped and reduced to meet climate goals. Companies in regulated sectors are required to obtain enough credits to cover their emissions, providing an economic incentive to reduce their carbon output. Credits are allocated based on historical emissions or via competitive auctions designed to reflect credit scarcity and elevate prices, thus accelerating emission reductions. For investors, the compliance market offers a predictable, regulation-driven environment essential for long-term asset valuation and risk management in emissions-heavy industries.

Voluntary Market

Conversely, the voluntary market enables companies, governments, and individuals to buy carbon credits at their discretion. This market appeals to those aiming to surpass regulatory mandates, achieve corporate social responsibility objectives, or improve their environmental reputation among eco-conscious consumers. Credits here often back projects that deliver extra environmental or social advantages, like biodiversity conservation, community upliftment, or renewable energy initiatives. Credit pricing in this market varies widely, influenced by the perceived quality and additional benefits of the projects, making it a complex yet potentially lucrative investment arena for those seeking to mitigate environmental risks or invest in burgeoning green technologies.

Libyan Carbon Credit Industry: Future Outlook

While Libya currently focuses on the foundational approach of tree planting for carbon sequestration, the industry is expected to evolve and diversify into several more sophisticated and impactful areas. As the country advances its capabilities in carbon credit generation, we anticipate the following variations to gain prominence:

1. Natural Reserve Management: Across its vast 1.76 million square kilometers, natural reserve management in Libya offers a significant opportunity for its generation. Drawing inspiration from successful conservation models like African Parks, Libya will surely transform underutilised lands into carbon sequestration natural reserves.
2. CO2 Injections: Mimicking WhiteCap Resources’ method, CO2 can be injected deep underground into the producing formation, storing carbon safely. Acting as a solvent, the injected CO2 extracts otherwise unrecoverable oil, leading to increased oil production. Extracted oil and natural gas liquids are sold, while CO2 produced during this process is permanently stored underground — ultimately contributing to the creation of the financial instrument.
3. Renewable Electricity Generation: Drawing from methodologies like those employed by the Renewable Energy Authority of Libya, the nation can actualize projects and maximize their value through carbon credit generation. By adhering to established conservation models, Libya can transform its energy landscape, contributing to carbon sequestration and facilitating the creation of the financial instrument.
4. Urban Transport of Passangers: Initiatives such as bus rapid transit projects offer significant opportunities, as by modernizing urban transportation infrastructure, Libya can reduce carbon emissions associated with traditional commuting methods, promoting sustainable mobility and accruing carbon credits.
5. Treatment of Wastewater: Projects focusing on industrial wastewater treatment in anaerobic digesters, along with utilizing biogas for electricity and heat generation, provide viable pathways for carbon credit generation. Aligned with the National Water and Sanitation Plan, Libya can address wastewater management challenges while leveraging these processes to mitigate carbon emissions and generate valuable carbon credits.

Libya boasts a diverse array of methodologies for generating this financial instrument, spanning from initiatives like the distribution of efficient light bulbs to households. As such, the primary challenge lies not in identifying projects or methodologies but rather in facilitating the trading of these carbon credits in international markets. This necessitates rigorous compliance with international standards for monitoring, reporting, verification, and certification.

Establishing a national institution dedicated to carbon credits could streamline this process and its potential commercialisation, thereby maximizing Libya’s participation in the global carbon market. Drawing from all the above therefore, the question becomes not if, but when this will become a reality in the near future.

The initiation of the e-Visa system by the Libyan government heralds a new era in the facilitation of international travel to Libya. This digital advancement simplifies the visa application process, offering an accessible, user-friendly online platform for tourists, business professionals, and expatriates. Emphasizing the system’s benefits, this guide illuminates the streamlined procedure for obtaining a visa, highlighting its significance in enhancing Libya’s global connectivity.

Understanding the Libya E-Visa System

Libya’s e-Visa system represents a strategic move towards digital governance, aiming to expedite the visa application process while ensuring accuracy and security. This system allows applicants from around the globe to apply for various types of visas, including tourism, business, and work visas, directly from their computers or mobile devices. The e-Visa initiative is a response to the growing need for an efficient and transparent process that aligns with international travel demands, fostering a more welcoming environment for foreign visitors and contributing to the country’s economic and cultural growth.

Eligibility for Applying: Navigating Through Libya’s E-Visa Requirements

The e-Visa system is designed to accommodate a wide range of applicants, reflecting Libya’s commitment to opening its doors to the world. Eligibility criteria are comprehensive, catering to different travel intentions – from exploring Libya’s rich heritage and landscapes to engaging in business opportunities and contributing to the workforce.

The system meticulously outlines the prerequisites for each visa category, ensuring applicants are well-informed of the necessary documentation and eligibility criteria before initiating their application. This inclusivity underscores Libya’s ambition to streamline the entry process for tourists, business travelers, and expatriate workers alike, fostering an environment of growth and exchange.

Your Step-by-Step Guide to Libya’s E-Visa Application

Account Creation

The first step requires applicants to create an account on the official Libya e-Visa portal. This involves entering personal details to set up a profile that will be used to manage the application process. The account creation phase is critical, as it ensures the security of the applicant’s information and facilitates communication regarding the status of the application.

Filling the Application

Upon creating an account, applicants are directed to fill out the application form. This comprehensive form requires detailed information about the applicant’s travel plans, including dates of visit, the purpose of travel, and personal identification details such as passport number and expiry date. The form’s structure is intuitive, ensuring applicants can easily provide all necessary information without confusion.

Document Upload

The next step involves uploading essential documents that support the application. This includes a digital copy of the passport, personal photographs, and other relevant documents specified by the visa category. The e-Visa portal provides clear guidelines on the format and specifications for these uploads, ensuring applicants can submit their documents correctly.

Paying the Visa Fee

To complete the application, applicants are required to pay the visa fee. The portal offers various payment methods, accommodating applicants’ preferences and ensuring the transaction’s security. Upon successful payment, the application is officially submitted for processing.

After Your Application: Understanding the E-Visa Approval Process

After submitting the e-Visa application, it undergoes a review process by the Libyan visa authorities. This period is crucial as the authorities verify the information and documents provided. Applicants can expect to receive updates on their application status through the e-Visa portal, including notifications of approval or requests for additional information. The average processing time, while subject to variation, is designed to be efficient, with most applicants receiving their e-Visa confirmation within several days to a week. Upon approval, the e-Visa is sent electronically, marking the final step in the applicant’s journey towards securing their travel authorization to Libya.

Libya E-Visa Application: Frequently Asked Questions (FAQs)

Embarking on Your Libyan Journey

After delving into the frequently asked questions about Libya’s e-Visa application process, it’s our hope that you feel more informed and confident about navigating your journey to Libya. The introduction of the e-Visa system is a testament to Libya’s openness and commitment to facilitating seamless travel experiences for visitors from across the globe. With this new system, Libya is not just simplifying the technicalities of visa applications but is also extending a warm invitation to explore its rich heritage, vibrant culture, and promising business opportunities.

We understand, however, that questions and unique situations may still arise as you prepare for your visit. In such cases, the Euro-Libyan Trade Center is your go-to resource. Our team is dedicated to providing you with the support and information you need to ensure a smooth and successful application process. Whether you have additional queries about the e-Visa system or need guidance tailored to your specific circumstances, we encourage you to reach out.

Contacting the Euro-Libyan Trade Center means accessing a wealth of knowledge and assistance, ensuring that no question goes unanswered. Our aim is not just to facilitate your journey to Libya but to enrich it, making sure that from the moment you consider visiting until you arrive on Libyan soil, you feel fully supported.

So, if you find yourself pondering any aspect of your upcoming trip to Libya, remember that the Euro-Libyan Trade Center is here for you. Together, let’s make your visit not just a journey, but a remarkable experience. Welcome to Libya – where history meets hospitality.

By Julio Alonso

Confronting challenges like asset recognition and provisioning inadequacies, the Libyan banks are at a critical moment, exacerbated by the 2021 devaluation of the Libyan Dinar – with another official rate devaluation in sight. This situation has led to breaches of exposure limits, emphasizing the lack of mandatory asset quality reviews and regular credit assessments.

So how bad is this and what does it mean for you?

What is a Collateral?

A collateral is a crucial mechanism in the lending process, serving as a security measure for lenders. It is an item of value—such as a home in the case of a mortgage—that a lender can seize if a borrower fails to repay a loan according to agreed terms. This ensures that the lender can recover the lent amount by selling the collateral if necessary, acting as a guarantee for loan repayment.

Both central and commercial banks require collateral for loans to mitigate loss risks, impacting reputation and financial stability.

In Libya, the Central Bank mandates high capital adequacy ratios, with risk-weighted banking assets averaging at 16% in 2022—a robust figure that enhances protection but also compresses bank profitability and narrows margins, reducing risk-taking.

So, with everything seeming solid, where exactly is the problem?

Libyan Banks: Actual vs. Stated Collateral Valuation

Libya was ranked 186th out of 190 countries in the World Bank’s 2020 Doing Business report for the Getting Credit indicator, scoring zero in legal rights, credit information, and credit bureau coverage. Despite efforts by the Central Bank of Libya, including Circular 9/2022 that mandates Basel II and III compliance to manage systemic liquidity, and legal risks, challenges persist in credit analysis and oversight due to: poor risk governance, limited analytical tools and expertise, and insufficient human resource capacity in Libya’s financial sector.

The situation is exacerbated by underdeveloped collateral laws, inadequate safeguarding of secured creditors’ rights amidst insolvency, inefficient land registries affecting property ownership clarity, and a lack of competent valuation bodies. Coupled with a fragile judicial system, these factors lead to significant information asymmetries supporting the following claim: there exists a substantial gap between the book and market values of collaterals held by financial institutions.

Does the Collateral Book/Market Mismatch Matter?

While “yes” is the simple answer, understanding collateral’s composition and ownership is crucial to assess its impact on Libya’s economy and financial sector.

Despite over 20 banks operating in the nation, the sector shows significant concentration: the top five banks possess more than 77% of assets, control 88% of the lending market, and hold nearly 80% of deposits. This concentration, alongside the Central Bank of Libya’s solvency and its ownership of the four largest banks, virtually negates the risk of a systemic collapse due to collateral value issues.

Libyan banks currently have provisions of 3.85 billion Libyan dinars for non-performing loans, against loans and facilities valued at 25.35 billion dinars. Given that 30% of these loans are to the public sector, which carries minimal default risk, the provisions account for 22% of the genuinely risky loans—the private sector ones. This prompts the question: why precisely a 22%?

This provisioning rate is based on the latest detailed review of bank portfolio quality from 2010, where 20% of loans were flagged as non-performing. However, this figure is certainly low, as:

1. Legal restrictions prevent banks from writing off overdue loans without court approval.
2. There has been a massive increase in non-performing loans ratios since 2010, especially within state-owned banks.
3. More than 80% of the loans issued by various Libyan banks are non-performing.

However, despite the significant mismatch between the collateral book and market values, the Libyan banking system is not at risk of collapse; this is mainly because 63% of bank assets are deposits at the Central Bank, and overall loans and facilities represent only 17% of the banks’ assets. Thus, even in the most catastrophic scenario, the percentage impacted remains very low. Nonetheless, considering the conditions outlined above, banks must promptly reassess their capital positions.

An Incoming Banking Recapitalisation?

From all the above, we can conclude that Libyan banks need a recapitalisation to accurately reflect their financial situation, support credit growth, reduce information asymmetries, and improve the overall financial system. Considering various recapitalization strategies, such as mergers, acquisitions, capital injections, and the critical step of reclassifying non-performing loans to defaulted status, is essential.

Yet, the likelihood of a swift recapitalisation is very low. Its deep political implications, intertwined with the ownership of non-performing loans, and the need for judicial consent create substantial obstacles. Consequently, while strategies like bank mergers and capital infusions may be implemented, a genuine reflection of financial positions in Libyan banks is unlikely to materialize soon.

Libyan Credit Growth Does Not Need a Recapitalisation

Despite initial assumptions that increasing credit supply by shifting banking exposures from the central bank to the private sector might be hindered without addressing the previously mentioned challenges and avoiding a collateral trap, the situation unfolds differently. The Central Bank is actively moving towards centralizing banking loans through the establishment of a credit information centre.

This centralization of decision-making will enable the reintroduction of more credit into the Libyan market, thereby fostering national development through credit expansion. Meanwhile, the value of non-performing loans held by banks is being eroded by inflation, easing the impact of these loans on the financial and political system. Whilst significantly reducing politically motivated lending, fraud, and enhancing the overall market efficiency as well as availability of credit.

Is this a crisis – how worried should I be?

No, there’s no cause for alarm. Even in the most pessimistic scenarios concerning the mismatch between the book and market values of collateral, the Libyan banking system remains resilient against collapse. Despite liquidity issues and restricted deposit access are set to persist, improvements in IT governance and bank control are facilitating potential mergers, acquisitions, and capital injections.

All in all, given the effective leadership at the Central Bank, the banking system is not only secure but also on the verge of an unprecedented credit expansion, presenting a positive outlook for the future.

By Julio Alonso

Six months subsequent to the issuance of the Central Bank’s IT Governance Regulation No. (2023/21), our scrutiny uncovers a notable lag in the compliance maturity across Libyan banks, with a mere fraction—under 10%—having embarked on their preliminary capability and maturity evaluations. This comprehensive regulation, crucial for bolstering operational robustness and mitigating risks, prescribes a meticulously staggered, multi-year assimilation approach, presenting a complex challenge far beyond a mere procedural formality.

As the Central Bank’s initial audits approach at year-end, the imperative for banks to address their compliance shortfalls intensifies. This urgency prompts a critical examination: How should banks best-navigate towards achieving full compliance?

What Changes with CBL’s Circular No. (2023/21)?

The Central Bank of Libya’s regulation extends a 105-page directive requiring Libyan banks to integrate a sophisticated IT governance architecture aligned with 13 defined strategic goals. This directive mandates the establishment of specialized committees for strategic oversight and alignment, along with the development of over 20 critical reports and 26 foundational policies, supported by 40 distinct practices segmented into detailed tasks aimed at reinforcing IT governance facets.

Leveraging principles from COBIT 2019, the regulation emphasizes a structured approach to IT environment management and governance, focusing on optimizing processes, organizational structures, information flows, and the cultural framework. It prescribes a governance model that integrates strategic planning, risk management, compliance, and performance evaluation to enhance operational resilience and efficiency.

The regulation also stipulates the adoption of advanced IT frameworks and tools for risk assessment, data protection, and cybersecurity, aligning with global best practices. Banks are expected to establish clear accountability mechanisms, continuous monitoring systems, and feedback loops to ensure ongoing compliance and adaptability to evolving IT governance standards. This comprehensive approach aims to elevate the Libyan banking sector’s IT governance to international standards, ensuring robust risk management and strategic agility.

Why are Libyan Banks Struggling with IT Governance Compliance?

The challenges Libyan banks face in implementing the CBL’s IT governance framework are multifaceted and significant. Firstly, the complexity of the framework is not merely in establishing new roles and responsibilities; it necessitates a comprehensive restructuring of existing roles, responsibilities, procedures, and reporting mechanisms, affecting virtually every aspect of banking operations. This complexity introduces a substantial layer of difficulty, as it demands foundational changes across the banks’ operational paradigms.

Additionally, the scarcity of local expertise specialized in this specific regulatory framework compounds the implementation challenges. Given that this framework represents a novel approach within the Libyan context, the absence of precedent and local knowledge base exacerbates the banks’ difficulties in navigating the implementation process.

Compounding these issues is the fact that many Libyan banks operate on a relatively small scale, with limited financial resources available for significant investments in international consultancy or expertise. This financial constraint severely limits their ability to seek external guidance and support, which is often crucial for undertaking such comprehensive governance reforms.

Our research indicates that these compounded challenges have resulted in a significant lag in compliance efforts, with less than 10% of Libyan banks having initiated the mandatory initial assessment of their current IT governance standing. This indicates a widespread struggle among Libyan banks to align with the CBL’s mandates, primarily due to the intricate nature of the required changes, the lack of specialized local expertise, and financial limitations.

Towards Compliance with the New IT Governance Regulation

Achieving compliance with the Central Bank’s IT governance mandates is undeniably a multi-year endeavour, necessitating strategic foresight, allocated resources, and an unwavering dedication to perpetual enhancement. It is with this understanding that we present our concise blueprint for Libyan banks:

1. Immediate Capability Assessment: Banks must prioritize conducting comprehensive capability and maturity assessments to establish a clear baseline of their current IT governance status. This crucial first step cannot be understated in its importance for setting the stage for all subsequent compliance efforts.
2. Strategic Role Establishment: It is imperative for banks to quickly establish the necessary governance structures, including critical roles, mandates, and committees, that are currently lacking or misaligned. This foundational structure will provide the necessary oversight and strategic direction for the compliance journey.
3. Customized Compliance Framework Development: Banks should be aware that there are no one-size-fits all solutions, and so develop a tailored compliance framework addressing their unique operational context and challenges. This framework should integrate best practices from recognized standards such as COBIT 2019, ISO 31000, ISO 27000, ISO 20000, ISO 17000, ISO 9000, CENELEC EN 50173, and CENELEC EN 50600, among others.
4. Investment in Capacity Building: Parallel to structural adjustments, banks must invest in comprehensive training and capacity building for their staff to embed new processes and ensure readiness for regulatory scrutiny. This includes familiarizing employees with new compliance roles, responsibilities, and best practices.
5. Rigorous Audit and Evaluation: A continuous cycle of internal and external audits and evaluations is essential to monitor compliance progress, identify gaps, and implement corrective actions. These evaluations will also prepare banks for the Central Bank’s audits and ensure ongoing adherence to governance standards.
6. Establishment of Continuous Improvement Processes: Compliance should be viewed as a continuous journey, not a destination. Banks should establish mechanisms for ongoing improvement and feedback, ensuring that IT governance remains agile and responsive to evolving regulatory requirements and operational challenges.
7. Foster a Culture of Compliance: Finally, banks must cultivate a culture that values and prioritizes compliance and risk management. This cultural shift is fundamental to ensuring that compliance becomes an integral part of the banking operations and is sustained over the long term.

By adhering to these recommendations, Libyan banks can navigate the complexities of the IT governance framework, address their current compliance deficits, and establish a robust governance structure that enhances operational resilience and aligns with international best practices.

National or International expertise?

Choosing between national and international expertise for IT governance in Libya involves a strategic balance. While international experts offer global best practices, their potential lack of local context, cultural understanding, and language compatibility can limit effective collaboration. Our analysis indicates a preference for Libyan IT governance providers like ARD Technologies, who bring local insights essential for compliance. However, international expertise can still play a vital role, particularly in specialized committees such as the IT Governance, Steering, and Risk Committees outlined by the CBL.

Conclusion

In conclusion, the Central Bank of Libya’s IT Governance Circular No. (2023/21) sets forth a comprehensive and challenging path toward enhanced operational integrity and risk mitigation for Libyan banks. The journey to compliance is marked by the need for strategic planning, structural reconfiguration, and a commitment to continuous improvement, underscored by less than 10% of banks currently meeting preliminary assessment standards. The intricate requirements of this regulation, reflective of global best practices and the detailed frameworks like COBIT 2019, necessitate a multi-layered approach to IT governance, integrating strategic oversight, risk management, and performance evaluation.

Our blueprint for achieving compliance emphasizes the importance of immediate and comprehensive capability assessments, establishment of strategic governance structures, development of customized compliance frameworks, significant investments in capacity building, rigorous audit and evaluation processes, establishment of continuous improvement mechanisms, and fostering a culture of compliance.

As Libyan banks navigate this demanding landscape, the blend of local insight from providers like ARD Technologies, coupled with selective international expertise, will be key to building a resilient, compliant, and strategically agile banking sector. The path forward is challenging but essential for aligning Libyan banks with international standards and ensuring their robust participation in the global financial ecosystem.

By Julio Alonso

Following the revolution, the Libyan dinar’s value has closely mirrored the nation’s security situation: when there’s conflict, inflation spikes; when there’s stability, the gap between the parallel and official exchange rates narrows. Only recently, despite stability, the parallel rate against the dollar has jumped to over 6, showing a surprising 24% divergence.

Yesterday, the Central Bank of Libya (CBL) announced a major move with regulation (02/2024), one of the most significant decisions affecting the dinar’s value on the parallel market in the last few years. As the dinar steps into unchartered waters, the big question is: what will happen to its value now?

What Changes with the New Central Bank Regulation?

This regulation sharply restricts foreign currency access; reducing not just its availability, but more importantly its equitability. Key changes include:

• Documentary Credits for Imports: Reductions in caps for Letters of Credits (LCs) for companies are pronounced: The cap for Service LCs drops by 33% (from USD 3 million to USD 2 million), for Commercial LCs by 40% (from USD 5 million to USD 3 million), and for Industrial LCs by 30% (from USD 10 million to USD 7 million).
• Personal Annual Quota of Foreign Currency: The annual foreign currency purchase quota for libyan citizens through means like debit cards and money transfers (e.g., Western Union) sees an 80% cut (from USD 20,000 per person per year to USD 4,000).

Equally crucial, though not explicitly stated in the regulation, is the significant change concerning:

• Electronic Cards for Companies: Despite acceptance of applications, the USD 100,000 foreign currency quota has remained un-rechargeable since January 2024, effectively nullifying it.

What Does This Entail?

• LCs Access Adjustments: Although the possibility to override caps through approval from the CBL’s Control Department is still on place, considering LCs represented nearly 60% of Libya’s total bank foreign exchange usage in 2023, the ripple effects could be substantial. The exact magnitude, however, hinges on regulatory approval practices.

• Personal Annual Quota of Foreign Currency Impact: In contrast, the effect on personal foreign currency access is more predictable. With Libyans utilizing USD 8.2 billion for personal foreign exchange in 2023, a basic projection under the new restrictions predicts a sharp USD 6.5 billion reduction.

• Merchant Card Inoperability: Lastly, the discontinuation of merchant card operations is anticipated to result in a USD 3.1 billion reduction.

Considering overlooked foreign currency mechanisms such as transfers, alongside expected growth and stable regulations, we foresee a 10.6% drop in foreign currency access in 2024 from new measures. With projected 4.6% inflation, the adjusted real decrease in access is estimated at 14.54% for the year.

Politics > Economics

While one could delve into mathematical models to predict the parallel exchange rate’s trajectory, their relevance is extremely limited given the following fact: the prevailing political context in Libya significantly impacts the Central Bank of Libya’s independence.

Current rumours from within Libyan political circles suggests that the CBL’s recent shift in monetary regulation has been mainly driven by pressures from international actors. This influence manifests as part of a calculated strategy unfolding over recent months, starting with the contraction in the issuance of “monetary arbitrage” Letters of Credit and tighten access to foreign currency quotas.

This orchestrated effort is reportedly aimed at leveraging economic mechanisms to instigate public unrest, with the ultimate objective of compelling the Libyan government to take a more proactive stance in UN-mediated negotiation processes.

Moreover, a detailed analysis of the Central Bank’s latest publication reveals a legally viable method to enhance personal foreign currency allowances above the current USD 4,000 cap without requiring any changes to existing legislation.

This flexibility lends support to the idea that personal currency quotas will be strategically employed as a negotiation tool. Consequently, the dominant theory among political circles gains traction: social unrest is expected to coerce the current administration into negotiations. Subsequently, as a common consensus among all parties involved is progressively reached, tensions might be eased by gradually increasing personal currency quotas.

Given the pivotal influence of under-the-table negotiations on the Libyan Dinar’s parallel market value, what expectations can be formed regarding its future movement?

Where is the LYD Heading? Short-Term Projections

Based on our mathematical monetary model and the current trajectory of informal negotiations among national and international power factions, we probabilistically forecast the following behaviours for the Libyan Dinar (up to 1 month since publication):

LYD Against the Dollar	Probability	Analysis
LYD > 6.5	Highly-Probable	This outcome would emerge from modest positive progress in negotiations or in situations where negotiations reach an impasse or confrontations intensify. A minimal increase in foreign currency quotas is expected to have negligible impact, keeping the currency above this level.
LYD 6.0-6.5	Probable	Achievable in the absence of significant conflict and with gentle progress in negotiations, leading to a phased re-introduction of access to foreign currency. Requires both a notable increase in the Personal Foreign Currency cap and an escalation in the issuance of “monetary arbitrage” Letters of Credit.
LYD 5.5-6.0	Low Probability	Contingent on the avoidance of major conflicts and a rapid enhancement in foreign currency accessibility, such as restoring the Personal Foreign Currency cap to levels before regulation and an unlikely immediate release of “monetary arbitrage” Letters of Credit currently on hold.
LYD < 5.5	Improbable	Predicated on the absence of large-scale conflict and would necessitate both the swift repeal of recent CBL regulations and an unlikely immediate release of “monetary arbitrage” Letters of Credit currently on hold.

Uncertain Waters, Cloudy Horizon

Underscoring the knotted interplay of Libya’s economic and political spheres, this new regulation positions the dinar’s fate at a critical juncture: potentially exceeding 7-to-the-dollar in the next month, it represents not just economic volatility but impending socio-political challenges.

Caught in the middle of these power struggles, it’s the ordinary people, those earning their dinars day by day, who suffer the most. The horizon foresees unrest, instability, and rising prices, all harming the public walfare once again.

By Enric Jaimez

In the aftermath of a transformative ceasefire agreement in 2020, Libya has undergone through a significant economic recovery. Crucial data, including a reduction in conflict-induced incidents and casualties, as well as the establishment of the Government of National Unity in 2021, has paved the way for strengthened institutional synergies. This, coupled with favourable hydrocarbon prices, has resulted in a substantial transition from a GDP deficit to a surplus, setting the stage for a promising economic future.

This landscape is ripe for strategic investments that not only seek financial gains but also aim to foster sustainable socio-economic development, aligning with broader societal progress goals. Yet, amidst this burgeoning potential, how can one adeptly capitalize on the complex and evolving Libyan landscape?

An Uncrowded Market

Despite the recent positive developments, conducting business in Libya remains challenging due to limited openness to foreign capital, restricted free-market dynamics, and ongoing political instability. The absence of a constitution and the government’s limited monopoly of power further exacerbates the situation, presenting considerable challenges for investors.

Additionally, these factors contribute to a scarcity of reliable data, further hampered by bureaucratic inefficiencies and a lack of expertise in data management. Libya’s low ranking on the International Transparency Index highlights these challenges, underscoring the difficulties in achieving transparency and accountability.

“If you don’t know anything about Libya, don’t worry, no one does”

In a world where investments predominantly flow towards developed nations, there lies a compelling argument for seeking growth and profits in exotic locales such as Libya, which remain largely uncrowded in terms of investment and business.

“In the middle of every difficulty lies opportunity”

Developed markets offer stability, yet the real edge lies in the emerging and frontier markets, like Libya, where untapped potential abounds. These markets promise early-mover advantages and the potential for significant returns, unattainable in the crowded spaces of mature economies.

The absence of saturation in these markets allows for innovative ventures and strategic positioning, enabling investors to capitalize on the uncharted territories and contribute to the sustainable development of these exotic economies.

As global financial dynamics evolve, the appeal of frontier markets like Libya grows, offering sophisticated investors not only financial gains but also the excitement of pioneering economic growth in unconventional settings. But what are the implications of these evolving dynamics for navigating the complex business landscape that Libya presents?

Navigating the Complex Business Landscape

Understanding Libya’s multifaceted business environment requires a nuanced approach to managing risks. Amidst political instability, economic fluctuations, security concerns, and cultural variances, it’s crucial to perform comprehensive risk assessments for informed decision-making. The essence of risks in Libya’s business domain is characterized by their omnipresence, raising questions about their fundamental role in business operations.

At its core, assessing economic risks in business entails a probabilistic evaluation that balances potential rewards against costs and the possible costs of risks. This involves considering the impact on human capital, reputation, financial outlays, and payment commitments. Such a detailed analysis aids in a methodical approach to risk versus reward, enhancing strategic choices in unpredictable environments.

By recognizing that minimizing financial outlays and payment commitments significantly lowers venture risks—thereby decreasing the potential cost of failure—we can pinpoint the most effective approach to conducting business within Libya.

Recognizing the Importance of Knowledge Transfer

While Libya boasts substantial liquidity, the key lies in facilitating knowledge transfer rather than mere monetary transactions.

Leveraging existing funds within the country and enabling the transfer of know-how can significantly mitigate the risks associated with conducting business in Libya.

Firstly, a significant portion of Libya’s business sector operates discreetly, with numerous companies generating substantial revenues, ranging from 10 to over 100 million, without any online presence or discernible corporate identity.

Moreover, our estimates suggest the existence of several hundred entities in a similar situation, earning annual incomes surpassing 100 million. The opaqueness of these enterprises, coupled with lenient tax and customs enforcement, complicates a precise economic evaluation, yet this continues to be the prevailing reality.

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Witness the transportation of hundreds of millions in dollars, euros, and dinars using manual carretillas, a daily morning routine in Tripoli's city center.

Secondly, the prevailing circumstances have led to a scenario where many Libyans face challenges in transferring their wealth internationally. In the absence of means to justify the sources of their funds or comply with basic Anti-Money Laundering regulations abroad. Consequently, hundreds of billions of dollars remain concealed within the country.

This wealth is often invested in domestic land acquisitions, stored in safes, or even buried, a practice notably prevalent in the city of Zliten, restricting its broader economic utility.

Thirdly, with Libya’s foreign reserves projected to reach 90 billion USD by 2024, and minimal foreign debts, the nation is financially well-equipped, especially considering its modest population of less than 7 million. This substantial wealth not only facilitates the country’s reconstruction but also empowers Libya to secure liquidity in international markets by leveraging its assets as collateral.

It becomes evident that Libya’s challenge does not lie in the absence of liquidity; rather, the necessary resources are already in place. What is crucial, however, is the capability for knowledge transfer and the acquisition of essential expertise required for meaningful investments.

To operate optimally and minimize risks in Libya, foreign companies should prioritize the transfer of knowledge as the pivotal element of their business endeavors.

The Optimal Approach to Doing Business in Libya

In the public sector, risks are minimal due to several factors. Firstly, companies receive payment before initiating any work, ensuring a secure financial foundation. Secondly, the assets of the Libyan foreign investment fund, dispersed across various developed countries, serve as collateral in the event of potential non-payment.

It is vital to look beyond surface-level reports of substantial unpaid amounts owed by the Libyan state to foreign companies. Often, these delayed payments result from rigorous auditing procedures aimed at uncovering prevalent fraudulent activities within governmental contracts over the past decade.

Consequently, Libyan state institutions, particularly non-political entities like the National Oil Corporation, emerge as reliable and financially stable partners for business engagements following this approach.

In the private sector, a local capitalist partner assumes a critical role, while the foreign company acts as a conduit for knowledge transfer, thereby leveraging existing liquidity.

Moreover, this operation would be substantially collateralized against various risks, as the local partner mitigates potential challenges posed by non-governmental actors and navigates the complexities of state institutions, ensuring the optimal functionality of the business.

As a result, the principal challenges and risks in this undertaking revolve around ESG (Environmental, Social, and Governance) considerations and maintaining a positive reputation.

Conclusion

While doing business in Libya may pose numerous challenges, strategic and nuanced approaches that prioritize knowledge transfer, risk management, and alignment with national development goals can pave the way for a successful and sustainable business venture in the nation.

Despite the prevalent risks, Libya stands as an uncrowded market teeming with opportunities. The relatively low level of foreign direct investment and the limited presence of international businesses have created a unique landscape for pioneering ventures. This environment offers the prospect of early-mover advantages, enabling businesses to establish a strong foothold and build lasting relationships with local partners and stakeholders.

The country’s rich natural resources, coupled with its emerging market potential and the increasing demand for various goods and services, present an enticing opportunity for businesses willing to navigate the challenges and strategically position themselves for long-term growth and success.

By Alvaro Carrasco

In an era marked by escalating geopolitical tensions and evolving power dynamics, understanding the implications for businesses, investors, and global affairs is critical. This article delves into the complex interdependencies and shifting alliances that characterize the current geopolitical landscape, setting the stage for a comprehensive analysis of expected developments in 2024. Significantly, the year 2024 is marked by a global elections Supercycle, with countries accounting for about 54% of the global population and nearly 60% of global GDP going to the polls.

Anticipated Global Developments in 2024

1. Global Geopolitical Realignments and Elections: The global political landscape in 2024 is poised for substantial shifts due to key elections in major economies. These include the U.S. midterm elections with a focus on foreign affairs and domestic policies, the German federal election influenced by a surge in young voters advocating for climate action, and the Japanese general election centered on economic recovery post-pandemic. Additionally, elections in emerging economies like Brazil and India are expected to act as catalysts for economic and environmental policy shifts, significantly influencing global markets.
2. US-China Relations – A Broader Impact: The dynamic of US-China relations continues to evolve, impacting a diverse range of industries. A revealing study from the Federal Bank of St. Louis paints a vivid picture of the evolving landscape. It traces the roots of substantial economic shifts to the US-China trade war, which has notably dampened US demand for Chinese goods. The repercussions for US consumers and importers have been significant – a $3.3 billion loss, approximately 0.05 percent of the gross US output. As these two global powers continue to navigate their complex relationship, their strategies and interactions are set to redefine the contours of global trade and economics, stretching their influence well beyond conventional boundaries.
3. Middle Eastern Geostrategic Shifts: The Middle East is undergoing a transformation, with Saudi Arabia’s pivot from oil under Vision 2030 and Iran’s increasing influence in the region, as seen through its support for Hezbollah in Lebanon. These developments indicate a significant reconfiguration of economic and political power in the traditionally oil-dependent region.

4. Climate Change Initiatives Post-COP28: The global response to climate change is gaining momentum, particularly following COP28 in Dubai. Nations are uniting to reduce fossil fuel reliance, with significant pledges towards ambitious emission targets and renewable energy. The UAE Consensus and other initiatives signal a global shift towards more assertive climate policies, though challenges remain in meeting the 1.5° C warming limit.

5. Technological Advancements and Outsourcing in Emerging Markets: India’s general election is set to influence global technology and outsourcing markets. Decisions made here will have a far-reaching impact on how technology is leveraged and outsourced globally, affecting both emerging and established markets.
6. Environmental Policies and Economic Implications: Brazil’s presidential election is critical, with policies concerning the Amazon Forest having global environmental implications. The decisions made will be pivotal in shaping global environmental strategies and highlight the interconnection between environmental policies and global economic trends.

Market Changes and What to Expect

As we progress from analysing the intricate geopolitical landscape and key global events, our focus now shifts to the anticipated market changes in 2024. By interlinking these geopolitical and economic elements, we´re poised to uncover the challenges and opportunities that the global markets may present. This integrated approach readies us for a spectrum of scenarios, from emerging economic prospects to potential market fluctuations.

1. Global Economic Resilience and Recovery Post-Pandemic: The global economy is poised for recovery post-pandemic, with a projected average GDP growth rate of around 3.5%, led by emerging markets like India and China. Key indicators such as consumer spending and industrial production are expected to rebound, supported by fiscal stimulus measures. Significantly, median core inflation for both Emerging Markets (EM) and G10 countries is approaching centra bank targets by 2024, signalling economic stabilization. 2024 is expected to see favourable returns across commodities, global equities, global credit, and DM 10-Year Government Bonds, reflecting growing confidence in financial markets and the broader economic recovery.
2. Shift in Monetary Policies and Inflation Dynamics: Global monetary policies and inflation dynamics are undergoing a significant shift. Central banks in both developed and emerging markets are steering inflation rates closer to their targets, indicating a more balanced approach to policy-making and moving away from a narrow focus on inflation control. Currently, the post-Global Financial Crisis era of low yields and inflation is ending, with real yields on various asset classes returning to pre-crisis levels. However, this transition poses challenges, particularly in emerging markets and Europe, where higher US interest rates have aggregated financial distress and debt sustainability concerns (see graph below).

The alignment of US Treasury Forward Rates with historical norms signals a return to traditional monetary policy settings, underscoring a broader movement towards economic stabilization and a gradual reversion to pre-pandemic conditions.

3. Technological Innovation and Digital Economy Expansion: The digital sector´s growth, exceeding 10% annually, significantly contributes to global GDP, driven by robust investments in AI and 5G technology. The Us tech spend is forecasted to grow by 5.5% in 2024, with similar trends in Australia, indicating a global surge in digital investment. Leading companies like Accenture and Google are pioneering AI advancements, revolutionizing various industries. The rapid adoption of 5G underpins next-generation digital connectivity, essential for IoT and smart cities. Cloud computing is also pivotal, with public cloud spending expected to reach $678.8 billion in 2024. This growth is particularly notable in North America and the Asia Pacific, where digital transformation is accelerating in both large enterprises and SMEs.

4. Energy Transition and Focus on Renewable Resources: Renewable energy sources are rapidly expanding, with projections indicating that they will account for more than one-third of global power supply by 2024. This growth is fueled by a 50% increase in renewable energy capacity in 2023, reaching almost 510 gigawatts (GW), led by solar photovoltaic (PC) which accounts for three-quarter of the additions worldwide. China, in particular, has commissioned as much solar PV in 2023 as the entire world did in 2022. While its wind power additions rose by 66% year-on-year. In the European Union, renewable energy expansion is expected to more than double during 2022-2027, driven by ambitious targets and policies under the REPowerEU package. The US, following the extension of tax credits for renewables until 2032, is set to see almost double the renewable energy expansion from the last five years. Similarly, in India, new installations are expected to double over the forecast period, primarily driven by solar PV.

5. Geopolitical Tensions and Their Economic Implications: The current geopolitical landscape is significantly impacting the global trade and economic activities. Trade volumes are experiencing fluctuations de to increasing tensions. For instance, Europe´s GDP growth stalled in the second half of 2023, primarily due to weaker household consumption and reduced global trade. The energy price shock from Russia-Ukraine war, coupled with high interest rates, has le to a slowdown in manufacturing growth and business activity in Europe. Similarly, external demand for goods and rising protectionism are impacting other export-oriented economies in Asia, particularly China, where exports declined by 5% in 2023 compared to 2022. In this precarious environment, diplomatic efforts will be crucial in mitigating economic impacts.
6. Natural Resource Management and Environmental Policies: The year 2024 is expected to be pivotal for the carbon capture, usage and removal sector. Projects like the Stratos project in Texas and Climeworks in Iceland are set to capture 530,000 tons of carbon from the atmosphere annually. Policy developments are paving the way for more rigorous climate action. For instance, changes in tax credits for renewable energy generation, regardless of the technology used, are incentivizing businesses to adopt zero-emission technologies. These challenges are further exacerbated by economic conditions, which are increasing the cost of clean energy investments and placing new demands on existing infrastructure. The imperative of energy security and the striking growth in energy consumption highlights the pressing need to accelerate renewable energy development and overcome the hurdles tied to cost, grid and infrastructure issues.
7. Financial Market Volatility and Investment Strategies: Vanguard´s 2024 outlook indicated that higher interest rates, while leading to increased market volatility, are beneficial for long-term, well-diversified investors. They project a strong foundation for risk-adjusted returns going forward, especially for investors in balanced portfolios. Vanguard´s global outlook underscores the effectiveness of a 60/40 portfolio strategy, arguing that it has increased the probability of achieving a nominal return of 7% for long-term investors.

2024 Global Markets Insights, So Then?

From the geopolitical shifts influenced by a series of significant elections to the evolving dynamics of US-China relations, the impact of these changes is profound and far-reaching. The Middle East´s strategic transformation, global initiatives against climate change, the burgeoning technological and digital economy, and the crucial energy transition all paint a picture of a world in flux, balancing between recovery and new challenges. The global economy shows resilience with a promising trajectory, yet it grapples with shifting monetary policies and the implications of technological innovation. The energy sector´s pivot towards renewables marks a significant step towards a sustainable future, but not without its challenge, especially considering the current geopolitical tensions and their economic repercussions.

As we look towards the future, these insights and analysis not only provide a roadmpa for understanding potential market changes but also raise critical questions about how these developments will unfold. How will the gloal political and economic landscape adapt to these changes, and what will be the long-term impact on global markets? Are we prepared for the possible ramification of these shifts? and how can businesses and investors strategize to navigate this complex terrain?

The emergence of OpenAI’s ChatGPT marks a pivotal moment in the field of generative artificial intelligence (AI), sparking a wave of investor interest and prompting crucial discussions about its potential economic impact. Goldman Sachs’ extensive analysis suggests that generative AI could significantly enhance labor productivity growth, potentially by about 1.5% annually over a decade in developed markets, leading to a global GDP increase of approximately 7%.

This raises a pivotal question: As this technological wave reshapes economies, to what extent will nations with developing digital landscapes, such as Libya, adapt and benefit from the AI revolution?

What is Generative Artificial Intelligence?

At its core, artificial intelligence emulates human intellect within machines, leveraging sophisticated technologies like machine learning, natural language processing, and advanced neural networks. These technologies empower computers to learn from data, understand human languages, and execute intricate tasks, including image and pattern recognition.

AI is predominantly categorized into three types:

1. Artificial Narrow Intelligence (ANI): Often referred to as weak AI, ANI specializes in specific tasks such as voice recognition. It’s commonly used in applications like chatbots and language translators.
2. Artificial General Intelligence (AGI): A theoretical form of AI, AGI aims to match human intelligence across a wide range of tasks. It’s a long-term goal in AI research, focusing on machines that can autonomously learn and adapt.
3. Artificial Superintelligence (ASI): This extends AGI’s concept, envisioning machines surpassing human intelligence. ASI remains theoretical, with its potential and implications a subject of ongoing debate.

As AI continues to evolve, one critical question arises: How will the advent of Generative AI impact the labor market?

Impact of Generative AI on the Labor Market

Goldman Sachs’ extensive research, covering over 900 occupations in the US and 2000 in the Euro area, offers a detailed perspective on the possible disruptions in the labor market due to AI. This study is notable for its intricate analysis of the vulnerability of various tasks within each occupation to automation by AI, with a focus on both the complexity and importance of these tasks.

Key findings include:

• About two-thirds of US occupations show some degree of exposure to AI automation.
• A substantial part of the workload in these occupations (25-50%) could potentially be automated.
• High automation potential is noted in administrative (46%) and legal (44%) professions.
• Lower automation potential is seen in physically-intensive sectors like construction (6%) and maintenance (4%).

The findings are similar in the Euro area, where approximately 24% of work tasks could be automated by AI. These occupation-level estimates are adjusted according to the employment share of each occupation, offering a detailed view of potential automation across various industries.

When these findings are extrapolated globally, accounting for country-specific industry-employment profiles, it’s estimated that generative AI could automate about 18% of work tasks worldwide. This impact is expected to be more significant in developed markets compared to emerging markets.

Productivity Gains from Generative AI

The integration of AI into the workforce is poised to significantly enhance productivity, primarily through two channels:

• Reallocation of Workforce Capacity: Workers in occupations partially susceptible to AI automation are likely to shift towards more productive tasks. This trend is evident in firms that have adopted AI, with initial findings indicating a 2-3 percentage point increase in annual labor productivity growth. This reflects AI’s potential to free up human resources for higher-value tasks.
• Creation of New Occupations and Reemployment: History shows that technological disruptions, while displacing some jobs, also lead to new occupations. Similar to the digital revolution, which created roles like web designers and digital marketers, AI is expected to boost labor demand in various service industries and lead to new job categories.

Goldman Sachs’ analysis suggests that the widespread adoption of generative AI could potentially double the current rate of US productivity growth. This impact mirrors historical increases seen with transformative technologies like the electric motor and personal computer.

Key aspects include:

• Productivity Boost for Non-Displaced Workers: Workers in AI-exposed roles are likely to see a productivity increase, potentially echoing the 2-3 percentage point rise observed in early studies.
• Economic Impact of Worker Displacement: While AI will lead to job displacement, many displaced workers are expected to find new opportunities in emerging sectors. Historically, technological shifts have created more jobs than they displaced, indicating a dynamic job market evolution.
• Long-Term Employment Trends: Over time, technological changes have consistently led to the creation of new job types, with many of today’s roles not existing several decades ago.

Combining these factors, Goldman Sachs estimates that full-scale AI adoption could increase overall labor productivity growth in the US by about 1.5 percentage points annually, effectively doubling the recent pace of productivity growth.

The productivity growth is not confined to the US; similar increases are expected in other developed markets.

The study anticipates a comparable rise in productivity across these economies, with global adoption of AI potentially enhancing annual productivity growth by over 1 percentage point. However, this impact might be delayed in emerging economies due to varying industry compositions and adoption rates.

Contextualizing the Impact of Generative AI on Libya

Libya, with its unique economic landscape, faces distinct challenges and opportunities in harnessing the potential of generative AI. A more in-depth economic calculation can help understand the possible impact on Libya’s GDP and labor market.

GDP Growth Estimation:

• Global Context vs. Local Application: While the global estimate of a 7% GDP increase over a decade due to AI is significant, applying this directly to Libya requires adjustments. Given Libya’s emerging market status and its nascent digital infrastructure, a more realistic expectation might be a smaller increment in GDP growth.
• Sector-Specific Considerations: Key Libyan sectors, like oil and gas, are less likely to be immediately impacted by AI automation compared to more digitalized sectors. Therefore, the direct contribution of AI to Libya’s GDP growth in the short term might be relatively modest.
• Projected GDP Increase: Considering these factors, Libya’s GDP growth due to AI adoption might be more conservative, possibly in the range of 2-4% over the next decade, assuming gradual digitalization and AI integration.

Labor Market Dynamics:

• Impact on Employment: The adoption of AI in Libya might not lead to significant immediate changes in the labor market, especially in sectors dominated by physical labor. This slow transition might result in a gradual impact on productivity and, consequently, on GDP.
• Digital Infrastructure Development: To harness the full potential of AI, Libya would need to focus on developing its digital infrastructure and upskilling its workforce, which would be a long-term endeavor.

In conclusion, the impact of generative AI on Libya’s economy will likely be more gradual and modest compared to global averages, primarily due to its current stage of digitalization and economic structure. Strategic investments in technology, policy-making, and workforce development will be key to leveraging AI for economic growth. The long-term outlook, however, remains promising, with AI offering avenues for economic diversification and incremental productivity gains.

Significant, yet Highly Uncertain, Impacts of AI

The potential boost to productivity growth from the widespread adoption of generative AI, while substantial, is accompanied by significant uncertainty. This uncertainty is primarily rooted in factors such as the evolving capabilities of AI, the extent of job automation, and the speed of its adoption across industries. As a result, the projected increase in annual productivity growth in the United States could vary extensively, ranging from 0.3 to 3.0 percentage points. However, the boost is generally expected to be economically significant across most scenarios. In emerging markets like Libya, where digital infrastructure and AI adoption are still developing, these impacts might manifest differently and over a longer period.

The extent of the productivity increase is directly tied to the capabilities of AI and the rate of its adoption in various sectors. For instance, less advanced AI capable of performing simpler tasks (like skimming an article for key points) will have a lesser impact compared to AI that can undertake more complex analyses (such as evaluating the costs of medical care services across hospitals).

Predicting the timing of AI’s macroeconomic impact is also challenging, as evidenced by the historical precedent set by technological breakthroughs like the electric motor and personal computer. These technologies saw significant productivity gains materialize roughly 20 years after their introduction, following widespread adoption. Current global interest in generative AI could potentially accelerate its adoption, but the actual rate of integration into business operations remains modest. As of 2019, AI adoption rates among US firms stood at only 3.2%, and despite the growing corporate interest in AI, only about 20% of CEOs anticipate a reduction in labor needs due to AI in the next 1-3 years. Factors such as data privacy concerns continue to pose barriers to the rapid integration of AI into everyday business workflows.

Given these considerations, it’s likely that the tangible effects of generative AI on aggregate productivity, particularly in countries like Libya, will not be immediately visible. However, the potential for AI to automate a wide range of work tasks, combined with projections of substantial productivity increases, underscores the profound economic potential of AI. If AI lives up to its promise, it could lead to a considerable increase in global GDP – potentially up to 7%, or almost $7 trillion, over a 10-year period. This positions generative AI as a significant upside risk for global economic growth in the medium to long term.

In the realm of global finance, discussions are increasingly centered on the looming decline of the US Dollar dominance. Given the current economic indicators — an overvalued Dollar, diminishing inflation, and the Federal Reserve nearing the end of its rate-hiking cycle — a substantial depreciation of the Dollar would typically be anticipated. However, the reality is strikingly different. The Dollar, since its peak in autumn 2022, has only seen a modest decline. This raises a critical question: Are we misinterpreting the resilience of the US Dollar?

The Economic Slack Factor in Dollar Valuation

The concept of economic slack has historically been a significant indicator of the Dollar’s value post-peak. The presence of slack in an economy usually leads to uninterrupted growth with low inflation and interest rates, contributing to the Dollar’s depreciation. However, the present scenario in the US is characterized by limited slack, evidenced by tight labor and commodity markets, and consequently higher inflation. This lack of significant slack aligns more with a stable Dollar rather than a sharp decline, hinting at an extended period of relative strength for the US currency.

The Absence of Strong Rivals

In the international currency arena, the Dollar’s fate is closely tied to the relative strength of other currencies. For a significant Dollar depreciation, other major economies must present stronger currencies. However, the current global economic landscape shows no formidable challengers to the Dollar. Europe, grappling with its issues, and China, in a weaker cyclical and structural position, are not in a state to dethrone the Dollar. Even the emerging markets, despite navigating through disinflation, do not pose a substantial threat to the Dollar’s hegemony.

Investment Trends: A Pillar of the Dollar’s Valuation

The continuous flow of capital into US assets has been a key factor in maintaining the Dollar’s high valuation. Despite talks of de-Dollarization, the US remains an attractive destination for investors, primarily due to the high ‘risk-free’ yields and the allure of the tech sector. This steady influx of capital has played a critical role in propping up the Dollar, countering forces that would typically drive its value down.

The Dollar’s Shallow Depreciation and Diverse Performance

Given the resilient economic picture in the US and the lack of clear global challengers, the Dollar is expected to follow a trajectory of shallow depreciation. This trend is marked by a differentiated performance in the currency market. While currencies like the Swiss Franc and Canadian Dollar, as well as some higher-yielding emerging market currencies, may see tactical appreciation, other major currencies are likely to lag behind. This differentiated performance underscores the complexity of the current currency landscape and the unique position of the Dollar within it.

De-Dollarization: Rhetoric Versus Reality

The concept of de-Dollarization has been a topic of considerable discussion in the current geopolitical context. However, the practical implementation of moving away from the Dollar has been limited. Only a few countries have made real strides in this direction, with mixed results. The private sector continues to favor Dollar assets, further reinforcing its high valuation. This gap between the rhetoric and the actual implementation of de-Dollarization strategies suggests that the Dollar’s dominant position in the global financial system is unlikely to change in the near future.

The Overstated Demise of the Dollar

The narrative surrounding the Dollar’s decline has often been exaggerated. While cyclical factors like the end of the Fed’s rate-hiking cycle have historically aligned with a weaker Dollar, the US currency has maintained its strength. This persistence is partly due to the influx of capital chasing ‘US exceptionalism,’ particularly in the last decade, which has seen significant US equity returns. These inflows, along with the strong relative performance of US assets, have increased the share of US assets in global portfolios. Notably, much of this capital has originated from areas like the Eurozone and Japan, where low rates and weak growth have repelled investors.

The Search for Alternatives to the Dollar

Despite the declining share of the Dollar in global FX reserves, it remains the predominant reserve currency. The search for higher returns has led to diversification into currencies like the Australian and Canadian Dollars, yet none have challenged the Dollar’s supremacy. Reserve managers prefer currencies that are liquid and reliable, especially in risk-off scenarios, a niche that the Dollar continues to fill effectively.

US Dollar Dominance Set to Persist

Looking ahead, based on all the above reasons, the end of the Dollar’s dominance as the global reserve currency seems contingent on better capital returns from other economies and more profound structural changes in the global financial landscape. These changes would require deeper capital markets outside the US and significant shifts in the composition of reserve assets.

Given all the presented factors, we can state: the US Dollar will maintain its position as the global reserve currency for the foreseeable future.

Earlier this week, Algeria’s state-run Sonatrach reignited collaboration with Libya’s National Oil Corporation, a move catalysed by the stabilizing geopolitical landscape with the aim to harness the untapped hydrocarbon wealth within the Ghadames Basin. The strategic re-entry not only revives historical economic ties but also signals the potential emergence of a new energy hub at the heart of the Mediterranean. With a clearly defined technical roadmap and rejuvenated interest from international energy corporations, the question arises: Could this alliance between Algeria and Libya redefine North Africa’s position within the global energy landscape?

Sonatrach’s Strategic Return to Libyan Gas Exploration

Sonatrach, under Chairman Rachid Hachichi, led a high-level delegation to Tripoli to re-engage with Libya’s National Oil Corporation (NOC), marking a definitive re-entry into Libyan gas exploration efforts. This step, detailed in a Sonatrach communiqué, responds to a more stable geopolitical climate and improved security conditions, with the goal of renewing and enhancing energy cooperation between the two nations.

The meeting with NOC’s Farhat Bengdara revealed a shared eagerness to strengthen their operational alliance and capitalize on the region’s hydrocarbon resources more effectively. A joint expert task force from Sonatrach and NOC is preparing to complete a technical plan for resuming exploration, with key meetings slated for November 8, 2023.

Historical Interlude and Prospects

Sonatrach’s re-entry into Libya is rooted in a strategic narrative that started over two decades ago, marked by significant investments totalling in excess of $750 million. The discoveries in the Zintan region, with their promising reserve estimates, are a testament to the potential of Algerian-Libyan cooperation in the energy sector. Disruptions, once dictated by regional instability, have conceded to a targeted strategy for re-engaging with vital exploration blocks within the resource-rich Ghadames Basin.

Straddling the boundaries of Libya, Algeria, and Tunisia’s southern edge, the Ghadames Basin is a vital hydrocarbon reservoir with proven abundant, yet underexploited, reserves. Sonatrach’s renewed focus on on plots (065) and (96/95) within this basin marks a critical phase of economic reintegration, seeking to harness and maximize the shared hydrocarbon resources of this strategic tri-border region.

Algeria and Libya, Towards a Unified Energy Coalition?

The re-engagement of Sonatrach in Libyan hydrocarbon exploration represents an evolution in economic collaboration between the two nations, utilizing their respective strengths and interlinked economic interests. This approach aligns with principles of game theory, targeting enhanced collective outcomes and sectoral influence.

The concept of regionalism is central to this partnership, positing that cooperative efforts in the energy industry can lead to increased efficiency and innovation. Through the integration of their energy industries, Algeria and Libya are positioning themselves to enhance the competitiveness and power of North African energy hub.

Moreover, the partnership is strategic in terms of negotiation, with parallels drawn to the Nash Equilibrium, indicating that each country is seeking to improve its standing by considering the other’s strategies. This cooperative stance may progressively enhance their international negotiating power as they progressively sharpen their bargaining power.

The Rekindling of Global Energy Commitments to Libya

Libya’s resurgence on the global energy stage is poised for amplification with the anticipated 2024 oil and gas licensing round—its first since 2007. This strategic move follows Eni’s $8 billion deal for offshore gas project set to deliver approximately 760 million cubic feet per day (ft³/d), a significant boost to Libya’s gas production and export capabilities. Despite political complexities and awaiting the final investment decision (FID), the project targets a 2026 operational date.

On the infrastructure front, Libya is exploring ambitious enhancements, including a new LNG facility to succeed the dormant Marsa el Brega and a pipeline connecting to Egypt’s expansive LNG network. These initiatives represent Libya’s drive to not only meet a domestic gas demand of 1.3 billion ft³/d—currently at the threshold of sufficiency—but to also scale up export capacity, which has seen a marginal increase from last year’s low to 265 million ft³/d through the Greenstream pipeline.

The optimism in Libya’s energy sector is echoed by major oil firms, who are lifting force majeure and recommitting to the region. Eni and British Petroleum have officially informed the National Oil Corporation (NOC) of their intent to resume exploration in the Ghadames Basin and offshore “C” block. These reaffirmed commitments reflect a recalibrated risk assessment by multinational corporations, positioning Libya once again as an attractive destination for energy investments and signaling a broader resurgence of international interest in Libya’s hydrocarbon potential.

A New Era for Libya’s Global Market Integration

In summary, the recent alliance between Algeria and Libya, through Sonatrach and the National Oil Corporation, represents a noteworthy development in the context of the North African energy sector. The targeted development of the Ghadames Basin’s resources, spurred by political stabilisation, has the potential to propel the Mediterranean into a significant energy nexus. With upcoming technical collaborations and the first Libyan oil and gas licensing round since 2007, there is a palpable momentum that may attract robust international investments.

Such movements are harbingers of confidence, signalling a recalibration of risk and reaffirmation of interest from global energy players. If successfully leveraged, this partnership may not only enhance the domestic energy infrastructure but also fortify North Africa’s role in the global energy supply chain, thereby reshaping regional economic contours and contributing to the global market’s diversity and resilience.