By Julio Alonso
In the intricate weave of global economics, Libya’s move from discord to peace promises not just moral victory but a tangible economic windfall for North Africa, to the tune of $190 billion. The “Peace in Libya and Future Regional Cooperation” report, authored by United Nations, unravels this promise. Using a potent mix of econometrics, surveys, and data analysis, it projects Libya as North Africa’s economic keystone.
Three years ago, the United Nations Economic and Social Commission for Western Asia (ESCWA) hinted at this potential in a lesser-known report, enriched by insights from Dr. Hakim Ben Hammouda, former Minister of Economy for Tunisia. This initiative, backed by the German Federal Ministry for Economic Cooperation and Development (BMZ) and co-facilitated by ESCWA and GIZ, spotlighted the latent regional benefits of Libyan peace.
This piece shifts focus to the broader regional dividends, especially trade potential with Tunisia, Egypt, and Sudan.
As UN-led negotiations progress, peace in Libya appears closer, heralding not just national reconstruction but a reinvigorated regional economic framework. Thus, we explore and update the profound economic uplift Libya’s peace could bring to North Africa in the next five years.
Table of Contents
Methodology
The study employs the Arab Trade Simulation Model by ESCWA, a derivative of the multi-sector, multi-country computable general equilibrium (CGE) MIRAGE model. For this research, the model was tailored to analyse Libya’s unique trade scenario, considering its significant oil exports and relations with major trade partners like France, Italy, UAE, and Turkey. The model’s database was initially calibrated with the GTAP version 10, encompassing 10 Arab countries. It was then expanded to include eight more Arab nations using new national social accounting matrices (SAMs). This revised database incorporates 20 sectors and 32 countries/regions.
The Arab Trade Simulation Model, primarily designed for trade policy analysis, incorporates elements like dynamic scenarios, demand-side representative agents, supply-side factor utilization, capital mobility, and labour market imperfections. The study’s scenarios consider potential developments like trade costs, regional productivity shifts, and labour force absorption. Consequently, this establishes it as a robust and reliable model for estimating the regional gains from achieving peace in Libya.
Growth Impact
Drawing from the data-driven simulations of the study, should Libya find its way to peace, its neighbouring quartet—Algeria, Egypt, Sudan, and Tunisia—stand to reap significant economic dividends. Delving into the specifics, in the following 5 years from achieving peace, Sudan could see an annual uptick of 6.72% in its GDP. Egypt isn’t far behind with a potential 4.46% rise, while Tunisia and Algeria might enjoy boosts of 3.80% and 2.67% respectively. Translating this into fiscal terms, the windfall for Egypt could be an impressive $99.7 billion. Meanwhile, Sudan, Algeria, and Tunisia could pocket gains of $22.7 billion, $29.8 billion, and $9.7 billion respectively.
Cumulatively, a pacified Libya stands poised to infuse $161.9 billion into the region’s economy over a mere half-decade. Yet, it’s crucial to overlay this with some temporal context. Given that the study’s genesis dates back three years prior to this article, and accounting for the dollar’s inflation rate, which averaged 5.86% annually since 2020 (a cumulative spike of 18.63%), the purchasing power today equates roughly to $192.06 billion. Hence, while the study’s figures are compelling, an adjusted economic lens suggests an even more robust regional windfall awaiting North Africa.
Ultimately, the return of peace will have an important macroeconomic impact on the countries of the region that we have called the growth effect. It will result in faster growth, lower unemployment and a rapid increase in investment in the four neighbouring countries. Thus, peace in Libya will result in enhanced regional cooperation and a great economic benefit for the region.
Employment Impact
The study’s estimates show a significant drop in unemployment in the countries of the region resulting from the growth gain that will take shape in neighbouring countries, as well Libya’s opening up to the region’s labour force following peace.
Sudan is set to experience a significant drop in unemployment, estimated at -13.93 per cent over the following 5 years peace settlement. The decrease will also be -8.84 per cent in Egypt, -6.07 per cent in Tunisia and 2.18 per cent in Algeria.
Trade Impact
The ripple effects of peace in Libya on regional trade are profound, as underscored by the recent study. Establishing tranquillity in Libya is forecasted to catalyse heightened cooperation amongst North African nations. The study posits a marked elevation in trade for Libya’s neighbours, positioning them favourably against other global regions.
A notable shift will be the diminished trade costs, a direct consequence of reopened land borders and Libya’s augmented tariffs on non-PAFTA nations. This strategic shift will notably amplify the market presence of products from Tunisia, Egypt, Sudan, and Algeria. A case in point: Egyptian exports to Libya are projected to surge by a staggering 413%. Concurrently, exports from Tunisia, Sudan, and Algeria to Libya are poised to rise by 308%, 117%, and 443%, respectively.
Furthermore, this upswing in exports to Libya will bolster overall exports for most neighbouring countries. During following 5 years after achieving peace, Tunisia’s yearly exports are anticipated to surpass the conflict continuation scenario by 3.59%. Similarly, Algeria’s annual export growth rate is expected to exceed the baseline by 1.7%. Conversely, due to the influence of remittances from Libyan-based Egyptian and Sudanese workers affecting real exchange rates, both Egypt and Sudan might face a dip in their overall exports. Specifically, Egyptian exports might recede by an average of 0.85%, while Sudanese exports could see a sharper 4.1% decline.
This trend becomes even more pronounced in the realm of imports. Peace in Libya is set to elevate Egypt’s imports by an average of 5.86% annually. Meanwhile, imports for Sudan, Tunisia, and Algeria are projected to rise by 12.7%, 6.31%, and 0.36%, respectively.
Sectoral Impact
The study also brings into sharp focus the sectoral ramifications that peace in Libya might entail, reinforcing the diversification aspirations of its neighbouring countries. This is discerned through the trajectory of value addition in these economies and their sectoral trade dynamics with Libya.
A pivotal observation is the accelerated value addition in the cereal sector, a reflection of Libya’s food necessities and current deficit. The 5-years period following peace settlement is set to witness a value-added augmentation in Egypt (1.19%), Tunisia (1.36%), and Algeria (2.65%). This uptick isn’t confined to cereals, as other agricultural avenues too will see growth. Notably, Egypt’s agricultural value addition is projected to surge by 1.33%, and Tunisia’s by 1.12% annually during the said timeframe.
The growth, however, transcends the agricultural realm, touching sectors pivotal to these countries’ economic diversification agendas. For instance, Egypt’s machinery and equipment sector is poised to see a near 1% annual spike in the following 5 years from the peace settlement. Tunisia’s post-peace era with Libya forecasts a blossoming manufacturing domain, with agri-food industries growing at 1% annually, other manufacturing at 1.37%, and construction at 1.07%. Algeria mirrors this trend, expecting robust growth in textiles (1.38%), chemical industries (1.69%), electrical equipment (2.6%), machinery (2.02%), and other manufactured items (0.87%).
Concurrently, the cessation of hostilities in Libya and its ensuing preferential trade stance towards its four neighbours might yield substantial economic boons. Four pivotal gain avenues emerge: heightened exports fostering economic growth and job creation; a vibrant business climate from increased openness to foreign products/services, potentially propelling both local and foreign investments; deregulation within FTAs, drawing foreign investors; and FDI inflows spurring technology and expertise transfer.
Integration Impact
Strengthening the integration between Libya and its neighbours, be it via existing mechanisms like PAFTA or AfCTFA or new initiatives, is pivotal—in the period following peace-settlement. It could catalyse transformative processes, bolstering Egypt and Tunisia’s Libyan market presence, while urging Algeria and Sudan to diversify beyond natural resources. The peace process’s export implications are overwhelmingly positive for all four nations, though the benefits are unevenly distributed. Tunisia and Egypt emerge as frontrunners, reaping the lion’s share, while Algeria and Sudan’s gains are more modest, underscoring the need for these countries to diversify beyond predominant sectors like mining and agriculture.
On a granular, sector-specific scale, the manufacturing domain stands to be the prime beneficiary of Libyan recuperation. Tunisia, for instance, will likely witness an export upswing in electrical equipment, capital goods, and other manufacturing to Libya. Egypt’s capital goods exports to Libya are also set to soar. Algeria, while benefiting, might see gains dwarfed by Tunisia and Egypt. Sudan, despite a projected export increase to Libya, might trail its counterparts due to its limited economic diversification and diminished competitiveness on the Libyan market, primarily stemming from the peace-induced real exchange effects.
Peace in Libya: A $192.06 Billion Economic Surge
The United Nations’ detailed study projects a regional economic benefit of approximately $160 billion. When factoring in inflation, this figure swells to an estimated $192.06 billion over five years, underscoring the profound economic potential awaiting neighbouring nations.
The economic implications of Libya’s peace stretch further. The region is set to witness significant reductions in unemployment, with countries such as Sudan and Egypt poised for notable benefits. Trade dynamics also signal a revitalized regional collaboration, characterized by a surge in exports to Libya and the potential for reduced trade barriers, enhancing the competitive stance of North African nations in the global marketplace.
Sector-wise, the peace initiative in Libya promises to drive diversification across multiple industries, from agriculture to advanced manufacturing. While benefits are widespread, the magnitude varies among countries, highlighting the imperative for nations like Algeria and Sudan to broaden their economic bases.
In summary, Libya’s move towards peace isn’t merely a diplomatic milestone; it’s an economic game-changer, setting the stage for a more collaborative and prosperous North African economic landscape.
