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