INCOME AND WEALTH
The declining oil prices of the 1980s reversed the previous decade's
trend of sustained growth in national income. In real terms, GDP
grew every year from 1972 to 1980. Since 1980, however, there
has been a constant decline. A turning point for the economy occurred
in 1981, as real GDP dropped a staggering 18 percent. Preliminary
figures for 1984 estimated that, in constant 1980 terms, the GDP
was LD7.5 billion, a level comparable to that of 1975-76. The
rate of growth in real GDP has exhibited widespread fluctuations
since 1970. In two years during the mid-1970s (1974 and 1976),
real GDP grew at an annual rate of over 18 percent. Apart from
these two dramatic years, real GDP grew at an unspectacular average
rate of 0.9 percent from 1970 to 1984.
Per capita changes in gross national product (GNP--see Glossary)
have largely paralleled changes in GDP. In general, however, GNP
growth has not kept pace with population expansion, resulting
in an overall rate of growth in GNP per capita of -1.1 percent
from 1965 to 1984. Nevertheless, in 1984 dollars, Libya's GNP
per capita was US$8,520--roughly equivalent to that of Britain's
The breakdown of the GDP by contributing sectors changed greatly
in the 1960s as the oil wealth began to flow. Whereas in the pre-petroleum
period agriculture contributed between 25 and 30 percent of GDP,
by 1962 it was down to 10 percent. In the same year, only one
year after Libya became a petroleum exporter, oil exports accounted
for over 23 percent of GDP.
By 1968 the contribution of petroleum products to GDP had risen
to about 60 percent. All other sectors except construction decreased
in relative terms between 1962 and 1968; agriculture declined
to 3 percent of the total and manufacturing to about 2 percent.
In 1971 the contrast between the petroleum sector and the rest
of the economy had become even greater. Petroleum had come to
account for some 70 percent of GDP, construction 5 percent, agriculture
2 percent, and manufacturing 1 percent. The rest of the economy
taken together apparently contributed only about 20 percent of
GDP. What these percentages reflected was not an absolute decline
in the nonpetroleum sector as a whole but rather the extraordinary
relative growth of the petroleum sector.
Between the late 1960s and the early 1980s, there were few major
changes in the composition of GDP. In most years, petroleum products
accounted for between 50 and 60 percent of GDP. Since 1982, however,
declining oil revenues have reduced the petroleum sector's share
of GDP. Transportation and construction have accounted for relatively
large shares, which is not surprising given the heavy investment
effort in infrastructure. The consistently low contributions of
agriculture and industry to GDP were disappointing, given the
large amount of development spending in those areas. About the
only component of GDP to exhibit a steady growth has been the
public service sector, which rose from 5 percent in 1978 to 12
percent in 1984 . The burgeoning of the public sector reflected
the strong bias against private sector growth that developed over
this same period.
An income study of selected households in Tripoli and Benghazi
in the early 1970s indicated the existence of a large middle class.
Only 1.5 percent of households in Benghazi and 2.3 percent in
Tripoli had monthly incomes below LD25. About 7.2 and 5 percent,
respectively, of the households in these cities had monthly incomes
of over LD300; the vast majority--between 50 and 60 percent--had
monthly incomes between LD50 and LD100.
During the 1970s, the usual dichotomy between rural and urban
incomes was lessened in Libya. The fringe benefits and free social
services that the government brought to the rural areas helped
to increase disposable income. Many urban residents retained ties
to their families in rural areas and remitted part of their earnings.
Farm income generally rose because of increased demand for agricultural
products and because of improvements being made in agriculture
by the government. Agricultural wage rates were relatively high,
reflecting the shortage of labor. Wage rates paid on state-owned
farms were higher than on private farms; private farmers tended
to hire lower paid foreign agricultural workers, mainly from Egypt.
Since 1978 salaries have been limited to an annual maximum of
LD10,000. The construction industry probably paid the highest
wages despite the popular conception that oil industry wages were
the highest. The oil industry, however, provided more job security.
The true effect on income of the radical measures put into effect
in 1978 remained unclear in early 1987. The resolution outlawing
rental income did increase the disposable incomes of renters,
who in 1978 comprised an estimated one-third of the population.
It also eliminated a major income source for landlords and removed
what had been the main area of private investment. Although landlords
were allowed to continue renting to those in need of short-term
accommodation, the 1978 policies severely diminished the economic
power of wealthy, large-scale, property owners who had been a
potent force in politics .
The effect of the law requiring worker participation in management
has been less clear cut. Whereas the 1973 profit-sharing requirement
probably increased worker incomes by requiring private and public
firms to distribute one-quarter of their profits to workers, the
1978 extension may have hurt workers by undermining the profitability
of the enterprises in which they worked. Indeed, many owners liquidated
their businesses rather than face losing control of them.
Overall, the generous public attempts to supply subsidized social
services, education, and medical care, when combined with the
more sporadic availability of subsidized basic consumer items,
have increased disposable incomes and caused a general rise in
the standard of living for most people when compared to pre-1969
Libya. To a large extent, these policies depended on stable, plentiful,
oil revenues. The degree to which living standards and income
levels can be maintained, given the drop in oil revenues during
the 1980s, was not clear in 1987. To a certain extent, at least
in the first few years of falling revenues, the government avoided
cutting back on consumption by making small cuts in development
spending and drawing down on its reserves. This latter policy
was especially dramatic, and Libya's total foreign-exchange reserve
position declined by 75 percent between 1980 and 1984.
Price information on Libya should be viewed with caution because
it rarely has been clear whether price indexes are based on official
controlled prices, which may or may not be effective at different
times, or on private, noncontrolled prices. Probably the most
accurate measure of inflation in the economy is the average annual
percentage change in the implicit GDP deflator. By this measure,
during the period 1965 to 1973, inflation progressed at a rate
of 9.4 percent a year. From 1973 to 1984, the rate increased to
10.8 percent a year. Although these rates were slightly higher
than the average inflation rate of industrial market economies,
they were less than the average rate of other high-income, low
population oil exporters. Libya's rate of inflation from 1965
to 1984, therefore, was modest in comparison to the inflation
rates of some of its counterparts in the Persian Gulf.
Data as of 1987