Role of Oil Sector in the Economic Development of Libya

This article discusses the role of the oil sector in the economic development of Libya. It explores the impact of the sector on the country's economy, including its contribution to government funding and social security. The article also highlights the challenges and opportunities faced by the sector.

As the inflow of foreign capital began in the year 1961 from various international companies the
oil in Libya was discovered (Abozrida, 1981). . This made the economy of the country to jump
and the country’s deficit began to transfer from deficit to surplus(Bakar, 1997).The General
Libyan Petroleum Corporation was established under the law No. 13 and the National Oil
Corporation that is NOC and was established under law 24 of 1970 replaced this law. The main
role that was played by the NOC was controlling and supervisory roles along with making
development plans of the oil sector. Not only had this role of the NOC included making
investment and management deciosn so that the reserves can be utilized to maximum for the
benefit of the country.
In the year 1970 Libya engaged itself in various agreements so that it can become major partner
in the foreign firms and can gain maximum control over the oil production. The percentage of
royalties and tax was same for the foreign firms as well as the NOC. But, in the year 1974 the
NOC moved towards he different agreements that is the Exploration and Production Sharing
agreements where in t was specified that a fixed percentage of output was obtained by the
foreign firms and this situation was different in various other companies.
There were increased oil fields shutdowns for Libya in the year 2014 which further led to
disintegration of central authority, rise in the powers of religious militants and economic decline.
There were various armed groups that maintained maximum control over the key oil production
sites and aligned themselves in the various political parties of the country. There was high rate
of unemployment in the country which was estimated to be approximately 30% and this highly
affected the youth of the country. It was seen that the rate of unemployment was approximately
18% across the various age groups between the years 2005-2010 that reached to a level of 20%
which was high of all the times(Tawfik and Abuhadra, 2014; LCB, 2013; and AfDB, 2012). The
protection system of the country was very weak due to which there was a huge spread of
weaponry in the region as a result of the NATO intervention that led to instability in the
region(Shah, 2011; and Germanos, 2014).
In the year 2011 there was huge uprising due to which the dominance of the oil in the economy
of Libya became very painful . There was huge disruption in the production facilities and
pipelines due to the civil wars which led to a fall in the production of oil further leading to the
collapse of the economy. As there was too much dependence on the oil sector so the real GDP

declined to 60% whereas the non-oil GDP declined y 52%. While, in the year 2010 the real GDP
was US$75 billion and it was US$35 in the year 2011.
So, it can be summarized that the main sector that as responsible for the economic development
of the country was the oil sector. Due to the oil sector there was huge supply of money that was
further utilized for funding the government expenditure which helped the Libyan economy to
become aid donor from aid recipient. Not only this due to the oil sector the Libyan economy was
transformed to capital abundance in place of capital scarcity (Khader, 1987). The population of
Libya was low whereas there was high oil revenues due to which Libya was placed in the top
five countries for GDP per capita in Africa with $14,000 GDP per capita (Lieberman, 2011;
AfDB, 2011), and allowed the Libyan state to provide an extensive level of social security,
particularly in the fields of housing and education. If we compare Libya with its neighbors it can
be seen that Libya has low level of Poverty as compared with its neighbors. The socialist model
of the economic development weakened the private sector which was only confined to small
scale business. Due to this policy the Libyan economy has damaged but on the same side the
wealth started to accumulate with the small number of population. Not only this , this policy has
also led to large amount of current and fiscal account surpluses with large amount of foreign
exchange reserves and a very little debt. Due to the poor policy making in the country the county
also had to face many structural shortcomings. But, since the year 2011 the economy of Libya
has retracted from the oil sector paralysis’s with high revenues that is being utilized for the
economic development.

One of the most important sector of the Libyan economy is the Banking sector (Alrshah,
2015which is considered as the main financer in any projects of the Libyan economy as it
adopts various public sector enterprises for implementing various plans(Shernanna,
2012)..there were various measures implemented by the central bank of Lybia between the year
2002-2010 so that there can be some improvements in the banking sector so that the new policies
can be implemented well and economic development can be facilitated(CBL, 2010b). For this
a voluntary corporate governance code was implemented in the year 2005 that
was made mandatory in the year 2010that led to the restructuring of the
commercial banks and the ownership of the public sector banks was transferred
to the private banks. Not only this there was establishment of new private banks
that allowed foreign banks and foreign investors to enter this sector (CBLa, 2010).
One of the supreme monetary authority of Lybia is CBL that was established in the
year 1956. The main role and purpose of the CBL was the continuous economic
growth of the economic system of Lybia and to maintain the monetary stability in
Libya(CBL, 2008). CBL has been given all the independence by the law that

establishes the CBL and further ensures the financial position integrity. Not only
this the law establishing the CBL protects the performance of the rights of the
depositors and its clients. (CBL, 2008). It has been noted by Gait(2009) that CBL
has these as one of its main responsibility. According to El-Firjani et al. (2014) it
has been observed that it is CBL’s responsibility to monitor closely the banking
sector. It has been observed that there has been continuous efforts made by CBL
in the past two decades so that more and more foreign investment can be
attracted and it was made possible by allowing the foreign agencies and bans to
open their branches in Libya(Hawashe, 2016a). Stock exchange is the second most
important characteristic of the Libyan Financial system.
Stock Exchange
It was very important to encourage invesrnent and speed up the privatization in the Libyan
economy for which the Libyan government established the LSM in the year 2001 by issuing Act
No. 21/2001(Masoud, 2014a). For being listed it was required that all the public as
well as the private organizations get themselves registered in the stock exchange.
(El-Firjani et al., 2014). But the stock exchange opened officially in the year 2006
when a decision no 134/2006 was issued by the government (Aljbiri, 2012). The
London stock exchange and the LSM finalized a collaboration contract in October

2006 that allowed various groups from LSM to work in London(Saidane, 2010).
Since then it has been seen that the LSM became very active internationally that
joined the International organization so that the investors could be protected
(Alameda) (Edweib et al., 2013). The main aim of the LSM was to enhance the
financial availability and boost the privatization process. Not only this the LSM
also aimed at encouraging the investment and grant credit so that it can be
ensured that there is transparency in the economic and financial information
(Edweib et al., 2013). In the year 2007 the whole new Code of corporate
governance was issued by LSM for the listed companies. The various areas of
responsibities of the various committees, the directors are covered by the code
so that proper disclosure and transparency are taken care of. It is important that
all the companies that are listed in the stock exchange submit their annual
reports. The various information that are required to be included in these reports
are overdraft and interests, investment incomes, paid and proposed dividends
remuneration, compensation and pension payments and the auditors turnover.
(Masoud, 2014a). Along with the annual financial statement it is also important
that the report also include a statements where it mentions that it has included
the code along with the responsibilities and the names of the various committees
along with the remuneration and bonuses details(LSM, 2007).
.

The judiciary is not independent in Libya even though there is separation of powers in Libya
between the executive and the legislative branches(Benwell and Oonagh, 2011). But, this
only applies the issues that are of criminal nature like robbery, murder, traffic
violations, larceny and not related to any political influence . one of the most
recent case that occurred in Libya where the judiciary was influenced politically
was the case of five Bulgarian nurses and the doctor was given death sentence
while the other were released for the money sake and political reasons(BTI,
2010).Therefore it can not be said that the Libyan judicial system is free from
political influence but the judicial systems is intervened very much due to the
interests of the various other institutions therefore it can be said that the judicial
systems in Libya is not independent like in various other developed countries.
There are ongoing violations in Libya due to which the judicial system of Libya has
become very weak with almost the collapse of the system. There are tortures,
ongoing violations that includes detentions and arbitrary arrests due to which
there are drastic consequences for the country. There is no proper rule of law in
Libya hence there are many people who are unwilling to join the army or the
police force. Restoring the rule of law has become a big challenge for Libya for
restoring the law for its country and maintains the independency of its judiciary.

As there is no security system in Libya therefore it has become very difficult to bring freedom of
speech and freedom of expression in Libya . There are various court sentences that has affected
the freedom of expression . it has been seen that there is assassinations and abductions of the
reporters and bloggers in Libya. For example there has been a case of TawfiqBensaud, where he
has assisacinated. There were approximately 93 journaliss targeted in he year 2014 in its first nine
months and this all was in the reports of reporters without borders. An outrage was expressed by the
reporters without borders at the cour rulings that was ruled against Amara Abdallah al-Khitabi who was
the editor of the privately-owned newspaper al-Umma, in absentia and he was sentenced for the period
of five years in prison. Along with this he was also fined 250,000 dinars for the damages incurred by the
judicial authoriies for defaming the officials by publishing a list of judges accused of corruption.1 in the
year 2014. Media plays a very important role in the case of raising awareness and raising the funds
where it has been seen that radio stations have become extremely popular. There are many radio
stations in the east. There is a lot of corruption in media and this shll be eradicted as soon as possible
Therefore it is sid that the media in Libya shall be made independent along with formation of
independent judiciary that helps in fighting the corruption.
There is a strong role played by the country like Libya that has various different
features. Conservative attitudes have been predominant in every respect.
People's values and behavior have been a function of their religious background
1

and attachment; hence, evaluation and acceptance of innovation and change
have been subject to religious beliefs and values.
Conclusion’
From the above discussion and analysis it can be concluded that the main source
of Income for Libya is natural gas and oil production. Therefore, it is important
that the economy makes such policies that help in the proper management of the
oil and gas industry. There is a lot of corruption in Libya that affects the overall
economy of the country therefore it become very important that proper rule of
laws are framed in Libya so that there is eradication of corruption and Libya can
move towards development.