Source of Income in Libya is Oil and Gas Industry

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23&5IntroductionAccording to Benjamin the global scale and nature of the oil and gasindustry along with complexity related to operations and contractualconnection with the venture partners, contractors and suppliers as well asanti-corruption and anti-bribery law implementation need increased focus bythe management1. The risk of Bribery and corruption is rapidly becoming asignificant concern for the oil and gas sector. There is huge sum of capitaland profits involved in the sector which invites corruption. As stated byAbdallah, Mirvat, and Houssam Salami the problem with corruption is mostsignificant in the developing countries because of their legal system andweak regulatory authorities2.The purpose of this chapter is to develop a proper framework for Libyain relation to corruption in the oil and gas sector. The main primary source ofincome in Libya is oil and gas industry. Corruption can pose a significanthurdle in the development of the country as it restricts its independentpower of decision making and institutional foundations. Developed countrieslike Australia and UK have a well-coordinated and tested corruption policy inplace to take care of corruption in the sector such as the Independent1Sovacool, Benjamin K. "Countering a corrupt oil boom: energy justice, natural resource funds, and São Tomé ePríncipe's Oil Revenue Management Law." Environmental Science & Policy 55 (2016): 196-207.2Abdallah, Mirvat, and Houssam Salami. "Overview of the Oil and Gas exploration in Lebanon."Gas and OilConference (MedGO), 2015 International Mediterranean. IEEE, 2015.
2Commission Against Corruption (New South Wales). However such policiescan be implemented in Libya or not is a great doubt. This is because thelegal system of the country is based in religious content and mainly onIslamic Law. Therefore any change in the corruption policy of the country hasto be consistent to the Islamic provisions.In addition the Libyan government is a single bureaucracy andtherefore it is a doubt that whether the policies which have beenimplemented in Australia having a federal government could be successfullyimplemented in Libya or not. The research aims to provide a corruptionmanagement framework for the country.The Libyan contextLibya (lɪbiə/or/ˈlɪbjə/;Arabic:ليبيا)is a developing nation. It is situated on thenorthern coast of Africa. The nation shares its borders with Tunisia andAlgeria in the West. In North, it is bordered by the Mediterranean Sea. InEast, its neighbors are Sudan and Egypt. Chad and Niger are present in theSouthas illustrated in Figure (1). The capital city of the country is Tripolilocated in the east with the other large city Benghazi located in the west.Libya is a small country by population with a large area of land. It is thefourth largest country in land mass size in Africa and the seventeenth largestin the world.3Libya has a vast area of 1,759,540 square kilometre (around3Central Intelligence Agency,The World Factbook<>
2700,000 square miles). The coastline of the country stretches to 1900kilometers4Figure (1): Map of Republic of LibyaThe authorities conducted first census in the country in 1954. At that time,the total population of the country was only 1,080,000.5After this time, acensus was conducted after every 10 years. According to the last census,which was conducted in 2009, it was discovered that the total population ofLibya was 6,411,776 persons.630 per cent of population in Libya is under theage of 15 and most of population is concentrated along the Mediterraneancoastline.74Ibid5Fathi Naser Bribesh,The quality of corporate annual reports : evidence from Libya(Doctoral Thesis, University ofGlamorgan, 2006)6Central Intelligence Agency, above n XXX7Ibid
2All Libyans are Muslims and follow the Maliki sect. Arabic is the officiallanguage in Libya.Significant variations are present in the climate of Libya.These are mainly affected by the Mediterranean Sea and desert.8Thecountry has mild Mediterranean climate along the coastline. On the otherhand, in the rest of the country the weather is arid desert weather. Libyaholds the 11thplace among the oil producing countries of the world.9The oil rich countries, many of them are termed as developing countries facesignificant increase in revenue due to the rise in oil prices after the late1970s and during early 1980s. It was again witnessed after 2000. But, thereare several are the countries that have shown least economic and socialindicators globally.10The oil exporting countries could not achieve a higheconomic growth rate in the long run, as compared to the non oil producing/exporting economies.11121314The income and the revenue of the governmentwitnessed higher volatility due to the turbulences taking place in the oil.15168Although the Amazigh language is spoken in some parts of the country.9F. DiPiazza,Libya in Pictures(Twenty First Century Books, 2005) spell out first name10Francisco Carneiro, 'Development challenges of resource-rich countries: the case of oil exporters' (Paper presentedat the Proceedings of the VI International Colloquium, 2007)11Richard M Auty,Resource abundance and economic development(Oxford University Press, 2001),Masoud Niliand Mahdi Rastad, 'Addressing the growth failure of the oil economies: The role of financial development' (2007)46(5)The Quarterly Review of Economics and Finance726,Jeffrey D Sachs and Andrew M Warner, 'The big push,natural resource booms and growth' (1999) 59(1)Journal of Development Economics43,Marc Badia-Miró, VicentePinilla and Henry Willebald,Natural Resources and Economic Growth: Learning from History(Routledge, 2015)121314
2The economy of Libya is not an exception from other resource rich countries.Even if the nation produced significant amounts of crude oil since 1960’s, thecountry had shown lower economic indicators in comparison with otherdeveloping oil producing and non-oil-producing countries. Due to lack oftransparency in the country, inefficiency of government institutions,corruption, and misusing the oil revenue, there has been under-performancein case of development and Economic growth.17Recently, it causedsignificant economic and political turmoil in the country, resulting in eight-month long civil war that ended up the dictatorship of Muammar Gaddafilasting 42 years in October 2011.Significant cost had to be paid for the war interms of loss of life, economic dysfunction and the infrastructure of the company. The oilproduction was also reduced, which is the major source of revenue and export for thenation. The production of oil reduced to 1.6 million barrels per day before the war tonearly 50,000 barrels a day during the war. At the same time, most of the supportinfrastructure of oil sector was also destroyed.18There are many persons in Libya, who believe that oil wealth is not a blessing but a curse. Oneexplanation that can be given for the natural resource curse is that the wealth generated by naturalresources also causes a conflict with the usage of such resource. This in turn results in poor institutionalquality and less development. On the argument that has been given in this regard is that the hugerevenue generated by the natural resource sector also creates motivation for the interested groups likelocal/foreign investors and government officials so that they may involve in rent seeking behavior. Suchbehavior can be present in the form of corruption, veracity, or even civil conflict, as seen in case of15Mr Steven Barnett and Mr Rolando Ossowski,Operational aspects of fiscal policy in oil-producing countries(International Monetary Fund, 2002),Ricardo Hausmann and Roberto Rigobon, 'An alternative interpretation ofthe'Resource Curse': theory and policy implications' (National Bureau of Economic Research, 2003)1617Esposito, John L,Islam and politics(Syracuse University Press, 1998)18Issa Ali and Charles Harvie, 'Oil and economic development: Libya in the post-Gaddafi era' (2013) 32EconomicModelling273
2Nigeria.192021Such behavior may also result in political crisis and economicfailure, including collapse of non-natural resource production, flight ofeconomic capital, higher rate of inflation, poor quality institutions, andtherefore lesser growth. A significant role is played by the institutions indeciding the ability of the government to adopt and implement the policiesthat mitigate the risks having adverse impact on economic growth.22Thecountries that have well-established institutions are also in opposition toimplement better policies for responding to external shocks and therefore,such countries are capable of maintaining their economic development. Butthe lack of such institutions may cause poor policy choices, which in turndeepens and extends the negative impact of external shock.There is another possible explanation arising out of the literature. According to it the economicfactors caused by the boom in source (oil) sector and the volatility of its revenue are the mainreasons behind the natural resource curse. It has been suggested by this explanation that thewealth generated by natural resources may cause lower growth in non-resource sector. It can bebriefly stated as the notion that arise in one tradable sector like oil contributes in thecontradiction of other non-boom tradable sectors like the manufacturing sector. This means thatthe windfall revenue generated by oil sector results in a real exchange rate appreciation. This inturn declines the competitiveness of non-resource tradable sector and in this way the growth ofnon-resource tradable sector is undermined.2319Hausmann and Rigobon, above n xxx20Dani Rodrik,In search of prosperity: Analytic narratives on economic growth(Princeton University Press, 2003)refer to relevant page numbres21Carlos A Leite and Jens Weidmann, 'Does mother nature corrupt? Natural resources, corruption, and economicgrowth' (1999) (99/85)Natural Resources, Corruption, and Economic Growth (June 1999). IMF Working PaperAVAILABLE AT CITE THE WEBSITE22Rodrik, above n xxx23Robert K Eastwood and Anthony J Venables, 'The macroeconomic implications of a resource discovery in an openeconomy' (1982) 92(366)The economic journal285
2It also results in undermining the economic development in non-booming tradable sector by reallocationof production factors towards natural resource sectors and the non-tradable sector.24252627Political situationThroughout the history and until its independence in 1951, Libya facedcontinuous waves of innovation and colonization.282930When the country wasunder the control of a Ottomon empire, the economy of media mainly reliedon subsistence primitive agriculture. Due to low and irregular rainfall and thelack of financial resources, there were limited agricultural activities, confinedto subsistence crops and livestock production, which was also used by smallindustries as raw material like food and clothes. There was no infrastructurepresent in the country like roads, railroads or ports.During the first two decades of occupation by Italy, Libyans arose insignificant resistance. There was a state of war in the country. However, theeconomic condition of Libya improved as compared to the Ottoman period.From 1932. There was significant investment made in industry andagriculture by the Italians. However the living conditions in the countryremained over and basically the economy was run for the advantage of the24Warner Max Corden, 'Booming sector and Dutch disease economics: survey and consolidation' (1984) 36(3)oxford economic Papers35925W Max Corden and J Peter Neary, 'Booming sector and de-industrialisation in a small open economy' (1982)92(368)The economic journal82526Robert K Eastwood and Anthony J Venables, 'The macroeconomic implications of a resource discovery in an openeconomy' (1982) 92(366)The economic journal28527J Peter Neary and Sweder van Wijnbergen, 'Can an oil discovery lead to a recession? a comment on eastwood andvenables' (1984) 94(374)The economic journal39028John Wright,A history of Libya(Columbia University Press, 2012)29Alison Pargeter,Libya: The rise and fall of Qaddafi(Yale University Press, 2012)30Ali Abdullatif Ahmida, 'Libya, Social Origins of Dictatorship, and the Challenge for Democracy' (2012) 3(1)TheJournal of the Middle East and Africa70
2Italians3132It has been reported by the International Bank for Reconstructionand Development (1960):“... a heavy price have been paid by the Libyans for whatever wasachieved by the Italians. They were pushed out of their best farminglands, large number of livestock of the Libyans also perished during thewar.... there. Traditional industries suffered heavy losses due to thecompetition from products coming from Italy. Moreover, the Italians didvery little to prepare the Libyans for self-governance. (p. 27).During the Second World War, the economy of Libya suffered heavily. Mostof the factories, farms and livestock suffered damage.33However, after theGreat War, the military administration of Britain and France operated as thecaretakers of the country during the transitional period leading towardsindependence of the nation. Libya achieved independence in 1951. Underthe administration of King Idris Al-Sansui, the country was named the UnitedKingdom of Libya.But at this time, Libya was heavily dependent on foreign aid provided by the UNagencies, and mainly coming from the USA and UK so that the country may face difficult economicconditions. Therefore, strong economic and political ties were created with UK and the USA. Both ofthese countries had their military bases in Libya for more than two decades, starting from 1953.3435However the discovery of oil proved to be a turning point in the modern history of Libya in1959. Due to the revenue generated by oil sales, Libya could overcome its deficit. It created asurplus in the balance of trade, resulting in significant increase of GDP and per capita income inthe country.36Libya also became one of the major oil producing countries of the world as well31Amal Obeidi,Political culture in Libya(Psychology Press, 2001)32Ahmida, above n33Obeidi, above n34John Wright,Libya: a modern history(Taylor & Francis, 1981)35Dirk Vandewalle,A history of modern Libya(Cambridge University Press, 2012)36MB Mahmud and A Russell, 'An empirical investigation of the development of accounting education and practicein Libya, and of strategies for enhancing accounting education and accounting practice in Libya' (2003) 5Researchin Emerging Economies197
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