Business Environment Analysis of the Oil and Petroleum Sector in Libya

This report provides a comprehensive analysis of the business environment in Libya, with a specific focus on the oil and petroleum sector. It examines key aspects such as customer base, supplier networks, and competitive landscape, highlighting the role of the state-owned National Oil Corporation (NOC). Furthermore, the report delves into the political, technological, legal, taxation, labor, and cultural factors that significantly influence the oil and gas industry in Libya. It addresses challenges such as political instability, technological barriers, and legal uncertainties, while also exploring opportunities for foreign investment and sector development. The analysis also considers the impact of the youth bulge in the country and the cultural norms affecting business operations. This document is available on Desklib, a platform offering a wide array of study tools and resources for students.

Running head: BUSINESS ENVIRONMENT ANALYSIS OF LIBYA
Business Environment Analysis of Libya
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1BUSINESS ENVIRONMENT ANALYSIS OF LIBYA
Executive Summary:
The report aims at providing an overview of the business environment of Libya. The discussion
of this report revolves around the oil and petroleum industry. The report gives an overview of the
customers, suppliers and competitors of this sector of the industry. There report also tries to give
an insight into the political, technological, legal, tax, labor and the cultural environment of
Libya.

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Table of Contents
Business Environment in the Oil and Petroleum Sector of Libya...................................................3
Customers:...................................................................................................................................3
Suppliers:.....................................................................................................................................3
Competitors:.................................................................................................................................4
Political Environment in Libya:.......................................................................................................4
Technological Environment in Libya:.............................................................................................5
Legal Environment in Libya............................................................................................................7
Taxation Environment of Libya.......................................................................................................8
Labor Environment of Libya...........................................................................................................9
Cultural Environment....................................................................................................................10
References:....................................................................................................................................12

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Business Environment in the Oil and Petroleum Sector of Libya
Libya represents one of the largest countries of North Africa that boasts of large oil and
gas reserves along with a strong consumer market (Tordo and Anouti 2013). The market of
Libya is both rewarding and challenging due to its good planning. This allows the companies in
availing business opportunities belonging to the sectors ranging from oil and gas reserves to the
telecommunications, agriculture and tourism. The economy of Libya primarily depends on the
oil reserves that contribute to around 95 percent of the earnings (Allan 2014). Moreover, the
recent hike in the oil prices has helped the company in accumulating foreign exchange reserve of
around 50 billion US dollars. The country however hugely suffers due to a higher unemployment
rate. The country however focuses on increasing its foreign investment that will enable it to
spread its arms in the other sectors that includes agriculture, mining, fishing, natural gas and the
tourism sectors. The construction and manufacturing sectors accounts for around one fifth of the
GDP of the country with expansion in the processing of steel, aluminum, petroleum and iron.
Customers:
Libya is one of the exporters of oil with its domestic consumption of around 270,000
barrel on a daily basis (Munir Ahmad and Elhuni 2014). Around 85 percent of the crude goes to
Europe while 13 percent is reserved for the east of Suez Canal in Asia. Close to around 32
percent of the Libyan Oil is reserved for Italy and 14 percent for the Germany. The portions of
France and China receive around 10 percent whereas the United States accounts for about 5
percent (Elmahdi et al 2014).

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Suppliers:
The state-owned National Oil Corporation (NOC) runs Libya’s oil and petroleum
industry (Hallett and Clark-Lowes 2017). It holds the responsibility of implementing, production
and exploration agreements with the global oil companies. Together with the smaller subsidiary
businesses, the NOC accounts for close to 50 percent of the oil output of the country(4). The
country also has oil fields that are located around Sirte Basin and contains about 80 percent of
the proven reserves of the country. Libya also has in total five domestic refineries with a
combined capacity of around 378,000 barrels per day. The domestic refineries include Sarir
Refining, Sirte Oil Co, Azzawiya Oil Refining, Ras Lanuf Oil & Gas Processing Co and Tobruk
Refining (McLachlan and Barker 2014).
Competitors:
The major competitors of the oil and petroleum industry includes key international oil
companies that operates in Libya like Eni, Occidental Petroleum, StatoilHydro, ConocoPhillips,
OMV, Hess Corp, Shell, Marathon, BP, Wintershall and ExxonMobil (Griffin and Teece 2016).
Political Environment in Libya:
The oil and gas industry in Libya experiences threats due to various political factors that
include:
1. Political instability
2. Geopolitical conflicts

5BUSINESS ENVIRONMENT ANALYSIS OF LIBYA
3. The government control accounted for close to 90 percent of the total oil reserves and
around 75 percent of the global gas and oil production.
4. The presence of innumerable number of oil reserves in the country can itself be a
reason for increased corruption and civil wars. Such side effects are known across the world as
resource curse. This acts as barriers for the foreign gas and oil companies for making investment
in Libya.
Presently, the oil and gas industry of Libya has become ineffective and fractured due to
the persistent political hostility between the Tripoli based government backed by the United
Nations and the eastern counterpart(Massey and Coluccello 2015). It is necessary for the country
to overcome such obstacles to develop a functioning business. Both the factions battled over the
revenues of petroleum. The outlook of the oil and petroleum industry depended on the progress
of the negotiations between the eastern and the western factions. However, the removal of the
UN embargo would energize the oil and petroleum industry of Libya. The presence of rival
militias along with obstinacy of fragmented political sphere will continue to inhibit progress in
Libya .Although it is believed that in spite of the militant and political setback, it is believed that
the oil and petroleum industry of Libya will show improvements in the next couple of years due
to some recent developmental activities.
Technological Environment in Libya:
The primary barriers to the oil and petroleum industry lies in bringing introducing a
newer technology and innovation in the market (Mohamed, Al-Habaibeh and Abdo 2013). This
is due to the uncertainty that exists over the returns, skill shortages, development cost, time
uncertainty for getting to the market, funding insufficiency, uncertainty over the gas and oil

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prices and stringency in regulations. However, some high tech technologies that would influence
the oil and petroleum industry are represented as follows:
Figure 1: Technologies that Drives Innovation
Source: (Mohamed, Al-Habaibe and Abdo 2013)
According to Lloyds 2015 Report (Aguilera and Radetzki 2013) on the Global Insights of the
Oil and Petroleum, the technology that drove innovation into the oil and petroleum industry before the
year 2020 includes enhanced oil recovery and automation. However, around the year 2020, the oil and
petroleum industry of Libya will implement not only high temperature and high pressure drilling
technologies but also hydraulic fracturing based on a multi stage process. Further, around the year
2025 and beyond, Libya would be able to introduce deep-water equipment and subsea robotics. Not
only that the country will also be able to implement the removal of the hydrogen sulfide and water
separation through the downhole process. There would also be rig less drilling, laser drilling and
implementation of other improvements in the process of drilling. However, the technology that plays a
key role in determining the future of the oil and gas industry would be the extraction technology for
the Methane Hydrates. The deposits of Methane Hydrates are combination of the oil, coal and gas and

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considered as one of the exploitable resources. However, the development of this key technology
would connect to the oil prices since it is expensive and requires a lot of money for undertaking
research and development. However, the leading countries using this technology include Japan,
Germany and USA.
Legal Environment in Libya
Coupled with the unclear legal system, presence of a larger public sector and random
decision-making by the government has impeded foreign direct investment. The oil and petroleum
industry of Libya has undergone much suffering for twenty long years although it managed in
maintaining the production levels of oil and gas. However, the intention of National Oil Corporation
(NOC) for expansion of the gas and oil production in a six years time resulted due to the ambitious
exploration of Libya for both the oil and the gas (Nestorović 2016). Libya also launched two vital
agreements related to exploration and product sharing that has resulted in various agreements with the
various international oil companies.
Although Libya emerged from isolation and opened up foreign investments but it, still
remains caught up in undoing the damage caused by embargo. However, Libya had to implement
various legal reforms. In the year 2000, there was decentralization of most of the legislative and the
executive authorities into twenty-six municipal excluding the energy, economy, defense, foreign
affairs, infrastructure, trade and social security. This forced the local government in formulating their
own budget. The newer form of governance has led to the elimination of the class difference and
severance of the outside influences. The introduction of the heath care including all the basic
amenities is provided by state. The Foreign Investment Law not only covered the foreign investment
but also included Libyan capital invested privately in a foreign land. This policy led to the opening of

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various sectors that initially remained closed to both the foreign and private investment. However,
Libya undertakes a conservative approach and presently allows only certain sectors for the purpose of
investment. However, the presently allowable industry includes tourism, health, agriculture and
various services related to oil that excludes exploration and drilling and is covered under Petroleum
law. There was also an establishment of energy minister in Libya with initiations for a newer law for
petroleum.
Taxation Environment of Libya
In past couple of years, the authorities of Libya have led to the implementation of the
economic reforms as a means of easing the country towards the global community. Libya
however experiences hard and long road ahead for loosening the social grip on the economy
(Asongu 2015). The application to the World Trade Organization (WTO), the reduction of the
subsidies along with the plans for privatization resulted transition of the Libyan economy into a
market-based structure.
In the context of the oil and petroleum, industry, Libya has an upstream, midstream and
downstream sectors. In the upstream sector, Libya had various offshore deals that prevented
swapping the production rights between the various foreign entities. The midstream sector of the
country has good pipeline network that is in the need for modernization. The downstream sector
consists of five domestic refineries that have a capacity of around 378 thousand barrels on a
particular day.
In Libya, Exploration and Production Sharing Agreement (EPSA) holders do not need to
pay any royalties and taxes related to petroleum. According to the EPSA, the Libyan National
Oil Corporation (LNOC) settles royalties and taxes in support of the International Oil

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Corporation (IOC). The Libyan authorities accepts for the filing of the notional tax with the
finance ministry by issuance of a receipt for the purpose of the tax recoverability.
Labor Environment of Libya
The demographic pyramid of Libya puts forward a prominence in the youth bulge with
around 27 percent of the population between the age group of 16 years to 30 years (Abuharris,
2013). The gain of the youth bulge was combined with higher rates of unemployment estimated
around 33 percent and came to be known as youth unemployment. In the 1.9 million existent
Libyan labor force, government employed only 70 percent of the salaried Libyans. According to
the figures of the World Bank, there were an estimated surplus staffs close to 300,000 in the
public sector which is perceived as the vital source of stability and employment for the citizens
of Libya (Timberlake 2013). On the other hand, the private sector contributes in employing only
4 percent of the labor force. There are around 120, 000 self employed and independent Libyan
workers.

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Figure: Labor Force in Libya by Job Status
Source: (Abuharris 2013)
Cultural Environment of Libya
The population of Libya is around 6.4 million and the life expectancy of men is around
73 years whereas that of the female is about 78 years. The primary language of the country is
Arabic and the religion followed is Islam (Peters 2014). The stronger religious backdrop of
Libya has made the country conservative in various respects. The county does not have a bar or a
nightclub but has cafes and food joints where people gather to enjoy. The country also does not
serve alchohol in any of its establishments. The colonization and invasion of Libya has left the
country with a diverse cultural legacy. Culturally Libya does not believe in a beach life and with
the local population preferring picnics. The county however puts forward opportunities for desert
driving and the dune surfing. Libya being a Muslim country, the Libyan people are dressed in a
modest manner. The woman especially covers their upper arms, legs, cleavage and shoulders
along with a headscarf. This also holds significance while visiting a cemetery, mosque, or site
that has religious significance.
However, through their conduct, Libyans believes in good reputation, honor and dignity
of their family. Therefore, it is necessary for maintaining decorum at all the times. Attempt of
purposeful public embarrassment and humiliation have serious ramifications in the country. The
Libyan people expect a warm and enthusiastic greeting. While greeting the people in business
meetings people should shake hands while addressing a person along with maintaining a smile
direct eye contact. While shaking hands it one needs to understand that men can shake hands

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with men but for shaking hands with a woman, he must wait until she is willing. Libyan people
do not use first names for addressing people instead; they use titles for addressing people.
Libyans also believes in respecting the business contacts and be punctual to the meetings. They
believe in following an open-door policy during the meetings so that there are no interruptions.
The companies in Libya follow a hierarchical structure with decision-making and negotiations
done through the consensus of the group. They however believe in maintaining long-term
business relationships so ensure committing time at the beginning of the business collaboration.
They also believe in valuing the desire for non-confrontational negotiations.

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material. Journal of Bioremediation & Biodegredation, 5(7), p.1.
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