Analysis

Libya: Continued political stalemate will pose serious challenges for foreign companies

  • Middle East
  • Libya
  • Political and Country Risk

Libya: Continued political stalemate will pose serious challenges for foreign companies

Basem Aly | Analyst


 

With the date for Libya’s long-planned presidential elections having come and gone in December 2021, the political deadlock between Libya’s eastern and western authorities will continue to pose serious challenges for foreign companies doing business in or with Libya.

East against west

On 2 January, Aguila Saleh – the speaker of the House of Representatives (HoR), the eastern authority aligned with the self-styled Libyan National Army – and Khaled al-Mishri – the leader of the High Council of State (HCS), one of several western authorities – met to discuss the political and constitutional divisions that contributed to the postponement of the elections. However, the meeting ended with little resolution. Disagreements over key elements of the election rules and the new political roadmap will continue to prevent Libya’s competing authorities from holding presidential and legislative polls in the coming months.

On 18 January, during an HoR session, Saleh called for the dismissal of the Tripoli-based Government of National Unity (GNU) – a western authority/transitional cabinet – and the selection of a new interim cabinet. Saleh accused the GNU and its prime minister, Abdul Hamid Dbeibah, of violating financial laws and illicitly appointing some parliamentarians in posts linked to the executive authority. Saleh called for a legal investigation, but did not provide further information about his claims against the GNU.

Dbeibah, who was appointed GNU prime minister by both the eastern and western delegations at talks in Geneva in February 2021 – fell out of favour with the eastern authorities by September 2021, when 89 out of 113 members of the HoR voted to withdraw confidence in Dbeibah’s government. The HCS, however, rejected the outcome of the vote.

The HoR will continue to call for the appointment of a new Tripoli-based government, arguing that the GNU’s interim mandate ended on 24 December (the now postponed presidential election date) according to the post-war roadmap announced by domestic stakeholders in November 2020. However, the HCS and other western Libyan authorities will continue to oppose this plan, as no head of state or legislature have been elected.

The abiding tumult will prompt further UN endeavours to develop a new transitional plan between eastern and western authorities in order to prevent the resumption of fighting. On 30 December, the UN special adviser on Libya, Stephanie Williams, stressed the importance of moving forward with the electoral process on a “level playing field in which no candidate enjoys unfair advantages”.

Implications

The political impasse has serious implications for the economy. An international financial audit of the two branches of the Central Bank of Libya (CBL) commissioned by the UN in July 2020 recommended steps that would culminate in the reunification of the two bank branches. However, the absence of a comprehensive agreement between eastern and western authorities on political, constitutional and military affairs will drive further delays to the unification process.

The disunity will sustain fiscal and monetary challenges, including currency fluctuations, the inability of banks to secure foreign cash to cover their current accounts, and the emergence of a black market for foreign currencies. The black market value of the US dollar against the dinar (local currency) has increased by more than five times its official rate in February 2021, while inflation has reached record levels of above 28%.

Libya’s authorities will remain heavily reliant on oil revenues, which remain vulnerable to fluctuations in international oil prices and frequent deliberate halts in production caused by the former warring parties and militias. The lack of a unified budget will also limit the ability of state institutions and companies to pay their financial dues on time, potentially leading to deferred payments to foreign companies.

International organisations operating in Libya will also continue to face serious security challenges. The political volatility will result in occasional clashes between the HoR-aligned Libyan National Army and troops affiliated with the former Government of National Accord (GNA). Protests and strikes against poor socio-economic conditions will also endure across Libya, which will occasionally lead to road closures and temporary halts in production, especially for oil facilities, leading to potential delays in supply chains.

Find out more

How can our experts help you?