LIBYA

Although Libya is the fourth-largest country on the African continent, is located in the direct vicinity of Europe and is rich in natural resources, it has so far played quite a minor role as a German trading partner, apart from Germany’s substantial importsIn recent years, Libya has remained Germany’s third most important source of oil, despite its civil wars. of oil. This is understandable in view of how power struggles among various factions plunged the country into chaos after the fall of Muammar Al-Gaddafi in 2011, resulting in several civil wars and laying waste to nearly all sectors of the economy. Due to the insecure situation in the fragile state, only a limited number of foreign investors have thus far been willing to risk investing in Libya or trading with Libyan companies. Despite ongoing challenges, however, Libya is a direct neighbour of Europe that offers potential and opportunities that could make it an important trading partner in the long term, even beyond the oil trade.

Germany is highly regarded in Libya, as it is throughout the Arab world. Germany’s role in the Berlin ProcessPeace process under German auspices. in particular was seen as positive by all parties to the conflict and has lastingly strengthened the country’s position in Libya. In addition, Libya is both willing and interested in expanding relations with Germany, especially in the area of trade. 

However, it is also clear that the country is currently looking elsewhere in the world for partners willing to invest in its reconstruction, give Libyan companies technical advice and in the process become close trading partners. But before trade relations can get under way, capital must first be invested in rebuilding the Libyan economy. The fact that Libya is also trading with systemic European competitors such as Russia and China should therefore not be seen as a deterrent. Egypt and Turkey currently dominate Libyan trade, with Turkey in particular occupying a niche involving ambitious infrastructure projects that could also be of interest to Germany. 

In order to deepen trade relations with Libya in the long term, a bilateral trade agreement between the EU and Libya is needed that would make it easier for Libyan companies to import goods from the EU, as well as a revision of the unclear embargo and sanctions regime that currently discourages European investment, in particular by SMEs. Should these barriers be removed, Germany’s good reputation as a neutral, attractive and trustworthy partner could give rise to joint trade projects linking the two states even more closely.

The International Monetary Fund (IMF) expects Libya’s gross domestic product to grow by 5.3 percent in 2022, following a significant rise in 2021. Depending on the country’s political stability, Germany could also benefit from Libya’s growth. In recent years, Libya ranked 66th among the countries from which Germany imports goods and 87th in terms of exports from Germany out of 100 countries listedFederal Ministry for Economic Affairs and Energy, 2021: Facts on German Foreign Trade, July 2021, in: https://www.bmwi.de/Redaktion/DE/Publikationen/Aussenwirtschaft/fakten-zum-deuschen-aussenhandel.pdf?__blob=publicationFile&v=20, pp. 13–14 (8 February 2022).. Petroleum accounted for 97.4 percent of imports from Libya, while petrochemical imports made up 2.4 percent of the total in 2020. Germany exports to Libya mainly machinery (23 percent) and food (15.3 percent). In the first half of 2021, imports from Libya were five times higher than exports and amounted to €1.2 billionGermany Trade & Invest 2021: Wirtschaftsdaten kompakt, Libya, November 2021, in: https://www.gtai.de/resource/blob/18366/5298c5bc120da3ec671a9ccbf5c3c3eb/GTAI-Wirtschaftsdaten_November_2021_Libyen.pdf, p. 4 (8 February 2022)..

There is thus potential for building on the current trade balance, especially as other EU member states benefit much more from trade with Libya. Italy, which has traditionally maintained close political and economic ties with Libya, has been among the most important purchasers of Libyan goods in recent years. Spain and France were also ahead of GermanyIbid, p. 3 (8 February 2022)..

Libya does not yet play a major role in China’s Mediterranean and African policy. European-dominated trade relations would ensure that this continues to be the case.

Libya’s strategic position as a link between Europe and Sub-Saharan Africa, its young population, and employment opportunities there for guest workers from neighbouring countries give it abundant potential which the country is however currently unable to exploit. The momentum given German-Libyan relations through Germany’s prominent role in the Berlin Process could be leveraged to gain competitive advantages in the energy sector, health care and the construction industry. 

Libya currently finances its national budget almost exclusively through the oil trade. The energy transition will now force Libya, like other countries, to diversify. The country has the potential to produce hydrogen and solar energy like other territorial states in the region. Germany would be a suitable partner here, able to provide expertise and infrastructure while also being of interest as a market for renewable energies. 

Libya’s health-care sector is suffering not only from the destruction of medical infrastructure but also from a lack of personnel. This is an area where Germany should offer rapid, proactive assistance. It enjoys an excellent reputation in the region in terms of both technology and personnel and could at the same time alleviate its own shortage of skilled workers through attractive training models without thereby causing a brain drain. 

The most obvious potential for cooperation is in the construction and infrastructure sector. Germany competes here with other states that see themselves as having a hand in shaping the future of Libya. It will therefore take a good deal of political skill and intelligent marketing of the Engineered in Germany label to be awarded projects in road construction or the commercial modernisation of the international airports in Mitiga, Tripoli and Benghazi, for example. 

An economically stable Libya could undoubtedly also have positive effects on neighbouring states. Before 2011, Libya was host to more than three million guest workers from Egypt and Tunisia, and it is also of interest for job seekers from the Sahel. In addition, if stability could be maintained, Libya would also lend itself to other industries, such as agriculture or textiles.

The greatest obstacles to intensified trade relations between Germany and Libya are the political instability and fragile overall situation in the North African country. Libya’s political, economic and institutional fragmentation can only be addressed from within. The rich potential in numerous areas in the resource-rich country with its young population and strategic location as a Mediterranean state directly south of Europe, as well as its close contacts to Sub-Saharan Africa and the Arab world, could serve to enrich German-Libyan economic relations. For this to happen, however, the following steps would be necessary for contributing to greater political stability and a less fragile general situation, thus ensuring a better framework for trade and investment:

• Continuation of political dialogue in the spirit of the Berlin Libya Process co-initiated by former Chancellor Merkel and the prompt holding of presidential and parliamentary elections to restore political legitimacy to the key players
• Withdrawal of all foreign mercenaries and reform of the security sector guided by the UN and/or EU. 
• Ensuring planning security for investors by strengthening the rule of law and the proper functioning of the administration and judiciary
• Reinforcing local contacts (such as the German Embassy) in order to initiate and facilitate business contacts for German companies 

Lukas Kupfernagel is policy advisor for the Middle East and North Africa in the Department of European and International Cooperation.

Dr. Thomas Volk heads the KAS regional programme “Political Dialogue and Regional Integration in the Southern Mediterranean” in Tunis.