One country, three governments…what does this mean for business?

Fiona Barsoum, Associate Analyst, Control Risks

The establishment of the Government of National Accord (GNA), the government formed under the UN-brokered political agreement, has prompted renewed interest from companies, many of whom left the country amid the 2011 uprisings and the more recent civil conflict. Libya does indeed offer opportunities for foreign companies looking to return - such as in infrastructure repairs and reconstruction –   but investors should be aware that the country remains a complex and risk-filled political, operational and security environment.  The weakening of Islamic State (IS) in their Sirte stronghold is a positive development in itself, but it should not distract investors from the persistently fractured nature of Libya’s political and security structures.

While international recognition of the GNA and its efforts to unify divided institutions has provided some clarity for investors, the GNA’s position on the ground remains shaky. The rival government based in eastern Libya continues to pose a challenge to the GNA’s control and legitimacy. The forces fighting IS in Sirte are loyal the GNA, but they come mainly from the north-western city of Misrata, and the GNA’s reliance on these armed groups will make it less able to reach a compromise with eastern authorities.  The eastern legislature to which this rival government reports has also not endorsed the GNA, posing a significant obstacle to the full implementation of the UN-brokered power sharing agreement  under which the GNA was formed. The agreement stated that the eastern legislature would be the legislative power to the GNA’s executive power, and that both institutions (along with an advisory body) would be involved in decision-making.

The security situation is the paramount concern for companies looking to operate in Libya and here the record of the GNA has been mixed since its return to Tripoli in March. As previously mentioned, forces allied to the GNA have played a part in significantly reducing the area under the control of IS, from all of Sirte, several surrounding towns and parts of the coastline to areas within the city of Sirte. However, the GNA has seemingly made no progress towards disarming militias and creating unified security forces which would be accountable to the government and which would allow the GNA to impose the rule of law. The continuing proliferation of actors in the security sphere (and their continuing autonomy), as well as the lack of endorsement from rival administrations, mean that progress is likely to remain slow. Though the drivers of violence are similar across the country, there is significant geographical variation in how this plays out. Assets in the cities of Tripoli and Misrata for example would over recent months likely have been less affected by civil conflict or militancy than those in Sirte or in Benghazi, where urban warfare against militant groups continues. Tripoli and Misrata have seen an increase in activity from an international business perspective and as long as the GNA continues to hold alliances with the various groups operating in this region, it is anticipated that the security risks associated with travel to the western coastal region can be managed with the appropriate support.

An important area of progress for businesses has been the GNA’s moves to unify key state institutions. The National Oil Corporation and the Central Bank divided into rival eastern and Tripoli-based branches during the conflict, creating contractual and regulatory chaos for investors. The implementation of unification agreements is unlikely to be a smooth process, however and the ultimate fate of the central bank and NOC will be an essential gauge for companies looking to establish or re-establish contractual relationships in Libya, as they will dictate the government’s ability to pay. Along with the issues concerning these two key players, the reputational and contractual risks resulting from the complex and diverse political landscape should not be underestimated. Companies will need to have a clear understanding of who they will be dealing with, and what this means for the legality of contracts, reputation, exposure to anti-bribery and corruption legislation and their ability to work in Libya in the long term.

Fully understanding local partners’ track record and positioning – even existing partners–will help manage reputational risks and risks to the success of a venture. The fluid political landscape means that local partners’ ability to access key stakeholders may have changed, while connections to certain armed groups and political actors increase exposure to reputational risks. For example, human rights monitoring organisations have pointed to abuses committed by various armed groups during the transition period, and further investigation and judicial proceedings are likely to commence as the security environment improves. Given these armed groups’ involvement in security provision, companies may find themselves dealing with them and a full appreciation of their track records will be required to avoid reputational damage.

In short, Libya will remain a complex and difficult place to do business. However, with adequate preparation, companies can begin to explore the opportunities it has to offer.

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