LEADERS OF THE PACK

Struggling investors in Libya could have a lot to learn from their Italian counterparts, reports Tom Kington

Six years on from the lifting of trade sanctions against Libya, opinions remain so divided about investing in the North African state that it is easy to believe that people have been scouting out completely different countries. While some doubt that Libya is the investment utopia many hoped it would be, others — particularly Italian managers of medium-size businesses — laud its myriad possibilities.

If you believe Antonio De Capoa, head of the Italy-Libya Chamber of Commerce, the oil rich, underdeveloped country remains nothing short of El Dorado. “Libya is one of the most attractive markets for exporters right now,” says De Capoa. “And new rail links into Africa make it a gateway to the continent. It is a strategic move, and a particularly important one for small- and medium-sized firms.”

Listing electronics, tourism, agriculture, hospitality and even museum restoration as opportunities, De Capoa predicts the number of Italo-Libyan joint ventures will rise to 200–300 within a few years. The key to success, says De Capoa, is no different to any other market: “Go to trade fairs to meet people and find local partners.”

To others, Libya is a land of missed opportunities. The gold rush has been slowed by that mainstay of authoritarian states: red tape.

“Things simply move too slowly and payments do not arrive on time,” says Leila Benali, a Middle East energy expert at Paris-based IHS CERA, which helped Libya’s government to shape economic strategy. “When sanctions were lifted there were hopes that the economy would lift as investors came, but instead disillusionment set in. The potential for tourism is there, but compared to the troops of investors who arrived after sanctions fell, the numbers were much lower three years later.”

However, Benali makes an exception for the energy sector where over 40 foreign oil companies now work, including Italy’s ENI, Exxon, Total, BP and Royal Dutch Shell: “Just as in other countries this sector is better managed than other parts of the economy, in Libya there are competent managers who have travelled and speak foreign languages fluently.”

Currently supplying one quarter of Libya’s €68bn GDP, oil may become more fundamental to the economy if the government can make good on its aim of increasing production from 1.8 million barrels a day to three million

But in an age of fluctuating prices, oil can only cover over the cracks in an economy for so long. Says Benali, below the $70 threshold, compared to $40-$50 in the Gulf, Libya might struggle to keep up on infrastructure investment. “The electricity network, for example, might suffer, putting off investors,” she says.

An ambitious construction programme, covering roads, hospitals and power stations, hoped to complete many projects by 1 September – the 40th anniversary of Colonel Gaddafi’s rise to power – but fell short, says one expert. “Many building sites are sitting empty,” says Sophie Evans at Londonbased Middle East Economic Digest (MEED). “The government realised some projects were unnecessary and is taking stock. Instead of two new airport terminals in Tripoli, for example, one will be now be built and the other left as a core and shell for the future.”

In an economy where the public sector still accounts for 80%–90% of activity, Gaddafi’s impulsive policy making is unnerving for investors. Dramatic plans announced in 2008 to abolish most ministries to “punish” them for mishandling oil revenues came to little. Investors are now waiting to learn the significance of a new government circular ordering foreign firms with majority control of joint ventures in Libya, or even branch offices in the country, to appoint a Libyan director.

Libya’s insistence on visas for tourists has also stunted the promised growth in visitors to the country’s stunning beaches and Roman ruins. An exception is Malta’s Corinthia hotel group, in which the Libyan government has a 50% stake, which claims the 300 rooms at its Corinthia hotel in Tripoli is always full and is now completing a luxury, 430-villa complex outside the capital. However, Italian airline Blue Panorama has suspended flights from Rome due to a lack of tourism. “There are luxury hotel managers who came to invest and now never want to hear the word Libya mentioned again,” says a one analyst.

There is, however, no arguing with money, and whatever the obstacles to doing business in Libya, the country’s oil revenue means it is set to spend a cool €16bn on infrastructure through to 2011.

The Italians have no doubt Libya is worth the effort. Already Libya’s number one trading partner, Italy saw its exports rise 63% last year to €2.64bn and imports leap 24% to €14bn. So what’s the Italian secret? According to one entrepreneur, it is l’arte di arrangiarsi – the Italian skill that roughly translates as the art of adjusting to circumstances.

Franco Pecci, 63, head of Italian airline Blue Panorama, understands better than most why Italians have had such success in Libya: his carrier has connected Rome and Tripoli, he has represented Air Libya in Italy, run freight-forwarding operations between the two countries and was asked by Tripoli to help start up airline Afriquia in 2001. And although Blue Panorama has suspended flights between Rome ans Tripoli, he is not deterred: “Italians tend to be flexible, inventive and patient. When creating relationships they can connect with the person in front of them, understand who they are talking to and adjust accordingly. In Libya you need time, but once the deal is done you are in business.”

Experience of tackling Italian red tape has also given Italian entrepreneurs knowledge of how to handle the often glacial pace of Libyan bureaucracy. “Up until seven or eight years ago in Italy you could wait two months just to register a company,” says De Capoa.

Pecci is now building an aircraft-catering centre near Tripoli airport in partnership with in-flight catering group LSG. “We needed between six and eight months to get permission, form a Libyan company, and break ground,” says Pecci. “We got the permits faster than we would have done in Italy and it shows two foreign firms can successfully carry out a large operation in Libya.”

For those with patience, things may soon get easier. With BNP Paribas running Libya’s Sahara bank, the likes of HSBC are looking for opportunities, which should inject modern banking practises and accelerate the time needed for payments to contractors, foreign and local. “Now you are advised to have cash good for two to three months,” says Evans.

The Libyan government is also stocking up on cash in 2010 – around €30m, in fact – by selling a 15% stake of the National Commercial Bank. It also plans to open its financial sector to international competition via the sale of up to three full banking licences. On 28 September, Central Bank governor Farhat Omar Bin Guidara told reporters at an Arab central bank governors meeting: “There will be bidding next year for two to three licenses for new banks.” Guidara confirmed the bidding would include international banks.

In a further step towards private financing initiatives, Tripoli is also set to involve contractors in developing its water projects for the first time. And while construction may have slowed overall, the building of 25 new universities is going ahead, overseen by US construction risk manager Hill International. Meanwhile, Italian groups, such as Impregilo and Finmeccanica, are also set for big contracts thanks to a compensation deal agreed by Italy for its colonial rule over Libya.

“The Italians are very active,” says one analyst. “Their colonial history has helped. People speak Italian and there is evidence of the Italian way of life, from the clothes to the cappuccinos being drunk in cafes.” And Pecci says Italians have another key advantage: “Libyans watch Italian TV and are big followers of Italian football. They often know more about Milan and Juventus than I do.

FRANCO PECCI’S TOP TIPS FOR DOING BUSINESS IN LIBYA

Visit, meet the locals and avoid foreign intermediaries unless they really know Libya.

Have serious intentions, a quality product and deliver on time. And offer competitive prices — Libya’s oil wealth doesn’t change anything.

Expect the deal to take time. But if you go to the right ministry, and ensure you have every permit required, you will get the deal done.

Libyans know how to negotiate but do not haggle as in other Arab countries. Things are done a bit more seriously.