Libya – The Next Frontier for U.S. Business?

International media showered viewers with historic images of the Libyan rebels parading into Tripoli and chipping away at the final vestiges of Muammar Qadhafi’s 42-year rule.  The past 42 years were wrought with lost opportunities for a country with a relatively low population and wealthy in natural resources.  With the emergence of the Transitional National Council (TNC) as the new governing power in Libya, there is some optimism for what the future may bring for global, particularly U.S. business.

International business is not an entirely new prospect to Libya.  A number of years had passed since Qadhafi had terminated Libya’s weapons of mass destruction (WMD) program (among other conciliatory gestures) and that Libya had been to some extent reincorporated into the international community.  However, 2011 has been a year of fighting, and turn of political events had been very troublesome for American business.  This was not the least because of the constant sanctioning of Libyan state-affiliated entities by the U.S. Treasury Department – an action that was throwing oil companies up in arms with a constant need for submissions and permissions to continue doing business in Libya.  Some businesses simply picked up and left, not wanting to be tied up in a civil war.

Libya has the potential of holding immense opportunities for U.S. businesses in the short and long terms. Why?

1. Libya is a wealthy country.  According to OPEC, Libya in 2010 was ranked 7th in the world in proven oil reserves, holding 3.9% (as a comparison, Iraq holds 12% and Qatar holds 2.1%). With less than 7 million people, there is a high per capita GDP (the 2009 estimate cited by the U.S. State Department is $13,400).  Literacy rates are not low either – the CIA World Factbook puts it at over 80%.

2. Libya is underdeveloped relative to its wealth.  Decades of sanctions and international isolation have taken their toll on Libya.  Investment in the energy industry has been healthy, but Libya holds potential in terms of various knowledge-based sectors and the infrastructure (utilities, transportation, tourism, health care, etc.) could potentially use substantial investment, particularly after the NATO strikes of recent months.

3. Libya does not appear prone to internal strife.  Libya’s demographics do not appear to lend it to sectarianism by some accounts.  Therefore, the likelihood of an Iraq-type civil war appear very low.

4. Libya is geographically well positioned.  It’s no surprise that Italy imports a great deal of Libyan oil, the history between the two countries aside.  Libya is smack across southern Europe on the other side of the Mediterranean.  This makes its energy sectors very attractive as there is no need to take oil across the Persian Gulf or the Suez Canal to deliver to Europe and the U.S.  Also, sectors like tourism can benefit immensely from this proximity to continental Europe.

In all, the signs are promising.  How long it will take the TNC to establish a stable government and what types of legal and economic reforms are intended are as of yet unknown. What is known is that a number of western countries are not only poised to release billions in frozen Libyan assets but to remove trade barriers and promote bilateral trade.  This could bode well for U.S. business, particularly as the U.S. economy digs itself out of a recession.

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