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Foreign Investment Law

As part of its reform policy, Libya began enacting various laws in the late 1990s and has continued in the past few years.

Chief among these has been Foreign Investment Law No. 5 of 1997, and its amendments and implementing regulations, (Foreign Investment Law) which together create the most liberal legal framework for attracting foreign direct investment.

These measures concern in particular the sectors of training local technicians, the transfer of technology, participation in the development of local production, the realization of regional development and the diversification of sources of revenue. Tourism is covered by law no7 of March 6, 2004 and decree no139 of August 26, 2004. Some sectors are still closed to foreign investment. Telecommunications and the financial sector, for example, remain government monopolies. Retail and wholesale operations are restricted to Libyan nationals.

Foreign investors who want to do business in Libya have four main options: 1) set up a branch office; 2) establish a joint venture/joint stock company with a local firm; 3) establish a representational office; and 4) enter Libya under the provisions of investment law no 5.

Trade activities and joint ventures fall under law no65 of May 20, 1970 governing trade and commercial companies stipulates that any person or entity that wants to carry out a trade activity must have Libyan nationality. Partnerships are however possible. Joint ventures must be at least 51 percent Libyan-owned.

Joint venture holding companies are permitted under Libyan law. The establishment of joint ventures (joint stock companies) is governed by law no 65 of 1970, amended by law no 21 of 2000. The establishment of branch offices is also covered by law no65 as well as the 1953 commercial code. In the construction/contracting field as well as other longer-term activities, formation of a joint venture or branch office is virtually a requirement for operating in Libya. The minimum capital investment for qualification has been raised to $50 million, which must be completely paid-up by the time the company is created.

Representational offices through a local agent are governed by law no 6 of 2004. It stipulates that foreigners wishing to sell direct to the Libyan market must employ the services of a local agent. This law has been liberalized, with decree no8 of January 9, 2005specifying that seven product groupings currently require a local agent: passenger vehicles, motorcycles, copying machines, ovens, refrigerators, washers & dryers, other major household appliances, televisions, faxes, and computers, road making and paving equipment, heavy agricultural equipment (including pumps). Libyan nationals no longer need import licenses to act as agents for foreign firms. The general director of the office as well as all employees must be Libyan. Agencies work under distributorship agreements, signed with a local firm or registered agent. The Tripoli International Fair held each year in April is an excellent marketing opportunity.

Opening of a branch office/local subsidiary of a foreign company is covered by decree no3 of January 3, 2005, which governs creation of a foreign subsidiary company in Libya. The request must be addressed to the Department of Business Registration at the Ministry of Economy and Trade, including the name of the designated agent. Minimum capital investment to qualify is 150,000 LYD and duration of the activity is five years renewable. The scope of activities authorized for foreign subsidiary companies in Libya is determined by decree no13 of January 9, 2005. Opening a representation office does not grant a foreign company the right to sell or to market goods in the country.

Law No. 5 (1997), "Encouragement of Investment Decision," the government attempted to diversify its hydrocarbons-dependent economy, encourage technical training of Libyan nationals and enhance regional development. Sectors targeted under this law include - but are not limited to - agriculture, industry, tourism, services and health. The provisions of Law No. 5 attempt to lower the tax and customs fee burden on qualifying companies. Imported machinery, tools, and other capital equipment are exempt from all customs duties and taxes; any equipment, spare parts, or primary materials needed for the project operation are exempt for a period of five years; the affected project is exempt from income tax on its activities for a period of five years from the date of the commencement of production or work; goods directed for export are exempt from excise tax and from the fees and taxes imposed on exports; stamp duty tax on commercial documents are exempt; and finally, profits from the project will enjoy the same exemption if reinvested. A 2006 GPC amendment to Law No. 5 lowered a 50 Libyan Dinar (LD) million floor on investments qualifying under the law to LD 5 million (LD 2 million if 50% or more of the project is owned by Libyans).

The Libyan Foreign Investment Board (LFIB) was created as the implementing agency for Law No. 5. Its mission is to oversee and regulate foreign investment in Libya's aging and obsolete industrial base, which is characterized by an absence of national industrial planning, obsolete technology, poor management, shoddy maintenance, slow restructuring and over-employment. While LFIB's mandate theoretically includes investment-promotion, its activity is generally limited to processing foreign investment inquiries, except those related to tourism or the Misurata Free Zone (Note: applications for investment in those sectors should be directed to the Tourism Committee and the Free Zone Authority, respectively. End note). LFIB aims to be a "one-stop shop," assisting with issues related to customs and immigration, taxes, and labor for those companies entering under Law No. 5. The function of the LFIB is essentially to serve as the screening mechanism for foreign direct investment. LFIB approval is required for a broad array of operational issues for projects undertaken under Law No. 5, including the disposal of imported materials, transfers of investment capital outside of Libya at project completion, and employment of foreigners when qualified Libyans could be hired.

Libyan legal requirements on foreign companies present challenges with respect to their operations. Non-Libyans cannot, as a rule, own land (Note: A provision of Law No. 5 does allow for foreign rental and ownership of land for project work, although this has not been widely observed in practice. End note). "National Treatment" provisions do not exist for foreign investors. The local content requirement is such that foreign companies must hire a number of Libyans to at least match the number of expatriates on staff. In the oil sector, Libyans put forward for employment with foreign companies often lack formal qualifications or applicable practical experience, leaving companies to either spend resources on extensive training and mentoring or to pay employees who do not contribute to the company's productivity.

The promulgation of Law 443 on November 14, 2006 fundamentally changed the way that foreign businesses in the oil services, construction, industry, electricity, communications, transportation, agribusiness and marine sectors can structure themselves and operate in Libya. Among other measures, new foreign entrants seeking to establish themselves in these sectors of the Libyan market are required to establish joint venture companies with a Libyan entity. In a departure from earlier regulations, the foreign companies are allowed to retain up to 65% ownership of these entities. The law does not apply to representative offices (which do not have the right to conduct negotiations or enter contracts), and to entities formed under Law 5 of 1997 or Law 7 of 2004 (tourism projects).

Free Trade Act of 1999

The Free Trade Act of 1999 created a legal framework for establishment of offshore Free Trade Zones (FTZ) in Libya.

Fields of investment and economic activities in FTZs include :

Foreign Direct Investment in North Africa: Future look

Introduction

The main purpose of this paper is to throw light on the nature, status, and role of foreign direct investment (FDI) in Libya. To achieve this purpose this paper has analyzed the problem into three levels the first deals with Foreign Direct Investment (FDI) in the past history of Libya, and then this paper will attempt to specify the factors that forced Libya to change its economic policy, and its model of development, within this process of change Libya invited foreign capital to play a role in its economy, and development. To explain this situation this paper will determine, what polices Libya took to open its market in front of foreign direct investment (FDI). In the end this paper will argue that any significant role of direct foreign investment (RDI) can not be achieved successfully without these three interrelated steps: (1) the magherbian countries should constitute a strong economic groups and/or economic block. (2) to build unified or similar economic regulations and laws, and (3) to achieve good standards of human development in the region especially, education, and technical qualification of the manpower.

1. Foreign Direct Investment in Libya: The Past

In the last two decades Libya did not allow direct Foreign Investment except on limited forms mainly in oil, strategic industries, and Libya's investment in the west. These type of investments are mainly in oil, banking and financing large economic projects in Europe, Africa and the Arab countries. The reasons behind this economic policy are mostly in Libya's political vision towards the private economy, liberal, economy and towards western economy; Especially multinational corporations. As a result Libya's domestic economy was totally of public nature, and socialism, with the exception of agriculture and some service establishments like technical and maintenance. The economic policy was characterized by public ownership and management in accordance with the principles of the third universal theory, which sees the economy belonging to the people, and therefore should be owned by the people. So the economy accordingly is owned and managed by non-government establishments, also the revenue of the economy should be divided into three parts:- (1) The capital, and (2) means of production, and (3) The human labor. As it can be seen the public ownership is a different form western capitalism, and management. Further more ownership of capital belongs to people, not to the state. A groups of people not less than five can establish any economic enterprise, with technical, and financial assistance of the state. This policy has created many positive results, and at the same time has faced many challenges in the real application. Among the positive results were the fair distribution of wealth, and ownership, creating more justice among different social classes. Creating mechanisms to distribute wealth among people, and at the end minimizing the negative effects of capital monopoly known in the classical economy in the west. And ending the story of having a minority owning the wealth and the majority working for them especially that the salaries of majority income can hardly, support these large segments of labor. Such policy seems to avoid the dilemma of classical economy that prevailed in the western capitalist economies in the early periods of the 20th century. Recording the challenges the Libyan economy faced growing expenditure of the public sector, or the state expenditure to run the society. The state pays for every thing, moreover the costs were growing, the production was less due to the mismanagement, and misuse of public money. It grew to the point where every one considers himself an employee in the state, and / or in the public sector, so desire and demands a salary, whether he works or not.

2. Foreign Direct Investment: Present

In view of this previous situation: The changing world economy, the rising cost of managing society, the requirements of the international bank, and other economic and social factors, Libya as a result has economic policy, and created what has been known now as peoples capitalism, which seems to encourage Libya to change its economic policy so that the basic infrastructure has been built in Libya, and the Libyan economy has been put on the road to future development. The Libyan economy has passed the stage of takeoff by all social economic, and political measures, the situation is similar in some ways to what has happened in Japan in the 19th century, where Japan turned every thing to the public sector until the Japanese economy moved, and grew. Then every thing that has been built returned to the people and the private hands to carry on the work, and investment. The justification seems to go this way in Libya since the takeoff has been completed, financed, and manged by the public sector, then the rest of work and growth should be carried out by the private sector in the form of what has been known at present in Libya as peoples capitalism Al-Rasmlia Al-Shabia. This change is very much supported, and rationalized on the following grounds:-

1. There is a strong need, that the Libyan economy must be diversified from depending on one source of income (oil revenue) to multi sources of income production services, foreign investment, and international trade this purpose can not be achieved unless foreign investment is allowed in the country, and the whole human, and social base of the economy is geared towards this purpose. It is the purpose of finding alternative sources of national income outside the oil sector that then open the door to Direct Foreign Investment in Libya. Also there is a policy in the country which says that oil income should not be used in the consumption sector of the economy rather it should be used in building a production sector, and bringing more money, and capital to the nation. The previous policy is supported by the fact not only in Libya but in all oil economy based countries do not constitute by all means a wide labor market. For the Libyan economy, then there is a strong need to build labor market outside the oil sector, and outside public bureaucracy. It seems that the real labor market can be created and build outside the oil industry primarily by encouraging people to build on active private economy, or what has been called in Libya Al-Rasmalia Al-Shabia people capital.

Within this context, the re-direct of the Libyan economy arises, led the Libyan state and its economists, planners, and thinkers led to make plans, and a legal framework for private economy and the role of foreign capital and investment in Libya. Based on this background, and arguments Libya since the early 1990 took different economic and legal measures of re-directing its economy, public sector, and the whole process of its development, among these measures are: -

1. The changing of the legal base of development in general, and the economic activities in particular. 2. The changing role of the state, and / or public sector in the economic activities. 3. The searching of different sources of national income outside the oil sector. This can be achieved by many strategies including the Direct Foreign Investment (DFI), and improving the productive capacity of industry, agriculture, and services sectors. 4. The partnership between Direct Foreign Investment (DFI), and the Libyan entrepreneurs in addition to the Libyan capital working in the international money market, and international development whether in industrial countries, or in less developed countries in Africa, and the Arab region. 5. The encouragement of Libyans to enter investment outside Libya as partners with foreign investors, and foreign companies. 6. The permission for young Libyan graduates and young labor to migrate outside Libya and seek job opportunities in the foreign labor market, on the basis to gain experience, and earn hard currency which can be transferred to the Libyan local market. 7. The changing laws of migration outside Libya to the extent that Libya now allows double nationalities (double passports) and that Libyan no longer need a visa or permission to travel or migrate outside their country for a short period, or for good. 8. The relaxation of the strict laws and regulations of money transfer from Libya to the outside world, and international market and vise-versa.

Direct foreign investment (DFI) in North Africa: future look

Direct Foreign Investment (DFI) in Libya is limited for many reasons, the most important among them is that Libyan market is small and limited. The human and social base is not fully quabified to handle such complicated work then what is the solution?. It seems that to resolve the previous problem North Africa should establish an integration, it is necessary to build regional economic group to benefit from the Foreign Investment on one hand, and to encourage the Direct Foreign Investment to enter the region and finance projects on the other hand the reason is that there is a market, and there is qualified human base with technical skills, and long experience in industry and technology better than in Libya.

For the North Africa economic integration, to become reality, certain social, legal, and economic requirements have to be implemented most important among them are the following:

Finally; it is important that the countries of North Africa, especially the Magherb Union countries constitute on economic groups, and / or regional economic community, and also avoid dealing with international investors on one by one bases, it is for the growth of the Maghrebian countries to deal with the international market as one block and / or groups. This will provide to Maghrebian countries with better means and ways to negotiate with the Foreign Direct Investment in North Africa, or any where in the world these measures can not be successful unless supported by good standards of human development including health education, and eradication of poverty. Therefore Foreign Direct Investment must invests part of its capital in human development areas. So this will be reflected on the process of Investment, and make the society at large feels positively towards the role, and the importance of Direct Foreign Investment in their life, and local society.

In Libya the economy is mostly State-controlled and remains strongly dependent on petroleum resources. The economy is not very diversified as industry is mainly based on oil refining, petro-chemicals and the iron and steel industry.

Foreign investment is necessary to diversify the economy, which is too dependent on oil and vulnerable to the uncertainties of the market. The country also needs investment to increase the production capacity of the oil sector.

The Administration is not very efficient and stops a dynamic private sector increasing in importance. Moreover, foreign investment is subject to the obligation of having an agent in Libya, and to this must be added the difficulty of finding a good partner and the absence of reliable statistics for market research.

The unemployment rate is high (evaluated at 25%) especially among young people. Finally, even if Libya's rehabilitation in the international community leads to renewed confidence among investors, structural reforms remain essential.

How Libian law in FDI can be Improved

Domestic actions involve actions to be taken by countries in the region: These include image building, domestic regulatory reforms, and marketing of investment opportunities.

Improving the currently bad image of the continent is key to reversing the dismal FDI trend of the region.

This requires an increase in:

Supporting existing investors: Improving the investment climate for existing domestic and foreign investors through infrastructure development; provision of services and changes in the regulatory frameworkrelaxing laws on profit repatriation etcwill encourage them to increase their investments and also attract new investors. In the case of domestic investors, an improvement in the investment climate will also encourage them to keep their wealth in the region and reduce capital flight.

Diversification of the economy:

Several African countries rely on the export of a few primary commodities for foreign exchange earnings. This exposes them to significant terms of trade shocks. Diversification of the economy will enable them to cushion the effects of these shocks and reduce country risk. The reduction in country risk will increase the attractiveness of the economy to FDI in the secondary and tertiary sectors.

Trade liberalization:

Openness to trade will signal commitment to outward-looking, market-oriented policies and enhance trading opportunities thereby attracting foreign investors intent on taking advantage of the new trading opportunities.

Privatization:

The privatization of inefficient state-owned enterprises will boost foreign investment. African countries have now recognized that the privatization of public corporations is necessary to reduce government fiscal deficits and several countries have instituted privatization programmes. However, progress in the privatization of enterprises has been slow in several countries because of domestic political pressure by powerful interest groups that are against the process.

Market size:

Enhanced regional integration will increase market size in the region and help attract investors currently constrained in part by the small size of domestic markets in the region.

Agency of restraint:

The formation of well-functioning regional economic communities and institutions is crucial to conflict prevention and resolution on the continent. The constructive role played by the African Union and the Economic Community of West African States in ending conflicts in Liberia and Sierra Leone is worthy of emulation (ECA, 2004). Regional integration through the formation of regional groupings can also be used to reduce the incidence of domestic policy reversals and improve the credibility of economic policies in the region.

The point here is that in an environment in which national governments have a credibility problem, regional groups can provide an external agency of restraint on domestic policies.

Promoting good governance:

The use of a regional surveillance mechanism based on peer pressure will promote good governance and improve the investment climate.

Infrastructure development:

Initiating and encouraging more cooperation in infrastructure development projectsfor example, in telecommunication, transportation, power generation, and the provision of waterat the regional level. This will increase access to and reduce the cost of provision of these facilities, thereby lowering transactions costs, boosting trade, and increasing the attraction of the region to foreign investors. FDI can play an important role in the development efforts of the region. To date, African countries have not been successful in attracting significant FDI flows, reflecting largely the combined effects of political and macroeconomic instability, weak infrastructure, poor governance, inhospitable regulatory environments, intensification of competition for FDI flows due to globalization, and poor marketing strategies. There is the need to reverse the declining FDI trend in the region. This requires concerted efforts at the national, regional, and international level. It also requires a new and more effective approach to investment promotion.

In the past, investment promotion activities in the region were carried out in an environment in which domestic policies were by and large not conducive to foreign investment and so were not successful. An enabling environment has to be created first before marketing investment opportunities to foreign entrepreneurs could be done effectively. The maintenance of a sustained political and macroeconomic policy environment would get the region closer to attaining this objective. Furthermore, the realization of Africa's FDI potentials will also depend on the ability of its leaders to improve the FDI climate and take advantage of the new global interest in the affairs of the region by implementing sound macroeconomic policies, enforcing the rule of law, reducing risks of policy reversals, and improving the provision of infrastructure.

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