Libya loosening up to rekindle economy

Government slowly embracing some free-market reforms

Fellows Fall 2005

By David Michaels

June 03, 2009

TRIPOLI, Libya – When Husni Bey dined as a guest of the Croatian president in Zagreb late last year, he knew something had changed back home in Libya.

After imprisoning him three times, most recently in 1996, the Libyan government was finally showing him off.

"This was the first time I heard the prime minister and others talk about us as being partners, telling us they really need us more than we need them," said Mr. Bey, a cosmopolitan 55-year-old whose family business predates the revolution that brought Col. Moammar Gadhafi to power in 1969.

In the new Libya, government ministers are backing away from state control of the economy and toward the free market as the solution to chronic unemployment and under-investment. Last month, Col. Gadhafi received a new plan for reform from Michael Porter, a Harvard Business School professor who advises countries about competing in the global economy.

The study urges Libya to diversify its economy and overhaul its education system, but its recommendations may not become reality for a long time. There already are signs that reform will move more slowly than some thought – the country's reform-minded prime minister was recently demoted and moved to oversee the National Oil Co.

Private initiatives

In the meantime, businessmen such as Mr. Bey are doing what the government cannot – employing and training people, paying a decent wage and giving hope for the future.

Mr. Bey's company's lowest-paid employees, mostly drivers and warehouse workers, earn salaries higher than those of government ministers, whose wages are fixed by law.

"We are trying to build a business in a modern sense," said Maher Bishti, a Libyan-American who manages one of Mr. Bey's companies. "We hire and educate people to become responsible professionals. People's lives are changed. They are able to afford a home. They're not waiting for a government handout."

The eldest of 10 children, Mr. Bey is a throwback and the future. He speaks Italian, the colonial language, as fluently as he does Arabic. He sees himself carrying out the legacy of his father, who started shipping and oil-services businesses that were devastated by worker-led uprisings – fanned by the government – that stamped out retail and private trading in 1978.

Government concerns

On the surface, Libyan officials say the government needs businessmen like Mr. Bey, whose largest venture is importing Procter & Gamble products. The government has endorsed organizations like the Libyan Businessmen Council, which seeks to match foreign companies with Libyan agents.

But some government officials worry about committing the mistakes of Russia, where a small group of investors bought state companies at fire sale prices. That fear has slowed Libya's steps toward privatization.

"You have Husni Bey controlling more than 120 companies. It's too much," said Seif El-Islam Gadhafi, the influential son of the Libyan leader. "He is smart and he is active, but still the government should intervene."

Mr. Bey said that Mr. Gadhafi exaggerates his wealth. His family's holding company, HB Group, has interests in 12 companies, he said. But in a country where most people work for the government, Mr. Bey's 700 employees comprise an enormous private workforce.

The family company has a system of distribution that is unparalleled in Libya, according to businessmen and diplomats familiar with the country's economy. A new fleet of Nissan vans distributes products the length of Libya. The company uses a sophisticated supply-chain program that manages inventory by forecasting demand and tracking how long products sit on shelves.

HB Group will probably go public in a few years, when Libya opens its stock exchange, Mr. Bey said. Its employees already are shareholders.

"He has always been at least 10 years ahead in exploring where we need to go," said Mr. Bishti, a graduate of Whittier College in California.

But Mr. Bey does not consider himself rich or influential.

"What is rich? Being able to develop your business and live an honest, self-fulfilled life?" Mr. Bey wrote in an e-mail in January. "Not being dependent on the charity given by the state?"

Mr. Bey's candor about the failures of the Libyan state has won him admirers. Fakhrei Zegalli, the owner of a company that makes bed linens, said Mr. Bey dared to enter the market when others feared a government backlash.

"He does business, and he does it in a straightforward way," said Mr. Zegalli, 45. "He has a very good reputation."

In a country where dissidence is repressed, Mr. Bey says he is able to speak his mind because his family was never involved in politics. His three stints in prison, for 15 months over 16 years, were for allegations that he made money in a socialist country; a court never convicted him of any crime.

"The only fear is getting involved in politics or challenging the regime," he said. "If you say, 'Gadhafi should be gotten rid of,' if you say it even half publicly, you disappear."

His family's next ventures are probably in tourism, Mr. Bey said. He wants to build a resort-style hotel for tourists drawn by Libya's Roman and Greek ruins and its more than 1,200 miles of pristine coast.

"If the issue of corruption and transparency is solved, in no time Libya can really become a relatively major center of attraction," he said.

Corruption remains one of the government's biggest problems. Many businessmen complain that apparatchiks dominate because they can promise government contracts to foreign companies.

"The system is very similar to Russia," said Salem El Gamoudi, a former bank director and employee of Dallas-based Dresser Industries. "It is very hard for a person to get his place in this jungle."

Despite his misgivings, Mr. El Gamoudi returned to Libya from Tunisia last year and now sells Peugeot motorcycles. His showroom on Gargaresh Road is full of lustrous machines like the silver-and-yellow XR6 and scooters perfect for weaving through Tripoli's snarling traffic.

Mr. El Gamoudi says he wants to branch out. He advised John Deere with market reports throughout the 1990s, he said, but the company chose another agent when it entered the Libyan market.

"There is interference from sources that I am not allowed to talk about," he said.

The government admits that corruption is stressing the economy but points to progress. A November directive by Shukri Ghanem, then prime minister before his demotion, ended the ability of the powerful military and security agencies to operate their own businesses.

"It was a very important decision for the transparency and anti-corruption campaign," Seif El-Islam Gadhafi said.

Mr. Bey has his own concerns about corruption, which he called Libya's most serious problem.

The country also needs to cut its bloated bureaucracy, raise the pay of government workers, integrate and employ the 1 million undocumented workers and reduce the impact of tribalism, he said. He also advocates a free press to "expose all excesses and protectionism."

The new economic reform plan, called the National Economic Strategy, made similar prescriptions in its recent report.

"Libya has many opportunities for everybody to live in prosperity," Mr. Bey said. "But in a corrupt society, which Libya is, there will never be equal opportunities."