Previous Quarterly Editions
Expropriation Risk: 78 78 78 78 ► Political Violence Risk: 68 68 68 68 ► Terrorism Risk: 55 55 55 55 ► Exchange Transfer and Trade Sanction Risk: 82 55 73 64 ▼ Sovereign Default Risk: 75 75 75 75 ►
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Climate change presents considerable challenges to oil-rich Libya. Not only is its economy almost completely dependent on exporting hydrocarbons, making it vulnerable to peak oil demand, but Libya is one of the most arid countries. Libya’s water demands far surpass its renewable supply. The Great Man-Made River project, which provides 60% of all fresh water used in Libya, relies on water from non-renewable aquifers that cannot be recharged by rain.
The United Nations and other international agencies have warned that projected temperature increases, rising sea levels and more frequent extreme weather events raise risk in; depleted water resources, threats to coastal communities (most of Libya’s population live along its Mediterranean coast) and reduced agricultural productivity, exacerbating food insecurity. Already, the country imports about 75% of the food required to meet local needs.
Libya’s electricity system relies on the burning of its own fossil fuels. Consequently, the country ranks top in Africa in per capita greenhouse gas emissions, emitting two to four times more than any other country in North Africa.
More than a decade after the overthrow of former leader Muammar Gaddafi, Libya’s transitional governments have paid little attention to the country’s mounting climate-related challenges. Although Libya signed the Paris Agreement in 2016, it has not ratified the convention and has not submitted any subsequent communications. As a result, Libya is the only country globally not to have done any carbon inventory.
With encouragement from international partners, Libya’s National Oil Corporation has taken steps to lower the carbon intensity of its oil and gas production and has pushed for the development of renewable energy initiatives, but this has not been matched with adequate engagement from the executive.
Prime Minister Abdulhamid Dabaiba told delegates at the UN climate summit COP26, in Glasgow in 2021, that he had created a new ministry concerned with environmental issues and formed a national committee on climate change. However, his Government of National Unity (GNU) has achieved little in terms of meaningful, long-term mitigation, particularly related to diversifying Libya’s economy beyond hydrocarbons. On this and other issues, coordination between ministries and state bodies has been lacking due to institutional weakness and fragmentation as well as frequent changes in leadership.
Libya’s Renewable Energy Authority was founded in 1997 but has struggled to establish itself for various reasons, including the institutional dominance of the national utility company GECOL, and insufficient executive support for renewable energy projects. Dabaiba, however, has publicly sought to highlight the renewables sector as a way of attracting foreign investment. The GNU has announced that two solar energy projects will be launched in 2022 in partnership with Total and Eni.
Public awareness of the impacts of climate change remains low and no political party has embraced the environmental agenda. Since 2011, the country’s fledgling civil society has included a handful of environmentally minded individuals and groups, but their efforts have not gained wider traction. Officials in the national oil company privately acknowledge the need for public awareness campaigns to ensure the Libyan population is better informed about the broader global conversation regarding the future of fossil fuels and how it will affect their country.
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Dabaiba has sought to present Libya as open for business but significant obstacles to investment remain. The brittle security situation poses a substantial threat to all sectors, particularly the oil and gas industry. After years of conflict, key energy infrastructure, is ageing and worn and requires considerable investment. Other critical infrastructure including the Man-Made River, which supplies most of the population with potable water, also requires urgent repair, prompting UN agencies to warn of a complete collapse of water supplies.
The oil and gas sector has been shaken for almost a year by feuding between the national oil company’s chairman and the GNU’s oil minister. So far, Dabaiba appears to be siding with the chairman, who has been in office since 2014. The debacle has unsettled international oil companies with a long-standing presence in Libya, given that their working relationship with the chair has generally been good. If the GNU is dissolved and the rival Government of National Stability (GNS) takes its place, Libya will be without an oil minister as the GNS does not include such a portfolio.
The appointment of the interim GNU, Libya’s first unified executive since 2014, in early 2021 raised hopes that the country could move beyond seven years of civil conflict. However, the United Nations political roadmap was forced off track late last year when elections planned for December 24 failed to occur due to disagreements over the legal framework for the ballot.
Since then, the GNU has been challenged by another government, the GNS, which was appointed in a contested House of Representatives vote in March 2022. The stalemate could last well into 2022. Furthermore, slow progress in unifying military forces and disarming militias means security volatility persists despite an ongoing ceasefire agreed in 2020. The political standoff could tip into armed conflict.
General Khalifa Haftar’s role in attempts to replace the GNU with the GNS (the composition of which is heavily tilted in Haftar’s favour) raises the possibility that he may resort to previous tactics including military escalation and oil blockades to assert himself. The ceasefire agreed between Haftar and his opponents in October 2020 remains fragile and confidence-building measures between the two sides have been piecemeal.
Nationwide anti-corruption protests in August 2020 were a reminder that popular discontent can easily boil over. The grievances that drove those demonstrations remain unaddressed and the GNU may be faced with similar protests if it fails to improve living conditions.
Even so, Libya made significant progress towards ending its decade-long conflict and moving towards reunification in 2021. This resulted in a strong rebound of oil production and economic activity, and a consequent upswing in fiscal, trade, and current account balances. Nevertheless, households still struggle with food insecurity, poverty, and poor public service delivery.
Given that Libya relies on Ukraine for more than 40% of its wheat stocks, the fallout from the ongoing conflict has already driven up prices and could lead to more serious food insecurity and possible social unrest. The presence of numerous militias, mercenaries and foreign forces also continue to pose a considerable threat.
Islamic State (IS) and al-Qaida in the Islamic Maghreb (AQIM) remain in Libya, with their networks concentrated mostly in southern and central regions. Forces aligned with the Tripoli government and their rivals under Haftar’s command continue to target high-profile individuals in both groups and disrupt terrorist cells in several parts of the country, contributing to a decrease in attacks.
The IS threat remains moderate: the group continues to maintain sleeper cells in Tripoli and other coastal cities. AQIM is considered largely dormant. IS claimed several attacks in 2021 and early 2022, most of them in the Fezzan region of south-western Libya, including one in the regional capital Sebha which killed several security officers.
Cuts to public sector salaries and reduced subsidies, particularly on fuel, have helped balance the books. A tax on foreign exchange sales introduced in late 2018 has also helped to ease the pressure on public finances. In 2021, the resumption of oil production improved public accounts, but revenue streams remain vulnerable to domestic volatility, especially with two rival governments in Libya, and global oil price shocks.
Oil production recovered to 2019 levels (1.2 million barrels per day) in 2021 and an exchange rate devaluation erased the discrepancy between black market and official rates. There was some progress in efforts to reunify competing public institutions in the country’s east and west but significant challenges remain, not least the risk posed by the prospect of parallel governments.
The central bank, divided since 2014 due to the wider national power struggle, has taken steps to reunify but tensions remain, particularly regarding the role of the long-serving governor. Disputes over central bank management will hamper the implementation of wider economic reforms. The country’s protracted liquidity crisis persists, albeit with some improvement in 2021.
Libya’s external debt is one of the lowest in the world- estimated at 5.8% of gross domestic product in 2017- but domestic debt has increased significantly in recent years. Most of Libya’s sovereign wealth fund has been frozen under United Nations sanctions since former leader Gaddafi’s fall. Its assets were valued at USD67 billion in 2012. Requests by the Libyan authorities to lift the sanctions have been refused because the United Nations wants to see a stable government in place before doing so.
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