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Peace profits: what Egypt's economy stands to gain from Libyan stability

A recovering Libya could spark a resurgent demand for Egyptian labour and rebuild a strong, reliable market for the country's products, say economic experts

Ahmed Feteha, Wednesday 24 Aug 2011
Libyan border
Some flowing back the other way? Egyptians flee Libya in February (Photo: AP)
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As the Libya endgame fast approaches, major powers are already jockeying for stakes in the energy-rich nation’s main industries. 

Italian and French firms look to be first in line when the oil begins pumping again, while countries that opposed NATO intervention, like China and Russia, expect to be left out in the cold.

The stance of Egypt’s new rulers to the Libyan rebels may have been equivocal – and the country may have few multinationals ready to roll in -- but Egypt’s troubled economy also stands to benefit should stability return to its western neighbour.
 
A Libya firmly on the road to recovery could spark a resurgent demand for Egyptian labour and its midscale service sector while rebuilding a strong, reliable market for Egyptian products, say economic experts. 
 
Business commentators with whom Ahram Online talked assert that the largest and most direct benefit to Egypt’s economy is likely to come in terms of employment.
 
“[Libya] will need labour in great numbers, both skilled and unskilled, in almost all sectors in the coming period,” says Nadia Belhaj, originally from Tunisia and a senior economist with the Cairo-based Economic Research Forum.
 
Belhaj expects a surge in the Libyan economy should violence be curbed and the country achieve stability, pointing to the stymying effect on trade and industry of decades of corruption and dictatorial rule.
 
"There is endless potential in many unchartered sectors in Libya because the country’s resources have been heavily underused,” she says.
 
An estimated 1 million Egyptians worked in Libya before the uprising began on 17 February, forcing many to flee. No firm statistics are available but it seems that despite evacuations more than half still remain within Libya's borders. 
 
A boat due in Tripoli yesterday aimed to evacuate 5,000 Egyptian, Filipino and Bangladeshi labourers before retreating due to violence in the port district.
 
“Egyptian labour has become indispensable for Libya, carrying out essential roles in the Libyan economy,” says Pasquale Lupoli, regional director for the International Organization for Migration (IOM) in the Middle East, which has kept a close eye on developments.
 
This workforce was indispensable to Egypt too, providing the country with a flow of remittances, which -- along with tourism and Suez Canal revenues -- are one of the country's key sources of foreign reserves.
 
Lupoli explains that recruitments agents in Egypt are already starting to solicit labour for the eastern parts of Libya that are firmly under rebel control.
 
"Egyptian labour speaks the same language, has a similar culture to Libyans and is very close geographically. They were the largest foreign labour group in Libya in the past and they will definitely be in the future," he told Ahram Online.
 
According to Lupoli, a good proportion of Egyptians -- around 40,000 to 50,000 -- have already returned to Libya, indicating their confidence in the country's future as well as their desperate need for steady employment.
 
But Egyptian companies could stand to benefit at least as much as jobseekers, say analysts.
 
Home to Africa's second-largest oil reserves, Libya’s abundant natural resources could theoretically put it among the world's most developed countries -- yet economic activity remains under-developed and undiversified.
 
Libya’s new rulers will be expected to undergo major reconstruction projects, not only to restore infrastructure battered by air-strikes and shelling but also to usher in a new age of development after 42 years of Gaddafi rule.
 
Belhaj predicts that Egyptian investments could have a decent long-term share in the new Libyan economy, especially in areas where Egypt has solid credentials such as the service sector.
 
"Tourism, telecommunications and banking are three sectors that Egypt has plenty of experience in, and are heavily underdeveloped in Libya. Plenty of opportunity for Egypt lies there," she explains.
 
Other areas, such as construction and gas and oil, will not have much Egyptian participation due to rumoured pre-existing deals, says Belhaj. 
 
“European countries will not let go of rights to exploit the biggest portion of Libya’s natural resources, namely oil, as well as rights to infrastructure projects,” she says. “These issues must have been already settled.”
 
Rebel officials have already started to voice their preference to do business with Western European countries at the expense of the Chinese or the Russians who previously had major investments in the country.
 
"We don't have a problem with western countries like Italians, French and UK companies. But we may have some political issues with Russia, China and Brazil," Abdeljalil Mayouf, information manager at Libyan rebel oil firm AGOCO, told Reuters.
 
Nevertheless, experts think there will be at least some opportunities for Egyptian firms.
 
A note this week from leading investment bank CI Capital claimed an end to the Libyan conflict "might be positive to Egyptian private investments", naming several local companies well-positioned to profit.
 
The contracting arm of Orascom Construction Industries (OCI) might have the chance to participate in reconstruction bids for infrastructure destroyed during five months of NATO bombing raids, said the note.
 
The Egyptian giant's fertiliser operations could also benefit if a new Libyan government ventures into manufacturing such products and allows private investment, CI Capital said. A recent energy report pointed to Libya's 55 trillion cubic feet of proven natural gas reserves, a key resource for fertiliser production.
 
In addition, Egypt's El Sewedy, a major regional player which suspended its 15,000 ton-capacity Libyan electrical cable plant when the uprising began, might also be encouraged to revisit its ventures, the investment bank's note said. 
 
Unlike other war-ravaged countries that find themselves dependent on loans, the figures suggest Libya is unlikely to have much problem stumping up for major reconstruction. 
 
Before the conflict erupted, Libya held foreign exchange reserves of US$110 billion, enough for three years of imports, and an estimated 144 tons of gold. In sharp contrast to its eastern neighbour, Gaddafi's government had not a single foreign loan -- back in mid-2010, a Reuters summary of Libya's economy said it had "debt levels to die for."
 
Such figures may, as some claim, be glaring signs of the Gaddafi's financial mismanagement. But if these reserves haven't been spirited out of the country they should give plenty of breathing space when added to around $150 billion of currently frozen foreign assets. And if Libya continues to reap the largest benefits from its much-coveted oil, that means immense revenues that are unlikely to be lavished on Gaddafi-esque dream projects.
 
In the longer-term this is likely to bring burgeoning trade with Egypt, Libya's sixth largest trade partner in 2010 and its fifth most valuable importer, according to EU figures. Last year Gaddafi's regime sourced 5.4 per cent of its imports -- worth some 870.8 million euros -- from Egypt.
 
Ceramics giant Lecico Egypt is just one of the local firms to have been an obvious beneficiary; prior to Libya's political uprising it was the company's largest market in the MENA region and accounted for 9 per cent of its total revenues.  
 
Ahmed Ghoneim, economics professor at Cairo University, thinks that as Libya’s economy grow, its consumption of Egyptian imports will increase.
 
“Because Libya’s local production is very limited, I expect a surge of all Egyptian products including food stuffs, garments as well as construction material,” he says, describing a virtually untouched country with unparalleled room for development. 
 
While the resolution of Libya's conflict may be uncertain, one thing already seems relatively assured: Gaddafi's idiosyncratic approach to business and spending is history.
 
(Additional reporting by Michael Gunn)
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