Since Tripoli gave up its nuclear arms programs in 2003, Libya has seen progress in the number of foreign investments being made in the country, the result of an environment that encourages market orientated reforms meant to reintegrate the country into the international economic fold.

On Monday, United States President George Bush dispatched to Libya a US delegation under a senior diplomat, Deputy Secretary of State Paula Dobriansky on a four-day trip. The trip is symbolic of improving ties and will address issues such as scientific cooperation in the fields of communications, education, health and environment.

Earlier this year on May 15, U.S. Secretary of State Condoleezza Rice announced that the United States decided to restore full diplomatic ties with Libya for the first time in over a quarter century and clear the nation from the list of terrorism-supporting countries. Libya was then invited to open an embassy in Washington.

Libya was accused of sponsoring the bombing of Pan Am flight 103 in 1988, which claimed 270 lives, most of them American.

In April 1999, Libyan authorities agreed to hand over the suspected co-authors of the Lockerbie bombing to the Scottish Tribunal who was appointed ad hoc in the Netherlands for this case. This concession paved the way for the lifting of the UN sanctions that hindered the Libyan economy for nearly two decades. It was the first step for Libya's reintroduction to the international system. UN sanctions ended in 2003.

With UN sanctions and most US sanction lifted, the Libyan economy is viewed as ripe for modernization and foreign investment.

One of the firms taking hold of the situation is Continental Airlines, which currently offers code-share travel to Libya. Many international oil companies have returned to the country, including the recent return of oil giants Shell and Exxon Mobile.


The September 1, 1969, military coup d'état marked the beginning of a new period that saw Libya change make the change from capitalism into socialism. The period also witnessed the government's growing intervention in the economy, which was largely financed by the booming oil revenues of the 1970s.

By the mid-1980s, the revenue accruing to foreign oil companies engaged in lifting Libyan oil was taxed at a rate of about 95 percent.

In mid-1970, through its policy of Libyanization”, the government embarked on a program of progressive nationalization, where Libyan citizens and firms started replacing foreigners and foreign-owned firms in trade, government, and related activities.

Throughout the 1970’s, the government took control over water rights and created a large number of state-owned enterprises to oversee Libya's basic infrastructural facilities, such as highways, communications, ports, airports, and electric power stations. Public corporations were also created to run the state airline and to import certain restricted goods.

By the end of 1974, despite larger share of the profits through nationalization and tax arrangements, Libya was still highly dependent on foreign companies for the expertise needed to manage the oil fields that remained the primary basis of the country’s economy even in 1987.

Ambitious plans to modernize the economy, supplementing its policy of nationalization, by diversifying income sources and substituting imports, were met with a period of glut. In 1981, oil prices started to fall. By 1985, Libyan oil revenues, which constituted over 57 per cent of the total GDP in 1980, had fallen to their lowest level since the first oil shock in 1973.

The decline in oil revenue increased Libya’s debt repayment problem and tightened the funds—all of which combined to limit the effectiveness of its economic policy to replace the private sector.


The post-1969 government’s economic policies placed high priority on the achievement of what the government called “true economic independence.” The other principal economic objective had been to promote equity through with socialism.

The policies were designed to inhibit the private accumulation of wealth and promote equitable distribution of the national income. The year 1978 law requiring all enterprises to be run by workers’ committees precluded them from forming a clearly defined role in the economy, since profitability was excluded as valid objectives.

Consequently, when key economic tasks arose, which it was incapable of accomplishing by itself, it had no choice but to turn to foreigners.

The Change

Nine years ago, the Foreign Capital Investment Law no. 5 of 1997 and its further amendments were issued.

The bulk of the law provides a number of incentives, rights, and guarantees solely aimed at encouraging and protecting foreign investment from entering the country. Unfortunately this initiative was born during sanctions, and has rendered few benefits until now.

This shows that Libya was favorable to the possibility of opening up and promoting foreign capital investment in Libya.

Various free zones were established in order to attract foreign investment. Some of the incentives include the free repatriation of invested capital and gained profits and the movement of capital and products between the free zone and foreign countries would not be subject to monitory regulations or restrictions.

The companies operating in these Free Zones are also offered a five-year income tax exemption, which may be extended by three years with an additional allowance to transfer losses suffered during exemptions to the following years. There are further legal guarantees against nationalization of projects in the free zones.

Considering the new ties as the milestone of the new foreign policy, Libya has carried out intensive diplomatic contacts with western countries in Europe, like Italy, Germany, France, Spain, Austria or more recently, Great Britain.

Libya started to respond to international, political and economic pressure to adopt market orientated reforms and has begun liberalizing the highly effective socialist-oriented economy.

The OPEC country has also applied for WTO membership and announced plans for privatization, laying the groundwork for a transition to a more market-based economy.

U.S. oil companies like ConocoPhillips, Marathon Oil Corp. and Hess Corp., formerly known as Amerada Hess, agreed late last year to resume oil and gas output at Libya's Waha concessions. The three firms left Libya in 1986 after U.S. sanctions were imposed.

Also the country has since then struck exploration and production-sharing agreements with international oil companies. U.S. companies Occidental Petroleum Corp. and Exxon Mobil Corp. has also restarted production in Libya.

Following its first two post-sanction international licensing rounds last year, Libya will conduct its third international licensing round within three or four months. Some of the new blocks to be offered have proven reserves.

Libya is now completely open to investment and, in this regard, we have new legislation, said Dr. Abd Al-Rahman Shalgam, Secretary for Foreign Affairs in the World Investment News.