Libya's Leaders Undermining Prosperity

It is well-known that Libya's erratic leader Qadhafi is unhinged. This is a man who runs around mandating that he be presented at the 'King of Kings' and so forth. He maintains an all-female presidential guard and meets foreign leaders in tents. All this is funny. And many may assume that it is such something to be dismissed and that its only consequence is embarrassing the unfortunate Libyan people.

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But the longest serving tyrant and his insane behavior also has practice consequences: undermine prosperity. Since Libya gave up its weapons program, the nation has once again been allowed into the international fold. Meaning Libyans can now trade with the rest of the world, tourists may folk to its Roman ruins, and the nation - with its generous oil deposits - may be the beneficiary of foreign investment.

And much of this has happened. Several Western business officials have been making visits to Libya securing lucrative contracts and the nation is positioning itself as a high-class tourist destination. But all is not as good as it could be. This is due to the fact that Libya remains an unpredictable place to do business where their is no guarantee that contract, property rights and freedom from undue state interference will be upheld. Very often businesses run into problems with corrupt institutions in the government, principally the pampered secret police:

Consider the case of an Egyptian grocer who spent years building a thriving business in Libya, then made the mistake of going home on holiday. Abrupt changes to visa rules mean he can no longer return. Earlier this year, the new manager of a hotel in Tripoli, an expatriate, fired some staff and switched suppliers. This prompted someone to make a telephone call. A sudden snap health inspection of the hotel larder revealed a few tins past their sell-by date. The manager is now in prison.

Or take the case of Verenex, a small Canadian oil firm that joined the rush into Libya in 2005 and struck an exciting find. Early last year, a Chinese company offered to buy Verenex, nearly all of whose assets are in Libya, for close to $450m. The Libyans blocked that sale on technical grounds, but promised to match the price. After months of wrangling in the oil ministry, Libya’s sovereign wealth fund slashed its offer to barely $300m. Faced with more trouble in Libya if they refused to sell, Verenex shareholders reluctantly agreed.

Thus far many foreign government have not scolded Libya on the harassment of their nationals and their investments fearing that any criticism will only bequeath more pettiness, and with good reason. Consider the recent feud with Switzerland and how the Europeans backed down due to nothing more than private interest consideration:

Mr Qaddafi may even claim a recent victory as a holy warrior. A month ago he called for a jihad against Switzerland to punish it for banning the building of new minarets following a referendum. Many Qaddafi-watchers, however, thought his warlike words merely heralded a new round in a festering diplomatic tiff that began in 2008 when Swiss police called in the unruliest of Mr Qaddafi’s seven sons, Hannibal, after two of his staff complained that he had beaten them in the Geneva hotel where he was staying.

Those charges were eventually dropped but the Libyans responded to the perceived slight by detaining two Swiss businessmen for allegedly overstaying their visas. This in turn prompted the Swiss last December to ban 188 senior Libyan officials from visiting the country. Because Switzerland is within the Schengen zone of the European Union (EU) and thus abides by the same immigration rules, the Libyans were in effect prevented from visiting any of the 25 countries (including France, Germany and Spain) in that club. The furious Libyans then abruptly barred entry to all Schengen-area citizens (some 400m of them) and slapped a trade boycott on Switzerland.

At the end of last month, the EU hastily scrapped its travel ban and apologised for any offence. Libya’s foreign ministry declared victory. Its glee was understandable. The European retreat marked a stark triumph of self-interest over principle. Moreover, it followed an abject apology squeezed out of America after a State Department spokesman had sniggered at Mr Qaddafi. In both cases, the Libyans merely had to hint that contracts with American or European firms might be reviewed or torn up.

This may seem like a victory for Libya, but as The Economist opines, such behavior only undermines the attractiveness of Libya as a business and tourist hub, and will only the economic prospects of the country.

Source: The Economist.