Is oil alone enough to secure Libya’s economic future?

Still characterised by political division, Libya should look to avoid overdependence on one volatile sector for prosperity and economic stability.

There are few nations on earth so singularly characterised by their main export than Libya and oil. Many of the Arab nations and their economies are synonymous with oil, yet their high-profile diversification efforts have altered perceptions somewhat. Libya's political machinations are regularly framed in the context of what they mean for oil production and revenues. However, for the nation to truly build a prosperous economy of the future it must look beyond black gold.

According to recent figures, oil accounts for 60% of Libya's GDP, 94% of total exports and 97% of government revenues. These figures are colossal. There are few other nations on earth who are quite so dependent on one product for their wealth and public finances. By comparison, Saudi Arabia, the world's largest producer, sees oil account for 17% of GDP and 68% (and falling) of total exports.

Nobody disputes that oil will continue to be a mainstay of the nation's economy for years to come. However, as those numbers reveal, Libya's dependence is simply too great to avoid. In April, the IMF warned that if Libya spent the windfall from the current high global price oil, they would find it more difficult in the long-term, given the need to adjust when global markets inevitably stabilise.

Therefore, Libya needs alternatives. On the outskirts of Benghazi construction is underway on one such alternative, the Tosyali-SULB direct-reduced iron (DRI) plant. When complete, this will be the biggest DRI production facility in the world. The project is a joint venture between Turkish steel giants Tosyali and the Alushibe Holding Group, founded and owned by Libyan industrialist, Ahmed Gadalla.

With DRI due to come off the production line in 2028, and a dedicated port proposed to help boost exports potential, this is the kind of project that represents a more diversified Libyan economy that keeps more industrial value in the country.

Figures like Gadalla, who also owns the Libya Cement Company and is developing a major food and beverage production facility at Zulfa, are rare examples of Libyan business figures with little connection to the oil industry. Focus should be on creating and attracting more of entrepreneurs to invest in non-oil industries both domestically and from abroad.

The biggest single risk to the nation's future political stability will be economic volatility. In this regard, Libya has several compelling advantages to growing it's industrial base with projects like Tosyali-SULB as the example.

First is location. It sits on the North African coast and enjoys easy access to both Southern Europe and the Middle East, giving it a major logistical advantage. The nation's exports, unlike many of their Gulf counterparts, have the luxury of avoiding the troubled and volatile Straits of both Hormuz and Bab El-Mandeb.

Second is the emergence of a growing capability and capacity in heavy industrials. When contrasted with Europe's ever shrinking manufacturing base and the Middle East's troubles getting their products out safely, this gives Libya a major competitive advantage. As energy transition and defence projects increasingly sit top of the political agenda, Europe's demand for industrials will only increase. Libya has an opportunity to be the proximate, competitively priced, high-quality supplier for a generation.

Projects like Tosyali-SULB demonstrate this potential in action. Oil alone cannot provide the stability and certainty the Libyan economy requires to ensure the nation's broader prosperity in the aftermath of years of conflict. It needs alternative projects that can ensure greater diversity in the quantity and quality of what Libya manufactures and exports.