With the shoots of economic recovery starting to emerge and growing prospects for trade with its African neighbours, many international traders are looking at Libya in a fresh light. BACB’s Hatem Lukhai, head of the Libya desk, shares his outlook on Libyan trade.


Libya has endured years of political instability since the outbreak of conflict in 2011, and the resulting security issues have presented obstacles to economic recovery. But while a final political settlement is yet to be agreed, the country’s main parties are now seemingly committed to the peace process.

Like the rest of the world, Libya has been impacted by further economic turbulence in 2022 – with the war in Ukraine and rising inflation both leaving their mark. Indeed, Russia’s invasion of Ukraine has resulted in shortages and higher prices of crucial goods such as grain and oil. This has impacted Libya, particularly in the agricultural sector, where it has experienced a 10 to 20% shortfall in wheat and seed imports. Yet, the country has successfully increased its imports from other nations, such as Bulgaria, Romania and Latvia, to mitigate the issue.

High oil prices give valuable breathing room

The oil sector is responsible for 98% of Libyan government revenues, making exports of the fossil fuel a controversial yet crucial factor in the country’s economic recovery. And since sanctions have been placed on Russian exports, the oil price has increased, peaking at US$123 per barrel in June compared to US$87 at the beginning of 2022.

The resulting increase in oil revenues has gone some way to softening the effects of ever-steeper inflation.

Indeed, Libyan oil production has recently returned to full capacity, reaching an output of around 1.2 million barrels per day. This has afforded more fiscal freedom in the country and resulted in a resurgence of internal investment activity. Furthermore, with an economy stimulated by higher income, there is greater consumer spending, benefiting the Libyan people in terms of greater purchasing power. In this respect, fossil fuels continue to play an important role in facilitating social development in emerging markets.

It is also hoped that the fiscal bonus afforded by this will benefit Libya in years to come, as funds can be directed into developing infrastructure in the sector. Even beyond the oil sector, investments into the country’s infrastructure will undoubtedly aid the Libyan economy in the long term.

Prospects for intra-African trade are growing

The bulk of Libya’s oil exports currently head to Europe, but there is scope for the North African country to diversify its trade relationships in the years to come. Libya’s strategic position at the crossroads between Europe, the Arab world and the African continent makes it a natural conduit for inter-continental trade.

Indeed, the African Continental Free Trade Area (AfCFTA) agreement, which created the world’s largest free trade area when it came into force in 2021, gives Libya fresh impetus to integrate further with its African neighbours. Intra-African trade is a familiar concept to Libya, which before 2011 invested significantly in building trade relationships within Africa, and prioritised relations with the rest of the continent.

Libya also has well-established trade links with the rest of the Arab world, as part of the Greater Arab Free Trade Area.

As the AfCFTA moves further towards full implementation, Libya could feasibly function as a link between Africa and the Middle East, employing its strategic position in the service of further regional trade integration. The countries of the Gulf Cooperation Council, especially the United Arab Emirates, with which Libya has an already strong trading relationship, would presumably be prime targets for this outreach.

Looking ahead

As the energy transition continues to gather momentum, many European markets are reducing their reliance on hydrocarbons in favour of renewable energy sources – a trend which has only been expedited by the war in Ukraine. In the medium to long-term, this could see a decrease in European demand for Libyan oil.

But this shortfall could be replaced by looking for alternative trading partners closer to home.

The congregation of world leaders at Cop27 in Egypt gave African countries a unique opportunity to articulate their perspective on climate change and sustainability. It is clear that, while they embrace the ongoing energy transition, many African markets will continue to rely on hydrocarbons to fuel economic and social development.

Libya’s intra-African trade links are therefore central to future economic security, as it is likely that its African neighbours will experience growing demand for oil to power their economic growth trajectories.

The oil sector is not, however, all that Libya has to offer. Whilst it is highly likely that oil will remain a large component of the country’s economy, the long-term future for Libya will involve diversification away from fossil fuels. Libya has already established plans for a strategic drive in the tourism industry, utilising the country’s extended coastline and cultural history to provide a range of attractive travel prospects. Another sector positioned to benefit is solar power, which would allow Libya to capitalise on its natural climate and on global interest in renewable energy. Infrastructure development, planned by both potential governmental parties, will be paramount to this diversification, as the country urgently needs to upgrade its roads, railways and ports to support such strategic initiatives.

Mitigating risk and overcoming hurdles

Whether to help build the economic sectors of the future, or to make use of Libya’s strategic positioning, international traders will increasingly look to re-engage with the North Africa. But finding adequate financing in such a specialist market has often proven challenging.

In this respect, the Libyan banking sector has come a long way in recent years. Private banks have taken a larger slice of the market, with efforts to modernise and digitalise. This has prompted public sector banks to raise standards accordingly. And while Libya is still regarded as a high-risk market, Libyan banks have made significant strides in risk management and regulatory compliance. Despite the turmoil, banks have played a consistent role throughout the past decade and remain committed to stabilising the economy.

The Libyan market offers a great deal of opportunity to foreign investors and traders – and while there remains a degree of risk, this can be mitigated with the right specialist support. Having worked in Libya since 1972, BACB provides a unique understanding of the region and is well placed to offer the support and security needed for those looking to export to, and invest in, the country.


Understanding the market: BACB hosts LBBC international business workshop

British Arab Commercial Bank (BACB) had the pleasure of hosting a Libyan British Business Council (LBBC) panel discussion at its offices in London in October, the second in a series of workshops on ‘doing business in Libya’.

Moderated by LBBC Chairman Peter Millett, the panel featured experts from BACB as well as other specialist financial institutions and professional services firms. The discussion explored opportunities for businesses looking to trade with the North African economy, and included practical advice for overcoming any cultural, financial and regulatory barriers.

The session explored the legal processes involved in establishing and running a business in Libya – with speakers detailing the implications of opening a local subsidiary office of an international parent company, and of opening a joint venture company with Libyan partners. A number of incentives have recently been put in place to encourage foreign investment, with tax benefits and ‘one stop shops’ for permits and registrations created to simplify the process for business owners.

Speakers also focused on how exporters and investors might navigate the local financial ecosystem in order to secure payment, and shared guidance on how to obtain the right support from both local and international banks.