Page 118 - Lybia Flipbook

Finding Its Stride: the Private Sector
All the destroyed and debilitated buildings waiting to be cleared gave Sami an idea. Why not use the rubble, that would otherwise go to a landfill, to make new concrete? Demand for concrete is always high, and a free resource like rubble would make concrete production much cheaper. Muhannad registered a new company easily and spoke with the local construction companies who readily agreed to buy the “recycled” concrete. All he needed now was financing for a crusher machine he could import from Europe. This is where the complications started. Getting credit from the banks and foreign exchange to import equipment proved time- consuming and expensive, raising the costs considerably. The months of battling the system have dulled Sami’s initial enthusiasm, making him wonder whether his entrepreneurial aspirations would remain a dream.
This story illustrates the challenges faced by businesses. While in most developed economies, the private sector constitutes well over half of the economy, in Libya, it has never risen above 5 percent. Several factors explain this situation, but probably the most important is that, prior to 2011, the regime was based on a state-run economic model, where the private sector was marginalized and actively restricted in its space of operation. While current governments are more supportive, the legacies of an enormous public sector and poorly developed financial and regulatory environment continue to hold back entrepreneurs.
To this day, the public sector is by far the largest employer, absorbing almost all of the workforce. It also remains the preferred career for Libyans as it provides a good and stable income, often for relatively little effort. In fact, both before and after 2011, most small and medium companies were set up either to supplement a government job or out of necessity, because a secure government job was not available.
Contributing to the large public sector are over 2,000 state-owned enterprises. These companies, responsible for important public services like electricity and water, are supposed to work on a for-profit basis and provide revenue to the public treasury, but
As Sami’s experience illustrates, entrepreneurs find themselves in an uphill struggle to access financing, particularly foreign currency financing, which is vital for procuring equipment and raw materials not avail- able locally. By far, the most effective way to secure foreign currency financing is through Letters of Credit. This process involves getting a Libyan bank to provide a guarantee to a bank abroad that the exporter will be paid once the goods are shipped. However, getting this guarantee is difficult and even more so for start-ups or women-led businesses. These challenges are exacerbated by the problems in accessing bank credit, which often requires a particular form of currency – that of wasta, a word referring to a person’s connections.
There is, however, a very active private sector just out of sight of the formal economy. A wide range of entrepreneurs work informally circumventing obstacles
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many operate at a loss. If they were
exposed to the same dynamics as
the real private sector, they would
close and be replaced by a compet-
itor. As their employees are on the
public payroll and their operating
costs are absorbed by the state, they continue to plod on with little immediate incentive to reform. This dynamic crowds out other entrepreneurs, inhibiting innovation and lowering responsiveness to the consumer.
“Life in Libya is definitely dynamic! There’s a constant energy, a hustle that keeps things interesting.”
Saleh, 21 years
by using their ingenuity. Even before 2011, when the private sector was actively suppressed, the informal economy constituted nearly half of the real economy. Today, the informal sector plays an essential role in daily life, from providing
medical services, to exchanging dinars, selling water, offering critical services, plugging the holes left by the formal sector, and boosting resilience.8