The EU-Libya Trade SIA has been prepared in response to a tender from the European Commission covering trade sustainability impact assessments. A copy of the European Commission’s Terms of Reference are available here.
Following a series of policy shifts over the last decade, including the end of UN sanctions in 2003; the application to join the WTO in 2004; and the recent USD5 billion settlement with Italy relating to outstanding issues arising from the colonial period, Libya finds itself on the cusp of significant economic reform. With its leading existing trading partners presently found in Europe, the prospects for enhanced economic collaboration with the European Union are significant.
Like many other countries in the region, Libya suffers from significant structural imbalances. For example, its territory is roughly three times the size of France yet most of it is uninhabitable. To create even the most basic infrastructure requires massive investment. Libya is also one of the least diversified economies in the Maghreb: in 2005 oil comprised 94 percent of total exports, 25 percent of GDP and 60 percent of wages. Despite this, the energy sector returns little in the form of local employment. Given rising unemployment levels, a rising population and the fact that Libya imports 75 percent of its food intake, economic diversification has become a policy priority.
Funding for such policy shifts themselves mostly derive from oil-related revenues. According to figures from the Central Bank, 2007 total public revenue stood at just over LD53 billion, of which oil comprised almost LD49 billion. In addition to oil-related taxes, individual income taxes range from 5% to 35%, while the highest corporate tax level of 40% is for annual profit of over LD 500,000 (€ 287,000). Total public expenditure in 2007 was almost LD31 billion, of which as much as 60% was consumed by Libya’s extensive public sector.
In this context of a well-resourced yet severely structurally deficient economy, opportunities for deeper economic partnership between Libya and the European Union are extensive. A few of the baseline factors that will likely most affect the nature of that partnership going forward – trade issues, issues by economic sector and social considerations are analysed in the Study and will form a baseline of sectoral studies to be considered.
