Libya has six million people and lots of oil, making it a wealthy country by the standards of North Africa. Nevertheless, it is a country with a lot of problems. My original plan was to find a book on the history of Libya but was scared off by the number of screeds about the attacks on the American embassy in Benghazi. For economic and political analysis, I turned to The Economist. For background reading as part of the African-Nation-a-Week project, I turned to In the Country of Men.
The book is set in 1979 and is written from the point-of-view of a nine-year-old boy with a depressed mother and politically active father. The combination leaves him at a loss to understand what is happening in the world. His father is opposed to the Qaddafi regime and suffers for it. Many people, including the narrator, leave Libya for Egypt, draining the country of the intellectual capacity to do whatever it is that needs to be done.
Qaddafi was in power for another thirty years or so before he was overthrown. So what next? That’s the burning question for Libya as well as for investors. Like many oil producers, from Alaska to Abu Dhabi, Libya took a socialist approach to oil revenues. The money was spent on public works and invested into a sovereign wealth fund that was ostensibly for the long-term financial security of the people. Not all of the money in the sovereign wealth fund has been accounted for, however, and it doesn’t help that Qaddafi’s son was one of the portfolio managers.
Over the back , Libyans have left the country for Egypt and other parts of the Middle East. If the political situation stabilizes, these people will return and start businesses. Expat networks are often a huge source of funds and expertise in emerging markets, and Libya may have that.
For investors, then, the two things to watch are the return of expatriates and the valuation of the sovereign wealth fund. Despite all of Libya’s many problems, it may be a good option for investors.
And, if it stabilizes, there may also be a return of good Italian food. It is not that long ago that Libya was controlled by Italy!