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Libya: rising from the ashes


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After nearly a year of revolutionary conflict, Libya has managed to emerge from the rubble of a 42-year dictatorship with the world’s fastest growing economy.1 (Forecasts for 2012 indicate a growth rate of 22%). Bolstered by the highest gross domestic product (GDP) per capita in North Africa and government expenditures exceeding LD 60 billion per annum, Libya has quickly become one of the most attractive markets in the region for a wide range of goods and services.

As foreign companies evaluate the prospect of entering this potentially lucrative market, patience, a reliable partner and deep knowledge of the political and business landscape are critical assets that should accompany any impending venture. 

As Libya continues to recover from the Gaddafi era, companies will inevitably run into some of the same challenges many Libyans have dealt with for years. These include, but are not limited to, frequent power outages, an antiquated banking system and the world’s lowest average Internet connection speed despite a 75% improvement quarter over quarter.2 From an operational perspective, these factors regularly sabotage the best of project management efforts and exponentially increase the amount of patience required to operate effectively.

In a culture driven by relationships however, the importance of a reliable partner with the requisite knowledge of the Libyan market cannot be understated. Finding a partner with the cultural fluency and enduring political and business relationships needed to get things done can often mean the difference between success and failure.

Deep knowledge of the political and business landscape can also be an invaluable tool to guide any market entry strategy. While this landscape will undoubtedly shift over the coming months as the newly elected General National Congress (GNC) continues to address its legislative priorities, companies must be aware of current regulatory requirements.  For example, the Libyan Ministry of Economy issued decision no. 207 for the year 2012 that outlines certain rules governing foreign participation in companies, branches and representative offices in Libya including share capital requirements, requirements to set up, etc. The decision states, inter alia, that foreign capital in a Joint Venture Company shall not exceed 49%. However, for exceptional reasons related to the nature, location or technical requirements of the activity, and by virtue of an explanatory decision by the Minister of Economy, foreign contribution may exceed 49%, but may not go beyond 60%.

Companies should also be aware of a decision related to new customs tariffs issued by the GNC’s predecessor, the National Transitional Council.  Decision no. 48 for the year 2011 dictates that the general rate of customs duties shall be 5%, except for certain goods that are charged higher duty rates ranging from 10% to 30%. There are certain exemptions available within this decision (e.g. certain raw materials and production supplies) but to date, a detailed customs tariff table has not yet been issued.

On the tax front, for those companies who may have already established a presence in Libya or are looking to re-enter the market, the General Director of the Tax Department had previously announced the extension of the tax-filing deadline for the financial years 2010 and 2011 (and certain payments for financial year 2012) to December 31st, 2012. In the absence of any changes to the revised deadline, companies should plan to file their tax returns by 31 December 2012.

While many may view the inherent challenges of the current Libyan market as discouraging, companies from around the world have started to recognize the opportunities at hand.  After a year of conflict and 42 years of dictatorship, Libyans are committed to helping the country realize its potential and recognize the role for foreign companies in the process. With the right guidance, international businesses can flourish in Libya and deliver products and services that the economy needs as it moves to the next level. For those who can afford to be patient, who can work with a reliable local partner and stay ahead of political and business developments, the potential rewards may be well worth the risks.

 

by Ritesh Ved, senior consultant, Assurance and Advisory, Deloitte Middle East, 
    Ahmed Hnesh, manager, Accounting and Advisory, Deloitte in Libya, and 
    Rob O’Hanlon ME Audit leader, Deloitte Middle East

 

Endnotes:

  1. Growth in 2012: Which economies will grow and shrink the fastest in 2012? (2012, January 4), Retrieved September 4th, 2012, from http://www.economist.com/blogs/graphicdetail/2012/01/daily-chart
  2. The State of the Internet, 1st Quarter, 2012 Report. Rep. 1st ed. Vol. 5. N.p.: Akamai Technologies, 2012. Print.

 

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