Country Report - Zawya

14 Libya
Poor families benefit from oil
wealth redistribution
that UniCredit has received is translated into the actual establishment of a joint
venture.
Earlier in August it was announced that the Libyan Investment Authority (LIA), a
sovereign wealth fund, had increased its stake in UniCredit to 2.075% of the bank's
capital. Recent data suggest that the Central Bank already owns around 5% of the
bank, taking the Libyan government's holding to around 7%. The award of the licence
so close to the announcement of the increased stake of the LIA in UniCredit is bound
to attract some criticism and accusations of preferential treatment. This also poses the
possibility that vested interests within the regime could be responsible for derailing
HSBC's bid for the licence. Libyan political machinations are often cast as a battle
between reformers, whom the central bank governor, Farhat Bengdara, is widely
regarded to be among, and a conservative "old guard" that aims to maintain the
status quo. Backroom dealings and power plays between these camps are often used
to explain unusual outcomes or unexpected actions of the Libyan authorities and
may be applicable in this instance.
The LIA, which has around US$65bn at its disposal, is becoming increasingly
acquisitive, taking advantage of the period of low global asset prices. In recent
months, it has acquired holdings in a Russian Aluminium company, RUSAL; in the
world's largest brickmaking firm, Wienerberger of Austria; and in a British media
group, Pearson. It is particularly interested in financial services, not least to gain inhouse
expertise at managing its assets. To this end, it was reported in early August
that it had handed over "a few hundred million dollars" to a newly created asset
manager in London, FM Capital Partners, for it to manage, while at the same time
training up Libyan staff in the field of asset management. The intention is that the
Libyan team will then take hold of the asset portfolio after five years. FM Capital
Partners will make most of its investments in the traditional areas of equities, foreign
exchange, derivatives and commodities. But it will also have a strong focus on Africa,
were about 40% of its investments would be made. Indeed, it is understood that the
Libyan African Investment Portfolio (LAP), a subsidiary of the LIA, put up most of
the funds for the scheme. Africa is a key area of investment for Libya; it already has
significant assets in the sub-Saharan region and at the summit of the Community of
Sahel-Saharan States held in the Chadian capital, N'Djamena, in mid-July, the Libyan
Leader, Colonel Muammar Qadhafi, announced that he was looking to invest
considerably more. He told the audience that "the Libyan Jamahiriya [republic of the
people] has US$90bn waiting for investment markets. The Libya market can absorb
only part of this money. We started by focusing our attention on Africa hoping that it
would absorb these huge sums of money." But he added a caveat, saying that Libya
was looking for markets in the region that had "stability, peace, security, confidence,
real independence, political will and corruption free environment", which provides
additional reasons for not investing in Libya itself.
Local news sources have revealed that Colonel Qadhafi's oil wealth plan, by
which he intended to allocate part of the country's oil revenue directly to poor
families, has benefited 230,815 such families since the scheme's launch in 2006.
According to the report in a Libyan newspaper, Al Jamahiria, 45,912 three-person
households received LD30,000 (US$23,587) each, while 34,362 four-person
households were each allocated LD40,000, and 150,588 households of five or
more people were given LD50,000. In total, the programme has reportedly
distributed funds worth LD10.3bn (US$8.1bn). However, in the government
Country Report August 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010