Labour Law & Salary Trends in Libya - Hay Group

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Post–revolution HR:
Labour Law & Salary Trends in Libya
Farhan Mahmood
Farhan Mahmood is a consultant working in the Dubai office of global consultancy
Hay Group. His expertise lies in his familiarity with the best market practices and policies
on reward through working closely with organizations in Libya, Egypt and Jordan.
Mr Mahmood grew up in the Saudi Arabian capital of Riyadh and has a Bachelor of Arts
degree in Economics and Political Science from Clark University, Massachusetts.
The Libyan Government’s actions aimed at
reviving the crippled economy, addressing
security concerns and retaking control of
the oil and gas industry will shape the HR
landscape for many years to come. Despite
large-scale political change, labour law
under the new regime remains unaltered
from pre-revolutionary times and HR professionals face
challenges typical of frontier markets.
For the past 10 years, my firm has been carrying out
annual compensation and benefit studies in Libya and
this year has witnessed a return to pre-revolutionary
participation levels in its annual study, which is a
testament to the increasing interest and investment in
this fascinating market.
Attracting and retaining skilled employees in Libya
represents a challenge, due to talent shortages in
technical oil and gas roles, production, finance,
accounting and HR, which are familiar challenges in the
emerging and frontier markets of Africa and the
Middle East. Like its close neighbours in the GCC, Libya
has a nationalization policy aimed at helping Libyan
citizens into the workforce, especially in promoting
them up the ladder into more senior and better-paid
roles. The policy, which aims to tackle the high
unemployment rate, places further pressure on
organizations faced with a relatively small talent pool
from which to select candidates.
ECONOMIC DIVERSIFICATION
Libya is considered one of Africa’s wealthier countries,
having the continent’s largest proven oil reserves, and is
one of the largest oil producers in the region, followed by
Nigeria and Angola. Libya was only moderately hit by the
economic and financial crisis, although there was a sharp
dip in oil production and export during the revolution and
immediately afterwards, when exports all but halted. As
the global demand for oil helps prices recover, the
country enjoys one of the highest per capita gross
domestic products in Africa. Its high GDP is courtesy of its
small population in relation to significant revenues from
the energy sector. However, the spoils of the oil industry
are distributed unevenly and many citizens live in poverty.
Libya’s economy has been historically dependent on
hydrocarbons, which account for nearly 80% of GDP, and
generate more than 90% of government revenues
and 97% of export earnings. Pre- and post-revolution,
the Government has tried to focus on non-hydrocarbon
industries. Since much of the oil industry is operated by
multinational companies and the region is prone to
volatility, work in the oil and gas sector is not seen as
reliable in terms of job security. Construction, property
development, banking and even tourism are areas into
which the Government is trying to diversify.
With the new regime came economic liberalization, plus
the lifting of trade sanctions and an aggressive
rebuilding and restoration programme and, because of
this, international trade and foreign direct investment
into Libya has increased considerably in the past few
months. The Government is increasingly investing
revenue outside the oil sector and has embarked on an
ambitious plan to upgrade the country’s infrastructure,
with construction already underway on new roads,
airports, railways and housing.
Alongside domestic efforts to develop outside the
hydrocarbon sector, there is renewed international
interest following favourable announcements from the
Libyan National Oil Company (NOC), which is aiming to
reach the pre-revolutionary levels of production and
export by the end of 2013. The NOC has also recently
been involved in discussions to re-establish a presence
from some of the foreign oil and gas companies that
halted operations or relocated during the postrevolutionary
crisis.
The Libyan economy is forecast to grow at an annual
average of 9% during the period 2013-16. It is expected
that public and private investment, especially in
infrastructure and the restoration of oil and gas, will
continue to be the main drivers of growth. However, the
steady liberalization of the economy will also result in
reasonably strong increases in private consumption.
THE LABOUR MARKET
The pressure on the labour market remains high,
particularly for talented employees at managerial and
professional levels. One of the greatest challenges that
companies operating in Libya face is the scarcity of
skilled workers and well-qualified individuals. According
to the ‘Hay Group 2012 Libya Compensation and Benefits
Report’, the demand for skilled workers, especially in
production and engineering roles, remains very high.
Furthermore, the displacement of many foreign-owned
organizations as well as expatriate employees has
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caused fluctuations in the market over the last two
years. Before the crisis, Libya had a large population of
north African migrant workers from such countries as
Egypt, Algeria and Tunisia, most of whom left during the
revolution. In order to return and take up jobs, these
migrant workers need to apply under a new visa system
and go through the recruitment and selection processes
again. This extra dimension adds to the squeeze on
talent.
Another challenge facing both the Government and
private-sector organizations in Libya is the high rate
of unemployment which remains at 25% and has
been a major issue for the nation over the last
decade. Libya has a population of around six million, half
of which is under the age of 20. The key
challenge for candidates looking for work is cited as a
need for English-language and technical skills, which are
not taught enough in schools. This shortage is
increasingly affecting the ability of Libyans to work for
foreign and multinational companies in a global economy.
DEMAND FOR LOCAL TALENT
The Libyan Government had long been an advocate of
nationalization in foreign-owned organizations and
encouraged multinationals to recruit Libyan employees
to help transfer knowledge, build a sustainable
workforce and reduce unemployment. One such
initiative was to make it compulsory to employ a Libyan
national as Deputy General Manager shadowing a
Libyan-based expatriate manager. The ‘shadowing
concept’ is a term used for a Libyan national who is
being groomed to take on the role of the expatriate
manager, thereby supporting the drive to nationalize the
workforce. This is a challenge in itself for HR, which has
a responsibility to ensure that the Libyan national really
is being coached and mentored and that the expatriate
General Manager is motivated and even incentivized to
do so.
In addition, the Libyan NOC is pressing international oil
companies to take up local talent on a larger scale and
at all levels of seniority as part of the nationalization
process. Another challenge lies therein: the talent pool
is relatively small and, in many cases, a Libyan with the
necessary qualifications and skills for a particular job
cannot be found. Since the revolution, this policy has
become even more difficult to implement because of the
level of displacement and the inability to compromise
on the technical know-how at this critical juncture in the
recovery of the economy.
As Libya continues to grow, access to talent is becoming
a major challenge for HR professionals. The demand for
talent in Libya is far exceeding supply, putting pressure
on wages as companies struggle to retain key
employees.
WORKING WITHIN THE LABOUR LAW
Foreign multinationals are flooding back into Libya,
particularly in the oil sector. In accordance with local
law, every company formed must be Libyan controlled.
Foreign companies tend to operate through a branch or
the branch of a subsidiary. The oil and gas industry
remains largely State owned, although more than 40
international oil companies operate in Libya under
Exploration and Production Sharing Agreements. These
agreements are very complicated with regard to terms
and conditions, causing major concerns among the oil
and gas companies.
Labour law has not been updated since the new
Government took control and all pre-revolutionary
policies still stand. In accordance with the law,
administration and support function positions must be
held by Libyan nationals.
A minimum wage of 150 Libyan dinars * per month has
been determined by the National Wage Council. An
employee may not be engaged in actual work for more
than eight hours per day, excluding breaks for meals or
rest, with total working hours not exceeding 48 hours
per week over a maximum of six days. Typically,
employees work from Sunday to Thursday. Any hours
worked beyond these entitle the employee to overtime.
All Libyan workers, except part-time or temporary staff,
must obtain work certificates. Foreigners in Libya have
to obtain a work permit and a residence permit issued
by the relevant Libyan authorities.
When compared with the Arabian Gulf and other north
African countries, multinational companies in Libya face
considerable obstacles in obtaining visas and permits
for foreign workers. Depending on the nationality of
the candidate, obtaining a visa can be time
consuming and this can have an impact on business
performance, especially where the candidate is a senior
executive.
SALARY TRENDS AND FORECASTS
The annual salary increase in 2012 at the median
was 7.4% which was slightly below the rate of inflation
at 10%, as reported by the International Monetary Fund
(see FIGURE 1 overleaf). My firm forecasts salaries in
Libya to increase by 7.8% in 2013 at the median
basic salary level. FIGURE 2, also overleaf, shows that, on
average, the breakdown of the remuneration mix is 78%
basic salary, 15% cash allowances and 7% variable
bonuses.
PAY RANGES
Total cash (including basic salary, all allowances and
variable bonus) for different job levels in Libya can be
found in TABLE 1 overleaf.
PERSONAL INCOME TAXATION
Personal income tax is a direct tax levied on the income
of an individual. Taxpayers are classified into residents
and non-residents. TABLE 2 on page 4 shows local
employees’ personal income tax rates that apply to
salaries, which came into force in April 2010. In
addition, there is a Jihad tax on individuals (or
‘Jehad Tax’) which has been in place since the 1970s for
the purposes of ‘national defence’. This varies from 1%
to 3% depending on the individual’s income.
Personal income tax exemptions are on the overseas
income of Libyan nationals and foreign workers, the
income of employees of administrative bodies funded
* £1 = LD 1.94; €1 = LD 1.67; US$1 = LD 1.28 as at
15 March 2013
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FIGURE 1 Average Salary Increases vs Inflation in Libya (2007-13)
%
18
▲
Salary increase
16
●
Inflation
15.9
●
14
Percentage increase
12
10
8
6
9.5
▲
6.2
●
10.9
▲
● 10.4
11.5
▲
10.0
▲
10.0
▲
10.0
●
7.4
▲
7.8
▲
4
2
0
2007
2.5
●
2.5
●
2008 2009 2010 2011 2012 2013 (f)
Year
0.9
●
Source: International Monetary Fund and Hay Group
FIGURE 2
Cash
allowances
15%
Typical Remuneration Mix
in Libya
Variable pay
7%
Basic salary
78%
by the central budget, end-of-service indemnities and
corporate income taxes.
CORPORATE INCOME TAXATION
Company income tax in Libya is progressive up to 40%
with a Jihad tax of 4% on companies. A new tax law that
is soon to be implemented will replace these tax rates of
15% to 40% on taxable profits with a new flat-rate tax of
2% while the Jihad tax remains. TABLE 3 opposite
provides corporate income tax rates.
NURTURING A NATIONAL WORKFORCE
The capability of the local labour force is expected to
improve as new education and training programmes
raise the current low level of skills and technical
expertise among the workforce. The advantages to these
changes will, however, be partly offset by the increased
cost and greater difficulty of hiring foreign labour as the
policy of nationalization tightens the restrictions on the
number of expatriates an organization can employ.
TABLE 1
Job level
Total Cash in Libya
Median monthly
pay range
Libya’s infrastructure is likely to develop over the
coming years, which will improve market access and aid
economic development. The Government is trying to
restore the business climate and encourage the rapid
regeneration of the private sector.
Clerical/Operational
Supervisory/
Junior professional
Middle management/
Seasoned professional
LD 940 – 2,200
LD 2,800 – 7,000
LD 9,000 – 17,900
Source: ‘Hay Group 2012 Libya Compensation and Benefits
Report’, Hay Group, 2012
Nevertheless, the country suffers from an unpredictable
and variable business environment which has complex
decision-making processes and inadequate work-ready
manpower for the new private-sector demands. Along
with legal and institutional frameworks, these structural
constraints significantly hold back Libya’s efforts to
diversify its economy.
However, in spite of administrative delays and a
relatively high level of corruption, Libya’s economic
prospects remain very positive, due to the country’s
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TABLE 2
Local Employees’ Personal
Income Tax Rates
TABLE 3
Company revenues
Corporate Income Tax Rates
Tax rate
Monthly income
LD 1,000 and below
Above LD 1,000
Tax rate
%
5
10
Up to LD 200,000
From LD 200,000 to LD 500,000
From LD 500,000 to LD 1,000,000
From LD 1,000,000 to LD 1,500,000
From LD 1,500,000 to LD 2,000,000
More than LD 2,000,000
%
15
20
25
30
35
40
high potential for oil and gas reserves which remain
unexploited.
A STRONG HR FUNCTION IS CRUCIAL
Although a large majority of companies still see HR as
a process-based function, the forces at work in the
economy are slowly demanding that the situation
change. In order to create a sustainable workforce for
the business, HR plays a key role in recruitment,
selection and retention.
The role of HR in Libya is evolving and gradually
becoming a key organizational function primarily
due to the increased awareness of global practices,
the high volatility in the pay market and growing
challenges with recruitment and retention.
In organizations where senior management has truly
understood the dynamics of employee engagement
and motivation, HR as a function is maturing and
the demand for highly skilled HR professionals is
therefore increasing. With the ongoing pressures of
nationalization, I expect to see an increasing role
for HR to play in leadership development and
involvement in coaching programmes. A strategic
approach to HR will assist the business in attracting
and retaining both key expatriate and national
talent.
Ω
Copyright © Pension Publications Limited 2013.
Reproduced from Benefits & Compensation International, Volume 42, Number 8, April 2013.
Published by Pension Publications Limited, London, England.
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