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 1
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 2
Page 1: BENEFITS & COMPENSATION INTERNATION
Page 5: TABLE 2 Local Employees’ Personal

Labour Law & Salary Trends in Libya - Hay Group

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