Libya now looks at long road to recovery

After Tunisia, Egypt, and Yemen, Libya is the fourth Arab country whose decades-long ruling leader has been forced out of office by a popular uprising. But while Egypt, which has a few natural resources, has to invent itself in a new way in order to lift two thirds of its 80 million people out of poverty, the post-Gaddafi era of Libya is a different story.

The North African state is a wealthy country in terms of resources. A member of the Organisation of Oil Exporting Countries (OPEC), Libya not only boasts the world's ninth largest oil reserves, but also a 1,770km long Mediterranean coastline, well-educated people, container ports and international airports. With a total population of 6 million, Libya does not suffer from overpopulation and excessive use of its soil and water resources.

Libyan economy has high reliance on oil

Tripoli is not likely to run out of cash due of the huge foreign exchange reserves and investments abroad which Colonel Gaddafi piled up during his 42-year tenure. According to data compiled by Bloomberg, the Libyan Investment Authority has invested or deposited around $37bn in the US, $20bn in the UK, $10bn in Germany and $4bn in the Netherlands. Libya has close relations in Italy (where Gaddafi saved the carmaker Fiat from financial collapse a couple of times), Beijing (Chinese engineers helped to upgrade the oil industry) and Germany (German oil exploration firm Wintershall has been operating in Libya since 1958), to mention a few. Before the revolution, some 55% of Libya's GDP relied on oil exports. This share is far less than the nine tenths in Kuwait, but still too much to call Libya a diversified economy. A free-port concept, similar to Dubai's Jebel Ali Free Zone, could increase cargo turnover in the heart of the Mediterranean.

Tribes and clans may see rifts in country

The country is home to some 140 tribes and clans, who all want their share of the Democratic Republic which is under construction. Libya may not be divided like Sudan into a northern and a southern state, but rifts are seen between the east and the west. The country's internal fractions might keep the state busy for a while. The bulk of Libyan oil is located in the east of the country, which is shared by Arab-Berbers, while Tuareg and Berbers are more concentrated in the gas-rich west. The Tibbu tribes rule in the south, where no carbon energy has been explored.

The skewed distribution of commodity reserves is similar to post-war Iraq, which hosts most of its black gold in the Kurdish North and the Shia-dominated South, but less in the Sunni Centre of the country. NATO, along with the UAE and Qatar, which support the rebels against the Gaddafi regime, can act as honest brokers between the parties in order to ensure the transition to a democratic state will be smooth and secure.

Libya now needs to dump the old model of state-controlled banks and give the financial sector time to reform itself. Resources can only be allocated efficiently if a state leaves banks, insurers and asset managers a market space where demand and supply defines prices, rather than government bodies.