UAE construction companies will wait until a new government fills the legal vacuum in war-torn Libya before jumping on the bandwagon of rebuilding.
Worries about uncertain investment laws, local partnerships, corporate governance and the fate of business deals made with the former regime are forcing construction companies to take a more cautious approach to the Libyan market, they say.
Al Naboodah Construction Group recently visited Tripoli as part of a 100-strong delegation of leading UAE companies and government officials to assess the market.
"Construction companies will have to wait a while and be a bit cautious. The best way is to make sure the contract is going to be honoured. We went past construction sites, airports and hotels and malls that had all stopped. Why would an international company go in and join the list of people with stopped projects?" Gary Wells, chief executive of Al Naboodah Construction Group, told Gulf News.
The company, which does not have any projects in Libya, is interested in starting at the commercial level: getting registered and introducing their present partners to the Libyan market, Wells said.
"Al Naboodah sees the opportunity cautiously. We don't see that it's something we should rush into immediately. There's going to be a period of time settling the country down and providing the corporate infrastructure to enable an international company such as us to work in the right profile to make money," he added.
Now the company is considering medium- to long-term investments in Libya, but sees no short-term gain in sight.
"Construction contracts come later, when there is more governance infrastructure. For example, how will trade work? Will there be a local partner? What about insurance?" Wells said. The way forward for construction companies is to partner with UAE operators going into Libya such as airlines or port operators, he said.
Private sector worries about the current legal vacuum goes hand in hand with the high risks involved: security, non-payment, and bringing equipment into Libya that may not be returned to the UAE.
But Libyan government officials insist that the proposed investment laws will benefit both foreign investors and local businessmen — especially the issues of land privatisation and local partner requirements.
Changes in the Executive Regulation of Libyan investment Law No 9 will be announced in a "few weeks", but the law is applicable at the moment to all sectors except oil exploration and finance and banking, a Libyan government official said.
It will be amended to include Libyan businessmen — long marginalised by the former regime of Muammar Gaddafi — partnering foreign businesses, said Nagib Al Serraj, Commercial Attaché in Dubai, in an interview with Gulf News.
"The participation of Libyan businessmen is essential to reactivate the Libyan economy once again. This should not deter foreign investors, instead they should welcome this rather than working with private companies under the regime," he said.
Bureaucracy, cronyism and doing business with children of those in the regime were common practices before the revolution but change is on the way, he added.
Land privatisation is still an issue in the important sector of tourism. Before the revolution, foreign investors had to partner with government-owned companies that legally controlled the land.
Now an investor can directly approach the Libyan Investment Authority (LIA) with a feasibility study for a project and, if approved, the LIA will privatise or rent out land in specific zones suited to the project, Al Serraj said.
Clarifying the law's position on foreign investors and local partnerships, Al Serraj noted that a general trade company that sells products in the market must have a Libyan agent.
Alternatively, a non-Libyan with an investment project, who wishes to operate without a local partner, can do so but with a different set of controls than if he had a local partner, Al Serraj said.
The new government must act quickly to establish clear trade and investment laws if investor confidence is to return to Libya's non-oil sectors, analysts say.
"Unless the legal vacuum in Libya is bridged, it's unlikely to see substantial investment by the UAE and other foreign investors in construction work.
"Moreover, if such a vacuum remains, we expect Dubai's construction ventures would reassess their investments and therefore may shift to other places," said Irfan Al Hasani, a Dubai-based economist and researcher.
Libya hopes to see an increase of 15 per cent in foreign investments this year and establish itself as a new investment hub in the region, Al Serraj said.
But political stability, security and a visionary development strategy are necessary to create a sustainable business climate for foreign investors, Al Hasani noted. With only an interim government in place, there is still ambiguity regarding the political regime before a new government takes over, he pointed out.
Although the investment environment has been damaged following the revolutionary change in the political regime, the transition means that Libya has great potential for foreign investment, analysts say.
"Assuming a smooth political transition beyond the regime change, Libya's medium-term prospects for sustainable, high economic growth should be good," according to a report by the Institute for International Finance (IIF) titled The Arab World: Navigating through the Turbulence.
Libya's large foreign assets, estimated to have declined from $150 billion (Dh550.5 billion) before the war to $110 billion now, and oil wealth will help attract foreign investment to restore oil production and rebuild the economy, the IIF says.
Following the sharp contraction in output in 2011 (estimated at about 60 per cent), the real GDP [gross domestic product] is projected to rebound sharply in 2012 and subsequent years, largely due to the gradual recovery of oil production and spending on infrastructure, it said.
Projections suggest that nominal GDP in US dollars will reach its pre-war level in 2013 and real GDP by 2014, the report said.
Indications are that oil production will proceed relatively smoothly with the help of Libyan technocratic elites and international companies, it said.
This should help accelerate the return of Libya to global energy markets, but ramping up oil production to pre-conflict levels is likely to take no less than two years, the report said.
Libya has been presented as the promising business hub in the region.
However, political stability, security, an enhanced regulatory framework and sound macro-economic policies are needed first, Al Hasani said.
New regime reviewing all contracts to protect investors
All business deals made between UAE companies and the former regime are being revised by the new government and will be honoured if found transparent and free of corruption, a Libyan official has said.
The new government is currently reviewing all contracts signed by the state and foreign investors. "We cannot generalise and say all contracts were corrupt, there were some solid contracts. If there was transparency and the deals met the requirements of the state, they will be honoured and can continue investments," said Nagib Al Serraj, Commercial Attaché in Dubai. Deals based on corruption, cheap purchase of Libyan oil or that do not employ Libyan workers without returns to Libya will be studied subject to Libyan law.
Some cases are tricky: The former regime had stripped some Libyan landowners of their lands and given them to investors.
"But what's the investor's fault? The state told him there was land available for projects and he got a property certificate.
"So all deals will be reviewed first to protect the investor so they don't enter into a corrupt environment and to protect Libyan assets, not to sell the country in back-room deals for others to run," he said.
UAE’s corporate expertise welcome
Libya has given priority to local businessmen to rebuild the economy but welcomes the know-how, technology transfer and corporate governance expertise from the UAE and other foreign investors, a Libyan government official said.
However, there will be no preferential treatment in business deals for Gulf countries such as the UAE and Qatar, who were major allies during the Libyan revolution, Nagib Al Serraj, Commercial Attaché in Dubai, when asked if the allies would get the lion's share of Libyan investment.
The UAE has much to offer in terms of services, corporate governance and expertise on efficiently running ports, road authorities, courts, police force and other regulatory systems that have worked well here, said Gary Wells, chief executive of Al Naboodah Construction Group.
"I see Dubai businesses, government and quasi-government bodies support Libya with technology and consultancy to put infrastructure in place."
One area where the UAE will lose out on its business quest in Libya is tied aid, he added.
Governments of countries like China, Korea, Japan and France will support their businesses more aggressively than the UAE with aid money tied to projects, he said.