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The history of the world is littered with countless examples of political change occurring after economic dislocations. These changes are often the turning point for the future of the region and, as investors, we must turn a careful eye to areas that are adapting strategies that will bring them towards economic greatness. When identified correctly, an investor can reap great rewards by being an objective observer of political and economic change in areas that few others will touch. Unbelievable just a few years ago, the country of Libya today is the one of the brightest spots on the planet. The majority of the western world still associates the country with terrorism and the Lockerbie bombings, yet western governments around the world are slowly considering Libya to be one of their strongest allies in a volatile region. Just three years ago, Libya disbanded its nuclear ambitions and applied for institution into the WTO. Subsequently, the United States lifted all trade and investment restrictions within the country, making energy companies salivate at the prospects. Oil and natural gas companies have been lining up to get a piece of the action, and BP is in negotiations with Libya for a possible oil exploration deal. In addition, they may build a liquified natural gas facility and upgrade the currently existing one. Thirty years ago, Libya was the fourth largest non-communist producer of oil in the world. With the aging of technology and an underinvestment in (continued below)
exploration, Libya's output today is less than half of what it was a generation ago. The country has 3% of the world's proven oil reserves and most of the country is, as of yet, still unexplored. In terms of historical significance, the revolution occurring in Libya is most striking because it's being led by the same person who forced them into poverty initially, Muammar Qadhafi. After nationalizing most of the country's industries in the 1980's and the oil crash of 1986, unrest among the constituency began to threaten Qadhafi's political regime. Hence after, Libya began to institute privatization policies and pro-business initiatives. The implementation of a market economy has taken some time and has not been without growing pains, including a currency crisis, and unemployment rates in in the 30-40% range. Nevertheless, fewer government jobs and less restrictions on international trade have created a formidable private sector. Libya's GDP today is growing at 5% a year, and its current account surplus is around $10 Billion dollars a year. Libya's balance sheet looks fantastic with foreign asset reserves an outrageously high 50% of GDP, and its public debt around 8% of GDP. Additionally, Qadhafi has encouraged foreign competition and expertise to help expand Libya's financial markets and infrastructure. The liberalization of Libya's economic sector may prove to be even more important considering that many energy rich nations such as Venezuela, Bolivia, and Russia are becoming increasingly communistic in their political nature. With more amicable relationships with the west, Libya may soon be the preferred provider of oil and natural gas for many European and Asian countries. Recently, Libya has announced intentions of developing a stock market, a prospect that could be very exciting considering Middle Eastern markets have been among the best performing in the past 3 years (The Palestinian market was the largest winner last year, up over 300% in 2005). The Commodity Investor will continue to monitor the Libyan political and economic situation, and will advise its readers once the Libyan market is up and running.
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