Middle East & North Africa
Libya risk report
Corruption presents a significant obstacle for companies doing business in Libya. All sectors in the Libyan economy suffer from widespread corruption; however, the public procurement sector and the oil industry are among the most affected. Bribery and favoritism are common practice in all sectors, and companies may struggle with unfair competition from state-owned businesses, which also dominate the local market. Corruption was rampant under Gaddafi's rule, and the situation has only worsened in the post-revolution period. The institutional framework to combat corruption is weak, and the rule of law is undermined by political instability and violence. The Libyan Constitution Drafting Assembly is still in the process of writing the constitution, resulting in all laws being derived from the Constitutional Declaration that came into force after the ousting of Gaddafi. Nonetheless, the judiciary and the security apparatus are ineffective, rendering the enforcement of the law as very weak.
Judicial system Very high risk
The judicial institution is perceived as weak and suffers from political interference (ICS 2014). The role of the institution has also been ambiguous due to the absence of a permanent constitution (FitW 2015). Enforcement of judicial verdicts are not always effective, and Libya has witnessed a general state of lawlessness in the post-revolution period. The power of militias has often curbed authorities' efforts to enforce the law. The condition of the judiciary has further exacerbated the levels of corruption in the country (BTI 2016, FitW 2015).
Libya is not a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, yet the country is a member of 1983 Riyadh Convention on Judicial Cooperation; under which, Libyan courts recognize and enforce judgments, and arbitral awards issued in Arab member states. Most foreign businesses in Libya opt for the settlement of disputes before the International Chamber of Commerce (ICS 2014). Due to the inefficiency and weakness of the regulatory framework in settling disputes, enforcement of foreign judgments remain weak (ICS 2014).
Police Very high risk
Businesses face a high corruption risk when dealing with the police. Business executives express a very low level of trust in the police, and its ability to enforce law and order in Libya (GCR 2014-2015). There are no mechanisms in place to investigate corruption and abuse among Libyan security forces, and this is particularly the case for post-revolutionary police and security forces (HRR 2014). The government's management of security forces also lacks transparency (ICS 2014). The lack of an effective command chain within the security apparatus and ineffective legal institutions have further exacerbated corruption issues, and officers act with impunity (HRR 2014). Almost half of surveyed households perceive the police to be corrupt in Libya (GCB 2013).
Public services Very high risk
The public service sector carries a high risk of corruption for businesses. Executives perceive bribery as widespread in the public service sector (GCR 2014-2015). Inefficient government bureaucracy is a serious problem in Libya, significantly hindering business operations in the country. The regulatory system lacks transparency, and the legal and policy frameworks are difficult to navigate (ICS 2014). The process of obtaining licenses and permits are often delayed for long periods without specified reason, while the process itself is carried out in a subjective and non-transparent manner. The resulting situation has served as a breeding ground for corruption, graft, and rent-seeking (ICS 2014). Reportedly, corruption practices such as abuse of office, nepotism, and bribery have grown worse since the 2011 uprisings (BTI 2014). Starting a business is more time consuming, and more costly in Libya compared to regional averages (DB 2016).
Land administration Very high risk
Property rights are not clearly defined, nor protected under Libyan law (BTI 2016). Businesses complain that laws regulating private ownership and property rights are ambiguous (ICS 2014). Nonetheless, Libyan law provides safeguards against the expropriation of private property without a court ruling, including fair and equitable compensation (ICS 2014). Foreign investors do not have the right to own land; companies may benefit from rental markets, however, several aspects of such arrangements are decided by local officials (ICS 2014).
Tax administration Very high risk
The tax administration in Libya is plagued by corruption, which poses a high risk for companies. The fiscal institution is perceived to be ineffective, (FitW 2015) and business executives claims for irregular payments are frequently demanded when meeting with tax officials (GCR 2014-2015). Paying taxes is significantly more time-consuming than the regional average (DB 2016).
Customs administration Very high risk
The customs administration carries a high corruption risk for companies doing business in Libya. Transparency at the borders is very low and irregular payments connected to exports and imports are pervasive (GETR 2014). Importing goods is particularly a problem for companies due to corruption within the customs sector. The cost and time required to trade across Libya's borders is generally higher than the regional average for border compliance, while documentary compliance is generally less time-consuming and less expensive (DB 2016).
Public procurement Very high risk
The public procurement sector carries a very high corruption risk for companies doing business in Libya. Reportedly, favoritism is widespread among procurement officials, and public funds are often diverted to companies and individuals due to corruption (GCR 2014-2015). Furthermore, irregular payments and bribes are widely exchanged in the sector (GCR 2014-2015). There have been concerns as to the ability of the Libyan government to uphold public procurement contracts that have been concluded prior to the fall of Gaddafi. Progress has been made, nonetheless, businesses have expressed concern over the issue (ICS 2014).
State-owned firms dominate the domestic market leaving ample room for corruption and bribery (ICS 2014). Nonetheless, Libya's Privatization and Investment Board has made progress in converting nationalized enterprises into privately owned ones (ICS 2014). Foreign companies are allowed to participate in tenders, yet biding criteria and the processes for investment lack transparency, and are not published online. Thus, it is difficult to conclude whether foreign companies face discrimination when competing with local companies (ICS 2014).
In 2014, the Royal Canadian Mounted Police laid charges against the Canadian construction company SNC-Lavalin, which was allegedly involved in embezzlement, bribery, and wrongdoing in connections with public contracts in Libya during the years between 2001 and 2011. A preliminary hearing has been set for September 2018. Another former executive of SNC, Riadh Ben Aissa, was sentenced in 2014 by the Swiss Federal Crime Court for bribing the son of Gadhafi, in return for lucrative construction projects for SNC and embezzlement for private gain. The company SNC is suing Bebawi and Riadh Ben Aissa (Business News Network, Feb. 2016).
There are no reports available on corruption in this sector. However, the high levels of corruption in all other sectors suggest that the natural resources and extractive industries in Libya are also plagued by corruption.
State-owned companies dominate the oil and gas industry in the country, and the government's management of the country's oil revenues lack transparency (ICS 2014). In one instance, the National Oil Corporation rejected the request to release a report on its oil deals in 2013 (BTI 2016).
In mid-2014, the government established the country's first oil corruption committee tasked with investigating financial and administrative corruption in the oil industry (HRR 2014). No information has been found on achievements made by the committee.
Libya does not have a permanent constitution in place, the current supreme law is the Constitutional Declaration introduced following the 2011 overthrow of the ruling regime. The Libyan Constitution Drafting Assembly is set to finish writing the constitution by late March 2016 (Democracy Reporting International, Feb. 2016). Libya also lacks a general anti-corruption law, and relies on the Libyan Criminal Code and a specialized anti-corruption law. The law for the High Authority for the Application of National Standards of Integrity passed during the post-revolution period. This law established the High Commission on the Application of Standards of Integrity and Patriotism.
Bribery, abuse of office, nepotism, and embezzlement are criminalized, yet the government did not implement the anti-corruption law effectively (HRR 2014). This is due to the inefficiency of the institutional framework responsible for the implementation of the country's anti-corruption laws (BTI 2014). In fact, institutional safeguards for the prevention of corruption and financial control, as well as effective integrity mechanisms are generally absent (BTI 2014). Money laundering is regulated under the Law on Combating Money Laundering. Government officials are not subjected to any disclosure laws and they have often engaged in corruption with impunity (HRR 2014). Budget planning and implementation lacks transparency and is not subject to independent audits (BTI 2014). Whistleblowers do not have any legal protection.
Libya has ratified the UN Convention Against Corruption, yet it is not a member of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Libya's Constitutional Declaration provides for freedoms of opinion and press; however, these do not live up to the international standards for freedoms of expression (FotP 2015). Furthermore, political and criminal violence limits the media in practice (FitW 2015). Libel and defamation are criminalized in Libya. Journalists have faced harassment, intimidation, kidnappings, physical attacks, and assassinations throughout 2014 (FotP 2015, BTI 2016). In one case, the editor of the Al-Umma newspaper was sentenced to five years in prison in absentia for publishing a list of judges said to be involved in corruption (FotP 2015). Several media outlets have resorted to self-censorship or closed down to avoid reprisal (FitW 2015). Likewise, many journalists have escaped the country (FitW 2015). Libyan law does not allow for public access to government information (HRR 2014). The media environment is described as 'not free' (FotP 2015).
Libya has very weak civil society traditions. However, the post-revolution period witnessed a flourishing civil society (ICS 2014). Several NGOs have dedicated their work to promoting transparency, particularly within the energy sector (ICS 2014). Although still in its first stages of development, cooperation between the government and civil society has been established after the revolution (BTI 2016). Nonetheless, with the fragmentation of the political leadership in 2014, efforts to cooperate also followed suit, leaving NGOs to function only at a local level (BTI 2016). Attempts by civil society to curb corruption have been limited (BTI 2016). The Libyan Transparency Association is an NGO that is active in fighting corruption (LTA).
- World Bank & IFC: Doing Business 2016.
- Bertelsmann Foundation: Transformation Index - Libya 2016.
- Business News Network: 'SNC's fraud, corruption hearing set in 2018', 26 February 2016.
- Democracy Reporting International: 'Transitional provisions in the draft Libyan draft constitution and political agreement', February 2016.
- Freedom House: Freedom of the Press - Libya 2015.
- Freedom House: Freedom in the World - Libya 2015.
- World Economic Forum: Global Enabling Trade Report 2014.
- US Department of State: Investment Climate Statement - Libya 2014.
- Bertelsmann Foundation: Transformation Index - Libya 2014.
- US Department of State: Human Rights Practices Report - Libya 2014.
- Transparency International: Global Corruption Barometer 2013.