Last August the Libyan Investment Authority (LIA) moved its Tripoli’s offices to the now famous Tripoli Tower.
The traditional financial institution of Gaddafi’s regime currently manages approximately 67 billion US dollars, most of which are frozen due to the UN sanctions.
Said sanctions shall be gradually removed and replaced with a system of market controls, as the Libyan economy finds its way.
Right now that, after intimidation and serious and often armed threats, LIA has moved to the safer Tripoli Tower.
However, how was LIA established and, above all, what is it today? The Fund, which has some characteristics typical of the oil countries’ sovereign funds, was created in 2006, just as the EU and US economic and trade sanctions against Gaddafi’s regime were slowly being lifted.
The idea underlying the operation was simple and rational, just like the one that had long pushed Norway to create the Government Pension Fund Global, i.e. using the oil profits to avoid the post-energy crisis in Libya and preserve the living standards of the good times.
Hence investing in its post-oil future using the huge surplus generated by the crude oil sales.
From the beginning, LIA had to manage a portfolio of over 65 billion US dollars, but with three policy lines: firstly, 30 billion dollars to be invested in bonds and hedge funds; secondly, business finance and thirdly, the temporary liquidity secured in the Central Bank of Libya and in the Libyan Foreign Bank.
The funds of those two banks soon acquired a value equal to 60% of all LIA assets.
All the companies having relations with foreign markets, from Libya, fell within the scope of the Libyan Investment Fund.
Currently LIA has over 552 subsidiaries.
Nevertheless, there are no documents proving it with certainty. To date there are not even archives that credibly corroborate the LIA budgets and statistics.
Since 2012 it has not even undergone any auditing activity.
There were and there are no strategies for allocating investments nor a plan. The only criterion followed by the Fund managers – now as in the past – is to invest the maximum sums of money in the shortest lapse of time.
The first serious audit was finally carried out by KPMG in June 2011, in the heat of the battle for the survival of Gaddafi’s regime.
At the time, high-risk derivatives transactions were worth as much as 35% of LIA’s total investments – which was incredible for the other global funds.
According to the most secret but reliable sources, however, in 2009 the losses of the Libyan Fund exceeded 2.4 billion US dollars.
What happened, however, in 2011, after the collapse of Gaddafi’s regime? How did LIA and the Libyan African Investment Portfolio (LAIP) act?
In fact, neither company could carry out any operations.
In 2014 alone, LIA’s losses were at least 721 million US dollars.
Moreover, LAIP still holds in its portfolio the Libyan Arab African Investment Company (LAICO), which manages investments – particularly in the real estate sector – in 19 African countries, with specific related companies in Guinea Bissau, Chad and Liberia.
Furthermore, Oil-Libya still operates as a network manager and extractor in at least 18 African countries.
On top of it, the Libyan Fund still owns Rascom Star, a satellite and telephone network connecting much of rural Africa.
Within LAIP there is also FM Capital Partners LTD, another real estate Fund.
Nevertheless, as early as the collapse of Gaddafi’s regime, the internal policy lines of LIA and of the other companies separated: 50% of managers wanted to continue the activity according to the classic rules of the Company’s Management, while the others thought they should mainly follow the new political equilibria within Libya.
The last audit carried out by Deloitte also demonstrated that the over 550 subsidiaries were the real problem of the Fund.
Deloitte also assessed that at least 40% of those companies were completely uneconomic and had to be sold quickly.
In this bunch of lame ducks there were, for example, the eight refineries – one of which managed by Oil invest in Switzerland – which also paid penalties to the Swiss government for obvious environmental reasons.
Allegedly the refinery in Switzerland stopped its activities in 2017.
The traditional investment line of the Libyan Arab Foreign Investment Company (LAFICO) has always been linked to LIA, which currently has over 160 billion US dollars avaialble, including oil, personal income and old foreign investment of Colonel Gaddafi, once again only partially reported to international authorities.
Moreover, according to the LIA managers of the time, the various companies within the Fund did not communicate one another and hence their strategies overlapped.
And the same held true for the interests of their different political offspring.
Moreover, in 2011 an old independent audit showed that the losses before the sanctions that preceded the uprisings amounted to approximately 3.1 billion US dollars.
Gaddafi’s regime started to collapse – a regime which, according to the international narrative, had allegedly accumulated all the money taken by LIA and its subsidiaries.
Obviously this is not true – exactly as it is not true that the “deficit” in Italy’s public finances before the “Bribesville” scandal was caused only by the greed and voracity of the ruling class.
In the countries where there is a destructive psywar and an offensive economic war, these are now the usual models.
It is not by chance that on December 16, 2011 the UN Security Council lifted the specific sanctions against the Central Bank of Libya and the Libyan Foreign Bank (which is not LAFICO) because they had supported the uprisings against Colonel Gaddafi.
In 2014 LIA initiated legal proceedings against Goldman Sachs, which cost it 1.2 billion US dollars, with a bonus for the intermediary bank of 350 million dollars.
The proceedings ended in 2016 and the British judges decided in favour of Goldman Sachs that was entitled to a compensation amounting to one million US dollars.
There was also another legal action brought against Société Générale, which had started in 2014 and later ended with LIA’s partial defeat.
As to the 2018 national budget, for example, the Central Bank of Libya has envisaged the amount of 42,511 billion dinars, broken down as follows: 24.5 for salaries and wages; 6.5 billion dollars for petrol subsidies and 6.7 billion dollars for “other expenses”.
On average the dinar exchange rate is 1.3 as against the dollar, but it is much lower on the black market.
And public spending is all for subsidies and salaries. Very little is spent for welfare – that was Colonel Gaddafi’s asset for gaining consensus. Social wellbeing can be achieved with good stability of oil prices and revenues, which is certainly not the case now.
Moreover, General Haftar militarily conquered the oil sites of the Libyan “oil crescent” on June 14, 2018, after having held back the attacks of the Petroleum Defence Guards of Ibrahim Jadhran, the commander of the force protecting the oil wells and facilities.
According to General Haftar, the condition for reopening wells, as well as storage and transport sites, was the replacement of the Governor of the Central Bank of Libya, Siddiq al-Kabir, with his candidate, namely Mohammad al-Shukri.
Siddiq al-Kabir stated that the Central Bank of Libya has lost 48 billion dinars over the last 4 years and rejected the appointment – formally made by the Tobruk-based Parliament – of his successor, al-Shukri.
Moreover, Siddiq al-Kabirhas also been accused of having pocketed a series of Libyan public funds abroad.
Later General Haftar attacked the Central Bank of Libya in Benghazi to collect funds for the salaries of his soldiers.
Hence the current Libyan financial tension lies in the link between banks and oil revenues – two highly problematic situations, both in al-Serraj’s and in the Benghazi governments, as well as in General Khalifa Haftar’s ranks.
It is certainly no coincidence that the Presidential Council decided to impose a 183% tax on currency transactions with banks.
In addition, taxation was introduced on the goods imported by companies before the current tax reform, which is linked to the reform of the allocation of basic commodities to the Libyan population.
The idea is to stabilize prices and hence make the exchange rate between the dinar and the dollar acceptable, which is another root cause of the economic crisis.
The Libyan citizens often demonstrate in front of bank branches, which are constantly undergoing a liquidity crisis. Prices are out of control and the instability of exchange rates harms also oil transactions, as can be easily imagined.
Nevertheless, even the area controlled by the Tobruk-based Parliament and General Haftar’s Forces is not in a better situation.
In fact, Eastern Libya’s banking authorities have already put their banknotes and coins into circulation, which are already partly used and were printed and minted in Russia.
Pursuant to al-Serraj’s decision of May 2016, said banknotes are accepted in the Tripoli area.
Four billion dinars, with the face of Colonel Gaddafi portrayed on them, and of the same dark colour as copper.
According to the most reliable sources, the reserves of the Central Bank of Libya in Bayda – the city hosting the Central Bank of Eastern Libya – are still substantial: 800 million dinars, 60 million euros and 80 million dollars.
Not bad for an area destroyed by war.
Obviously the simple division into two of the Central Bank – of which only the Tripoli branch is internationally recognized – is the root cause of the terrible Weimar-style devaluation of the Libyan dinar, which, as always happens, they try to patch up with the artificial scarcity of the money in circulation.
As Schumpeter taught us, this does not solve the problem, but shifts it to real goods and services, thus increasing their artificial scarcity and hence their cost.
Meanwhile, the economic situation shows some signs of improvement, considering that the 2017 data and statistics point to total revenues (again only for Tripoli’s government) equal to 22.23 billion dinars, of which 19.2 billion dinars of oil exports; 845 million dinars of taxes; 164 million dinars of customs duties, above all on oil, and 2.1 billion dinars of remaining revenue.
At geopolitical level, however, the tendency to Libya’s partition – which would be a disaster also for oil consumers and, above all, for the Libyan economy, considering that the oil crescent is halfway between the two opposing States – is de facto the prevailing one.
Egypt openly supports General Khalifa Haftar and the tribes helping him.
The Gharyan tribe and many other major ones, totalling 140, now support the Benghazi Government, since at the beginning of clashes, they had often been affiliated to Tripoli and its Government of National Accord.
Tunisia has always tried to reach a very difficult neutral position.
Algeria strongly fears the intrusion of the Emirates’ and Qatar’s Turkish intelligence services into the Libyan economic, oil and political context, but it endeavours above all to limit the Egyptian pressure to the East.
The European powers support General Haftar- with France that, as early as the first inter-Libyan fights, sent him the Brigade Action of its intelligence services. Conversely, Italy is rebuilding its special relationship with al-Serraj’s government – like the one it had with Gaddafi – but with recent openings to General Haftar.
If we want to reach absolute equivalence between the parties, we must avoid doing foreign policy.
Great Britain and the United States tend to quickly withdraw from the Libyan region, thus avoiding to make choices and not tackling the economic and social crisis that could trigger again a war, with the jihad still playing the lion’s share and precisely in the oil crescent.
The United States should not believe that its great oil autonomy, which also pushes it to sell its natural gas abroad, can exempt it from developing a policy putting an end to the unfortunate phase of the “Arab Springs” it had started – of which Gaddafi’s fall is an essential part.
Currently the Libyan production share is around 1% of the total OPEC production.
Everyone is preparing for the significant increase of the oil barrel price, which is expected to reach almost 100 US dollars in the coming months.
If this happened – and it will certainly happen – the Libyan economy could be even safe, but certainly corruption and the overlapping of two financial administrations and two central banks, as well as political insecurity, could still stop Libya’s economic growth.
Hence, for the next international conference scheduled in Palermo for November 12-13, we would need a common economic and financial policy line of all non-Libyan participants to be submitted to both local governments.
Probably General Haftar will not participate – as stated by a member of the Tobruk-based Parliament – but certainly Putin will not participate.
The presence of Mike Pompeo is taken for granted, but probably also the Russian Foreign Minister, Sergey Lavrov, will participate.
Certainly the Italian diplomacy focused only on “Europe” has lost much of the sheen that has characterized it in Africa and the Middle East.
Meanwhile, we could start with a working proposal on the Libyan economy.
For example, a) a European audit for all Libyan state-run companies of both sides.
Later b) the definition of a New Dinar, of which the margin of fluctuation with the dollar, the Euro and the other major international currencies should be established.
Some observers should also be involved, such as China.
Furthermore, an independent authority should be created, which should be accountable to the Libyan governments, but also to the EU, on the public finances of the two Libyan governments.
China Development Bank could be a climate bank
Development Bank (CDB) has an opportunity to become the world’s most important
climate bank, driving the transition to the low-carbon economy.
CDB supports Chinese investments globally, often in heavily emitting sectors. Some 70% of global CO2 emissions come from the buildings, transport and energy sectors, which are all strongly linked to infrastructure investment. The rules applied by development finance institutions like CBD when making funding decisions on infrastructure projects can therefore set the framework for cutting carbon emissions.
CDB is a major financer of China’s Belt and Road Initiative, the world’s most ambitious infrastructure scheme. It is the biggest policy bank in the world with approximately US$2.3 trillion in assets – more than the $1.5 trillion of all the other development banks combined.
Partly as a consequence of its size, CDB is also the biggest green project financer of the major development banks, deploying US$137.2 billion in climate finance in 2017; almost ten times more than the World Bank.
This huge investment in climate-friendly projects is overshadowed by the bank’s continued investment in coal. In 2016 and 2017, it invested about three times more in coal projects than in clean energy.
scale makes its promotion of green projects particularly significant. Moreover,
it has committed to align with the Paris Agreement as part of the International Development Finance
Club. It is also
part of the initiative developing Green Investment Principles along the BRI.
This progress is laudable but CDB must act quickly if it is to meet the Chinese government’s official vision of a sustainable BRI and align itself with the Paris target of limiting global average temperature rise to 2C.
What does best practice look like?
In its latest report, the climate change think-tank E3G has identified several areas where CDB could improve, with transparency high on the list.
The report assesses the alignment of six Asian development finance institutions with the Paris Agreement. Some are shifting away from fossil fuels. The ADB (Asian Development Bank) has excluded development finance for oil exploration and has not financed a coal project since 2013, while the AIIB (Asian Infrastructure Investment Bank) has stated it has no coal projects in its direct finance pipeline. The World Bank has excluded all upstream oil and gas financing.
In contrast, CDB’s policies on financing fossil fuel projects remain opaque. A commitment to end all coal finance would signal the bank is taking steps to align its financing activities with President Xi Jinping’s high-profile pledge that the BRI would be “open, green and clean”, made at the second Belt and Road Forum in Beijing in April 2019.
CDB should also detail how its “green growth” vision will translate into operational decisions. Producing a climate-change strategy would set out how the bank’s sectoral strategies will align with its core value of green growth.
CDB already accounts for emissions from projects financed by green bonds. It should extend this practice to all financing activities. The major development banks have already developed a harmonised approach to account for greenhouse gas emissions, which could be a starting point for CDB.
Lastly, CDB should integrate climate risks into lending activities and country risk analysis.
One of the key functions of development finance institutions is to mobilise private finance. CDB has been successful in this respect, for example providing long-term capital to develop the domestic solar industry. This was one of the main drivers lowering solar costs by 80% between 2009-2015.
However, the extent to which CDB has been successful in mobilising capital outside China has been more limited; in 2017, almost 98% of net loans were on the Chinese mainland. If CDB can repeat its success in mobilising capital into green industries in BRI countries, it will play a key role in driving the zero-carbon and resilient transition.
From our partner chinadialogue.net
Oil-Rich Azerbaijan Takes Lead in Green Economy
Now that the heat and dust of Azerbaijan’s parliamentary election on February 9thhas settled, a new generation of administrators are focusing on accelerating the pace of reforms under President Ilham Aliyev, who has ambitious plans to further modernise its economy and diversify its energy sources.
Oil and gas account for about 95 percent of Azerbaijan’s exports and 75 percent of government revenue, with the hydrocarbon sector alone generating about 40 percent of the country’s economic activity. Apart from providing oil to Europe, Azerbaijan successfully completed the Trans-Anatolian Natural Gas Pipeline (TANAP) with Turkey in November 2019 to transfer Azerbaijani gas to Europe.
Yet, with an eye on the future, the country has also begun to take huge strides in renewable energy. Solar and wind power projects have been installed, with their share in total electricity generation already reaching 17 percent. By 2030, this figure is expected to hit 30 percent.
Solar power plants currently operate in Gobustan and Samukh, as well as in the Pirallahi, Surahani and Sahil settlements in Baku.
The potential of renewable energy sources in Azerbaijan is over 25,300 megawatts, which allows generating 62.8 billion kilowatt-hours of electricity per year. Most of this potential comes from solar energy, which is estimated at 5,000 megawatts. Wind energy accounts for 4,500 megawatts, biomass is estimated at 1,500 megawatts, and geothermal energy at 800 megawatts.
President Aliyev has supported the drive for renewable energy. He signed a decree in 2019 to establish a commission for implementing and coordinating test projects for the construction of solar and wind power plants.
Azerbaijan’s focus on renewable energy has drawn interest from its European partners, with leading French companies seeking to invest in the country’s solar and wind electricity generation.
Azerbaijan is France’s main economic and trade partner in the South Caucasus. According to French ambassador Zacharie Gross, “the French Development Agency is ready to invest in Azerbaijan’s green projects, such as solid waste management. This would allow using new cleaner technologies to reduce solid waste. This is beneficial for the environment and the local population.”
“I believe that one of the areas that have greatest development potential is urban services sector. An improved water distribution system can reduce the amount of water consumed, improve its quality, and also solve the problem of flood waters in winter,” the French ambassador added.
Azerbaijan is currently a low emitter of greenhouse gases that contribute to climate change. According to the European Commission, the country released 34.7 million tons of CO2 into the atmosphere in 2018, i.e. just 3.5 tons per capita. This is lower than the norm adopted by the world: 4.9 tons.
In contrast, in 2018 Kazakhstan generated 309.2 million tons of CO2, Ukraine generated 196.8 million tons,Uzbekistan101.8 million tons, and Belarus 64.2 million tons.
And the amount of carbon dioxide emitted by Azerbaijan has been consistently falling. In 1990, Azerbaijan emitted 73.3 million tons, but in 2018 this had dropped to 34.7 million tons. By 2030 the country plans to reduce its annual greenhouse gases emissions by a further 35 percent.
Measures taken by the government include the early introduction of Euro-4 fuel standards in Azerbaijan, with A-5 standards to be introduced from 2021. An increasing number of electric buses and taxis are now transporting passengers in the main cities.
Another key step is the clean-up of the environmental degradation caused by over 150 years of oil production. Azerbaijan’s state oil company SOCAR is helping to recover oil-contaminated lands in Absheron Peninsula, particularly in the once critically contaminated area around Boyukshor Lake. This involves the removal of millions of cubic metres of soil contaminated with oil.
Azerbaijan is also reducing the amount of gas it wastes in flaring. In a study funded by the European Commission, Azerbaijan ranks first among 10 countries exporting oil to the EU in the effective utilisation of associated petroleum gas.The emission of associated gases decreased by 282.5 million cubic meters from 2009 through till 2015. This is expected to fall further to 95 million cubic meters by 2022.
The government is also encouraging large-scale greening of the land. In December 2019, a mass tree-planting campaign was initiated by First Vice President Mehriban Aliyeva to celebrate the 650thanniversary of famous Azerbaijani poet Imadeddin Nasimi. 650,000 trees were planted nationwide, including 12,000 seedlings that were delivered by ship to Chilov Island.
A 2018 survey, carried out in cooperation with Turkish specialists, found that forest area is 1.2 million square meters in Azerbaijan, i.e. 11.4 percent of the total area of the country.A new requirement was introduced last year to halt deforestation and to reduce the negative impact of business projects on the environment.
For a country with the 20th largest oil reserves in the world, Azerbaijan could well have chosen to stick to a hydrocarbon future. But it has instead dared to think beyond oil and gas in its energy, transportation, economy and environment. The country is setting a template that should inspire other large oil producers to emulate.
China-US: How Long Will the Phase One Agreement Hold?
Although the recently signed Phase One agreement between the US and China has put a halt to the ongoing trade war between the two global economic superpowers, it cannot be viewed as a long-term solution. At its best, it is a temporary truce. The language of the eighty-six page document, including its ambiguities and the unrealistic promises upon which the entire agreement is based, suggests that it is based on two unreconcilable compromises between the two parties.
Some of the main highlights of the deal include: China must give an action plan on “strengthening intellectual property protection” and it must reduce the pressure on international companies for “technology transfer.” China has promised to increase the purchase of goods and services from US by $200 Billion over two years. Other key points include easy access to Chinese markets. The 15th December tariffs of $160 Billion have been delayed in December 2019. Tariff rates on $120 bn of goods (imposed on September 01, 2019) have been reduced from 15 to 7 percent although tariffs of $250 Billion at a rate of 25 percent will remain.
The 86 page document, when analyzed, displays an ambiguity in its language, as well as the absence of any enforcement plan and dispute settlement process. Therefore, whenever an issue might arise (and it will) there is a likelihood the deal may implode. For instance, whilst mentioning enforcement of payment of penalties and other fines, the word “expeditious” remains unclear. What is the time period and how will enforcement be accomplished? At another point, while referring to China to send a case for criminal enforcement the word “reasonable suspicion” which can be based on “articulable facts” makes it very abstract. Chad Brown, a trade expert in an article for Business Insider, says that there is no specific way mentioned in the document to penalize the party who violates any provision. Moreover, there is no body (like WTO) that will take decisions but is rather left to the USTR and discussions with Chinese counterparts – a recipe for confusion.
Then there are the promises. But we have to consider different variables. But if it turns out that China carries out its promise to buy crude oil, LNG and coal, the global commodity markets will feel the heat – in a negative way. Under the agreement China will buy an additional $52 bn of energy products in the span of coming two years- 418.5 Billion in 2018 and $33.9 in 2021. This year China will have to buy about $27 Billion energy purchases from U.S. To put this in context, China imported 14 million barrels of oil in November 2018 which is its highest ever. Assuming that China buys the same amount for 12 months it would yield only $9 to $10 billion in revenue! In a similar calculation for coal and LNG, Clyde Russell, in an article for Reuters, concludes that in order to fulfill the above target (of $27 Billion) China would have to double the amount of these imports from US!
Moreover, the Phase One agreement has a snapback clause which implies that upon quarterly reviews if the Chinese side isn’t holding true to their promises the agreement can become null and void.
Even if China fulfills its promise, the purpose wouldn’t be served: the US. deficit won’t reduce significantly. The US trade deficit with China for the first 10 months of 2019 was $294 Billion – in other words, roughly 40 percent of the country’s total trade gap. However, for the same period, Chinese sold goods more than four times that amount (or about $382 bn). China will need to half its exports to the U.S. for a “meaningful” drop in the deficit – something that seems highly unlikely.
Also, the US might even end up more dependent on China. Increased demand for US oil will spike its prices and might trigger other suppliers of China to increase their output in order to fight for the market share. The global energy and commodity markets could face disruption. Similarly, Brazil and other countries, beneficiaries of this trade war, can decrease soy bean prices in order to retain their market share, giving farmers in the US a tough time.
As the U.S. Treasury Secretary, Steven Mnuchin, said that tariffs can remain in place even after a Phase Two agreement, we, therefore, have to be patient and observe the trajectory of Phase One trade agreement carefully. Chinese promise of $200 bn purchases, the lack of a proper dispute resolution mechanism and technical loopholes in language puts the future of the agreement in doubt.
Both sides are keeping some cards in their deck; we have yet to witness the end of this trade-war saga.
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