Rebuilding Libya: bring in the corporate sector

Now that the battle for Tripoli is seemingly over, so begins an infinitely more complex challenge of constructing a stable, prosperous and democratic country in Libya.

A great many obstacles and challenges lie ahead for those engaged in this. However, what is clear is that the endeavour will be very much harder without the active involvement of the international corporate sector. This is not to advocate simply that foreign investment be sought and encouraged (which is necessary but insufficient). More so, that those responsible for the reconstruction process ensure that international companies are engaged as a strategic partner from the outset, and are seen as fundamental to the stable and durable reconstruction of the country.

Evidence from previous efforts at post-conflict reconstruction demonstrates clearly that ignoring the corporate sector – or simply regarding companies merely as contractors – is dangerous. Rwanda remains heavily dependent on donor aid because of a lack of foreign investment, and, rather belatedly, the international community is realising that a poor business environment is a significant reason for Bosnia’s continued instability.

The situation in Libya provides an opportunity to learn from past experience and embrace what the corporate sector can offer to the reconstruction process, and in so doing, avoid the risk of creating another unsustainable colony of the international community that is dependent on donor aid. The presence and activities of private companies contribute across all aspects of the reconstruction process:

Economic development
The Libyan economy has been devastated by months of conflict. The combined impact of Western sanctions, the exodus of foreign workers and fighting meant that, even as far back as April, the Washington Post reported the virtual collapse of the public sector in rebel-held territory.

It is in developing the economic base that international investors can have the most obvious impact on successful reconstruction. ArcelorMittal is investing US$1.5 billion in Liberia; in the Baku-Ceyhan pipeline in Azerbaijan a consortium of oil companies led by BP invested US$3.7bn. Through companies’ value chains, these investments also have the potential to impact broadly throughout society. In Azerbaijan, 75% of BP’s staff are local people, and the company spends around $1.5bn annually on local suppliers (nearly twice what is spent on imported purchases). 

Infrastructure
The NATO air bombardment and 6 months of fighting have wrought havoc on Libya’s infrastructure. Reports suggest, for example, that damage to the telecommunications network alone amounts to some US$1.2bn.

Re-building damaged infrastructure is usually a priority for reconstruction efforts – for example, in 1995 the international community pledged US$5.1bn to priority infrastructure projects in Bosnia.  But corporate infrastructure investments are also considerable and have a significant bearing on the host country’s success. As part of their investment in Liberia, ArcelorMittal is rehabilitating 260km of railway line, and re-developing the port of Buchanan for commercial traffic. They are also providing health infrastructure in their concession area.

In the modern world, however, ‘infrastructure’ needs to be seen as more than simply physical ‘stuff’; it is also important to think in terms of ‘soft infrastructure’, for example financial systems. Here again, the role of the corporate sector is vital. In Rwanda, investments of resource and expertise by international banks have created a thriving banking sector which is able to provide electronic bank transfers, ATMs and other modern financial infrastructure.

Reconciliation
Libya has been at war with itself for 7 months: the divides in society which led to the fighting run deep, and peaceful reconciliation between those who fought for Gaddafi, and those who overthrew him will be essential. The international community is likely to weigh in with de-militarisation and reintegration programmes for combatants, but in the longer run the corporate sector has a huge role to play in the development of more generalised trust within society.

To begin with, workplaces are recognised as acting as excellent ‘connectors’ in divided societies. By bringing people together from across the conflict to work on joint tasks there are valuable opportunities for reconciliation. Given how extensive companies’ value chains can be, this impact can be wide-spread in society. Also, the longevity of many investments means that companies can also contribute to long-term stability in a way that donor agencies with relatively short-term time horizons cannot.

Governance
Gaddafi ruled the country for 42 years, so institutions such as democracy, rule of law and due process have been denied to many Libyans. Yet fostering an understanding of these ideas, and the creation of institutions capable of sustaining and reflecting them, will be central to Libya’s emergence as a stable, liberal state.

Self-evidently, the processes of developing or remodelling government institutions will be a task of the new Libyan authorities supported by the international community. However, in their behaviours and management processes, international investors can demonstrate and support the need for good governance. In the context of resource-rich Libya, the Extractive Industries Transparency Initiative is likely to be highly relevant, as a way of ensuring that payments due under drilling contracts are not subject to corruption.

The influence of international companies is also manifested in more day-to-day management processes. The introduction of international accounting norms, the likelihood that many foreign firms will require International Standards Organisation and other global standards of their own, and suppliers’ operations all underpin the value of good governance.

The wrong sort of foreign corporate activity in post-conflict states can cause huge damage to a reconstruction process. However, ignoring the huge benefits that would accrue from strategic engagement with international companies would be equally damaging for the long-term sustainability of Libya. If the end-goal of post-conflict reconstruction is to create a normalised, stable, durable state, then a thriving private sector needs be a fundamental part of that fabric. International companies need to be part of both the destination and of the journey.

24 August 2011
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