Libya Defence and Security Report Q3 2009

Libya’s perception of its external security has been profoundly affected by world events over the past few years. Qadhafi now considers that the route to survival lies in positive engagement with the international community, led by his Anglo-American allies. This acknowledgement has led to a series of bold actions on the part of Libya that have surprised the West and led to a revival in relations. This comes after 15 years of the North African country occupying a pariah status in European and American minds. The decision in September 2003 to lift the UN embargo, following an agreement to compensate Lockerbie victims, has been noticed within the arms trade and political arenas. The lifting of the US and UK economic sanctions followed this, and major deals were struck with western oil companies. Recent developments have seen European defence companies moving to establish themselves in what could emerge as a very lucrative Libyan defence market. Libya’s extensive array of military equipment was mostly purchased from the Soviet Union and is in desperate need of modernisation. Despite efforts to develop a credible indigenous defence industry after Colonel Qadhafi assumed power in 1969, Libya’s production capability remains negligible. There has been no multinational involvement in the defence industry in recent years. However, several arms companies are currently undertaking preliminary feasibility studies into the possibility of developing relationships with the regime. Paramount among these is the UK firm BAE Systems. This company previously focused upon civilian contracts, but, after the lifting of the arms embargo, the company is in a strong position to dominate the market. Overall, we remain optimistic about the growth potential of Libya’s defence industry. Defence expenditure is forecast to rise to some US$730mn by 2010. Import figures will rise substantially over the coming years as Libya updates and replaces its ageing Soviet equipment – although this will depend on how the country’s economy fares in the face of the global financial crisis, and on the extent to which oil prices recover. Enthusiasm for foreign investment in Libya has been dampened by Qadhafi's hints about nationalising foreign oil company assets. The Libyan leader has been inconsistent in his attitude toward foreign investment and economic policy. However, Libya is unlikely to suddenly seize assets. Economic growth is currently impaired by lower oil prices and OPEC-mandated production cuts, but the government appears determined to spend its way through the global downturn, even at the cost of a huge budget deficit. As with neighbouring Algeria, Libya's lack of economic diversification, while detrimental to its long-term health, will actually shield it from the worst of the global crisis. In 2008, Russian President Vladimir Putin visited Libya for the first time. The Russian president signed an agreement on the writing-off of Libya's US$4.6bn debt to Russia, in exchange for the conclusion of new deals, from which up to US$2bn goes to the quota for military and technical co-operation. However, the signing of the package is being held back by the fact that the issue of repayment of the Libyan state debt has not been settled. In March 2009, the BBC announced that Russia is fulfilling a contract for the construction of Molniya-class missile boats for the Libyan navy. Domestically, Qadhafi’s succession is of concern to Libya’s internal security. He has ruled Libya single-handed for the past 40 years, with almost no checks on his power. As the leader grows older, there are increasing concerns over the future of the regime, given that all authority is currently invested in the dictator. It is likely that power will pass to one of his children, although this process itself has the potential to cause instability. This quarter, we have introduced a significant new aspect to BMI's Defence Reports, which is the City Terrorism Rating (CTR). This assesses the risk of a terrorist attack. The CTR takes into account the overall BMI Terrorism Rating for the country in question. It also incorporates the 'prevalence' of terrorism, which recognises the frequency of attacks, and whether the city is a target for terrorists. The CTR also recognises the 'threat' of terrorism in terms of the likely numbers of victims and the ability of groups to launch sustained campaigns. In Libya, we assess the CTR for Tripoli at 95, the highest (best) in the North African region. Strong internal security in the capital explains the ratings of 100 for prevalence and risk, while the state component is also the best in the region at 92.5.