Political economy and Sovereign wealth Funds of the Middle East & Africa
The Collapse of Libya’s Investment Sector
In 2008, a team from the Qatar Investment Authority (QIA) visited Libya’s nascent sovereign wealth fund, the Libyan Investment Authority (LIA), in Tripoli. The purpose of the visit was to propose joint ventures across various sectors and foster a partnership for knowledge exchange. However, Libya’s fund rejected all QIA’s proposals.
Fast forward fourteen years, the QIA now manages assets worth $445 billion, boasting a 22% return in 2021. By contrast, the LIA has stagnated at its initial oil-based capital injection of $67 billion, generating an annual return of less than 0.5% in 2021.
A Region of Growth and Missed Opportunities
The period from 2020 to 2021 was a profitable era for many Gulf and African investment funds. For instance:
- Oman Investment Authority (OIA), with $17 billion in assets, achieved a 10.3% return in 2021.
- Kuwait Investment Authority, valued at $580 billion, saw a remarkable 33% growth in its fiscal year.
Overall, sovereign wealth funds globally had a stellar year in 2021. The International Forum of Sovereign Wealth Funds reported a rise in deals from 316 in 2020 to 429 in 2021, with the total value increasing from $67.8 billion to over $71.6 billion. These funds collectively invested over $25 billion in digital technologies, reflecting a growing focus on innovation.
Libya’s Struggles: Why Has the LIA Fallen Behind?
Despite its significant financial resources, the LIA has repeatedly failed to yield positive returns. The reasons include:
- Lack of Human Capital: Skilled professionals have been marginalized, depriving the sector of much-needed expertise.
- Militia Influence: Over the last six years, militias and regional powers have undermined institutional independence, integrity, and growth by exerting control over the investment sector.
- Inadequate Leadership: The current head of the LIA, Mr. Ali Mahmud, appointed as part of a political agreement, lacks the necessary expertise and fluency in international finance. Reports indicate instances where Mr. Mahmud’s assistant struggled even with basic translation at international events, highlighting a gap in competency.
Mismanagement at Subsidiaries
The Libyan Company for Foreign Investment (LAFICO), a leading LIA subsidiary managing 525 companies, is another example of mismanagement. Its recent appointee, Mr. Moussa Atig, has risen through political favoritism and militia influence rather than merit. Employees have described the current state of the subsidiary as “chaotic,” with morale at an all-time low.
The situation is further illustrated by questionable appointments within LIA’s subsidiaries, such as:
- A former office secretary being placed on the board of The Africa Fund.
- A former hotel front desk clerk being appointed chairman of a major oil and gas company.
A Path Forward
Libya’s investment sector is at a breaking point. Immediate reforms are critical to restore credibility and ensure long-term growth. Recommendations include:
- Establish a Government-Appointed Task Force: This body must be free from regional and militia influence to develop a clear structure, vision, and strategy for the LIA.
- Leverage Foreign Expertise: Appointing seasoned international managers, as seen in successful Gulf and African funds, could serve as a catalyst for reform.
- Focus on Human Capital Development: Investing in the training and recruitment of qualified professionals will create a foundation for sustainable growth.
Libya’s sovereign wealth fund holds immense potential, but its revival requires bold action and a commitment to transparency, integrity, and professionalism.
Omar Khattaly
Researcher on Sovereign Wealth Funds and the Political Economy of the Middle East & Africa
