Libya’s War Economy: Six Things You Should Know

2. The war economy has four components: smuggling, extortion, stealing state resources and external patronage.

Following the overthrow of Gaddafi in 2011, there has been open competition over control of Libya’s smuggling sector. In particular, the smuggling of people and fuel has become lucrative, and may generate billions of dollars for those involved. Armed groups play an increasingly prominent role in these activities. Protection markets have formed around much economic activity, allowing armed and criminal groups to utilize extortion tactics: from kidnap for ransom to intimidation and cooptation of banks.

But, state resources present the greatest opportunity to generate revenues. Competition between rivals for control of state resources and fraudulent financial schemes have allowed networks of corrupt businessmen, politicians and armed groups to capture billions of dollars of state funds. Finally, external supporters continue to provide funding for armed groups to continue to fight.

3. The war economy is dynamic and in flux.

There were signs of progress on several fronts in 2017: a reduction in human smuggling, a tripling in oil revenues and increased local action against fuel smuggling. Yet the dynamics that have supported the war economy’s rise still remain and will deteriorate unless tackled.

4. The war economy is highly damaging for the future of the Libyan state.

First, it provides an enabling environment for networks of armed groups, criminal networks, corrupt businessmen and political elites to sustain their activities through illicit sales and predatory practices. Their operations are closely linked to the spread of violence and are a spur for further conflict.

Second, it perpetuates negative incentives for those who profit from the state’s dysfunction. Only effective governance, supported by a durable political settlement, can tackle the foundations of Libya’s war economy.

Finally, the political contestation and resource predation practised by those engaged in the war economy are having a disastrous impact on Libya’s formal economy by undermining what remains of its institutions. As the war economy persists, the prospects for the restoration of functioning central governance in Libya becomes more distant, threatening to create a vicious cycle that accelerates further state collapse.

5. The Libyan state must present credible alternative livelihood opportunities to those engaged in, or benefiting from, the war economy.

State authorities should utilize what power they have to name and shame war economy profiteers in order to weaken the local legitimacy critical to the survival of profiteers. Where this isn’t possible, measures to reduce the profit margins of their activities should be pursued. Most importantly, the state must present credible alternative livelihood opportunities to those engaged in, or benefiting from, the war economy.

6.The international community should do more to support Libyan state efforts in countering the developing war economy in the country.

Cooperation over the targeting of the overseas assets of criminal groups, support for increased transparency over the dispensation of state funds and measures to reduce the viability of illicit activities can all help to strengthen the position of the state authorities.

This article is based on the findings of a new Chatham House research paper ‘Libya’s War Economy: Predation, Profiteering and State Weakness’ by Tim Eaton.