- Libya suffers from interlinked political, security and economic crises that are weakening state institutions, damaging its economy and facilitating the continued existence of non-state armed groups. As rival authorities continue to compete for power, the resulting fragmentation and dysfunction have provided a fertile environment for the development of a pervasive war economy dependent on violence.
- This war economy is dynamic and constantly in flux. Relative to earlier problems, 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 remain.
- Libya’s war economy is highly damaging for the future of the state for three reasons:
- 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 dispensation of violence, and are thus a spur for further conflict.
- Second, the war economy 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. But neither a return to functioning central governance nor the development of a security sector that is fit for purpose is in the interests of war economy profiteers, who are therefore motivated to act as powerful spoilers of reform.
- Third, the political contestation and resource predation practised by those engaged in the war economy are having a disastrous impact on Libya’s formal economy, undermining what remains of its institutions. As the war economy persists, therefore, the prospects for the restoration of functioning central governance become more distant. This threatens to create a vicious cycle that accelerates further state collapse.
- Due to the limited capacity for coercion available to any actor or entity connected with the state, a strategy of co-opting networks of war economy profiteers has almost exclusively prevailed. This has failed. Drawing on the lessons from these attempts, a more successful policy must pursue targeted measures to combat the enabling structures of Libya’s war economy where possible, and to co-opt war economy profiteers only where necessary.
- In this, state authorities can do more to utilize what power they have to name and shame war economy profiteers in order to weaken the local legitimacy critical to profiteers’ survival. The state must present credible alternative livelihood opportunities to those engaged in, or benefiting from, the war economy. Progress will depend in part on the creation of positive incentives to abandon such activity. Where profiteers cannot be incentivized to move towards more legitimate economic activities, greater and more effective efforts must be made to reduce the profit margins of illicit schemes.
- The international community can do more to support Libyan efforts in countering the war economy. Cooperation over the targeting of criminal groups’ overseas assets, 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 state authorities.