With the Libyan civil war still fresh in most people’s minds, not the least of which being the Libyan people, the country remains “off the radar” of most frontier market investors.
And for good reason… perhaps.
Libya is not a place to tread lightly, and it’s frankly not a place Chris or I know very well. So, when Kevin Virgil, a partner at Columbus Street Ventures and an expert on Libya, rang us up and wanted to talk about the country, we listened.
Leave it to your crazy editors at CapitalistExploits to find a guy who seems unphased by the challenges and excited about the opportunities… revolution be damned. While most people were still watching the end days of the conflict on CNN, Kevin was on a plane headed for the region.
A Bit of Recent History
To refresh your memory, you’ll recall that Libya was catapulted into violence in mid-February 2011. Protests escalated into a rebellion after Gaddafi’s security forces fired into a crowd. A civil war was shortly therafter underway, with fierce fighting between rebels and Gaddafi’s forces.
Under Gaddafi Libya was, at least in theory, a democracy. The country ran according to the philosophy of Gaddafi’s “The Green Book”. His position was “ceremonial”, with the country officially run by a system of local government. An indirectly elected General People’s Congress acted as the legislature, and the Secretary-General-led General People’s Committee was the de-facto executive branch. In reality these were puppet installs that simply catered to Gaddafi’s whims.
The civil war looked to put an end to this “regime”, and almost instantly the forces opposing Gaddafi established an interim governing body, the National Transitional Council (NTC). According to spokesmen, the NTC was formed to act as the political face of the revolution. It declared itself to be the “only legitimate body representing the people of Libya and the Libyan state.” It remains intact as of today.
To help the rebels, the international community jumped into the fray and froze Gaddafi’s assets and restricted his movement outside the country. The US and its allies, despite turning a blind-eye to Gaddafi for most of his time in power, publicly criticized him and warned him not to harm civilians.
Despite those warnings bloodshed ensued. In early March Gaddafi’s forces regained control of several coastal cities and eventually rolled into Benghazi. However, the rebels, seemingly undaunted, made some progress by August with a coastal offensive. They shortly thereafter took the capital city of Tripoli.
By mid-September 2011, the UN recognized the NTC as Libya’s legal representative, effectively replacing Gaddafi’s government.
While trying to make his escape from Sirte, Gaddafi was captured and killed. The NTC declared that the country had been liberated. The war officially ended 3 days later on October 23, 2011.
Gaddafi had been Libya’s “ruler” since 1969. Anyone under the age of 43 cannot even remember a Libya without him.
When he was ousted and killed old tribal feuds re-surfaced. His rule had kept much of this at bay. However, with easy access to weapons, and a surplus of young men with no fear of using them, the situation remains very volatile, and sporadic fighting continues.
Just this past Tuesday, rival militias fought southwest of the Libyan capital, resulting in several deaths. Nevertheless, the NTC presses on.
They issued a Constitutional Declaration in August 2011 to transition the country to a constitutional democracy with an elected government, and they are struggling to see that through. The NTC and its backers in the international community are hoping that the upcoming July 7th election to choose a national assembly will go off as planned.
If they are successful Libya could flourish. Gutsy guys like Kevin will make fortunes.
When we talked via phone the other day I asked him if we could print the conversation for your benefit. He kindly obliged. Enjoy!
Mark: Kevin, readers are always asking us about our backgrounds and how we came to be involved in frontier markets. How did it happen for you?
Kevin: I have a rather unique background, with many diverse experiences that all contribute toward my current pursuits in frontier markets exploration. I attended West Point and was an Army officer for several years – I served with the 82nd Airborne Division and the Ranger Regiment. I have also served with the US State Department, which afforded me the opportunity to live and work in Russia, Western Europe and Central Africa. More recently, I have been an investment banker in New York and an emerging markets equities trader in London. These experiences, coupled with my passion for travel to developing countries, have all played a part in my current activities – namely, to find and participate in some of the most exciting investment opportunities available today.
Mark: Well, we’d agree that the frontier is where the excitement and the opportunities are the greatest. But Libya? Sure, the country is in a shambles, which to us screams opportunity, however it’s a pretty unstable neighborhood these days. What’s your interest in the place?
Kevin: My interest in Libya began during the 2011 uprising. I currently live near Washington DC, and had attended an event on Capitol Hill where members of the Libyan NTC were lobbying the US government for official recognition and military/economic assistance. I found the macroeconomic story to be compelling and decided to visit as soon as the situation permitted.
My chance came in late October when Qaddafi’s death was confirmed. I immediately bought a ticket to Tunisia, since the NATO no-fly zone was in effect. With the government in utter chaos, it was difficult to obtain a visa but some well-placed contacts on the inside were able to help me enter. The drive into Tripoli was quite an adventure; we drove at night and passed through over 30 roadblocks before finally entering the city.
Once I had arrived, I found the overall mood to be euphoric – people hugged me in the street (and yes, there was a lot of celebratory gunfire). Most Libyans have never known life outside of Qaddafi’s ‘great socialist paradise'; his regime had oppressed these people for 42 years.
Mark: Well it certainly seems, at least to an outside observer, that there’s no direction but up from here. To state the obvious, geopolitically it’s a hornets nest. How do you assess not only the investment risk, but also the geopolitical risk at this point?
Kevin: First let’s look at the basics. Libya’s resource wealth, especially on a per-capita basis, is significant. Pre-war oil production levels were at 1.6 million bpd, and current production has nearly returned to that level after less than eight months. Our belief is that, if managed properly, production can return to the 1970s-era levels of three million bpd or more.
Of course – as you and Chris often point out – resource wealth alone does not support a case for investment. The ‘resource curse’ has plagued other frontier markets for decades. We believe that Libya is in a better position to manage its resources and post-war growth, for the following reasons:
There are two long-term geopolitical trends in which we have strong conviction. The first is the relative increase in FDI and GDP growth that we expect to see within the Maghreb as most of these countries emerge from decades of authoritarian rule.
We are now witnessing the beginning stages of an important evolutionary step in this region’s development. After World War II, Africa and much of the Middle East broke free from the oppressive colonialist regimes under which they had been exploited. The late and unlamented regimes of Qaddafi, Ben Ali and their ilk were created from that struggle before they became authoritarian and kleptocratic governments in their own right.
Forty years on, the so-called ‘Arab Spring’ is the beginning of another move toward self-determination. This evolution will not be linear, and it may not always be pretty, but the trend is unmistakable. Libyans have strong entrepreneurial instincts and I have met many business owners who are well-positioned to create exciting new opportunities once the rule of law is re-established.
The second, and in our opinion more important, trend is the explosive growth we expect to see on the African continent over the next 10-20 years and how the southern Mediterranean countries (and Libya in particular) will benefit. In relative terms, the growth in the ECOWAS bloc has been amazing and will continue to outpace global economic growth rates. No one will accuse Nigeria of being a bastion of corporate governance, but it is still on track to surpass South Africa as the continent’s largest economy in the current decade. We are also beginning to see the development of a middle class in many East African countries.
These factors all point to increases in regional trade and output, and Libya’s position between Europe and Sub-Saharan Africa affords it the opportunity to position itself as a shipping, trade and transport hub. Tripoli, Misurata, and Benghazi all offer excellent locations for both sea and air freight shipping facilities. The climate is amazing, and the country has a pristine and undeveloped coastline over 1,700km in length.
In summary, Libya’s political uncertainty remains high; however its underlying macroeconomic and geopolitical position make a compelling argument for continued involvement.
We’ll pick it up tomorrow again and find out exactly where Kevin’s looking to make his (next) fortune.
“Man’s freedom is lacking if somebody else controls what he needs, for need may result in man’s enslavement of man.” – The Green Book (1975)