Custom «The Economy of Libya» Essay Paper

Did you know that more than 50% of the Libyan economy depends upon its petroleum sector? Many countries differ in their economic aspects due to diverse categories of factors of production, conditions that determine these factors, such as climate and availability of resources, and their capacities of productivity. The economy of a country encompasses the wealth status of a nation, its level of production and consumption of goods and services, and the management of its resources. Studying the economy of a country is thus essential in understanding its financial position, particularly the ability to utilize its resources efficiently, sustain the lives of its citizens, and plan expenditure on various developmental projects geared towards improvement of people’s standard of living. Therefore, evaluation of Libya’s economy is imperative for comprehending its economic status and financial strength in such dimensions as resource management and productivity that foster its trading activities across national boundaries.

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The Libyan Currency

The currency used in Libya is the Libyan Dinar (LYD). Further subdivisions of the Dinar culminate into 1000 dirham coins. Dirhams are issued in denominations of a quarter, a half, 50 and 100 dirham coins (Lobban & Dalton, 2014). Additionally, some notes have different denominations of value, including 1, 5, 10, 20, and 50 Dinars. Compared to the US Dollar, one USD equals 1.37 LYD (Etelawi, Blatner, & McCluskey, 2017). This number, therefore, corresponds to the exchange rate of the Dinar to the US Dollar.

The Libyan Population

Libya has small population compared to its area. According to the UN statistical data, about 6.4 million people live in Libya (United Nations Statistics Division, 2017).The majority of the population is located in the urban centers such as the metropolitan cities of Tripoli and Benghazi. According to the United Nations Statistics Division (2017), the average age of the population is 27.6 years. This implies that a half of the people are older than this age, while the other half are younger. Additionally, the number of males and females is equal.

The Principal Natural Resources of Libya

There are three main natural resources found in Libya, which include petroleum, gypsum, and natural gas. The country has invested widely in infrastructure, particularly in extraction of these resources from the reservoirs and processing them into other forms for national use and exportation. However, petroleum is the leading resource that plays a significant role in the nation’s economy and has facilitated its gradual growth. Natural gas also contributes to the energy sector of Libya by generating substantial revenues through foreign exchange (Lobban & Dalton, 2014). These natural resources are thus critical for sustaining the Libyan economy.

Features of the Libyan Economy

The economy of Libya has grown remarkably owing to the discovery of oilfields in the last century. Etelawi et al. (2017) maintain that Libya has the largest petroleum reservoirs in the continent and therefore is the top producer of oil in the region. For this reason, oil constitutes the country’s primary exports. The export of Libya’s natural resources, particularly refined petroleum products, natural gas, and crude oil, earns it foreign exchange, thus driving the economy. In addition, the agricultural sector also contributes to the country’s economy (Allan, McLachlan, & Penrose, 2015). Due to adverse climatic conditions in Libya and its poor soils, cultivation of crops is a challenge to the country. Although some irrigation activities from the Great Manmade River are carried out, the majority of food consumed by the population such as wheat and milk is imported. Apart from food products, Libya also imports transport tools and machines.

Libya’s GDP and GNP

The Gross Domestic Product (GDP) of a country measures the status of its economy by evaluating the monetary market value of its products in a specific period. The Gross National Product (GNP) estimates the value of the production of a nation in a given time by the labor resources of the citizens of the country (International Monetary Fund, 2012). These values are significant in determining a country’s productivity and thus its economic capacities and performance. According to the World Bank, Libya’s GNP was estimated to be $69.43 billion Purchasing Power Parity (PPP) in 2011 (International Monetary Fund, 2012). However, this value is expected to rise gradually with time due to the trends in economic performance. Thus, by 2017, Libya’s GDP increased to about $70.50 billion, and its per capita GDP is $17,000 according to the World Bank estimates (United Nations Statistics Division, 2017). Considering that these values have become increasingly progressive over the past years, Libya has a steady economic performance regarding its population density.

Unemployment Rate and Foreign Debt

The unemployment rate in a country is significant indicator reflecting the strength and growth of the economy regarding its labor force. Foreign debts represent both short and long-term liabilities on the economy of a nation. Thus, according to the United Nations Statistics Division (2017), the current unemployment rate in Libya is about 20.7 percent, which is about one fifth of its population. This high figure indicates that many people depend on the working population. Moreover, the United Nations Statistics Division (2017) reveals that Libya’s foreign debt amounts to approximately $3.5 billion as per 2017. This debt is attributed to corrupt government officials, especially during Colonel Muammar Qadhafi’s regime.

Libya’s Current Economic State

The country’s GDP, GNP, unemployment rate, and foreign debt are significant indicators for establishing Libya’s economic state. Based on the current status of these parameters, the country has a weak economy. Thus, the GDP and GNP figures are low, whereas unemployment rate and foreign debt are high. Libya’s economical condition has been in recession over the last years, which can be attributed to the recent cases of political instability in the country. As a result, poor security conditions, corruption, and attacks on the oilfields by militant groups have negatively affected the economy of Libya (Ali & Harvie, 2013). However, the international community is taking efforts aimed at restoring political stability in the country through negotiations and other means.

Libya’s Trading Partners

Considering that Libya exports some goods and imports others, it enters into partnership with various countries to facilitate trading activities. For example, its primary export partners are Italy and Germany (Allan et al., 2015). These nations cooperate with Libya to earn it foreign exchange through exportation of its resources. Other countries that partner Libya for its exports include China, France, and Spain (Allan et al., 2015). On the other hand, Libya imports goods from nations such as China, France, Turkey, and Italy (Allan et al., 2015). These countries are responsible for supplying Libya with machinery and food products such as wheat, milk, and white sugar.

Membership in Regional African Trading Blocs

There are various trade blocs in the African continent. A trade bloc reduces any form of trade barriers existing between different countries, thereby providing favorable conditions to promote efficient trading activities among the participating parties. According to Lobban and Dalton (2014), Libya is the member of OPEC. The Organization of Petroleum Exporting Countries (OPEC) includes countries which produce and export petroleum products. The organization influences the global petroleum market by determining oil prices and setting them high to maintain shares of the participant countries, which have the largest oilfield reservoirs in the world (Lobban & Dalton, 2014). Additionally, OPEC manages oil supply to foster a steady income and substantial revenue for investors. Thus, Libya benefits from its membership in this organization through trading oil.

Libya also belongs to the Arab Maghreb Union (AMU). AMU is a trade union of Arab countries of the Maghreb region in Africa (Allan et al., 2015). Apart from safeguarding member assets, its objective is to foster economic growth and political collaboration among member countries. Libya, therefore, benefits from the AMU trade bloc through trade agreements. However, the union has recently become dormant as a result of political disagreement among some of its members such as Morocco and Algeria.

Libya is also a participant in COMESA. The Common Market for Eastern and Southern Africa (COMESA) agreement involves countries within the central and southern regions and some northern countries of Africa. As a member of the bloc, Libya enjoys a large market for its export products and gains imports of a variety of goods from the member countries of COMESA.

Libya’s Economic Relationship with the United States

The United States has partnered extensively with Libya, especially in investments in the oil sector. Since petroleum is the major resource in the country, efforts of many US companies in extracting the resource has aided Libya with infrastructural and technological support in its oilfields (Etelawi et al., 2017). Apart from the oil sector, the US has also participated in bilateral trading activities with Libya. Particularly, the two countries engage in trade-in services, thus boosting the Libyan economy. Moreover, the US has endeavored to support trading activities in the COMESA union by signing trade and investment frameworks. Since Libya is a member country of this agreement, it is bound to benefit from the American support in this area.

Conclusion

The economy of Libya largely depends on its natural resources. The analysis of its economic status has revealed major facts about the country. For instance, the Dinar is the currency used in Libya, which is exchanged at a rate of about 0.73 to the US Dollar. The Libyan population is small compared to its land area, and most of the population is concentrated in cities. The main natural resources in Libya include natural gas, gypsum, and oil, which earn the nation foreign exchange. Since the development of agriculture is insignificant in the country due to unfavorable climatic and soil conditions, Libya imports most of the products consumed by its population including wheat, sugar, and milk. Libya’s GDP and GNP reveal its economic health. High unemployment rate and foreign debts imply that the country has a weak economy, which was fostered by political instability. Libya trades with such countries as China, Germany, and Syria and is a member of various trade blocs including OPEC, COMESA, and AMU, which offer favorable market conditions. Additionally, Libya’s economic relationship with the US has benefited it through infrastructural support.