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SME Development Strategy Project for Libya: Consultative meeting for the diagnostic study

- Meeting Summary –

25-26 September 2014

OECD Conference Centre

Paris, France

Context

The SME Development Strategy in Libya is a project funded by the Deauville Partnership

MENA Transition Fund with the OECD as implementing organisation. It seeks to enhance

entrepreneurship and SME development by strengthening the overall legal and institutional

framework. As economic diversification is key to providing employment and income opportunities,

the Government of Libya needs to establish an SME development strategy to promote enterprise

creation. To this end, this 3-year project aims to assist the Government of Libya in building an

evidence base for developing the strategy, and assistance in the process and implementation.

Specifically, the project will focus on 5 components: 1) Component 1 will be a diagnostic study

providing an in-depth look at the SME environment in Libya and identifying issues that an SME

strategy should address; 2) Component 2 will support the design process of the SME development

strategy; 3) Component 3 will support the implementation of the strategy, by analysing the legal

framework for enterprise development, proposing amendments and, if appropriate, a separate SME

law; 4) Component 4 will provide targeted implementation assistance, 5) Component 5 will support

the process of improving access to finance for SMEs and start-ups.

A Project Steering Committee consisting of a broad set of stakeholders on SME development in Libya

was set up to guide the overall process of the strategy, as well as a donor co-ordination group that

shares information and coordinates their activities of supporting Libya on private sector development

issues.

In addition, through regular consultations, activities of the project have so far concentrated on

component 1, the diagnostic study, as well as component 4, assistance in implementation. For

component 1, a workshop was organised in Tunis in December 2013 and a Libya chapter was

produced in the report: OECD/The European Commission/ETF (2014), SME Policy Index: The

Mediterranean Middle East and North Africa 2014: Implementation of the Small Business Act for

Europe, OECD Publishing. For component 4, several government officials have participated in

private sector related OECD working group meetings such as the MENA-OECD working group on

SME policy, entrepreneurship and human capital development and have been trained in workshops

organised by the OECD on competitiveness, and SME development.

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Meeting objectives

In collaboration with Libya Enterprise, the OECD organised a fact-finding consultative meeting to

provide inputs and discuss preliminary research for the diagnostic study. About 30 policy makers,

experts, representatives from multilateral organisations and other stakeholders took part in the

meeting, including more than 15 participants from Libya. The objective was to establish an evidence

base for SME development policy making by identifying major characteristics and constraints of the

SME sector in Libya as well as identify gaps in the support for SMEs.

Meeting outcomes

The most salient findings from the consultative meeting for the diagnostic study with implications for

the design of a SME strategy were:

i) Among the high level goals to be considered for the SME strategy are: employment creation (and

social inclusion), productivity improvements, economic (sector) diversification and growth of the

private sector. These should be related to the government’s 2030 Vision and national development

plan

ii) The strategy will also need to set objectives for growing the base of entrepreneurs and new

business creation (including for stronger start-ups), and well as for improving the competitiveness of

existing SMEs and encouraging growth-potential and innovative firms

iii) The lack of official SME data needs to be addressed in the strategy, including actions to

improve the capacity of the national statistical agency to collect and report official data on the SME

sector. An official definition for MSMEs will have to be agreed to by the Libyan government,

including the criteria to be applied.

iv) The strategy will need to address the institutional structure for leading the implementation of

SME policy. Several ministries are implicated in the process, however, there needs to be a lead

ministry/agency and a cross-ministerial cooperative/collaborative structure put in place if

implementation of an integrated policy/strategy is to be achieved. There may also be implications for

building the advocacy capacity of business associations.

v) Emerging pillars of a strategy based on the gaps identified are: 1) Building an entrepreneurship

culture, promoting and supporting start-ups 2) Creating a more favourable legal and regulatory

framework/business environment for private enterprise and SME development 3) Improving access to

financing for SMEs 4) Provision of quality business development support (BDS) services 5)

Improving access to markets 6) Demand-driven human capital development.

vi) Sector diversification (targeting of key sectors for development) could be a cross-cutting element

of the strategy and linked to skills needs and regulatory issues. The five sectors to be considered for

development of potential sector roadmaps are: 1) ICTs; 2) energy (renewables, solar); 3) construction

materials; 4) tourism/transit/logistics; and 5) agri-business, including fisheries opportunities.

Next steps

i) The establishment of a working group comprising major stakeholders on SME development from

the public and private sectors, and academia. This working group will aim to advance the diagnostic

study by providing information, contacts and reviews, and in the mid-term may serve as the nucleus

guiding platform for the SME strategy.

ii) The findings of the diagnostic study may be presented in the next OECD-MENA Steering

Committee meeting in the first quarter of 2015.

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iii) Regarding building statistical capacity, the MENA-OECD Investment Initiative will work

closely with the OECD Paris 21 Secretariat which had initiated work on development of the 2015-

2019 Libya National Strategy for the Development of Statistics (NSDS).

iv) The Libyan Businessmen Council offered its willingness to host a related workshop in the future.

v) Work for 2015 on the project will aim especially in crafting a draft SME strategy.

Participants of the Consultative meeting for the Libya diagnostic study

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Annex: Detailed summary of the consultative meeting

Opening remarks

Ms Nicola Ehlermann-Cache, Head of the MENA-OECD Investment Programme, Mr Abdelnasr

Abouzkeh, General Director of Libya Enterprise, and Mr Florian Theus, Project leader, MENA-

OECD Investment Programme, welcomed the participants to the meeting.

Ms Nicola Ehlermann-Cache highlighted the importance of private sector-led growth to foster job

creation, as Libya is confronted with high unemployment rates, particularly among the youth. She

recalled the collaboration between the MENA-OECD Investment Programme and Libya over the past

few years, in particular through the OECD SME Working Group. She also noted that the work

resulting from this project will be brought to the attention of the MENA-OECD Steering Group, the

governing body of the MENA-OECD Initiative on Governance and Investment for Development,

which is planning to meet in early 2015.1

Dr Abdelnasr Abouzkeh mentioned that a particular focus on SMEs was launched seven years ago in

Libya. While Libya is fortunate to have wealth from oil revenues, the imperative for economic

diversification remains more than ever a necessity. To achieve this, SMEs must contribute more to

GDP, considering that they represent more than 96% of total firms in Libya. Today, several obstacles

to SME development have been identified, mostly related to regulations and access to finance from

commercial banks. This is partly due to the legacy of an economy that is heavily based on the public

sector and on public financing. He also noted that until now, statistics on SMEs are scarce and

sometimes not accurate. Dr Abouzkeh mentioned that Libya Enterprise is trying to activate SME

programmes and stressed that the SME development strategy will give a clear roadmap to SME

activities in the future.

Mr Florian Theus thanked Libya Enterprise and all the participants for their co-operation and

attendance. He explained the rationale of a SME strategy in order to have a coordinated and

comprehensive approach to support SMEs in Libya. He updated the participants on the project as well

as the next steps and emphasised that the objective of the project is to assist and support both in the

design and the implementation of the SME development strategy.

1 The last Steering Group meeting of the MENA-OECD Investment Programme took place on 3 December 2013

in Rabat, Morocco.

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Session 1: The private sector and the SME landscape in Libya

Objectives

Inclusive and sustainable economic growth hinges on the performance and development of the private

sector. This session aimed to discuss the dynamics and characteristics of the private and SME sector

in Libya in order to establish an evidence base for policy-making.

Discussion outcomes

On the size and structure of the SME sector, including the informal sector, participants noted:

The definition of SMEs in Libya, which relies on the size of capital, is outdated and its

interpretation varies from ministry to ministry. There is a proposal to add the number of

employees to the definition.

The lack of data and statistics on the private sector and the SME sector is due to grey

markets, the absence of licences and official registration, and informality. Surveys on SMEs

are resource/time consuming and do not provide detailed information. Building capacity in

the chambers of commerce could be a short-term solution.

SMEs in Libya operate mostly in retail and trade and less in services and industry.

There is no clear definition of the distinction between the informal and formal sectors. For

instance, there is no clear indication if unregistered companies fall under the informal sector.

There are no clear incentives to encourage companies to shift to the formal sector.

The size of the grey market (i.e. the trade of a commodity through distribution channels

which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer)

is a major problem both in urban and rural areas, chiefly due to weak regulatory control,

further aggravated by the current security situation.

On SME performance, participants noted that:

The historical context of SME support is characterised by outdated laws, corruption and

lack of regulations, lack of information and inappropriate financial mechanisms to fund

productive projects.

The level of enterprise creation is very low in Libya. Most companies were formed before

2010, 41% had loans, 66% employed full-time staff, 15% had no staff, and 20% had seasonal

temporary staff.

Human resources are big constraints for SMEs. Finding qualified technical staff is difficult

and salary expectations are too high because salaries and benefits in the public sector are

much higher than in the private sector.

Cheap illegal labour creates grey markets. This reduces employment opportunities and

salaries for Libyans.

The national labour supply is low and under-qualified in Libya. The Government needs to

put in place programme and policies to prepare and train graduates to the labour market and

provide incentives to encourage them to work in the private sector to reduce the burden on the

public sector.

The SME sector suffers from low productivity due to the high cost of non-tradable goods

and high labour costs. The manufacturing sector is not competitive, although the food-

processing sector is more competitive than in other countries. Tripoli firms are more

competitive than in other Libyan cities. Innovation is linked to better performance (triggered

by competition and foreign direct investment); thus, innovation needs to be addressed in

the SME development strategy.

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On the state of entrepreneurship in Libya, participants noted that:

Entrepreneurship culture should be developed in Libya by reinforcing business incubation

in universities and integration entrepreneurial learning in national curricula.

Furthermore, training and support for entrepreneurs need to be significantly expanded in

scope and quality.

Libya has increased its focus on universities: Libya Enterprise has business incubators in the

universities – designed to create high value added projects. Projects must be innovative and

able to stay in the incubator for up to 25 months. Projects are teamed with experts during the

incubation period and provided with other advisory support. There are currently 19 projects in

the incubators.

The Libya Businessmen’s Council organises a competition for start-ups every year to

promote new ideas and projects. Winners are encouraged to pitch their projects to a limited

number of private sector investors.

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Session 2: Framework conditions for SME development in Libya

Objective

Conducive business environment and framework conditions are pivotal for a thriving private

sector. They usually affect SMEs more than bigger companies. This session aimed to assess

major framework conditions for SME development in Libya and identify strengths and the

most important constraints.

Discussion outcomes

On the macroeconomic conditions, participants noted that:

The historical development of the Libyan economy has major consequences on the

current economic structure. Arguably, since 2011 corruption has escalated, monopolies

have increased (now dominating the commercial system), and the banking system is very

reluctant to lend to SMEs. Notably, recent events have led to an increase in the size of

the public sector.

Economic diversification is a priority. Ways to diversify out of oil are currently

being assessed, and the 2030 Vision for Libya Committee is taking the lead in this

endeavour.

On Labour skills and education, participants noted that:

Education, at the primary and secondary levels, is provided for all. Higher education

has also expanded: 12 universities are spread across the country. However, the

education system remains traditional and produces mixed results.

Concerning the role of vocational education and training:

o The Ministry of Labour organises training for civil servants and jobseekers.

o Libya Enterprise delivers training for entrepreneurs.

o The training delivered is theoretical rather than technical, and does not meet

the needs of the private sector. Indeed, trainings organized by the Ministry of

Labour chiefly target future public servants. The impact of the trainings has

not been measured yet.

Skills provision by the educational system is rather supply driven and according to

private sector, does not correspond to the needs demanded by the private sector. Co-

operation between Ministry of Education and Ministry of Labour as well as business

representatives could help address this issue.

The culture of Libyan jobseekers is challenging: jobseekers have high expectations

regarding job opportunities. The private sector is unable to meet the expectations of

the Libyan population in terms of wages and social security. Therefore, enterprises

resort to foreign workers, who are willing to accept lower wages, which distorts even

more the labour market.

On the innovation system, participants noted that:

There is no fully developed innovation system in Libya. However, major

stakeholders engage, even if on a low scale, in innovation such as universities,

vocational centres, and private sector representatives.

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Increased communication, collaboration and coordination between all these

entities would make a difference to foster innovation in Libya. Linkages between

universities and the private sector in particular need to be fostered.

A proposal was made to organise an Innovation Week to solicit students' ideas and to

raise awareness of the importance of innovation.

On the ease of doing business, participants noted that:

The Privatisation and Investment Board has a primary role to encourage

investment projects, both in urban and rural areas, with diversification as the ultimate

objective.

Foreign investors benefit from exemptions. Foreign investors are exempt from taxes

on services and equipment, and have no customs or duties to pay for five years.

Moreover, entrepreneurs need a Libyan partner to start a business in Libya. By

contrast, under Law No. 6(2010), foreign investors do not need a Libyan partner. FDI

projects in Libya can be 100% foreign-owned.

The Privatisation and Investment Board collaborates with both government and

private sector institutions. The Privatisation and Investment Board is willing to

collaborate with Libya Enterprise to contribute to SME development.

On the Legal and regulatory framework for SMEs in Libya, participants noted that:

Regarding the existing legal and regulatory framework in Libya:

o The 2010 Business Law is still in place.

o The Trade Law was recently reviewed. A commission sent a draft to the

Parliament, but the law has not been adopted yet.

o There is no competition law. The public sector is the dominant sector, and

has prevented SMEs from growing. However, the former Trade Law involved

the creation of a Higher Council for Competition and there will be a chapter

on competition in the upcoming Trade Law. The Higher Council for

Competition is not in operation as its members have not been nominated yet.

o There is no fiscal rule.

o As of today, there is no SME legislation is Libya. Libya Enterprise

contemplates to develop an SME Law, which can be done in the short to mid-

term if political support is guaranteed.

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Session 3: SME Policies in Libya

Objectives

This session aimed to deepen the understanding of the preliminary findings of the SME

Policy Index as a tool to assess enterprise development in Libya. In particular, the session

focused on identifying policy gaps in the following areas: 1) the strategic and institutional

framework for SME development in Libya; and 2) the support structure (programmes and

policies) for start-ups and SMEs.

Discussion outcomes

On the strategic and institutional framework for SME development, participants noted

that:

There is a vision to shift from an oil-driven economy with a big public sector and

small private sector to a human capital driven-economy, a vibrant private sector

with balance of large enterprises and SMEs, including FDI, the gradual reduction of

the public sector, and the creation of a Sovereign Fund.

SME development is under the authority of the Ministry of Economy, particularly

under two bodies, Libya Enterprise and the SME policy unit that was recently

established under the Ministry of Economy. It is mainly responsible of supervising the

5 regional funds.

There is a need for co-ordination at the policy level between all the institutions

involved in enterprise development in Libya such as the Ministry of Economy,

Industry, Labour, the 2030 Vision Committee, the Central Bank, and the Veterans'

Association.

The creation of an inter-ministerial body that was proposed by the Ministry of

Economy to the Ministers' Council would be important. It would report to the Prime

Minister, bring together all activities, strategies, funds, institutions that support SMEs

in all sectors, supervise the regional funds and the technical assistance, and put in

place an SME strategy.

There is a need to develop an inventory/mapping of all SME support

programmes/initiatives that includes all activities, including those of Libya Enterprise,

other ministries, the Central Bank, financial institutions, and international donors, as

input to the process of developing the SME strategy.

On access to finance for SMEs, participants noted that:

There is a need for a new code to regulate banking institutions. The banking sector

is characterised by: a high level of concentration in the banking sector; limited

competition; high liquidity in banks, but limited use of financial products; a lack of

credit information is major barrier for bank financing. There is a lack of trust between

banks and SMEs. Existing SMEs (mostly larger enterprises) receive some financing,

but start-ups are neglected. Lack of collateral is a major barrier to SME lending and

borrowing.

The five newly-founded regional funds would play a major role in financing SMEs

in Libya. The funds would provide a single inter-linked comprehensive support

process to SMEs that includes project owners, technical assistance organisations, and

banks and other funds, and would provide assistance from the feasibility study to the

funding.

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The credit worthiness of SMEs is a main problem in the banking sector. The lack of

capacity of banks to assess the credit worthiness of SMEs and lack of information on

project owners' debt history are significant barriers for entrepreneurs to access

finance.

There is the need for a redefinition of Central Bank's role as a regulator to comply

with the new Islamic Banking law. As of 2015, all commercial banks will be

required to shift their activities to be compliant with Shari'a Law.

On the establishment of support and business development services, participants noted

that:

There is a need for reinforced co-ordination between business development

service (BDS) providers such as Libya Enterprise and financial institutions which support SME projects. In most cases, project owners may get the technical

assistance they need but may not receive the funds because of a lack of co-ordination

and communication between the BDS organisation and banks.

The infrastructure of business development service organisations is

underdeveloped and poorly coordinated. BDS support is not sufficient to meet the

demand of latent/potential/existing entrepreneurs. Specificities such as the sector

where SMEs operate, size, gender, are not systematically taken into account.

SMEs are largely unaware of business centres and services and often not convinced of

the quality of the support.

On enterprise skills and entrepreneurial learning and innovation services, participants

noted that:

Entrepreneurial learning should be integrated into national curricula from primary

school to post-graduate levels.

The private sector should be consulted on SMEs’ needs when training programmes

are developed.

Libya Enterprise has developed four university-based incubators, but a sufficient

budget is lacking, and most programmes are either delayed or only partially

implemented. Notably, one of the incubators operates in the Misrata area. The

objective is to have incubators in all the universities, however, the main current

concern is to make the existing four incubators function well.

The Technical Education Authority gives an Innovation Award every year, but it is

just for the innovation, not for its commercialisation or implementation. Libya

Enterprise also offers prizes to university students for innovative projects and some of

the competition winners are able to start their projects.

The Ministry of Higher Education has a budget for high potential projects:

entrepreneurs can submit their project proposal and obtain a grant with considerable

freedom as to how the grant money is spent.

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Session 4: Sector competitiveness

This session aimed at continuing the work on sector competitiveness, initiated by in-country

consultations in 2013 and OECD desk-research. The session deepened the common

understanding of the structural economic impediments for the identification of a number of

pilot sectors. It consisted of a presentation by the OECD secretariat and Libyan experts,

followed by a discussion on priority sectors that appear promising for the diversification of

the Libyan economy.

On the general discussion outcomes, participants noted:

The importance of structural transformation of the Libyan economy as way of

converting the high levels of educational attainment into more productive and better

paid jobs. The private sector should be the driving force behind this transformation.

The importance of thinking about sectors’ competitiveness for regional markets, in

particular the Maghreb region. The strategic geographical location of Libya may call

for the development of more re-exporting activities, particularly that this may involve

more capital-intensive sectors with less need for specific skills. Other elements to take

into consideration are the potential for low-productivity sectors to witness higher

gains in a short period of time.

Export activity in the agricultural sector has been found especially in the olive oil and

date production industry, if one takes the number of companies that the Libyan

export promotion centre supports as an indicator. The centre faces challenges for

issuing standards such as ISO certifications, but also technical support and knowledge

of international regulations.

That education and human resource development should not be thought in

isolation of the private sector needs, particularly in the sectors where Libya may have

a strategic interest and potential advantage for growing. For that, more investment in

human capital and infrastructure is needed.

Discussion on the potential of sectors as promising and/or strategic:

The energy sector

According to a Korean study done on sector competitiveness in Libya, the energy

sector has the greatest potential to become a strategic sector for the Libyan economy.

The sub-sector of petrochemicals produces some products that appear as emerging

champions.

Renewable energy, both wind and solar, is also a growing sector for which demand is

expected to increase in the future.

Agro-food and agro-chemicals

Fisheries is a competitive sector in Libya, but it may not represent a strategic sector in

the longer-run as resources may be limited and the capacity to offer jobs in line with

the qualifications and the expectations of the Libyan nationals may be relatively

weak.

Food processing is very promising in Libya. However it may more relevant to focus

on a specific set of products as only 1% of land is arable land. The sub-sector also

needs reforms to develop and to be able to compete with foreign products.

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There is also potential in animal products factories, salt lakes and precious stones, and

minerals.

Construction material and equipment

Many construction materials currently imported could be replaced by Libyan products

because in most/some cases, the material is available in the country. The sector needs

to be privatised to be more competitive.

Cement refineries are promising. Cement factories are privatised by up to 70%.

Participants also mentioned the steel industry as having some potential to develop and

gain in competitiveness.

ICT sector

High demand and strong potential in the future as internet penetration is still

extremely low.

The ICT sector is not competitive and is largely dominated by the public sector. The

privatisation of ICT services would foster the development of the sector.

A number of steps are needed to integrate the private sector into this sector. There

telecom law is now drafted and is waiting for approval. Despite an information and

cyber security unit being set up, there is still no regulatory body.

Transport and logistics

Participants agreed that transit trade is very promising, due the strategic location of

Libya in the region. Transport hubs (Tripoli, Sabha) already exist and Misurata has a

transit zone but it is not yet very dynamic. There are also plans for this zone to

become an industrial zone, currently stopped as the land is owned by private

individuals. Finally, public transport has also an important development potential,

especially for creating jobs. Many planned projects (100 projects) were signed by the

government, as part of the development plan for 2008-2012, but no information is

available on whether they were undertaken or not.

Other sectors

Participants mentioned other sectors as potentially promising, such as repair and

maintenance (cars, housing, etc.), retail trade, health services, recycling, financial

services, and travel and tourism.

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Consultative meeting for the diagnostic study SME Development Strategy for Libya

List of Participants

25-26 September 2014

Conference centre, OECD Headquarters

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Participants List

SME development strategy for Libya

25/9/2014 - 26/9/2014

Libyan Government

Mr. Abdelnasr ABOUZKIEH Director General

Libya Enterprise

Mr. Issa TUWEGIAR Chairman

2030 Vision for Libya Committee

Mr. Esam GARBAA Director of Technical Cooperation

Ministry of Planning

Mr. Luai BEN SASI President

Libyan Investment Authority

Mr. Suliman GUIMAA Head of international co-operation

Ministry of Labour

Mr. Dia Eddin Sadek ABUHADRA Deputy Director

Reyada Tripoli SME Fund

Mr. Isam TOSHANI Strategic Partnership Manager

Libya Enterprise

Mr. Ahmed BELHAJ Financial Advisor

Libya Enterprise

Mr. Alhassan SHEBESH Advisor

Libya Enterprise

Libyan Non-governmental Organisations and Experts

Mr. Mohamed BALAH CEO

Alcatel-Lucent International Libya

Mr. Bashir Eltrabelsi Chairman

Libyan Businessmen Council

Mr. Abdallah Mahmud ELJAHIMI Entrepreneur

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Mr. Ahmed M. JALLALA Economic Expert

Mr. Abdallah SHAMIA Economist

University of Benghazi

Mr. Alhussein ELSEREITI Economist

University of Misrata

France

Mr. Alexandre CHATILLON-MOUNIER Project manager

ADETEF

Mr. Christian FORMAGNE Policy Advisor

ADETEF

Mr. Tahar BEN AMOR Expert

ADETEF

Mr. Michel CASALS President

La Chambre de Commerce Franco-Libyenne

Mr. Ahmad JALALEDDINE First Vice-President

La Chambre de Commerce Franco-Libyenne

Slovenia

Ms. Veronika BOSKOVIC POHAR Deputy Permanent Representative

Permanent Representation of Slovenia to the OECD

United Kingdom

Mr. Gavin JONES Founder

Upper Quartile

Mr. Ross WAIN Programme Manager

WYG International

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OECD

Ms. Nicola EHLERMANN -CACHE Head

MENA-OECD Investment Programme

MENA Division

Global Relations Secretariat

Mr. Florian THEUS Project Co-ordinator

MENA-OECD Investment Programme

MENA Division

Global Relations Secretariat

Mr. Fares AL HUSSAMI Junior Policy Analyst

MENA-OECD Investment Programme

MENA Division

Global Relations Secretariat

Mr. Rayann KOUDAIH Consultant

MENA-OECD Investment Programme

MENA Division

Global Relations Secretariat

Ms. Aliae SAYAH Consultant

MENA-OECD Investment Programme

MENA Division

Global Relations Secretariat

Project Consultant

Ms. Lois STEVENSON Independent Consultant, Canada