OECD Review of Foreign Direct Investment Statistics of Libya

Foreign direct investment (FDI) is one of the principal ways through which economies integrate into the global economy. FDI can lead to stable and long-lasting relationships between economies and serves as an important channel for exchanging capital, goods, services and technical know-how across borders. It can also be an important vehicle for local enterprise development. Internationally harmonised, timely, and reliable FDI statistics are an essential input to investment policymaking.

The goal of this review is to, first, assess the institutional setting for compiling FDI statistics in Libya, the data sources and estimation methods used, and their compatibility with the current international guidelines (IMF Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6) and OECD Benchmark Definition of Foreign Direct Investment, Fourth Edition (BD4). Second, the review offers recommendations to improve the compilation of FDI statistics in Libya.

To understand recent developments of FDI in Libya, data from the Libyan General Authority for Investment Promotion and Privatisation Affairs and mirror data from the OECD FDI Statistics Database were examined. The services sector, which includes petroleum services, attracts the largest amount of FDI in Libya, followed by manufacturing, and tourism. The inward position of OECD member countries in Libya was USD 1.5 billion in 2018, rising to USD 4.2 billion in 2022. The Netherlands was the largest investor from the OECD in Libya, followed by Germany. Comparing OECD FDI in Libya to other countries in North Africa – Algeria, Egypt, Libya, Morocco, and Tunisia – reveals that Egypt attracts the most investment in the region from the OECD, followed by Morocco and Algeria.

The Central Bank of Libya (CBL) has recently implemented an International Transactions Reporting System to capture cross-border transactions that is an excellent data source for compiling most balance of payments transactions. In addition, the CBL has established a relationship with the General Authority for Investment Promotion and Privatisation Affairs for them to provide information for the compilation of FDI statistics.

Building on this foundation, the review makes five principal recommendations based on the assessment to improve the compilation of FDI statistics in Libya.

• Recommendation #1: Formalise data sharing between agencies for the compilation of FDI statistics (high priority)

  A strong institutional setting is fundamental to the compilation of FDI statistics. Data-sharing arrangements between agencies should be formalised through a memorandum of understanding (MOU). The MOU should specify a lead agency responsible for the compilation and dissemination of FDI statistics—in this case the CBL; it should identify the other agencies that are responsible for providing data to the CBL; and, finally, it should indicate the specific data items that will be provided to the CBL, the timeline for the provision of data, and the format that the data will be provided in.

• Recommendation #2: Explore publishing inward FDI position statistics, including some detail by partner economy and by sector, using data from the General Authority for Investment Promotion and Privatisation (high priority)

  Inward direct investment positions can provide valuable information for formulating investment policies and investment attraction policies. In particular, detail on the major partner countries and on the sectors attracting foreign direct investment can help understand the role that foreign investment is playing in the economy. The General Authority for Investment Promotion and Privatisation Affairs provides data to the CBL that could be the basis for compiling inward position statistics; these data show the aggregate values of assets and liabilities of foreign investment in the country that include information on net equity, long-term and short-term liabilities, and other credit balances. It seems that they also have information on partner economies (that is, on the economy of the direct investor) and on the sector of main activity of the direct investment enterprise that could be used to provide some geographic and sectoral detail.

• Recommendation #3: Compile FDI data in the petroleum sector in line with the international standards (high priority)

  Given the very important role that FDI plays in natural resource exploration and extraction in Libya, it is important that their FDI statistics be compiled following the guidance offered in the international manuals on specific aspects of natural resource exploration and extraction, including the treatment of payments for the right to undertake investment, how to record exploration expenditures, and, finally, the recording of production sharing arrangements.

• Recommendation #4: Compile reinvestment of earnings/reinvested earnings (low priority)

  The ITRS system established by the CBL to capture banking transactions is an excellent data source for many FDI transactions, but the reinvestment of earnings by FDI enterprises will not be captured because they do not go through the banking system in Libya. Reinvested earnings of direct investment enterprises reflect earnings on equity accruing to direct investors less distributed earnings, proportionate to the percentage ownership of the equity owned by the direct investor(s). Reinvested earnings are imputed transactions, making it one of the most difficult components of FDI transactions to compile. This recommendation is given low priority given that data on the reinvestment of earnings are less important for policymaking and the high costs of compilation.

• Recommendation #5: Addressing the informal economy (low priority)

  The World Bank estimated that in 2020, 36.2% of output in Libya was generated by the informal economy. Informality poses difficulties for statistics compilation because the activities generally fall outside of normal data collection and are undertaken by individuals, households or very small-scale enterprises. While informality poses major difficulties for the measurement of key domestic macroeconomic indicators, such as Gross Domestic Product, it poses fewer difficulties for external sector statistics, and fewer still for foreign direct investment. Nevertheless, there are a couple of areas that may be relevant for FDI: 1) illicit financial flows to avoid and evade taxes and 2) real estate purchases abroad by individuals and households. While the CBL is encouraged to explore whether there appears to be significant informal economy transactions in FDI in their economy, this recommendation is given low priority given the generally limited role of informal transactions in FDI and the relatively high costs of trying to cover them.