Business Environment Analysis of Libya †Free Samples to Students

Question: Discuss about the Business Environment Analysis of Libya. Answer: Introduction: Libya represents one of the largest countries of North Africa that boasts of large oil and gas reserves along with a strong consumer market (Tordo and Anouti 2013). The market of Libya is both rewarding and challenging due to its good planning. This allows the companies in availing business opportunities belonging to the sectors ranging from oil and gas reserves to the telecommunications, agriculture and tourism. The economy of Libya primarily depends on the oil reserves that contribute to around 95 percent of the earnings (Allan 2014). Moreover, the recent hike in the oil prices has helped the company in accumulating foreign exchange reserve of around 50 billion US dollars. The country however hugely suffers due to a higher unemployment rate. The country however focuses on increasing its foreign investment that will enable it to spread its arms in the other sectors that includes agriculture, mining, fishing, natural gas and the tourism sectors. The construction and manufacturing sec tors accounts for around one fifth of the GDP of the country with expansion in the processing of steel, aluminum, petroleum and iron. Libya is one of the exporters of oil with its domestic consumption of around 270,000 barrel on a daily basis (Munir Ahmad and Elhuni 2014). Around 85 percent of the crude goes to Europe while 13 percent is reserved for the east of Suez Canal in Asia. Close to around 32 percent of the Libyan Oil is reserved for Italy and 14 percent for the Germany. The portions of France and China receive around 10 percent whereas the United States accounts for about 5 percent (Elmahdi et al 2014). The state-owned National Oil Corporation (NOC) runs Libyas oil and petroleum industry (Hallett and Clark-Lowes 2017). It holds the responsibility of implementing, production and exploration agreements with the global oil companies. Together with the smaller subsidiary businesses, the NOC accounts for close to 50 percent of the oil output of the country(4). The country also has oil fields that are located around Sirte Basin and contains about 80 percent of the proven reserves of the country. Libya also has in total five domestic refineries with a combined capacity of around 378,000 barrels per day. The domestic refineries include Sarir Refining, Sirte Oil Co, Azzawiya Oil Refining, Ras Lanuf Oil Gas Processing Co and Tobruk Refining (McLachlan and Barker 2014). The major competitors of the oil and petroleum industry includes key international oil companies that operates in Libya like Eni, Occidental Petroleum, StatoilHydro, ConocoPhillips, OMV, Hess Corp, Shell, Marathon, BP, Wintershall and ExxonMobil (Griffin and Teece 2016). Political Environment in Libya: The oil and gas industry in Libya experiences threats due to various political factors that include: Political instability Geopolitical conflicts The government control accounted for close to 90 percent of the total oil reserves and around 75 percent of the global gas and oil production. The presence of innumerable number of oil reserves in the country can itself be a reason for increased corruption and civil wars. Such side effects are known across the world as resource curse. This acts as barriers for the foreign gas and oil companies for making investment in Libya. Presently, the oil and gas industry of Libya has become ineffective and fractured due to the persistent political hostility between the Tripoli based government backed by the United Nations and the eastern counterpart(Massey and Coluccello 2015). It is necessary for the country to overcome such obstacles to develop a functioning business. Both the factions battled over the revenues of petroleum. The outlook of the oil and petroleum industry depended on the progress of the negotiations between the eastern and the western factions. However, the removal of the UN embargo would energize the oil and petroleum industry of Libya. The presence of rival militias along with obstinacy of fragmented political sphere will continue to inhibit progress in Libya .Although it is believed that in spite of the militant and political setback, it is believed that the oil and petroleum industry of Libya will show improvements in the next couple of years due to some recent developmental activities. Technological Environment in Libya: The primary barriers to the oil and petroleum industry lies in bringing introducing a newer technology and innovation in the market (Mohamed, Al-Habaibeh and Abdo 2013). This is due to the uncertainty that exists over the returns, skill shortages, development cost, time uncertainty for getting to the market, funding insufficiency, uncertainty over the gas and oil prices and stringency in regulations. However, some high tech technologies that would influence the oil and petroleum industry are represented as follows: According to Lloyds 2015 Report (Aguilera and Radetzki 2013) on the Global Insights of the Oil and Petroleum, the technology that drove innovation into the oil and petroleum industry before the year 2020 includes enhanced oil recovery and automation. However, around the year 2020, the oil and petroleum industry of Libya will implement not only high temperature and high pressure drilling technologies but also hydraulic fracturing based on a multi stage process. Further, around the year 2025 and beyond, Libya would be able to introduce deep-water equipment and subsea robotics. Not only that the country will also be able to implement the removal of the hydrogen sulfide and water separation through the downhole process. There would also be rig less drilling, laser drilling and implementation of other improvements in the process of drilling. However, the technology that plays a key role in determining the future of the oil and gas industry would be the extraction technology for the Methan e Hydrates. The deposits of Methane Hydrates are combination of the oil, coal and gas and considered as one of the exploitable resources. However, the development of this key technology would connect to the oil prices since it is expensive and requires a lot of money for undertaking research and development. However, the leading countries using this technology include Japan, Germany and USA. Legal Environment in Libya Coupled with the unclear legal system, presence of a larger public sector and random decision-making by the government has impeded foreign direct investment. The oil and petroleum industry of Libya has undergone much suffering for twenty long years although it managed in maintaining the production levels of oil and gas. However, the intention of National Oil Corporation (NOC) for expansion of the gas and oil production in a six years time resulted due to the ambitious exploration of Libya for both the oil and the gas (Nestorovi? 2016). Libya also launched two vital agreements related to exploration and product sharing that has resulted in various agreements with the various international oil companies. Although Libya emerged from isolation and opened up foreign investments but it, still remains caught up in undoing the damage caused by embargo. However, Libya had to implement various legal reforms. In the year 2000, there was decentralization of most of the legislative and the executive authorities into twenty-six municipal excluding the energy, economy, defense, foreign affairs, infrastructure, trade and social security. This forced the local government in formulating their own budget. The newer form of governance has led to the elimination of the class difference and severance of the outside influences. The introduction of the heath care including all the basic amenities is provided by state. The Foreign Investment Law not only covered the foreign investment but also included Libyan capital invested privately in a foreign land. This policy led to the opening of various sectors that initially remained closed to both the foreign and private investment. However, Libya undertakes a c onservative approach and presently allows only certain sectors for the purpose of investment. However, the presently allowable industry includes tourism, health, agriculture and various services related to oil that excludes exploration and drilling and is covered under Petroleum law. There was also an establishment of energy minister in Libya with initiations for a newer law for petroleum. Taxation Environment of Libya In past couple of years, the authorities of Libya have led to the implementation of the economic reforms as a means of easing the country towards the global community. Libya however experiences hard and long road ahead for loosening the social grip on the economy (Asongu 2015). The application to the World Trade Organization (WTO), the reduction of the subsidies along with the plans for privatization resulted transition of the Libyan economy into a market-based structure. In the context of the oil and petroleum, industry, Libya has an upstream, midstream and downstream sectors. In the upstream sector, Libya had various offshore deals that prevented swapping the production rights between the various foreign entities. The midstream sector of the country has good pipeline network that is in the need for modernization. The downstream sector consists of five domestic refineries that have a capacity of around 378 thousand barrels on a particular day. In Libya, Exploration and Production Sharing Agreement (EPSA) holders do not need to pay any royalties and taxes related to petroleum. According to the EPSA, the Libyan National Oil Corporation (LNOC) settles royalties and taxes in support of the International Oil Corporation (IOC). The Libyan authorities accepts for the filing of the notional tax with the finance ministry by issuance of a receipt for the purpose of the tax recoverability. The demographic pyramid of Libya puts forward a prominence in the youth bulge with around 27 percent of the population between the age group of 16 years to 30 years (Abuharris, 2013). The gain of the youth bulge was combined with higher rates of unemployment estimated around 33 percent and came to be known as youth unemployment. In the 1.9 million existent Libyan labor force, government employed only 70 percent of the salaried Libyans. According to the figures of the World Bank, there were an estimated surplus staffs close to 300,000 in the public sector which is perceived as the vital source of stability and employment for the citizens of Libya (Timberlake 2013). On the other hand, the private sector contributes in employing only 4 percent of the labor force. There are around 120, 000 self employed and independent Libyan workers. Cultural Environment of Libya The population of Libya is around 6.4 million and the life expectancy of men is around 73 years whereas that of the female is about 78 years. The primary language of the country is Arabic and the religion followed is Islam (Peters 2014). The stronger religious backdrop of Libya has made the country conservative in various respects. The county does not have a bar or a nightclub but has cafes and food joints where people gather to enjoy. The country also does not serve alchohol in any of its establishments. The colonization and invasion of Libya has left the country with a diverse cultural legacy. Culturally Libya does not believe in a beach life and with the local population preferring picnics. The county however puts forward opportunities for desert driving and the dune surfing. Libya being a Muslim country, the Libyan people are dressed in a modest manner. The woman especially covers their upper arms, legs, cleavage and shoulders along with a headscarf. This also holds significance while visiting a cemetery, mosque, or site that has religious significance. However, through their conduct, Libyans believes in good reputation, honor and dignity of their family. Therefore, it is necessary for maintaining decorum at all the times. Attempt of purposeful public embarrassment and humiliation have serious ramifications in the country. The Libyan people expect a warm and enthusiastic greeting. While greeting the people in business meetings people should shake hands while addressing a person along with maintaining a smile direct eye contact. While shaking hands it one needs to understand that men can shake hands with men but for shaking hands with a woman, he must wait until she is willing. Libyan people do not use first names for addressing people instead; they use titles for addressing people. Libyans also believes in respecting the business contacts and be punctual to the meetings. They believe in following an open-door policy during the meetings so that there are no interruptions. The companies in Libya follow a hierarchical structure with de cision-making and negotiations done through the consensus of the group. They however believe in maintaining long-term business relationships so ensure committing time at the beginning of the business collaboration. They also believe in valuing the desire for non-confrontational negotiations. References: Abuharris, A.T., 2013. 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