Libya: General Business Law
Over the last few years doing business in Libya has been quite difficult given the political divide between the western and eastern parts of the country, the foreign exchange and liquidity crisis faced by all commercial banks, the travel restrictions and suspension of both local and international routes, as well as the overall economic instability that saw an increase in costs associated with the standard of living. With that said, since mid-2020 there have been some positive changes which give great hope for improvement of the overall economic and financial state and in turn the working conditions in Libya.
Initially the civil war saw the closure of most foreign embassies and the departure of many overseas companies working inside Libya. With countless countries raising travel warnings, many locally based foreign businesses could only have local staff working on the ground, whilst their non-national or expat staff operated from neighbouring countries. Due to the conflict, many airports faced regular closures, and travel within, as well as to and from, Libya was difficult to say the least. Fortunately, the airports and ports are now fully operational and also travel within the different cities in Libya has resumed as normal.
The Ministry of Economy & Trade also introduced the application of a ‘delay penalty’ for late renewal submissions for clients who have expired branch office permits, and this was based on the principle that delay in renewing the registration is a violation of Article 375 of the Commercial Activity Law No. 23 of 2010. Over the last few years, many clients have been hesitant to renew their permits upon expiry due to the unstable situation on the ground. Furthermore, issues such as the collation of their renewal documents and approval of their corporate documents, which derived from outside of Libya, took a considerable amount of time to conclude given the global delays faced by the Covid-19 pandemic. The delay penalty was initially introduced by the former Minister of Economy and has been in place since 2019. Prior to this, the Ministry had not applied a penalty; in fact some clients had obtained renewals for permits with in excess of five years’ expiry in the past. The Ministry has since been imposing the penalty on the late submissions of renewal files, which has obviously distressed many international clients. Unfortunately, although some features were changed, the application of the penalty was not up for discussion. It had even hoped that it would be removed when the new interim Ministry took over in 2020, but this was not the case, and the penalty is still being applied at the time of writing. In one positive change since, the competent authority have started granting 3-5-year permit renewals again as opposed to the 1-year renewal period that was being granted during 2019/2020. The Ministry has been applying a strict approach with the imposition of this penalty and is not waiving it for any entity regardless of the length of delay (i.e., even if the delay in submitting the renewal is for a short period of time). In the event the company refuses to pay they will simply not process the renewal, and the only other option would be for the client to recourse to the Libyan courts; the obtainment of a judgment in this regard can be a lengthy process.
The political divide in the country from 2015 to date also made it challenging for clients to ascertain which government was the legitimate government in the state. The Central Bank of Libya (CBL) and the ministries also divided between the two regions. Before the divide, a company registered in any region of the country could freely do business anywhere in Libya. However, the political and ministerial divide meant that clients who had their file registered in the eastern part of the country also had to register in the western part in order to conduct their business activity, for example with the tax authority or the Ministry of Economy and Trade. Furthermore, many clients who had existing administrative contracts or were negotiating new contracts found it difficult to ascertain which government’s public authority they were to deal with, without having future legal or financial implications. An agreement has since been reached between the two governments with a ceasefire announced in October 2020. This was followed by a critical development whereby further agreement was reached by the Libyan Political Dialogue Forum on a unified interim Libyan executive authority charged with leading the country to national elections in December 2021.
One of the major issues that clients were subjected to over the last few years was related to banking and financial activity. Utilising banking services was problematic, even on the most basic level such as concluding forex transactions locally and internationally or withdrawing cash. Even simply accessing a local branch proved challenging because of overcrowding. Local or international transfers in foreign exchange were virtually impossible and thus companies had problems receiving and making payments for commercial commitments. This unfortunately resulted in many businesses having to resort to the parallel market to meet their business needs, at rates which reached as much as seven times the standard CBL rate. In a very positive move the Central Bank of Libya’s unified board meeting held in December 2020 agreed to set a new and increased foreign exchange rate for the Libyan dinar effective from 3 January 2021. This is intended to overcome the financial and banking crisis that has been ongoing in the country and to eradicate the need for businesses and individuals to resort to the parallel market. Although we are still in the early stages, the positive effect this change has had is already visible. The liquidity issue has improved and there is sufficient access to hard currency through the banks. Moreover, corporate clients have access to letters of credit and can conduct local and international transfer of funds without any delay or complications. The rate may be subject to future change, i.e. there is a possibility that the rate may be later increased further or reduced depending on the economy of the country.
It would be safe to say that the above-mentioned recent developments in 2020 and 2021 have been major milestones in the road to recovery of the country. If this momentum continues, we foresee that many international clients and embassies will return their local operations to full capacity and new interest will result, as most definitely, Libya is a goldmine for business opportunities considering its strategic location and abundance of natural resources.