This study is part of the project “SME Development Strategy for Libya”, supported by the Middle East and North Africa (MENA) Transition Fund of the Deauville Partnership and executed by the Organisation for Economic Co-operation and Development (OECD). The overall objective of the project is to support the design and implementation of policies for small and medium sized enterprises (SMEs) and entrepreneurship as important actors in the recovery and long term stability and development of Libya. Given the resumption of violence in Libya in 2014, the project had to be adjusted and some activitities were put on hold. The publication of this study completes component 1 of the project.

Libya’s private sector faces many constraints, hampering both its development and growth potential. The recent conflict has made the situation dire. This report analyses the structural economic and framework conditions affecting private sector development in Libya. It includes recommendations to support the survival and growth of SMEs, as they will play an important role for the stability and long-term development of the country. The private sector accounts for only about 5% of Libya’s GDP. A full 95% of private enterprises are SMEs, often operating in the informal economy. They perform poorly when it comes to generating employment, productivity, competitiveness and value added.

This chapter analyses the political context in Libya, briefly looking at the ongoing conflict and underlying dynamics. It discusses how conflict and fragility hampers private sector development, and vice versa, how supporting SMEs, entrepreneurship and the private sector as a whole can contribute to peace and stability. International actors should develop a conflict-sensitive approach and follow the principles for good international engagement in fragile states.

This chapter aims to analyse the private sector, Small and Medium Enterprises (SMEs) and entrepreneurship in Libya based on available data, but the current situation is likely to have significantly worsened due to the unrest since 2014. The chapter presents information on the size, structure and role of the SME sector in the economy and the level of entrepreneurial activity. It highlights the major challenges inhibiting development of the SME sector based on recent small-scale surveys. The evidence reveals a very low contribution of SMEs to the economy, a relatively weak level of entrepreneurship and poor performance of the SME sector in terms of employment generation, productivity, and competitiveness. Private sector enterprises and SMEs face many constraints that hamper their development and growth potential, which have become even more severe in recent years due to the political instability and worsening security situation. This includes access to resources and markets. Much of SME-related activity takes place in the informal economy, largely due to complex and costly business registration procedures, the absence of functioning registration and licensing systems in Libya’s regions, and weaknesses in the legal, regulatory and administrative systems.

This chapter examines the framework conditions for private sector and SME development in Libya. It looks at the lack of economic diversification, macroeconomic conditions, infrastructure, labour market, financial market, the innovation system, the regulatory framework, corruption and the rule of law. Past governments have undertaken initiatives that have potential to ease private sector and SME development, but political instability and conflict have brought the reform agenda to a halt, affected the delivery of government services and curtailed implementation of laws and regulations.

This chapter examines SME and entrepreneurship policies in Libya, including the institutional framework and programmes. It analyses co-ordination mechanisms, business support services and financing and initiatives. While the government has initiated several policy measures and programmes to bolster the SME sector – such as financial assistance and programmes to support start-ups through entrepreneurship training, information and advice – the review identifies a number of policy gaps. Broader and deeper measures and enhanced institutional structures are needed. The chapter also highlights opportunities for development of sectors that could lead to greater diversification of the economy outside the hydrocarbon sector and future growth of the SME sector.

This chapter provides recommendations to support SMEs and entrepreneurship in post-conflict Libya, building on the analysis of the previous chapters. There are many areas that require improvement, but policy makers should prioritise and adopt a realistic approach, paying particular attention to the sequencing of reforms. In the short term, policies should focus on rebuilding the fabric of SMEs in the country. In the longer term, it should promote economic diversification and support SMEs grow and operate in more competitive sectors. The chapter discusses the possibility of developing an SME strategy, and it includes guidance on the process.