British trade with Libya set to soar

With the Lockerbie bomber's release, Gaddafi's gates swing open to UK firms as his massive building programme begins.

Britain's trade with Libya could soar following the release of the Lockerbie bomber, as the North African country embarks on a massive building programme.

In the first five months of 2009, UK exports to Libya were already up by 48 per cent to £165.4m on the same period in 2008, while UK imports from Libya – mainly oil – were up 48.5 per cent on 2008 at £966m, a rise of 66 per cent on 2007.

Most of the companies already exporting to Libya are involved in supplying industrial machinery and engineering services and include Biwater, AMEC, Halcrow, JCB, Rentokil and Corus as well as oil companies such as BP. The oil giant is one of the most involved in Libya, having launched a $1.3bn gas exploration programme last year, and having recently signed a £545m deal to drill for Libyan oil. Fellow giant Shell is also one of the largest investors in Libya. Analysts say that if the oil fields reach their target yield, then BP could spend more than £10bn over the next decade on exploration and drilling.

Libya's leader, Colonel Muammar Gaddafi, has spearheaded a multi-billion dollar building programme in the country, which includes 27 new universities, airports, sea ports, railway stations, holiday resorts and water nano-filtration plants to boost its agricultural capacity for its six-million population.

To date, most of the foreign companies investing and working in Libya have been Italian.

Italy's Prime Minister, Silvio Berlusconi, recently agreed a $5bn compensation package with Libya – to apologise for the excesses of colonial rule – which is to be spent on construction projects. As part of the deal, Italy will give $200m a year over the next 25 years to help with these infrastructure projects.

But City analysts are predicting that the release of the Lockerbie bomber will open the gates even wider to British firms. Some, like Marks & Spencer, Monsoon and Accessorize, already have small interests in the country, and are expected to expand. Others which are expected to benefit are the big pharma companies, GSK and AstraZeneca, which are looking to grow their interests. John Setra, the managing director of K2, a UK consultancy which is working with outsourcing specialists Capita on the development of Benghazi airport, said: "With the release of Abdelbaset Ali al-Megrahi we will see the removal of the last barriers to [British firms] enjoying the same favourable conditions as our European competitors."

Both companies have been working with the Organisation for Development of Administrative Centres (Odac) – Libya's housing association. Mr Setra predicts that there will be big opportunities for British companies for building new council and cultural buildings, adding that $50bn worth of housing contracts have been signed over the past two years. Recent City research suggested the need for up to 30 million foreign workers to work on the predicted expansion – construction projects accounted for 4.7 per cent of GDP in 2008.

Other signs indicate that construction is growing in importance. Nick Lomax, a director at Brighton-based LCE Architects, which designed one of Libya's most futuristic mosques in the Wadi el Rabi Eco-Industrial Park, said: "When we started working in the country we could not get hold of building components like insulated render, but that is now available." And in a recent research note, the Oxford Business Group said that Libya's economy is rapidly changing, with the government focusing its attention on social housing – pledging half a million new houses by 2010, a vast undertaking that will demand extensive foreign expertise.

Trade between Britain and Libya has been increasing since the easing of sanctions against the Arab nation which were imposed in response to the 1988 Lockerbie bombing, as well as the bombing of a French airliner over Niger in 1989. The sanctions were finally lifted in 2004 when the EU and the US reversed their respective blocks on trade, aviation and imports of Libyan oil. Relations stepped up again when former prime minister Tony Blair made his much publicised trip to the country in 2007.

The image of Mr Blair shaking hands with Colonel Gaddafi, who will celebrate 40 years in power this September, was criticised by human rights advocates but praised by business leaders keen to take advantage of the Libya's opening economy and vast potential oil wealth.

However, Dana Moss, a visiting fellow at the Washington Institute for Near East Policy, warned that Libya's inherent corruption and bureaucracy is still a block to good trade relations.