Feature: Libya’s $100bn housing opportunity
Tripoli plans to relaunch the region’s largest home-building programme, writes Adal Mirza
Just 18 months after the fall of Muammar Gaddafi’s regime, the AJ’s sister publication MEED has uncovered that Libya’s transitional government is preparing to relaunch one of the country’s most ambitious schemes aimed at tackling a chronic housing shortage.
Once thought to be worth around $40billion, the total cost of the programme could be more than $100billion over the next decade, according to the company responsible for managing it, making Libya one of the largest potential construction markets in the region.
Despite the enormous scale of the programme, the government’s biggest challenge will be to get it under way. It already faces growing frustration at the slow pace of development since the fall of Gaddafi and the election of a new parliament in July 2012. In January 2011, as Libya sat on the cusp of revolution, hundreds of protestors stormed building sites in the cities of Beni Walid and Benghazi, angry over the lack of public housing and lengthy waiting lists for homes.
While the resentment has subsided with the removal of the Gaddafi regime, the problem persists and the government is aware that failure to be seen to be addressing the housing shortage could see them removed from power. Mahmoud Bashir Ajaj, chairman of Libya’s Housing and Infrastructure Board (HIB), says the country faces a housing shortfall of approximately 500,000 units by 2020.
In 2007, HIB was given the task of delivering 200,000 new homes and associated infrastructure by 2020. HIB’s mandate also includes the construction of hundreds of kilometres of roads and highways, and water and sewage pipelines, along with social infrastructure, such as schools, libraries, hospitals and clinics needed for a modern economy. In May 2008, it appointed US consultants Aecom to oversee the programme.
‘We’ll have to come up with a creative method of restarting priority projects’
Before the revolution, an estimated $11billion-worth of housing projects were under construction, involving more than 60,000 units. The largest of these was a $6billion contract with China State Construction Engineering Corporation for the 25,000-unit Benghazi new town project. According to Ajaj, HIB had signed contracts worth LD44bn ($34.6bn), with housing deals totalling LD20.7bn, utilities worth LD22.7bn and the remainder for supervision.
The entire programme was put on hold in early 2011, when the uprising against Gaddafi began. Out of nearly 240,000 housing units contracted, only 11,121 have been completed, according to HIB, with another 134,341 under construction and 94,500 still in the bidding stage.
HIB is now moving to restart the programme. But before Libya can think about relaunching stalled projects, there are thousands of contracts that must be reassessed for schemes across the length and breadth of the country.
‘Our capacity is scattered between HIB and ministries. We have more than 4,000 contracts and only a 100 engineers looking at them. That is why we took on consultants [Aecom],” says Ajaj. ‘We have to consider the Libyan engineer has been marginalised for the past 30 years. There are only a few real experts. Our engineers who had clear training and development programmes throughout their careers are focused on the Great Man-Made River or the oil sector.’
Faced with this enormous task, HIB has come to an initial agreement with Aecom to resume its role in leading the programme management, which will involve the reevaluation and recalibration of the previously signed housing construction contracts.
Aecom was hit hard by the civil war, announcing in the middle of 2011, that it had lost around $10m from the costs involved in leaving Libya. Restarting the Aecom contract has been described as a ‘transformational milestone in Libya’s development’.
The US firm hopes to have staff on the ground in Libya by August, but has been working with HIB over the past 18 months in anticipation of its contract renewal to determine the programme’s priorities. Currently, they are working on the best way to divide and decentralise the work before they can get down to issuing tenders for regional programme management contracts, which will govern delivery of the housing projects in different regions and will report to the national programme manager, Aecom, and HIB.
Many of the original contracts will see major alterations, to the point that some will have to be reissued. “Many of the contracts in the past had unrealistic scopes, falling short of the actual needs. [They were] not to international standards,” said Jim Thompson, Aecom’s chief executive of global programmes, speaking at MEED’s Libya Projects 2013 conference in Tripoli on 4 June.
“[All the projects] need water, sewage, and power and none of this was included in the scope. The actual value is much more than before – in the neighbourhood of two or three times more than the contracted value.”
There are certainly no one-size-fits-all solutions to the contracting problem. The scale of the HIB programme means there will be more than one contracting model, beyond the usual design-build contracts. “It’s a tremendous opportunity, whether from a planning, architecture, engineering, construction management perspective. All elements will be required to support the programme,” said Thompson.
HIB hopes to complete its design work and the revision of contracts in 2013, although with half the year already gone, many say this is an unrealistic target. “We will have to come up with a creative method of restarting priority projects. [Going] from zero to a $5bn or $6bn spend a year is going to be challenging and demanding on human resource and skills capacity,” said Thompson.
Current visa and labour restrictions will make bringing in the required labour for large construction schemes difficult. There were an estimated 80,000 personnel involved in the construction effort before the revolution. It is important that the government is able to streamline processes and cut bureaucracy to a minimum to ensure that what is planned can reach the construction stage. This will not be an easy task after four decades of Gaddafi’s bureaucracy.
Addressing potential contractors and consultants in the audience at the Corinthia Hotel in Tripoli, Thompson warned that bureaucratic change will not happen overnight. “Libya had a revolution to change the government, but not the culture,” he said.
Nevertheless, HIB and Aecom are working on a more standardised procurement process across the various ministries that will be involved in the programme. ‘You will see this in the coming year,’ said Thompson, adding that the first step will be setting up a contracting and procurement department.
Another challenge will be financing. Libya’s small and relatively immature banking sector poses a major bottleneck. HIB was granted only a fraction of the LD32bn budget it had requested for 2013, receiving just LD1.5bn, from an overall budget of LD66bn for the entire country approved in March. Government financing will not be enough to meet Libya’s construction needs, which means the private sector has an important role to play.
Libya’s economy has been dominated by the state and housing has been no different
For decades, Libya’s economy has been dominated by the state and housing has been no different. HIB now hopes to engage the private sector, but this will require a stable financial platform that has yet to evolve.
The Washington-based IMF warned in its latest Article IV Consultation on Libya that although the country’s banking system appears to be well capitalised, it is not intermediating effectively to support private sector-led growth. Published at the end of May, the report notes that government spending is skewed towards wages and subsidies, which together account for more than 30 per cent of the 2013 budget.
Libya has made significant progress since ousting the Gaddafi regime. The country’s first free elections in decades were held almost a year ago on 7 July 2012, leading to the formation of a new transitional government in October, the General National Congress (GNC).
But problems persist, not least the presence of well-armed and autonomous militias across the country, which makes the security situation precarious. Security is biggest concern for international companies seeking to work in Libya. In its absence, it may be difficult for many of the projects to proceed.
This is against the backdrop of weak institutions to enforce the rule of law, leaving the government open to pressure for largesse in an attempt to buy some semblance of stability.
Credibly addressing Libya’s housing shortage, a long-standing and major grievance against the previous regime, could play a significant part in quelling dissent, which, in the past few months, has manifested itself in protests and violence. But time is not on the government’s side. Reassessing previously signed contracts and bringing contractors back onto site will just be the start.
Comment: Entrepreneurs are Libya’s greatest asset
While Tripoli must address several key issues, the rapid recovery of its private sector is encouraging.
Few countries are blessed with such an abundance of economic riches as Libya. Its assets include the eighth-biggest oil reserves in the world, a host of undeveloped tourism sites and 2,000 kilometres of Mediterranean coastline. The country also sits between the giant European market and the fast-emerging economies of North Africa and sub-Saharan Africa.
But after decades of incompetent government that led to international isolation, Libya’s civil, social and industrial infrastructure is inadequate and the economy is operating at a fraction of the level it should be.
It is no surprise that companies from around the world are turning their gaze to the North African state in search of new opportunities.
However, those hoping to take advantage of Libya’s re-awakening must be prepared for a long slog because the country lacks the institutional and governmental structures needed to drive growth through policy initiatives.
The interim government is working hard to prepare the way for parliamentary elections in the autumn and the subsequent establishment of a new constitution. But until those important steps are taken, there can be no strategic decisions on economic policy and no long-term spending plans signed off.
On the ground, armed militia groups still control many areas and are operating outside the control of government forces. Just as challenging is the need for political debate to move beyond the anger and recriminations felt towards the former regime. A particularly thorny issue is how to deal with the huge level of government subsidies on food and fuel that ensure people have the means to live, but which also sustain fuel smuggling and inefficiency.
One important ray of light is the rapid recovery of Libya’s private sector. The void left by the state is being quickly filled by entrepreneurs, who have replaced the once-ubiquitous images of Gaddafi with billboard advertising. Of all the country’s assets, Libya’s entrepreneurs are the least talked about, but have the most to offer.