BMI's Executive Summary

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As part of his rapprochement with the West, Colonel Muammar Qadhafi turned up in Paris in December 2007 for his first visit in 34 years. President Nicholas Sarkozy rolled out the red carpet, welcoming big Libyan orders for Airbus aircraft, Rafale jet fighters, a nuclear reactor and assorted other pieces of military equipment. From Tripoli's point of view, the visit has to be counted as a success. Yet it was also controversial, with a wide range of French political and cultural figures – some of them within Sarkozy's ministerial cabinet – questioning the degree of support given to a regime which, although now realigning itself with the West, remains authoritarian and with a very poor record on human rights. The message is that Libya's new diplomatic course will not absolve it from pressure to carry out internal reform.

The normalisation of relations with the US in 2006 opened the door to many opportunities for Libya. Whilst the republic has been edging towards normal relations with the international community for a few years, the US was Tripoli's ultimate goal. The announcement has paved the way for US investment in Libya's oil sector and if Tripoli plays its cards right, the sale of arms to the North African state. The move may prove to be beneficial for both parties, with Washington deepening its involvement in another country's oil sector and befriending another ally, this time on the African continent, in the fight against terrorism. Relations with Europe are also strengthening.

However, as many states have experienced, closer relations with the US can have adverse affects amongst the population. The conservative old guard is already stirring over Qadhafi's economic reforms. Whilst BMI does not anticipate a revolt, there will be issues regarding Qadhafi's succession to think of in the not too distant future – Qadhafi may be able to contain a conservative backlash but his more reformist son, Seif, may struggle to do so.

The potential for US military assistance will be of great interest to Qadhafi. At present the Libyan defence industry is practically non-existent, and what does survive is almost entirely state owned. Multinational involvement has been legalised only relatively recently, with the lifting of the UN arms embargo in September 2003 and of the EU arms embargo on September 22 2004, and foreign companies are beginning to penetrate the market. It has been reported that authorities in Tripoli have been in low-level talks with several European defence companies, eager to establish themselves in what should become a significant market now that the EU arms sales restrictions have been lifted. The resumption of full political and commercial relations with the US on May 15 2006 should also ease the pressure on Libya's economy by removing some of the restrictions on investment in the sector. As larger foreign companies move into Libya, its domestic defence sector is likely to experience a large expansion. Libya's extensive military equipment is in desperate need of modernisation. Precise details of the modernisation path to be taken are not yet known.

Providing Qadhafi continues along his current path then the prospects for Libya's defence industry look good. Defence expenditure is forecast to remain at about US$670mn in 2007, rising to some US$730mn by 2010, as the defence industry opens for foreign investors and new technology and hardware become available to Libya. The signing of new defence contracts and the trading of Libya's valuable oil reserves will provide further funds for military expenditure. This will see import figures rise substantially over the coming years, as Libya updates and replaces its ageing Soviet equipment.

Contents

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Chapter 1 - Executive Summary

SWOT Analysis

Libya Political SWOT

Libya Security SWOT

Libya Defence Industry SWOT

Chapter 2 - Political Overview

Domestic Political Outlook

Reformist Qadhafi Junior Departs – For Now

No Viable Domestic Opposition

External Political Outlook

Little External Pressure

The Rapprochement Continues

Normalisation At Last

European Relations Also Improving

China

Chapter 3 - Security Risk Analysis

BMI’s Security Ratings

Risk Ratings

Table: Regional Risk Ratings

Table: State Terrorism Vulnerability Index

Regional Security: The Middle East And North Africa

Inter-State Conflicts

Internal Conflicts

Libya Security Risk Ratings

Libya Conflict Risk

Libya Terrorism Risk

Libya Physical Safety Risk

Chapter 4 - Security Overview

External Security Situation

Internal Security Situation

Table: Libya Insurgent Groups

Succession

Militant Opposition

Popular Unrest

Chapter 5 - Military Structure & Defence Industry

Armed Forces

Table: Regional Armed Forces (including conscripted) 2006

Current Strength

Historical Strength

Equipment

International Deployments

Weapons Of Mass Destruction

Market Structure

Arms Trade Overview

Imports

Exports

Industry Trends & Developments

Procurement Trends & Developments

Chapter 6 - Industry Forecast Scenario

Table: Libya Defence Sector – Army Enlargements

Table: Libya Defence Sector – Government Expenditure

Key Risks To BMI’s Forecast Scenario

Chapter 7 - Macroeconomic Forecast

Table: Libya: Macroeconomic Data And Forecasts

Chapter 8 - BMI Forecast Modelling

How We Generate Our Industry Forecasts

Defence Industry

Sources

Chapter 9 - Appendix A: Risk Ratings Methodology

Conflict Risk Methodology

Terrorism Risk Methodology

Physical Safety Risk Methodology

Overall Risk Rating

State Vulnerability Index

Competitive Landscape for MEA Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's Middle East & Africa Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: