ReliefWeb

1. Introduction and Objectives

The outbreak of devastating conflicts around the Arab world in the aftermath of the Arab Spring has been a great concern for all political actors and international organizations in the region. These conflicts have caused great trepidation and fear. They have first led to serious political instability, and, secondly, to the emergence of violence that has escaped the monopoly of legitimate State-led violence. This period was marked by the development of armed groups and terrorism that were a great source of instability and fragility for State institutions in many Arab countries.

This instability has had an immediate economic impact, with the onset of severe economic crises in conflict countries. The destruction of economic potential, the cessation of investment and the departure of the immigrant labour force have had a negative effect on the gross domestic product (GDP) of most countries. The fall in GDP was accompanied by a decline in macroeconomic sizes, such as government revenues, public investment and foreign trade.

The effects of conflict have not only been limited to macroeconomic aspects, but have also affected major economic sectors such as agriculture, industry and infrastructure, among others. The destruction of these sectors will have a major impact on post-conflict economic reconstruction.

Alongside their macroeconomic and sectoral consequences, conflicts have had devastating effects on regional cooperation in the Arab region. Thus, trade flows, investments in the region and remittances have all been affected by wars and have reduced regional cooperation among countries.

Conflicts have also led to significant political and economic instability, resulting in setbacks in the commitments of countries in the region to achieve their sustainable development goals (SDGs).

Since the outbreak of the conflicts, the United Nations Economic and Social Commission for Western Asia (ESCWA) has been focusing on their political and economic effects, carrying out important studies and research to show their impact on countries in the region and on regional cooperation. It has also undertaken important advocacy work with governments, political and social actors and civil society in the region to raise awareness of the destructive effects of these conflicts and the dire need to restore peace and development.

This study is part of the Libya Socio-Economic Dialogue (Libya SED) project carried out by ESCWA. The project is intended to provide a multi-layered platform for Libyan citizens at the national and sub-national levels to debate and discuss their desired socioeconomic vision of Libya and the related policy options and trade-offs they will need to adopt. The platform also addresses the structural challenges of forging a new social contract and State institutionalization and advancing a sustainable development framework for the country. In this regard, and in order to inform the Libya socioeconomic dialogue participants when discussing the recovery process and the required alternative socioeconomic frameworks for sustainable development in Libya, ESCWA has initiated two studies: one that seeks to study the economic cost of the conflict (ESCWA, 2020), and another that measures the impact of peace in Libya on regional cooperation, which is the topic of this study.

ESCWA (2020) showed that the war caused a significant loss of Libya’s economic potential, which we estimated at 783 billion Libyan dinars ($580 billion) in the period from 2011 to the present day. These losses will be even greater if the conflict continues beyond the year 2020 and could reach 628.2 billion Libyan dinars ($465 billion) between 2021 and 2025. The conflict would cost the Libyan economy a total of 1,411.6 billion Libyan dinars ($1,046 billion) between 2011 and 2025.

The losses of the Libyan economy are not limited to GDP but have also affected all other macroeconomic sizes. Thus, the cumulative loss of private consumption will average -37.76 per cent between 2016 and 2025 (table 6). Total investment could decrease by -68.15 per cent over the same period. Private investment will also be affected by the conflict and has decreased by an average of -45.84 per cent (table 6).

This second report will focus on the consequences of ending the conflict and establishing peace in Libya on regional cooperation, and in particular on trade with Egypt, the Sudan and Tunisia. This work is all the more relevant as the United Nations-led negotiations between the Libyan parties are bearing fruit. The end of this conflict will mark the beginning of Libya’s reconstruction. It will also give new impetus to cooperation among countries in the region.

This report provides a quantitative assessment of the economic impacts of peace in Libya on regional cooperation. It is structured around four main parts. After this introduction, the report takes stock of Libya’s external exchanges and the state of regional cooperation with its neighbours. In the third part, the report presents the major features of the quantitative model used to measure the impact of peace in Libya on regional cooperation. The fourth part discusses and analyses the results of the adopted simulations. Finally, in the fifth part, and after recalling the study’s main conclusions, the report provides some policy options to strengthen regional cooperation between Libya and its neighbouring countries.