Economic growth forecasts for this year could be blown off course if the turmoil in Libya persists for months, according to an economist.
With exports to Libya valued at €85.6 million, the North African state was the fourth most important trading partner outside the EU last year, accounting for almost four per cent of outward trade flows.
The amount could be below popular expectation but the significance of Libya as a trading partner is borne by the fact that Malta exports more than it imports from the North African country.
Libya is one of only four countries, the others being Singapore, Japan and the US, with which Malta has a trade surplus, in this case amounting to €50.9 million.
However, Libyan unrest risks not only disrupting trade but could also affect Maltese investment in the country and a number of well-paid jobs. This multi-faceted impact has economists worried.
“In the worst case scenario where the fighting would drag on for months, I fear the impact of the Libyan crisis on our GDP would be higher than the government’s projected growth for this year,” economist Karm Farrugia said, pointing out trade was only one aspect of the equation.
“Lack of earnings for employees who worked in Libya and loss of profitability for companies that have invested in the country will have an impact on GDP as well,” Mr Farrugia said.
The situation could become more complicated for some Maltese companies partly-owned by the Libyan government’s investment arm in view of additional sanctions imposed by the EU on the Libyan regime.
Although under the sanctions these companies could still continue with their normal operations they could face restrictions when raising capital from banks, according to former Central Bank governor Francis Vassallo.
“If the bank evaluates that the company’s operation on its own is not enough to secure financing and the bank has to rely on the shareholders then the company may face difficulty to raise capital,” Mr Vassallo explained.
Any dividends due to shareholders on the sanctions list, he added, would have to be frozen but this would not impact normal operations.
He described the sanctions as a serious mechanism to control global cash flows that might be used by the Libyan government for illicit purposes.
The EU is expected to officially announce fresh sanctions today in a bid to freeze the assets of the Libyan Investment Authority, the Libyan Arab Foreign Investment Company (Lafico) and the Libyan Central Bank after UN sanctions froze the assets of Libyan leader Muammar Gaddafi and his family.
The Maltese government and Lafico jointly own the Libyan Arab Maltese Holding Company (LAMHC), which, in turn, has a number of subsidiary companies in Malta.
The joint company wholly owns Milano Due Ltd, the operators of a hotel in Gżira, and is the majority shareholder in Vivaldi Hotels (Operations) Ltd, which runs a hotel in Paceville.
The jointly-owned holding company is also the majority shareholder in BIM Ltd, a steel fabrication services and furniture company situated in Marsa.
LAMHC has a 40 per cent stake in the manufacturing companies Medelec Switchgear and Mediterranean Power Electric, respectively.
There are other Maltese companies in which Lafico has direct shareholding including aviation company Medavia and international hotel chain Corinthia.
The Chamber of Commerce, Enterprise and Industry on Wednesday urged European Commission president José Manuel Barroso to set up structures and mechanisms that provided “concrete and urgent support” to Euro-Med countries facing considerable difficulties because of the situation in North Africa.
The Chamber expressed concern since some companies in Europe and Malta specialised and developed their markets in North Africa to such an extent they had become highly dependent on them.
For how long the conflict will drag on is uncertain for the time being but according to Mr Farrugia an early resolution could turn out to be good for business in the long term.
“Libyans would want to better their standard of living to address some of the issues that caused the protests and this could lead to more spending, which may lead to higher exports from Malta, more investment and work opportunities,” he said.
ksansone@timesofmalta.com