The black market in greenbacks is thriving in Libya
▶ The black market in greenbacks is undermining the government ▶ “We aren’t breaking the law … there’s no law to be obeyed”
Amid the upmarket apparel and jewelry shops along Benghazi’s Dubai Street another luxury good is for sale: crisp U.S. dollar notes. In plain view of Libyan police, stores deal in illegal foreign exchange. “The black market is seen as the bad guy, but we just offer services the state has failed to provide,” says Muhsin Ahmed, a money changer. “We aren’t breaking the law, because there’s no law to be obeyed.”
Rival political factions control Libya. Islamic State has captured about 250 miles along a central stretch of the country’s Mediterranean coast. Attacks on oil installations by militias and a slump in crude prices are draining state coffers. Smuggling of migrants and arms is rampant.
The illegal dollar trade shows how little the public trusts the government. It fuels corruption among businessmen and finances the militias, complicating Prime Minister Fayez Serraj’s efforts to unify the country under a United Nations-backed administration. “The deterioration of the state has pushed individuals to black-market activities,” says Claudia Gazzini, senior analyst for the International Crisis Group, a think tank in Brussels. Libyans involved in the black market say they want a unified government to provide legal economic opportunities, she says. “But at the same time, they appear to have more to gain by continuing in this state of economic chaos.” In May the well-respected official audit court, which monitors public finances, said the black market is “causing extreme harm to the economy and escalating the collapse of the state.”
Oil is almost the only thing Libya exports, and in the past it was a steady source of foreign currency. The state’s inability to sustain production in the face of militia attacks as well as lower oil prices have put the economy in critical shape. The fields currently pump about 175,000 barrels a day, down from about 1.6 million before the 2011 revolution. Foreign currency reserves are $68 billion. They were $106 billion in 2013. The central bank bars Libyans from exchanging dinars for dollars at commercial banks. So they turn to the black market, which is so much a part of life that TV channels report daily rates.
Those rates are up to 2.8 times the official rate, which is 1.39 dinar to the dollar. Haitham Abou Zaid, a pharmacist, says he has bought hard currency from the central bank at the official rate to import medicine. “I used to
sell at satisfactory prices, and customers were happy,” he says. “Now I have to buy dollars from the black market. The prices got very high, and some people cannot afford to buy what they need.”
Companies forge invoices from foreign suppliers to buy dollars from the central bank to pay the phony bills, say bankers, money changers, and importers. They then arrange phantom shipments to make these fake invoices seem legitimate. Eight containers supposedly carrying aluminum bars were found empty in the port of Khoms, local security forces said on May 7. They said the containers were part of a money-smuggling scheme. Other strategies include businessmen opening up a company in Libya and another in Dubai and sending themselves fake invoices. Next they sell the dollars gotten from the central bank on the black market for two to three times what they paid. Libyans who get dollars often wire the money to Dubai banks, says a manager at one of Libya’s biggest private banks who’s in charge of letters of credit.
Ten exchange shops flourish on Dubai Street. “Everyone here knows that we deal with our customers with more integrity than banks do,” says Ahmed, the money changer. “And in lawlessness, trust is everything.”
The bottom line Since Libya’s oil industry contracted, a thriving black market in U.S. dollars has sprung up.