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”

Bloomberg Businessweek (North America) - - Contents - Ghaith Shen­nib and Caro­line Alexan­der, with Saleh Sar­rar

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.

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