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Viewing cable 06ROME2217, ITALIAN TRADE AND INVESTMENT IN LIBYA

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Reference ID Created Released Classification Origin
06ROME2217 2006-08-08 08:50 2011-08-23 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Rome
VZCZCXRO3571
PP RUEHFL RUEHNP RUEHTRO
DE RUEHRO #2217/01 2200850
ZNR UUUUU ZZH
P 080850Z AUG 06
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 5567
INFO RUEHTRO/AMEMBASSY TRIPOLI PRIORITY
RUEHFL/AMCONSUL FLORENCE PRIORITY 1627
RUEHMIL/AMCONSUL MILAN PRIORITY 7471
RUEHNP/AMCONSUL NAPLES PRIORITY 1727
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
UNCLAS SECTION 01 OF 02 ROME 002217 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EUR FOR DAS BRYZA 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG ETRD LY IT
SUBJECT: ITALIAN TRADE AND INVESTMENT IN LIBYA 
 
Summary 
------- 
 
1.  (U) The importance of Libyan oil and gas to the Italian 
electricity industry has ensured a steady stream of trade and 
investment between the two countries, notwithstanding Libya's 
sometimes difficult business environment.  Italian trade and 
investment outside the energy sector is virtually 
non-existent, a situation which could change if Libyan 
business and bureaucratic practices were to become more 
transparent.  End Summary. 
 
Italy-Libya Trade 
----------------- 
 
2.  (U) Italy has consistently run a substantial trade 
deficit with Libya over the recent past.  Principal imports 
from Libya are petroleum and natural gas, resources upon 
which Italy relies heavily to support its energy needs.  From 
Libya's vantage, Italy is its largest trading partner: in 
2005, trade with Italy made up 36.9 percent of Libya's total 
trade.  While most of this position is skewed towards 
imports, Italy is an important supplier to Libya: some 25.2 
percent of Libya's total imports come from Italy. 
 
3.  (U) Italian exports to Libya include agricultural 
machinery, agricultural products, refrigeration plants, 
packaging plants, marble, metal, plastic and woodworking 
machines, road- and rail-network materials, tourist services, 
telecommunications, furniture, clothing, and food products. 
 
Italy's Foreign Trade with Libya (billions of Euros) 
 
              Exports     Imports    Balance 
1999       .867     3.099        -2.232 
2000      1.028       6.384    -5.356 
2001      1.294     5.466    -4.173 
2002      1.316       4.908    -3.592 
2003      1.367       5.226      -3.859 
2004      1.516       6.310      -4.793 
2005      1.360       9.732    -8.372 
 
Italian Foreign Direct Investment in Libya 
------------------------------------------ 
 
4.  (SBU) SACE, Italy's export credit insurance company, does 
little business in Libya.  Outstanding disputes between the 
Libyan government and Italian businesses, dating from Libyan 
independence from Italian colonial rule, are an additional 
deterrent to SACE entering the Libyan market.  SACE officials 
told Econoff July 26 that export credit agencies (ECAs) doing 
business in Libya have found bureaucratic processes 
incoherent, and most export credit agencies have yet to be 
paid for their services.  With no solution visible in the 
short term, insurance premiums will likely continue to be 
prohibitive for Italian investment in Libya.  SACE officials 
noted that in Libya's centralized bureaucracy, the pace of 
change depends on Colonel Gaddafi.  SACE further noted Libya 
needs money to modernize and develop, and expressed hope that 
this need may encourage the government to promote more 
transparent business and bureaucratic practices.  Our 
contacts concluded that the atmosphere will not change 
easily, as many Libyans feel "they should be indemnified" for 
the past sanctions imposed against them and for Italy's 
colonial legacy, rather than charged with past debts. 
 
5.  (U) Regardless of the troubled business climate, the role 
of Libya as an important source of energy for Italy has made 
Libya one of the leading destinations for Italian foreign 
direct investment.  In 2005, Italian companies invested 844.7 
million euro in Libya, almost exclusively in the energy 
sector. Eni, the 30 percent GOI-owned oil and gas parastatal 
is the largest Italian investor in the country, and has been 
present there since 1959.  Eni is a partner in the 
Libya-Sicily natural gas pipeline, a 3.5 billion dollar 
project which delivers eight billion cubic meters of gas to 
Italy annually.  Another large investor in Libya is the Fiat 
group, which has built an automobile plant in Tajoura, 
producing two to three thousand cars a year.  SACE officials 
speculated that the Libyan government's role in the economy 
keeps out much foreign industry, but the private sector is 
growing, favoring small and medium-sized Italian businesses 
in the future. 
 
Economic Reform: Hope for the Future 
------------------------------------- 
 
ROME 00002217  002 OF 002 
 
 
 
6.  (U) According to SACE, Libya's centralized bureaucracy 
and Colonel Gaddafi's erratic economic policies limit Libya's 
short-term economic prospects.  According to our contacts, 
these factors have been promoting an unpredictable policy 
climate; the Libyan leader is notoriously capricious and 
prone to sudden reversals, which, together with bureaucratic 
bottlenecks, hinder policy implementation.  SACE sees some 
signs that Libya intends to move towards economic reform and 
a reduction in the state's direct role in the economy, though 
there has been little progress so far.  For example, our 
contacts say, in 2005, Libya simplified the duties system and 
reduced some tariffs.  This reform is widely considered the 
only meaningful economic reform of 2005.  However, many 
imported products are still subject to a consumption tax that 
can reach 50% of the value. 
 
Comment 
------- 
 
7.  (U) Although GOI public statements might shine a positive 
light on the relationship between Libya and Italy, private 
conversations with SACE officials focused on the inhospitable 
business climate and the high risk associated with 
investments made in Libya.  However, Italy's dependence on 
Libyan oil and gas ensures that business with Libya will 
continue, regardless of bureaucratic problems or other 
impediments.  End Comment. 
 
8.  (U) Minimize considered. 
SPOGLI