BEARISH: LIBYAN STOCK MARKET LUMBERING ALONG SLOWLY

UNCLAS SECTION 01 OF 02 TRIPOLI 000397

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECIN ECON EINV EFIN LY
SUBJECT: BEARISH: LIBYAN STOCK MARKET LUMBERING ALONG SLOWLY


1. (SBU) Last month Libyan authorities announced the launch of
Libya's stock market (the Libyan Stock Exchange Market, or LSEM)
on the occasion of the 30th anniversary of the establishment of
the Jamahiriya (or "state of the masses") with the unveiling of
Moammar al-Qadhafi's Green Book. This seemed an odd pairing,
given that the cocktail of socialist economic admonitions found
in the second volume of the Green Book ("The Economic Basis of
the Third Universal Theory") are not obviously compatible with
the form and function of stock markets. It was also yet another
widely-hyped announcement for an entity which has been difficult
to quantify since its purported formation in 2004, and
subsequent "launching" announcements each year since. Adding to
the confusion, conflicting official statements alternate the
LSEM's headquarters location between Tripoli and Benghazi in
different announcements.

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"Like Starting a Stock Exchange on the Moon"
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2. (SBU) In an effort to cut through the confusion, Econoff
sat down on April 5 with a U.S. contractor who provides LSEM
consulting support. This source, with twelve years of
experience working as a consultant to numerous governments
establishing their own stock markets, was just finishing his
first visit to Libya. During his visit, he had delivered
remarks at an Arab Stock Exchange conference in Benghazi, which
he described as well attended and professionally organized.


3. (SBU) The LSEM intends to draw from regional models -- the
stock markets in Egypt, Jordan and Morocco -- to develop its own
set of procedures and regulations. Source described the LSEM's
most pressing requirement as the selection and implementation of
a computerized trading and settlement system, which will be
issued as a tender to a select group of bidders in the coming
months. There are currently no established rules and
regulations for the LSEM, no set procedures for registering
companies and no mechanism for issuing stocks. There are also
no brokers or brokerage houses, and no companies are truly
"listed" with the exchange (Note: Press reports and embassy
contacts have indicated that a half-dozen companies were listed
with the LSEM, but that seems to reflect planned, vice actual
listings accessible to potential investors. End note).
Reflecting on the challenges of starting a stock market from
scratch in the Libyan operating environment, source commented
that it was "like starting a stock exchange on the moon."
Despite the daunting task, source noted that there was great
enthusiasm on the part of the LSEM staff to set up an effective
stock market that would compare favorably to others in the
region.

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How the LSEM Is Organized
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4. (SBU) The LSEM currently falls under the auspices of the
Secretary of the GPC for Economy, Trade and Investment, and is
managed on a day-to-day basis by General Director Suleiman Salem
al-Shahomy. It was formally established in Libyan law under
General People's Committee Decree Number 34 of 2006. The LSEM
currently occupies two facilities, one in Tripoli and the other
in Benghazi. The fifteen employees at the Tripoli-based
headquarters occupy a modern office located within the premises
of the Tripoli International Fairgrounds. The Benghazi office
employs about thirty people in brand-new office spaces, and the
facilities in both cities conduct basic training on-site for
their employees. Despite GOL announcements that the LSEM would
be headquartered in Tripoli, Econoff's source surmised that the
LSEM would ultimately be headquartered in Benghazi once fully
operational. He estimated that it would take another full year
until a limited launch of the LSEM, with two or three companies
participating, was possible. The launch number might grow if
Libyan authorities allow the LSEM to link-up with neighboring
stock markets to generate cross-border trading and additional
trading options.


5. (SBU) Post Comment: The LSEM launch is an integral part of
the GOL's National Economic Strategy. It is closely linked with
efforts to privatize state-owned enterprises (SOEs) and may
become the preferred means by which to broaden the ownership
base of hitherto government-owned companies. Saif al-Islam has
announced that the government will create investment
"portfolios" for Libyan citizens and some speculate that instead
of giving people money, the government will give them shares of
former SOEs. Comments made last month by the Secretary of the
GPC for Economy, Trade and Investment revealed how the LSEM will
attempt to bridge the socialist and free market inclinations of
the state. He noted that, "the establishment of the stock
exchange market is part of the general restructuring of the
Libyan economy...and most importantly, broadening the base of
public ownership." The LSEM therefore appears to be a mechanism
open Libya to the outside world, privatize SOEs, and serve the
social aim of redistributing wealth internally. How well it
performs each of these roles will directly impact the other, and
the GOL's opaque economic reform process will likely make for
continued slow going at the LSEM.


CECIL