WILL SMALL BUSINESSES HATCH IN LIBYA? PM AL-MAHMOUDI OPENS FIRST SMALL BUSINESS INCUBATOR

C O N F I D E N T I A L SECTION 01 OF 02 TRIPOLI 000223

SIPDIS

STATE FOR EEB (EGAN) AND NEA/MAG; ENERGY FOR GINA ERICKSON,
COMMERCE FOR NATE MASON; CAIRO FOR TREASURY LIAISON ALEX
SEVERENS; LONDON AND PARIS FOR NEA WATCHERS

E.O. 12958: DECL: 3/11/2019
TAGS: ECON, ECIN, LY, ELAB, EPET, PGOV, BBSR, PTER
SUBJECT: WILL SMALL BUSINESSES HATCH IN LIBYA? PM AL-MAHMOUDI OPENS
FIRST SMALL BUSINESS INCUBATOR

REF: A) 08 TRIPOLI 937; B) TRIPOLI 212

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CLASSIFIED BY: Gene Cretz, Ambassador, U.S. Embassy Tripoli,
U.S. Department of State.
REASON: 1.4 (b),(d)
1. (C ) Summary: Secretary of the General People's Committee
al-Baghdadi al-Mahmoudi (PM-equivalent) recently officially
opened the first "business incubator" in Tripoli to assist
small- and medium-sized businesses (SME's),diversify Libya's
petroleum-dominated economy, and reduce the high unemployment
rate among Libyan youth. Participants in the Business Incubator
program will receive training, such as in preparing business
plans, conducting feasibility studies, and access to credit if
needed. End note.

LIBYA EARMARKS 16 BILLION DOLLARS TO HELP SMALL BUSINESSES

2. (C) On March 10, Secretary of the General People's
Committee al-Baghdadi al-Mahmoudi (PM-equivalent) officially
opened the first "business incubator" in Tripoli to assist
small- and medium-sized businesses (SME's). Also present at the
opening were Secretary Matuq Matuq (head of the General People's
Committee for Facilities, an agency created in last week's
cabinet shuffle reported in Ref B),the director of the National
Economic Development Board (EDB),Mahmoud Jibril, as well as
members of the diplomatic corps. As part of the Libyan
government's efforts to reform and diversify the economy away
from hydrocarbons, al-Mahmoudi's EDB has spear-headed the
creation of "business incubators" with the hope of reducing
unemployment (estimated at 20 percent) and creating
opportunities for Libya's unemployed youth. Participants in the
Business Incubator program will receive training, such as in
preparing business plans, conducting feasibility studies, and
access to credit. The incubators will also provide information
and communication technology, office space, workshops, business
and financial management training, and help entering new
markets. (Note: The Embassy is currently working with the EDB
to provide technical assistance to the Business Incubator
program managers by partnering with the U.S. Department of
Commerce's Commercial Law Development Program. See Ref A. End
note). In his remarks at the opening ceremony, al-Mahmoudi said
the Government of Libya (GOL) had earmarked 20 billion Libyan
dinars (about 16 billion USD) for the promotion of small- and
medium-sized businesses and for a "Financial Fund" as part of
the program. In a follow-up conversation with EDB staff,
Econoff asked for more details on the "Fund" but staff said the
modalities of how small loans would be disbursed were not yet
known. In all, five incubators are planned to be opened
nation-wide with some focusing on agriculture and some on
industry. They will target new graduates, the unemployed
(especially youth),and women.

WORKING IN COOPERATION WITH THE EU, TUNISIA, EGYPT, AND JORDAN

3. (C) At the opening ceremony in Tripoli, al-Mahmoudi said
that Libya was working in cooperation with the European Union,
and bilaterally with Italy, to promote small business
development. He noted the recently-ratified Libyan-Italian
partnership agreement "required" Italy to open its markets for
Libyan goods that would be produced by the new entrepreneurs
from the business incubators. He said Libya hoped to exchange
experiences in promoting small businesses with neighbors such as
Tunisia, Egypt and Jordan. The Jordanian organization,
Jordanian Expertise House (JEH),is assisting the Tripoli
Business Incubator in its early stages. No mention was made of
plans for American technical assistance via the Commercial Law
Development Plan but this could be because joint-activities are
not slated to begin until this coming June. Dr. Mahmoud Jibril
of the EDB also made remarks at the ceremony, in which he said
the opening of Tripoli Business Incubator represented an
important step in preparing youth to run their start-up
businesses successfully. He noted the incubators were
especially important in oil-producing countries, like Libya,
where the culture of self-employment and private initiative was
almost non-existent. A change in the "work culture" of Libyan
youth would be a great accomplishment of the program, in his
view.

BUT IT'S NOT THE FIRST TIME LIBYA HAS TRIED THIS

4. (C) At the reception following the ceremony, the German DCM
asked whether the incubators would connect Libyan entrepreneurs
to foreign companies, noting that many small- and medium-sized
German firms were looking for Libyan partners. A member of the
EDB staff said this had not figured into the initial plans but
that eventually the incubators could serve as a clearinghouse

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for matching Libyan and foreign SME's. The French Economic
Counselor told Econoff that this program was at least the third
attempt to assist SMEs in Libya and his predecessor had tried to
link the EDB to French organizations that help SMEs by sending
Dr. Jibril to France on a study tour. He said this had not been
fruitful due to the lack of institutional structures and
bureaucratic capacity to help SME's in Libya.

POST-CABINET SHUFFLE: AL-MAHMOUDI TRYING TO SHOW RESULTS?

5. (C) Comment: Will the business incubator program succeed?
This is not yet clear but it won't be for lack of funding. The
reported budget of 20 billion dinars (16 billion USD) is huge
but it is unclear as to how it will be allocated and whether
some portions will be loans or loan guarantees. Another unknown
is how micro-loans would be disbursed given that the Libyan
economy is largely cash-based and banks are not widely-used,
except for disbursing payrolls. Whether or not the loans would
be paid back is another question mark, particularly in a country
where loans from state-run banks have traditionally been given
based on patronage and where there is no nation-wide credit
bureau. The roll-out of the incubator program also coincides
with the General People's Congress' decision to postpone
al-Qadhafi's much-touted wealth distribution program. The
announcement of the incubator program could be an effort to
demonstrate that the government will help Libyans in other ways
than distributing the country's oil revenues directly to the
people. The undertone to the talk of helping unemployed youth
is that the regime is under pressure to provide meaningful
options for young people lest they turn to extremism and
terrorism. Setting up business incubators elsewhere in Libya,
particularly around Benghazi, will be especially important there
since rates of unemployment are even higher than the nation-wide
average of 20 percent, a potential driver of extremism in a
region that has historically provided foreign fighters to
al-Qaeda in Iraq. End comment.
CRETZ