PRIVATIZATION LIBYAN STYLE: AN INSIDER'S VIEW OF THE

C O N F I D E N T I A L SECTION 01 OF 02 TRIPOLI 000869 SIPDIS STATE FOR NEA/MAG; STATE PLEASE PASS TO USTR; COMMERCE FOR NATE MASON E.O. 12958: DECL: 10/28/2019 TAGS: ECON PGOV EFIN LY EPET SUBJECT: PRIVATIZATION LIBYAN STYLE: AN INSIDER'S VIEW OF THE BENGHAZI TANNERY'S EXPERIENCE TRIPOLI 00000869 001.2 OF 002 CLASSIFIED BY: Joan Polaschik, DCM, U.S. Embassy Tripoli, U.S. Department of State. REASON: 1.4 (b),(d) ¶1. (C) Summary: The head of the Benghazi Tannery Company, one of Libya's state-owned firms set to be privatized, alleged that the Libyan authorities in charge of privatizing his firm (and others) are using the process to sell off state-owned assets at below market rates, earning kick-backs in the process. Phone calls to a few firms already privatized indicate that this could be true, as General Managers of at least two firms stated freely that they were members of Libyan leader Muammar al-Qadhafi's close circle ("al-rifaq"),hinting that this made them beyond reproach. If the Tannery Manager's allegations are true, they would represent a credible explanation for why information on Libya's fitful privatization project remains hard to come by. And although the Tannery faces liquidity problems and is saddled with debts, it enjoys strong demand from an international client base, making it an attractive target for Libya's powerful elites. End summary. TANNERY MANAGER SEES CORRUPTION IN PRIVATIZATION ¶2. (C) Khalil Najim, a 28-year veteran of the Benghazi Tannery Company (BTC) in eastern Libya, shared with Econoff his frustrations in running this state-owned company, which is one of many firms that the Libyan government is preparing for privatization. According to Najim, the company is one of the largest tanneries in North Africa, with a good supply of hides from the livestock industry in eastern Libya and a strong demand for leather from an international client base, including Korean leather apparel companies. However, in his view, the Libyan authorities in charge of privatizing his firm (and others) are simply using the process to sell off state-owned assets as expeditiously as possible, and in the process, earning kick-backs for themselves. ¶3. (C) The Benghazi Tannery is one of 15 state-owned companies that are undergoing the process of privatization. According to Najim, the Privatization Board completed a study of the company's assets several months ago and now this information is being "analyzed." Until the assessment is finished, Najim understands that potential investors are not allowed to tour the factory. According to other sources in the Benghazi area, however, the Secretary of Libya's privatization board, the General Board for Ownership Transfer and Investment, Dr. Mahamud al-Ftise, recently brought some foreign businessmen to tour the factory. ¶4. (C) In Najim's view, al-Ftise sees the Tannery as "a problem to be dealt with," either through liquidation or a quick sale. Privately, he told local staff that he believes the reason the assessment of the company has dragged on is that the Privatization Board is planning to assess the value of the company at less than its real market value. The company would then be sold to an "investor" who would pay a bribe to the privatization board (or even al-Ftise himself) in return for receiving a bargain. Najim believes the privatization board may have already contacted foreign investors. ¶5. (C) While it is unclear who the potential Libyan investors might be for the Tannery, Post has contacted other companies on the list of firms to be privatized, and it appears several of the firms are being sold at preferential rates to those loyal to the al-Qadhafi regime, particularly "al-rifaq," or close friends of the Leader since the time of the 1969 coup. In one case the person who answered the telephone said he was the company's general manager, and that he and his partners had bought the company, freely admitting they were all part of the "rifaq." He said foreign investors would be welcome to visit the company and to assess if they wanted to enter into a joint venture. In another instance, when we called another company, the person who answered as the general manager seemed annoyed to even be called and said he did not need to answer to anyone because of his relation to Qadhafi. BACKGROUND ON THE TANNERY'S BUSINESS OPERATION ¶6. (C) Established in 1980, BTC is located in Benghazi, the largest city in eastern Libya, and includes 13 hectares of land. The company produces four million feet of leather per year, processing hides from cattle, sheep, goats, and even ostriches on a limited scale. Najim noted that the ostrich leather was in demand, although the factory could not produce large quantities due to a lack of specialized equipment. The factory purchases hides from three slaughterhouses in Benghazi. One of the main expenses is the chemical inputs that are required to process the hides, most of which must be imported from overseas (including TRIPOLI 00000869 002.2 OF 002 France, Germany, Italy, and Spain). Najim said most of the product was for export to countries such as Korea, Italy, Turkey, and Tunisia. The company has entered into a joint-venture with a small Italian firm. Najim said his company would welcome international partners, including American companies. ¶7. (C) The number of employees has decreased from 400 employees ten years ago, to a mere 100. Najim said he expected the number of staff to further decrease to 60, as employees leave the company for higher-wage jobs. The average monthly salary at BTC is 250 dinars (approximately 210 US dollars). The main problem the company faces is a lack of liquidity. Najim admitted the company owed 400,000 dinars (350,000 US dollars) to the Libyan government in past contributions to the Social Security Fund (which pays pensions for retired workers). ¶8. (C) Comment: Najim's allegation that the Benghazi Tannery is being prepared for a sale to investors who would pay kick-backs to the privatization board appears to ring true. Having spent his whole career at this state-owned factory, Najim took a risk by speaking frankly with officials of the Embassy about the realities of the government's efforts to privatize the company. He pointed out that while he is only 42 years old, his hair is graying and his face is worn, as he has worked tirelessly to keep his company running. At the same time, it is not unlikely that he has also used his management position in the company to benefit from various deals over the years. With the impending sale of the Tannery (in whatever scenario),any "on-the-side" livelihood is in jeopardy. Information on Libya's process for privatizing its state-owned enterprises is lacking; if the process is linked to political favors and corruption as Najim portrays it, this would offer a credible explanation for why details are so hard to come by. End comment. CRETZ