Can Libya's Private Sector Lead Economic Diversification?

Libya's economy grew by 13.4% in 2025, according to the World Bank. Oil production recovered, activity outside the energy sector expanded, and private consumption strengthened. Yet beneath those figures, the country's economic structure remains largely unchanged. Hydrocarbons continue to dominate exports and government revenues, while private businesses account for a relatively small share of employment.

LIM has examined the size and composition of this business community in its overview of Libya's private sector in 2026, including activity across manufacturing, technology and construction.

There are, however, signs of investment in a different economic model. East of Benghazi, a Turkish-Libyan joint venture is constructing a large direct reduced iron complex. Established cement factories are receiving new equipment and undergoing rehabilitation. A food manufacturer is preparing to produce dairy and beverage products that Libya has traditionally sourced in significant quantities from overseas.

These investments bring an important question into focus. Can private businesses develop the productive capacity needed to diversify Libya's economy, even as the financial and institutional environment remains difficult?

The answer depends partly on how diversification is defined. A new factory can create jobs and increase industrial output, but its wider economic contribution depends on whether it operates competitively, develops domestic suppliers and generates revenue that can be sustained beyond the initial investment.

Libya has opportunities to expand manufacturing, particularly where its energy resources, domestic demand and geographic position provide commercial advantages. Turning those opportunities into a broader private economy will require changes that individual investors cannot deliver alone.

Why is Libya still so dependent on oil?

The scale of Libya's hydrocarbon dependence is difficult to overstate. According to the World Bank's country overview, oil and gas accounted for approximately 65% of GDP, 93% of exports and 72% of government revenues in 2024.

This concentration affects considerably more than the country's external trade. Oil revenues finance public-sector salaries, subsidies and a substantial share of domestic expenditure. When production is interrupted or international prices decline, the effects can extend through government finances, foreign-exchange availability and household purchasing power.

The recovery recorded in 2025 illustrates both the strength of Libya's oil industry and the economy's continued exposure to it. The World Bank estimates that overall GDP increased by 13.4%, supported by a 17.4% expansion in oil-sector output. Non-oil activity grew by 6.9%, with much of that growth attributed to stronger private consumption supported by rising wages.

Those figures indicate that economic activity outside hydrocarbons can expand substantially. They tell us less about whether Libya is developing independent sources of productive growth.

A retail business may experience higher sales when government salaries increase. Transport operators, importers and service companies can benefit from the same spending. Although these activities contribute to non-oil GDP, the demand supporting them may still originate from public expenditure financed by petroleum revenues.

Diversification becomes more durable when businesses develop competitive products and services whose commercial prospects do not depend primarily on the government's ability to maintain spending. Manufacturing exports can contribute to that process, as can productive domestic industries and internationally traded services.

Libya's challenge is to increase the share of economic activity generated by businesses capable of operating under different oil-market conditions.

Can Libya's banking system support a stronger private sector?

Finance is among the most immediate obstacles facing private investment.

In its April 2026 assessment of Libya's economy, the International Monetary Fund reported that the banking system had excess liquidity while credit to private businesses remained effectively restricted, partly to contain foreign-exchange pressures.

This creates a difficult environment for businesses seeking to move from trade into production.

Importing and distributing finished goods generally involves a different financing cycle from establishing a manufacturing operation. Factories require substantial upfront expenditure on buildings, machinery, installation and technical personnel. Production may take months or years to begin, while the business must continue meeting expenses before earning meaningful revenue.

Companies with established capital reserves or access to international partners may be better equipped to absorb those costs. Smaller enterprises, even when commercially promising, can struggle to obtain financing on terms suited to long-term industrial investment.

Foreign-exchange conditions complicate the picture further. Machinery, specialized components and many industrial inputs are purchased internationally, exposing manufacturers to currency movements and restrictions on overseas payments.

The IMF's findings suggest that Libya's financing problem cannot be resolved through banking reforms in isolation. Fiscal pressures, exchange-rate management and confidence in monetary policy all influence the conditions under which banks can extend credit.

This raises a difficult question for economic diversification: can Libya develop a broad manufacturing sector if industrial investment remains most accessible to businesses that already possess substantial capital?

Large projects can create production capacity, but a competitive private economy also needs smaller manufacturers, service providers and suppliers that can obtain working capital and expand alongside them.

Does the public sector restrict private business growth?

The state's economic footprint presents another challenge.

The World Bank's June 2025 Libya Economic Monitor identified nearly 190 state-owned enterprises operating across sectors that include finance, infrastructure and utilities. Its assessment raised concerns about market distortions, weak financial performance and the effects of extensive state involvement on competition.

Public ownership is not inherently incompatible with private-sector development. Electricity networks, transport infrastructure and other essential services may require substantial public investment, particularly in markets where private financing is limited.

The difficulty arises when state-owned businesses receive advantages unavailable to private competitors, or when inefficient enterprises absorb resources without delivering services reliably.

Libya's employment structure adds to the imbalance. The World Bank estimates that the private sector accounts for only 14% of the workforce, leaving government-related employment as the dominant source of formal jobs.

For private employers, competition with public-sector employment can complicate recruitment, particularly where government positions offer greater perceived security. Industrial companies also require specialized technical capabilities that Libya must continue developing through training and practical experience.

Other obstacles are more immediate. Manufacturers need dependable electricity, access to transport infrastructure, predictable customs procedures and contracts that can be enforced. Interruptions in any of these areas can raise production costs or prevent companies from meeting delivery commitments.

The IMF has recommended reforms to licensing, customs, contract enforcement and state-enterprise governance, alongside measures to improve private-sector employment opportunities.

For an investor considering a factory, these conditions influence the commercial calculation as directly as the cost of machinery or land.

What do Libya's industrial investments tell us about diversification?

Several industrial projects illustrate how private capital and international partnerships are being directed toward manufacturing.

Their economic purposes differ. Some aim to expand exports, while others focus on increasing domestic production in markets with established demand.

The Tosyalı-SULB direct reduced iron complex, under construction east of Benghazi, is an example of the first approach.

Developed through a partnership between Turkish steel producer Tosyalı and Libya United Steel Company for Iron and Steel Industry, the project is designed to manufacture an iron product used by steelmakers.

In February 2025, Midrex Technologies announced that it and SMS group had received an order for the first production module, designed to manufacture 2.5 million tonnes of cold direct reduced iron annually.

The project's economic logic rests partly on Libya's natural-gas resources. Gas can be used in the reduction process to manufacture an internationally traded industrial product, allowing additional value to be created domestically before export.

There is already an operating iron and steel industry in Libya, notably through the Libyan Iron and Steel Company in Misrata. Tosyalı-SULB could expand the country's participation in this market if its first module is commissioned successfully and reaches sustained commercial production.

Construction progress and contracted design capacity are important indicators, although neither establishes future output or export earnings. The costs of energy, raw materials, logistics and plant operations will determine how competitive the facility becomes.

The Libyan Cement Company represents a different approach, focused on restoring and modernizing capacity that serves the domestic market.

The company has been rehabilitating production facilities at Hawari while investing in new equipment for its Jardinah operations. German engineering supplier Gebr. Pfeiffer confirmed an order for a raw-material mill capable of processing 450 tonnes per hour, with commissioning planned for the second half of 2027.

The potential benefit is straightforward. Libya requires cement for housing, infrastructure and reconstruction. More reliable domestic production could allow local manufacturers to supply a greater share of that demand, provided their costs and product quality remain competitive.

Modernization can improve the performance of existing industrial assets, although the announced mill capacity measures raw-material processing rather than additional finished cement output.

Food manufacturing offers a third model.

Zulfa Food Industries is developing a dairy and beverage processing facility in Benghazi in cooperation with Tetra Pak. The investment is intended to establish processing and packaging activities within Libya, where imported finished food products have long served an important role in supplying the domestic market.

In October 2026, the company reported discussions with Tetra Pak concerning preparations for production and opportunities to develop additional products. Its eventual market contribution remains dependent on commissioning, operating costs and commercial performance.

These projects are connected in part through the activities of Ahmed Gadalla, founder and chairman of Alushibe Holding Group, whose industrial investments and business affiliations include steel, cement and food manufacturing.

They illustrate different opportunities available to Libyan investors, from supplying international industrial markets to producing more construction materials and consumer goods domestically.

Their progress also exposes an important limitation of project-based analysis. A substantial investment can be commercially successful without necessarily producing a large change in the national economy. Its wider contribution depends on the employment, supplier relationships and value added generated through sustained operations.

Can major factories help smaller Libyan businesses grow?

The benefits of industrial investment can extend beyond the factories themselves, particularly when domestic suppliers become capable of meeting their recurring needs.

A direct reduced iron complex requires maintenance, transport, engineering services and industrial equipment support. Cement production depends on quarrying, machinery servicing and distribution. Food manufacturers need packaging, testing, warehousing and reliable delivery networks.

Some of these services can be supplied by Libyan businesses. Others may initially require international expertise or imported equipment, especially when the technical requirements are highly specialized.

The balance matters.

If a new industrial facility purchases nearly all its specialized services and inputs abroad, it can still provide direct employment and generate output. Its contribution to the wider domestic business community, however, will be more limited.

Developing local suppliers requires practical commercial arrangements. Smaller contractors need clear technical specifications, predictable procurement opportunities and sufficient financing to fulfill contracts. They must also demonstrate that they can deliver services reliably and at competitive prices.

For Libya, this could become one of the most useful measures of industrial development.

The construction of a large factory is visible and relatively easy to document. The gradual development of local engineering firms, maintenance contractors and specialist service providers receives less attention, although it can create business capabilities that remain useful across several industries.

A company trained to maintain equipment at a steel facility may eventually serve cement manufacturers or other industrial customers. A logistics business supplying a food-processing plant may develop systems that can be used by additional manufacturers.

These possibilities are commercially significant, but they cannot be assumed. Local procurement, supplier contracts and employment data will be needed to establish how far individual projects are contributing to domestic business development.

What would help Libya's private sector expand beyond a few major investors?

The experience of large industrial projects suggests that Libya has opportunities for private manufacturing investment despite difficult operating conditions. The greater challenge is making investment commercially feasible for a much wider group of businesses.

Access to finance is central to that objective. Smaller manufacturers need working capital and investment loans suited to production cycles that differ substantially from ordinary trading activity.

However, restoring lending on a sustainable basis will depend partly on addressing the fiscal and foreign-exchange pressures described by the IMF.

More predictable regulation could also reduce the cost of investment. Companies purchasing machinery, importing production inputs or entering supply agreements need confidence that licensing, customs requirements and commercial rules will remain sufficiently stable for long-term planning.

Infrastructure reliability deserves similar attention. Electricity interruptions impose direct costs on manufacturers, particularly those operating continuous processes or equipment that must be restarted after shutdowns. Transport problems and unreliable utilities can also weaken a company's ability to compete with imported goods.

The World Bank's 2026 Streamlined Country Diagnostic examines Libya's wider development constraints, while the IMF has emphasized stronger institutions, improved business regulation and reforms to support private employment.

These changes would not guarantee that every industrial investment succeeds. Businesses must still manage costs, identify customers and compete on quality.

They would, however, make the market less dependent on investors with the financial resources and commercial relationships necessary to manage unusually difficult operating conditions.

That is particularly important for diversification. A national economy cannot rely indefinitely on a small number of large businesses to generate all its new productive activity.

How should Libya measure progress toward economic diversification?

Libya has no shortage of announced investment plans. The more useful evidence will emerge as projects begin producing goods, hiring permanent employees and developing commercial relationships with customers and suppliers.

Manufacturing output is an obvious starting point. A factory that operates consistently and sells competitively demonstrates a different level of economic activity from one that remains under construction.

Non-oil exports provide another measure, particularly where domestic companies can establish sustained relationships with international customers. Export performance would help show whether Libya is developing industries capable of earning revenue beyond the domestic market.

Employment and domestic value added are equally important. Industrial investment can support the wider economy when it creates productive jobs and allows Libyan businesses to supply services and inputs that would otherwise be purchased overseas.

These indicators should be evaluated over time. Annual capacity, construction expenditure and announced employment targets remain useful information, but they cannot establish the lasting economic contribution of a project before operations begin.

Libya's hydrocarbon industry will remain central to national finances for the foreseeable future. Economic diversification is more likely to develop through gradual expansion into activities where businesses can become commercially competitive, using the country's existing resources and market opportunities where appropriate.

The investments underway in steel, cement and food manufacturing suggest that private capital can contribute to that expansion. They also show why the distinction between building industrial facilities and developing a diversified economy matters.

Private businesses can establish productive assets and create new markets. Whether those investments lead to a substantially larger non-oil economy will depend on their performance and on the conditions available to the smaller companies that could grow alongside them.

The most convincing evidence of progress will be found in the factories that operate reliably, the goods they sell, the people they employ and the domestic businesses that become part of their supply chains.

Research note: This analysis draws on World Bank and IMF assessments available through November 1, 2026, together with publicly documented industrial contracts and company updates. Investment announcements, contracted capacity, construction progress and commercial production are treated as separate measures. Individual projects are used as case studies rather than evidence of a nationwide private-investment trend.