Economic Diversification in Libya: Reality, Challenges, and Prospects for Transformation

Abstract

This study reviewed the topic of economic diversification in Libya as the optimal solution to reduce dependence on oil as the main source of income. The Libyan economy is characterized by a rentier nature, making it vulnerable to internal and external fluctuations, and limiting the state's ability to build a diverse and sustainable production and export base. The study aims to analyze the extent to which the diversification indicator has been achieved in general, and specifically during the period 2020-2025, relying on published data, by examining the development of the structure of GDP, public revenues, and exports. The study concluded that the path of economic diversification has been marked by instability and variation. GDP indicators showed a relative improvement in the contribution of non-oil activities, but this improvement was not similarly reflected in public revenues, which still heavily rely on oil. Additionally, the results of the foreign trade analysis highlighted weak diversification, as the share of non-oil exports dropped to nearly 1%, indicating a limited establishment of a diverse export base. The study concluded that there is a gap between relative production diversification on the one hand, and financial and export diversification on the other, which confirms that diversification is still incomplete and unsustainable. Based on the results, the study recommends prioritizing political and security stability, along with reforming institutions, improving the investment environment, developing human capital, and advancing specific sectors like agriculture, renewable energy, and tourism, in order to create a long-term strategic plan for diversifying the Libyan economy.