LAFICO: Transparency and independence of Libyan foreign investments

Khaled Amr Algonsel, Managing Director of LAFICO (Libyan Foreign Investment Company)

Following the revolution and currently in the post-Gaddafi era many changes have taken place, so my question is: how valuable is LAFICO’s portfolio according to the current prices?

First of all, I would like to thank you for this opportunity to present our portfolio and the targets that we have. LAFICO is the abbreviation for the Libyan Foreign Investment Company and one branch of our company is for investment within Libya. The company was established in 1981, it was a political decision to gather some investments around the world. These investments were in some of the main industries in that period. Those responsible for the company during the previous regime decided to gather all these investments into one company and so they established LAFICO. The capital belonging to LAFICO and its portfolio in 1981 was worth around 225 million Libyan dinars. Since that period the company has been growing and investing all over the world. Some decisions were made by investment professionals for example the investment in Fiat in Italy and other investments in other countries. Other investment decisions on the other hand were political decisions, however now this side of operations has been shut down and we are trying to reconstruct these investments. Since that period LAFICO’s investment portfolio has increased and now has been valued at 3.6 billion Libyan dinars as fair value for these investments. Mostly this has been due to the recapitalisation of LAFICO’s profit generated from subsidiaries of LAFICO and not actually dependent on the share capital increases. The capital itself has been increased by the recapitalisation of the dividends and the profits of LAFICO from 225 million Libyan dinars in 1981 to the current 2 billion Libyan dinars. This is the general view of our portfolio at LAFICO.

The investment of LAFICO itself is focused on many countries around the world and is diversified in many sectors, such as holding companies, real estate companies, agriculture, mining, and even services. We have investments in over 30 countries around the world. To be more specific, around 9% of our investments are located in North Africa. 9% are in England, with the rest being around the world, including minor investments.

These investments are also concentrating on generating some profits for Libya in order to diversify the income of the country and LAFICO has succeeded in generating many benefits from its portfolio. First of all, we have generated more than 1 billion Libyan dinars from dividends after 30 years of service for Libya. LAFICO has succeeded in investing in some strategic companies such as Fiat in 1986 and when the decision was made to exit this investment it had generated more than 3 billion Libyan dinars. We have established a portfolio from these dividends which is still working and has grown to more than 8 billion Libyan dinars.

This is the success of LAFICO over 30 years. LAFICO has grown gradually over this time and has invested in many areas and in many countries in Europe and Africa, particularly in Egypt with investments in real estate companies.

Have all your assets been already unfrozen?

Our assets are still frozen. There are some companies, in which we have minority stakes, that are now unfrozen because they are in partnership with some European companies. However, most of the assets in companies, in which we have a majority stake, are still frozen.

When can we expect this to change?

Currently we are still discussing this matter with those responsible; the executives and our shareholders at the Libyan Investment Authority. The management at LAFICO has expressed our view that there is no need for these assets to be frozen, that the objective of freezing the assets has been achieved during the period of instability, but that now we have reached the point where it is time to unfreeze these assets as the freezing is now having a negative effect on LAFICO’s portfolio.

Previously you mentioned that some of the investment decisions were politically motivated, now what are the mechanisms for independence and transparency?

We are in the stage of reconstructing LAFICO’s portfolio. We have contracted consulting companies to value our portfolio and to advise us on how to reconstruct our subsidiaries and how to exit some of our subsidiaries, which were investment decisions made for political reasons. We are finalising the consultancy stage and then will decide how to move towards achieving transparency and best practices in investment.

How do you manage your portfolio and select your investments? What is your strategy?

We haven’t made any new investments since the end of the revolution. We are still studying our current portfolio, looking at how we can develop it and solve any problems. We have changed the management of some subsidiaries and we have changed the board of directors after consulting our shareholders. We are now trying to further reconstruct the management of our subsidiaries. There is a strategic study by the shareholders on how to restructure the investment sector in general in Libya. We will be in this study because actually having many investment branches for Libya is not a healthy situation. Some companies are competing themselves in other markets and so we need to make strategic decisions regarding how to restructure and unify all these companies. We need to have one strategic directive for specific markets and get an accurate list of the successful and unsuccessful investments.

How would you characterize your investment philosophy? In the future, will it be purely financially based or will you take into account socio-economic developments?

We are focusing on just having financial investments for our foreign investments. At the moment we are trying to focus and invest internally with LAFICO and other investment companies in order to provide the Libyan people with opportunities for work and training and also to help with the infrastructure. We are able to do this due to our worldwide knowledge and partners that can help us with the restructuring of some companies here in Libya.

How do you manage entrance and exit risk?

In the past there were no standards set on how to manage entrance and exit risk because some decisions were made politically and on direction from the previous regime. Since the revolution we have implemented standards, we contacted some big companies to make an entrance and exit strategy. We are now using this strategy in cooperation with our shareholders, even though we don’t have any new investments.

What are the specific sectors that you are currently taking a closer look at? How do you identify opportunities?

Most of LAFICO’s portfolio is focused in the real estate market. Our target is to maintain our focus in this sector as 80% of our portfolio is directly or indirectly related to this sector. We have a specialist working for LAFICO in this sector. Therefore we are going to try to increase our portfolio in this area with the cooperation of our shareholders. There are many opportunities coming from various countries but because we are still in the restructuring phase here in Libya, we are still studying these investments and analysing them with our consultants. We will take these business opportunities to our shareholders for discussion and then when the business venture has been cleared for the investment sector in Libya we can decide how to invest and how to focus on real estate.

What is your conservative estimate of the return on the investments that you are going to record in 2013, 2014 and beyond?

Our target is to maintain our successful portfolio. We will use the best practices in regard to maintaining and managing this portfolio. We will cooperate with international firms who will help us to restructure our portfolio and to exit some unsuccessful investments. LAFICO has been a profitable company ever since it was established and our aim is to continue to generate and increase our profit despite the difficult circumstances of the international economy right now. Our target is to achieve a 5% increase in profits for next year. We have the opportunity to invest in other countries through our subsidiaries such as Corinthia Group and our holding company in Egypt. There are many opportunities to enlarge our portfolio in these countries. We aim to increase cooperation with our partners in order to explore more investment opportunities here in Libya. These are all factors that are helping this company to expand its portfolio and increase its profit.

What is your investment opinion regarding the global economic outlook and also the economic outlook here in Libya?

Internationally, of course, we expect some recovery in terms of our investments, especially in real estate. We expect the international economy to recover. There is a good demand for real estate, especially with regard to our investments in London and Egypt. We will use our experience in these markets to increase our investments for Libya. There are a lot of opportunities for our national economy. Libya needs more investment from international and national entities. We hope that Libya will become a transparent country. We will encourage our international partners to come here and invest in Libya. We are very optimistic about the economy here in Libya.

You mentioned that one of your main investment groups is Corinthia, are there any others that you can disclose?

Yes, we have Corinthia in Malta which is an international company. This company is investing in both European and Arabic countries. We have other Arabic partners in Saudi Arabia, Jordan, Kuwait and Sudan. We have some investments in Italy and London. We hope to have more joint ventures with large international firms. We are discussing this in terms of joint ventures for investments in Tunisia and Morocco. We also have some strategic partners in Algeria and we hope to increase the volume of our portfolio in the future.

How do you approach your communications strategy and the change of image? You are facing many challenges: first of all, Libyans may see that they need investment here and perhaps they don’t understand why you are investing abroad and not nationally. Secondly, the investments may not be very welcome in the west because of Libya’s legacy of political motivation. How are you going to try to change this image?

As you know every country has to diversify its income. We cannot depend on oil because this resource will run out in years to come, so a foreign investment strategy is very important for Libya. We can’t stop investing abroad as it is one of the strategic incomes that we must have in Libya. We have an existing portfolio and it would not be wise to exit these investments as they are generating profit for Libya.

LAFICO has been a profitable company for over 30 years now and has generated a lot of income for Libya. Therefore it is wise that we restructure this portfolio with more transparency, and this is something that we have already started to do. We have contracted Ernst&Young, a major auditing company, to audit our accounts transparently. We have already contracted SAP to have the international system. We have contracted Deloitte to revaluate our investments so that we can have the real and clear value of our portfolio. We have started to train our workforce in our subsidiaries and in international firms in order to have this generation ready to take on the company and to make this company comparable to the international investment groups.

I think it is important to maintain these investments and to convince our people that these investments are very strategic for the country regardless of the fact that we also need investment in Libya. We want the people to know that we are trying to use our experience and our international partners to invest in Libya. We have contracted some of our partners to begin some projects here in Libya particularly for hotels and commercial centres in Tripoli and Benghazi. We are also starting to have other strategic partners in cities such as Misrata and cities in the south. We are trying to use our international expertise to study the business opportunities in Libya. So I think we are moving in the right direction by diversifying the country’s income.

At the same time, Libya has a strategic geographical role; it is probably one the of the richest, if not the richest, country in the region; a region which finds itself in quite a difficult situation with what is going on in Egypt and Tunisia. Libya should have a very stabilising effect on the regional economies and export some of the capital that it is generating from its oil revenues to the neighbouring countries because if these countries end up in war situations, it will have a great effect on Libya, which is something that not many people are aware of.

Yes, I totally agree with you. Our neighbours need our help just as we need theirs. Their stability is very important for Libya, because the instability of one country will affect the stability of another. So we are concentrating on restructuring our investments in Egypt and Tunisia in order to help our holding companies and subsidiaries there to increase their investments in these countries. We are also encouraging them to use international companies in order to have transparent accounts. We have some projects ready for money to be injected into. We have some investments in Tunisia, we are trying to increase our investments in Tunisia, by using some money from Libya but we actually have a holding company in Tunisia with its own resources that can be used for this directly. These are strategic decisions that are necessary and I think most people know that the stability of these countries is very important for Libya.