Libya And Italy: Colonial Past, Future Business At Stake With Gaddafi’s Regime On The Brink

Gaddafi and Berlusconi's "Special Relationship" helped close wounds of colonial past and expand economic ties. Some Italian businessmen are no doubt rooting for the regime to survive.

Berlusconi and Gaddafi in Rome in 2009 (Derek Visser)

The world is watching Cyrenaica, the Libyan region where the city of Benghazi is located. For Italian business interests, this is both a blessing and curse.

Italian companies have stayed mum during the current political upheaval that has its epicenter in Benghazi, but it is obvious that they support the stability offered by Col. Muammar Gaddafi's regime. It is just the latest example of just how economically entangled Europe and the West have been with the autocratic rulers in the Arab world now under assault from their own people.

Italy is Libya's top economic partner. Tripoli is Italy's primary supplier of oil, and number three provider of natural gas. Hydrocarbons account for 99 percent of Italian imports from the North African country. Italy exports to Libya include refined oil products and machinery. In 2009, trade between the nations totaled 11 billion euros, a steep drop from more than 20.3 billion euros in 2008.

But it was in Benghazi, in August 2008, that the two countries were supposed to have turned a page on the past, and pointed to ever deeper business ties in the future: Italian Prime Minister Silvio Berlusconi and Gaddafi met in the eastern coastal city to sign a "Friendship Treaty."

Now, the destiny of this treaty could become part of the collateral damage of the popular uprising in North Africa. Two years ago, in his Bedouin tent, the Colonel forgave Italy for its colonial past, having conquered and reigned over the Mediterranean nation in the first decades of the 20th century. In a far-reaching deal for both sides, Italy committed to pay $5 billion over 25 years to Libya as a compensation for its former military occupation. For its part, Libya vowed to take measures to curb the illegal immigration that set off from its shores across the Strait of Sicily; gave Italy access to its natural resources; and guaranteed to Italian companies $5 billion worth of contracts to build infrastructure over the next 20 years.

Theoretically, it was a great deal for Italian business. At the time, nearly 100 companies were already doing business in Libya: in oil, infrastructure, mechanics, capital goods, construction, and plant design. Eni Spa, the Italian national oil and gas conglomerate, has been in Libya since the 1950s with its subsidiary companies, Saipem and Snap Progetti. In 2007, the Libyan regime extended Eni's concessions for another 25 years and $25 billion worth of new investments.

There is also the Italian national energy provider Enel, with its subsidiary company Enel Power, as well as, Tecnimont, Finmeccanica, Iveco and others. In practice, thanks to the controversial friendship between Italian Prime Minister Silvio Berlusconi and Gaddafi, Italian companies were set to expand their business presence in Libya in sectors beyond energy. But many businesses were just getting started when the regional unrest began. Italian companies have plans to invest $3 billion in a 1,700 km motorway, stretching from the country's western border with Egypt to its eastern border with Tunisia. The first contracts for this deal were granted to Saipem. There is also a major project underway for Italian companies to help increase tourism along Libya's coastline.

So far, the protests in Libya have not directly affected Italian companies there. "There are no problems, all our installations are outside the big cities," an Eni spokesman said. (Families of Italian employees, however, began to leave the country Monday) The revolt, if successful, could spell the end of the "special friendship" between Rome and Tripoli. Finmeccanica, Italy's second largest industrial group, has one $1 billion worth of business deals scheduled in Libya. It has a $300 million electronics contract for the south, and two $750 million contracts to build a railroad with Ansaldo Sts. Meanwhile, Impregilo, Italy's leading General Contractor, has $260 million worth of deals planned.

Then, there are Libyan business interests in Italy, which are on the rise because of the close personal ties between Berlusconi and Gaddafi. The Colonel is the first shareholder in the banking group Unicredit, thanks to Libya's Central Bank holding 4.9 percent and the National Libyan Investment Authority (LIA) holding another 2.6 percent. Gaddafi's Lafico holding has 7.5 percent of the Turin-based Juventus soccer Club. LIA recently bought a one percent share of Eni Spa -- though it is was reportedly holding out to buy between 5 and 10 percent worth of shares -- as well as 2 percent of Finmeccanica.

The business interests of the two countries are so closely linked that the political upheaval underway in Libya -- particularly if there is an outcome like those seen in Tunisia and Egypt -- could have economic ramifications for both nations.

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