On the changing commercial ecosystem and how governance reforms are evolving to align with international standards
How do you evaluate the trade finance landscape?
MOHAMMED ALI ADDARRAT: Letters of credit remain the cornerstone of Libya’s trade finance landscape, initially dominated by imports of finished goods, such as food products, for consumer and public sector markets. Over the past 45 years, however, the industry has evolved, with incentives now supporting imports of raw materials for local production and final-stage assembly. This shift represents incremental but significant progress in establishing a more integrated value chain.
Local production is gaining traction, driven by cost advantages over imported finished goods. However, foreign currency restrictions are a critical challenge: fluctuations in access to foreign exchange, compounded by political instability and elevated local demand on foreign reserves, have disrupted access to international suppliers. This underscores the urgent need for alternative revenue sources and a reduced reliance on public sector expenditure. In sectors such as energy, health care and food supply, private funding is beginning to play a more prominent role, marking a necessary transformation in the economic model.
The African Continental Free Trade Area presents opportunities to boost trade finance flows. Lenders with subsidiaries in sub-Saharan Africa serve as intermediaries for countries like Burkina Faso, Chad, Mali, Mauritania and Uganda. By leveraging trade finance expertise and acting as correspondents for letters of credit, these banks bridge gaps left by global financial institutions hesitant to extend credit lines to such markets. This facilitation is vital in fostering economic integration and supporting regional trade expansion.
What do you identify as the primary drivers of local banks’ international strategies?
ADDARRAT: Libyan banks’ international strategies are undergoing a strategic transformation, shifting from a politically driven approach to a more diversified and collaborative outlook. Previously, banks’ activities focused on countries with strong bilateral ties and neighbouring markets, creating subsidiaries or investing in these regions to support trade flows. This strategy provided stability, even amid domestic political challenges, due to a robust network of partner banks reducing reliance on foreign institutions for trade finance.
The revised strategy emphasises cooperation with successful financial establishments in high-growth regions. Morocco, with its thriving retail banking and trade finance sectors, and Turkey, an emerging partner, serve as prime examples. The approach moves away from majority ownership or direct management towards collaborative investment, fostering shared growth and market penetration. A significant element of the strategy involves advancing the value chain by targeting regions vital for sourcing raw material for Libyan industries. By importing unfinished goods at low cost, adding value through processing and exporting high-value products, banks aim to stimulate foreign currency income. Key sectors identified for this initiative include food supply, textiles and renewable energy.
In what ways are governance reforms within the sector aligning with global financial standards?
ADDARRAT: Robust governance reforms aim to deepen the sector’s alignment with global financial standards. Bolstering internal controls, safeguarding assets and driving operational transparency are central to these efforts. Key governance pillars such as compliance, risk management and internal audits have been strengthened. Enhanced reporting systems now provide real-time data, fostering greater transparency and accountability. Decision-making processes, while improved, continue to be optimised to meet international efficiency standards. By prioritising compliance, transparency and systemic efficiency, the sector can fortify its foundation, creating a framework for integration into global financial networks. These steps offer a roadmap for sustainable reform across the industry.
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