Brazilian undertaking at Libya

Among the most troubled regions of the world, Libya holds a highlight position. The country is among the most corrupted and is led by the same man, Muamar Kadafi, for more than 40 years. Eccentric and spoiled, the dictator has even proposed a saint war against Switzerland and removed Libya from UN Organization for the assistance to refugees (all this only from the beginning of the year until now). To the outbursts of its governor, add a delay of more than ten years in the economy of Libya. Accused of supporting terrorism, the country has lived under an embargo that prevented the import of products and the actuation of foreign companies. The impediment was only overcame in 2003 after an international agreement.

This is exactly why the environment is chosen by a growing number of Brazilian contractors to do businesses. Libya lives a relevant historical moment, says Daniel Villar, Odebrecht superintendent-director in Libya. With the end of the embargo, the country decided modernize and invest in infrastructure. The money to finance the works is not, at least for now, a problem. Only one of the sovereign funds in Libya, for internal investments, has U$800 billion. With great part of its GNP coming from petroleum, the country invested U$ 115 billion in infrastructure in 2003 and 2009, according to estimates.

Odebrecht was the first Brazilian company to install in Libya since the reopening of the country. The company started to work in 2007 in two works in the total amount of U$ 1.4 billion: the construction of two terminals of the city’s International Airport, Tripoli, and the creation of a beltway. The company was followed by the competitors Andrade Gutierrez and Queiroz Galvão, which performed urban infrastructure works in the country (such as sanitation and remodeling of the cities). Now it is OAS’ turn. The construction company waits for the approval by the Libya Finances Ministry to establish a subsidiary in Tripoli, what is expected to the end of the year.

Libya is the most recent destination of the Brazilian constructors in Africa. The presence of companies such as Odebrecht and Andrade Gutierrez is already a tradition in Portuguese colonization countries, such as Angola. The Arabian region of the Northern continent, however, has only recently started to be explored.

Diplomacy. Behind this movement is the process to approach the two countries promoted by the Lula government. The Brazilian president, who calls Kadafi friend and brother, visited Libya last year. The first mission of Brazilian businessmen also took place in 2009, when 90 companies of the most diverse industries visited the country. Last year, Libyans also came to Brazil to invite local companies to participate of its privatization process. Between 2003 and 2009, the Brazilian products exports to Libya increased 289%, while the Brazilian imports from the African country presented a 3,111% growth. The excellent personal relationship between Lula and Kadafi and between the minister Celson Amorim and the former Libya Infrastructure minister leverage the relationship between the two countries and helped top pave the way for the Brazilian companies to operate in Libya, states George Ney de Souza Fernandes, Brazilian ambassador in Libya.

The peculiarities of the country have required an additional effort from the Brazilian companies. Due to a cultural issue, Libyans are not used to performing manual works. Therefore, thousands of workers need to be brought from countries such as Thailand, Vietnam, Philippines and Egypt to work at the county’s worksites. This blend of costumes creates a few complexities. Odebrecht, for example, serves two kinds of lunch for its employees: an international cuisine and an Asian cuisine.

In the administrative area of the construction company, there are 35 different nationalities. Our greatest concern regarding the expatriated employees relates to the single ones, says Villar. In Libya, an Islamic country, the sale of alcoholic beverages is forbidden and the entertainment options are scant. There is no cinema, shopping mall or theater. In an attempt to solve the problem, the company created, a little over a year ago, a club with a pool, fitness classes and yoga. A personal trainer was brought from Brazil and the wife of one of the expatriates organizes weekend getaways.

Despite the years of isolation, the Libyan industry of raw material for civil construction has been meeting, specially, the needs of the current investments boom. The main supplies of the industry – steel, cement and tar – are produced locally. Materials such as ceramics and glass, as well as equipment, are imported from Europe, Asia and near countries such as Turkey and Arab Emirates.

The greatest complexity to operate in Libya is in the relationship with the government. The OAS case, which currently negotiates an agreement for the financing of public buildings, is emblematic. The Libyan government gives preference to foreign companies which celebrate partnerships with local companies. The model sets forth the participation of 35% of a Libyan company. OAS, however, prefers to work alone. We came in after our competitors and saw the difficulties faced by them, says Evandro Daltro, one of the individuals responsible for the OAS installation in Libya. The local companies contributed very little to our operation. We would do 100% of the job and would receive only 65%.

In the current dispute with the government, OAS requires the establishment of a subsidiary in the capital, Tripoli, 100% controlled by the Brazilian company. If this is really not possible, we can accept a partner, but depending on the project and on the partner recommended, says Daltro.

From the political point of view, the great disadvantage of acting alone in a little mature business environment such as Libya, is to end up losing an important communication channel with the local government. Having a partner attenuates the operation risk, because you have someone who knows the bureaucratic environment and fights on behalf of the project in emergency situations, says an executive of the industry with experience in international operations. OAS intends to overcome the absence of a local partner through the work of a sponsor, a kind of lobbyist with prestige and transit in Libya, who is already working in the company installation, and a Libyan director who will be hired to work in the operation.

Sui generis. The investments boom has created a sui generis situation. After the peak of agreements signature in 2007 and 2008, a few agreements started to be canceled. In some cases, the construction companies involved – usually Turkish, Greek and Chinese – were not able to perform the works operation. In other cases, they did not have the financial capacity to carry out the projects. There were even situation that lacked synchrony among the several works performed at the same time. Last year, a recently inaugurated building had a part destroyed to allow the passage of a highway near Tripoli, says Daltro. Recently, the Libyan government hired an American construction company to help in the agreements organization.

While the market restructures itself, the Brazilian companies need to deal with the competition – not only among themselves, but with the aggressive Chinese construction companies. When we arrived at Libya, we were competing with European companies. Now the Chinese are getting stronger, says Villar, from Odebrecht. Today, some of the greatest works in Libya are being managed by the Chinese. This is the case of the construction, in the amount of U$2.6 billion, of two railroads which add more than one thousand kilometers of extension. The agreements owner is China Railroad Construction Corporation (CRCC). The great advantage of the Chinese is the lower labor cost, not exactly regarding the worksite workers, but rather, the engineers, admi

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