After almost a quarter-century of increasing isolation caused by Gaddafi's links to terrorism and suspicions that he sought to develop weapons of mass destruction, Libya is offering the world an olive branch.
In a surprise announcement last month, Libya pledged to abandon its weapons programs and to allow unconditional inspections to verify this. It also said it will ratify the nuclear test ban treaty and the chemical arms convention.
That follows the Gaddafi government's agreement earlier last year with the United States and Britain to compensate families of the victims of the 1988 Lockerbie airliner bombing. And just this month, there came agreement with French families over compensation for the 1989 UTA airliner bombing.
The UN Security Council has voted to lift sanctions on Libya. A skeptical United States, while preserving its own sanctions, has said it is ready to take steps to improve ties. The European Union has said it's ready to work closely with Libya.
But incorporating Libya into regional and international economic life will not be easy. The long-isolated Libyan economy is dependent on revenues from the oil sector, and oil contributes practically all its export earnings. The manufacturing sector has expanded somewhat however, and now includes petrochemicals processing, and the manufacture of iron, steel, and aluminum.
Difficult climatic conditions hamper agriculture and the country imports nearly all its food. And an inefficient distribution system means there are periodic shortages of basic goods and foodstuffs.
Deutsche Bank economic analyst Bernd Klett says that if Gaddafi wants investment, he will have to show that he is serious about giving up terrorism. "If Gaddafi is in earnest, and really commits himself to quitting terrorism and does not support it, then indeed it will have a very positive impact on the economic climate and the investment climate in Libya," he said.
European oil companies are already investing in the Libyan oil sector. U.S. oil companies are still prevented from doing so by the continuing sanctions, but Klett expects that if Gaddafi sticks to his new course, the road for them too will soon be clear. "That will lead of course to Libya having more income from exports, and this money can be put into economic development; but exactly how this extra money would be used is another question," he said.
Klett notes that Gaddafi has recently spoken several times about diversifying the country's economy away from the oil sector into other branches. But he is skeptical. "Whether this extra money will be sensibly used from an economic viewpoint remains to be seen; when Gaddafi really allows pro-market economic reforms to be carried out, and does something about administrative corruption, that would mean the Libyan economy could develop very positively, but I'm not completely convinced that [will happen]," he said.
Libya is part of the Maghreb region of North Africa. It suffers -- along with its fellow Maghreb states to the west, Algeria, Tunisia, Morocco, and Mauritania -- from a generally inefficient economic life.
As regional expert Jeremy Binnie of Jane's politico-military publishing group sees it, "They are all facing those same kind[s] of challenges where you have very state-dominated economic systems and, as population has grown, the state's ability to support its population in a central economic model is increasingly reduced. And now they are facing real strains for the future," he said.
Binnie notes Libya's destiny now relies rather precariously on only two key resources, namely oil and water. "The country does not really have much water," he said. "They have this project to draw water out of the desert from aquifers deep underground as a way to supply the country with water, but the underground water is a finite resource as well. The underground wells won't just fill up again, so the Libyans are surviving on two finite resources, and people say both the water and the oil may run out together."
Certainly, one group that will be happy to see Libya back within the international community is the European tourist industry, which is always in need of new holiday destinations. One French tourist, Jacqueline Lemariey of Paris, has just made a tour of the western Libyan desert area and she has warm praise for its friendly people and exotic landscapes. "It is very beautiful, there are landscapes of sand dunes, of valleys, of palm groves and plateaus," she said. "It is very beautiful."
She says tourism is already on the upswing and that her flight carried some 300 people to Libya to spend holidays variously on walking tours, on camel riding tours or on four-wheel-drive safaris.