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September 01, 2017 | Sebastian Bustos and Muhammed Ali Yildirim
Libya’s Manufacturing Sector: Placing Strategic Bets to Become Competitive

This policy report on Libya’s industrial sector is part of a series reports aimed at identifying strategic options Arab countries have in undertaking structural transformation. Using the product space methodology, this report analyzes existing capabilities of selected economies by identifying products they currently export and determining which path they should follow to produce more sophisticated and strategic products. A study of Libya’s product space reveals that development should focus on new opportunities in the foodstuff and chemical clusters. While products  in the foodstuff and textile communities are closer in distance in terms of productive knowledge and capabilities of the country, products in the chemicals & allied industry, plastics/rubber, and machinery/electrical have a higher product complexity index. Therefore, developing them would have a larger impact on Libya’s average complexity. Nevertheless, it should be noted that given Libya’s position in the product space, all target products are a fair distance away from what the country currently produces, meaning it will require significant effort to develop sectors and become competitive in world markets without tackling market failures. In similar cases, enhancing production possibilities around existing industries does not produce desired leaps. Industrial policy should focus on selecting a number of new industries or products at which to target public inputs.