In Italy, Eulogies for Qadhafi's Wealth Mismanagement Fund

"Want to bunga-bunga or should we just zenga-zenga?"

An item in the Wall Street Journal reminds us that the ties between Libya and Italy's elites are very, very deep, and, as benefiting the lives of the rich and famous, sometimes produce strange little stories that illustrate much larger forces at work - in this case, the economic future of Libya following the National Transitional Council (NTC) and NATO's military successes: 

ANTRODOCO, Italy - Maurizio Faina, mayor of this small Italian town, has for three years been planning the construction of a lavish spa here thanks to one deep-pocketed financial backer: Col. Moammar Gadhafi.

Now that Col. Gadhafi is being ousted from power by his own people, "the whole plan is over, and it's sad," says the mayor, who had hoped to employ hundreds of people thanks to the €16 million ($22 million) resort.

Antrodroco's longing for Col. Gadhafi's largesse is a small, but significant, window into the vast economic ties between Italy and its former colony - a network that generated about $17 billion in annual trade before the conflict broke out.

Significantly, the spa deal began with a personal effort by Colonel Qadhafi (conduced alongside the Italian PM, Silvio Berlusconi, who has cultivated close ties with the deposed leader) and was, according to Italian sources, being managed by the Libyan Investment Authority (LIA), whose multibillion dollar assets were frozen several months ago. These assets include stakes in UniCredit, Italy’s largest bank (who largest foreign owner was, until recently, the Libyan government); Eni, the state energy company that produces the lion’s share (60%) of Libya’s oil exports; and Finmeccanica, a partly government-owned conglomerate with interests in Libya ranging from infrastructure to defense. The regime also had smaller stakes in various Italian sports, automotive, media and telecom interests – and was reported to be eying another, even larger, resort project in the Italian spa town of Fiuggi (so the Colonel would have a choice of resorts, presumably).

Faina is quoted in the Journal as being bitterly disappointed with NATO’s actions in Libya, reflecting divisions within Italy over the effort to remove Qadhafi. Although Italy accquiesced to the NATO intervention, the government was very reluctant to become too deeply involved with the campaign, though it did come to support the NTC. 

Tangled colonial and WWII history have something to do with this reluctance to intervene, of course, but so too do the awkward TV images showing destroyed military hardware that Italian firms sold to Qadhafi in the 1980s. Italy’s defense ties with Colonel Qadhafi – stalled during the 1990s because of an arms embargo – revived after 2004, as did those of other EU defense firms. Those ties are sure to resume, along with a bevy of other financial and political ties, as the NTC settles into Tripoli and tens of billions of dollars in assets held by the LIA are unfrozen by Western nations.

The spa deal is indicative of the connections between the Qadhafi regime and Western politicians and corporate executives. Qadhafi’s discovery of Antrodoco may have been accidental –he is said to have serendipitously stopped at the town on a state visit to Italy – but his further association with the town after that was anything but serendipitous. Colonel Qadhafi flew Antrodoco notables to Tripoli to discuss the venture, and the LIA was negotiating contracts with the town’s officials up until April 2011. Faina says that in the process, he got to rub elbows with Italian political heavyweights like the former chief executive of UniCredit, Alessandro Profumo, whose bank is now inextricably associated with the LIA’s wealth mismanagement.

Profumo left Unicredit in September 2010 partly because of controversy surrounding the LIA. At that time, the LIA had purchased a 2.6% stake in UniCredit, alongside the purchase of a 5% stake by the Libyan Central Bank, making the Libyan government, through these agencies, UniCredit’s largest stakeholder. According to the Financial Times, Profumo’s decision to not announce this to shareholders “triggered” his removal, especially because some of Berlusconi’s political allies in the ultranationalist Northern League objected to “Arab” investment in Italy on (xenophobic) principle. UniCredit did not reneg on the deal with the Libyan Central Bank and LIA, but did freeze their assets at UniCredit several months ago. Now the Italian government (in addition to most EU governments) are pressing for the funds to be unfrozen and given to the NTC for reconstruction purposes.

But, despite the airing of dirty laundry in public (including the revelation that Berlusconi himself has business ties to the LIA through a French telecom called Quinta Communications and Tunisia’s Bourguiba family), the awkward recent past will likely be overcome as Italy and the NTC seek a modus operandi, which will be fueled by petroulem products.

Eni, the biggest oil major in Libya, draws 13% of its total revenue from its Libyan operations and has been moving quickly to restart and shore up its operations in Libya, which were halted in February 2011. Despite its formerly close ties with Qadhafi, it moved to establish ties with the NTC as the fighting intensified. The NTC has, in turn, signaled it willingness to adhere to preexisting export agreements with Italy (the revenues from those agreements make up 95% of Libya’s foreign revenue receipts), and is now depending on Eni, and the French firm Total SA, to get oil production up and running again. As Italy’s Foreign Minister put it, “the rebels in Benghazi immediately understood that Eni would have been a reliable partner in a post-Gadhafi Libya.”

Some Italian papers are already editorializing that the Italy must seize the initiative to regain clout in Libya over Eu interlopers. From the center-right daily La Stampa comes a call-to-arms for all able-bodies men with suits and briefcases to preserve Italy's sphere of inlfuence. It is certainly forthright and accurate in its description of Italian, and, by extension, EU motives in postwar Libya:

"The factor on which the North African Great Game (a term given capital letters by historians of colonial rivalry) still pivots is the instability of a Libya which, while devastated, still owns immense energy assets and has a heritage of economic ties with several wealthy countries in the world. It is basically a huge resource market open - indeed more open than ever, amid its smoking wreckage - to the craftiest and, at the same time, the firmest bidder and protector."

[Snip]

"No more squadrons of [French] Mirages or of Rafales, no more nuclear aircraft carriers like the Charles De Gaulle, but engineers, technicians, geologists, and managers hunting for crude oil in the deserts, and fighting a cold war to prevent Italian companies from winning back their priority positions in the network of oil wells nurtured and fitted out by [ENI founder Enrico] Mattei's heirs. We should not forget that the "Libya game" was worth a turnover of at least 12 billion [euros] a year to Italy."

The editorial shows that the NTC can count on a somewhat sympathetic voice in the EU (Italy, like France, will object to just about any Anglo-American move in its postcolonial African spheres of influence). Meanwhile, a shrewd NTC leadership can look to manipulate potential foreign investors as firms rush to participate in postwar reconstruction efforts.

And despite the hiccups in the Italian economy that the war caused, so far, the NTC victory bodes well for Italian businesses. Although plunging over the summer because of the fighting in Libya, the stock values of Italian firms in Libya – especially those with infrastructure and energy portfolios – rallied when the NTC seized Tripoli, which prompted audible signs of relief from these firms. The Italian government (in addition to most EU governments) are pressing hard for the funds to be unfrozen and given to the NTC for reconstruction purposes. 

Italy may have lost a spa, but it may yet gain an even better luxury package from the NTC in return for political and economic support. But like the abortive spa, it remains to be seen what – if any – tangible benefits Libya’s populace will gain from these dealings.