According to a recent country briefing by the Istanbul Textile and Apparel Exporters’ Association (İHKİB), Turkey’s exports to Libya reached approximately USD 2.8 billion in 2024, and the two countries aim to raise bilateral trade volume to USD 5 billion by 2026. This growth also means a corresponding rise in the legal issues facing Turkish companies operating in Libya. The most frequent issues involve governing law and jurisdiction, mandatory local partnership requirements, obstacles to currency transfer, and the impact of political uncertainty on contracts.
Rather than citing specific provisions of Libya’s own legislation, this article focuses on the recurring risk patterns Turkish companies encounter and the contractual safeguards available against them. Any specific rate, time limit, or licensing requirement under Libyan law should be separately confirmed with local counsel in Libya before being relied upon.
The Impact of Political Instability on Contracts
Consider a Turkish construction company undertaking an infrastructure project based in Tripoli. The authority of the body that signed the contract can later become a matter of dispute during periods when more than one government has claimed to govern the country at the same time. Between 2014 and 2021, two parallel governments operated in Libya, and this led to the validity of certain contracts signed during that period being challenged depending on which authority had approved them.
While the political landscape has become somewhat clearer since the Government of National Unity was formed in 2021, the balance of power between regional factions remains fluid. For this reason, force majeure and suspension clauses in the contract should be drafted broadly enough to cover the possibility that the counterparty loses its authority or its representative powers change.
Local Partner and Licensing Requirements
A Turkish textile company seeking to export goods to Libya usually runs into the same obstacle. Direct sales are often not possible, and the company is required to work through a local partner or agent within the country. Libyan law conditions foreign companies’ ability to operate in many sectors on establishing a partnership or agency relationship with a local party.
The scope, rate, and exceptions to this requirement can vary by sector and by current regulation. Specific rates and conditions should be confirmed with a local law firm in Libya before being written into the contract, rather than assumed. The termination, commission, and exclusivity terms of an agency agreement can also produce different outcomes than comparable agreements under Turkish law, which is why prior review within the framework of commercial contract law is important.
Currency Transfer and Payment Risks
Payment for an invoice issued by an engineering company for completed work may fail to reach Turkey for months, owing to the fragmented structure of Libya’s banking system. During periods when central bank authority has been effectively divided, blockages in currency transfer can make it difficult to collect payment for work that has already been completed.
To mitigate this risk, the contract should clearly define the payment term, currency, and transfer method. Securing part of the payment through a third-country bank or by letter of guarantee is among the most commonly used protective measures in practice.
Jurisdiction and Arbitration in Dispute Resolution
Consider a supply contract signed by an energy equipment supplier with a Libyan public entity that does not specify a jurisdiction. If payment is not made, the company will not know in advance in which country and before which authority to bring a claim, forcing it to spend months simply arguing over the proper forum.
The Reciprocal Promotion and Protection of Investments Agreement signed between Turkey and Libya in 2009 provides certain guarantees to investors from both countries. However, the existence of this agreement does not on its own resolve the question of where a specific dispute will be heard. Including an international arbitration clause (referring to institutional centers such as the ICC or ICSID) wherever possible gives the parties a more predictable path to resolution.
Receivables and Letter of Guarantee Problems in Stalled Projects
Take the example of an Istanbul-based construction company that was the contractor on a housing project halted in 2011. The company reports that the letter of guarantee it issued at the time has still not been released by the issuing bank, leaving the same amount frozen on its balance sheet for years. This is a common outcome for projects halted after 2011.
While attempts have recently been made to restart some of these projects, the legal route for recovering outstanding receivables must be assessed separately for each project. This requires examining both the enforcement options available under Turkish law and the applicable local procedure in Libya, and it is precisely this kind of situation that clarifies why companies operating in the Middle East generally need local legal support.
The Impact of Security Risk on Workforce and Logistics
A site manager having to reassess personnel deployment daily based on the local security situation has become routine for Turkish companies operating in Libya. Personnel insurance, evacuation planning, and security-related termination clauses in employment contracts are not merely human resources matters, but also tools of legal protection.
On the logistics side, unpredictability in port and customs procedures can expose delivery schedules to risks beyond those specified in the contract. For this reason, penalty clauses tied to delivery delays should be drafted to also cover delays caused by security conditions, and establishing an ongoing structure in the area of corporate and commercial law is recommended for the continuous monitoring of contractual and trade relationships.
Frequently Asked Questions
Which law should a Turkish company doing business in Libya choose?
Parties are free to choose the governing law in their contract, but the enforceability of the chosen law and the ultimate recognition of any resulting judgment must also be separately assessed. Pairing a third-country governing law with an international arbitration clause is generally the preferred approach.
Can a company be established in Libya without a local partner?
This varies by sector, but most fields of activity require a local partner or representative. Current rates and exceptions should be confirmed against current local legislation.
Is a receivable from a stalled project in Libya lost over time?
Loss of the receivable is not automatic, but a prolonged process increases the risk of losing evidence and documentation. Regularly updating the letter of guarantee and the project file is important.
Can an arbitral award from a dispute in Libya be enforced in Turkey?
Recognition and enforcement of foreign arbitral awards in Turkey is assessed under Law No. 5718 on International Private Law and Procedural Law (Turkish PIL Code). The process is considerably easier when the counterparty holds assets in Turkey that can be seized to satisfy the award.
Practical Recommendations: What to Do
For a Turkish company operating in Libya, or planning to, the following steps can help make these risks manageable.
- Clearly specify the governing law, jurisdiction, and, where possible, an international arbitration clause in the contract.
- Structure payment security (letter of credit, letter of guarantee, staged payments) from the outset.
- Confirm the local partner/agency requirement and its scope with a local source before signing the contract.
- Draft detailed force majeure and evacuation provisions in the contract to address political and security risk.
- Regularly monitor the status of receivables and letters of guarantee on stalled projects to prevent loss of documentation.
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