This country profile was published in November 2008 in our annual 'Africa in 2009' issue. The next edition, 'Africa in 2010' will be on sale 23 November 2009.

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The government of Muammar Qadhafi anticipates the dawning of a new age in relations with Europe after an eventful 2008 that saw the formal renewal of diplomatic links with the US, promises of dramatic political reform and also a renewed impetus towards revising oil contracts.

In September, the US finally agreed to remove Libya from the State Department's list of states engaged in terrorism, thus opening the way towards full diplomatic relations, ten years after the thaw had begun. A crucial stage was passed when Congress voted a law creating a new fund to compensate existing claimants against Libya and, in theory, Libyan claimants against the US in light of the 1986 raids on Benghazi and Tripoli. No further claims can now be made, under the law, against Libya in the US. This meant that the Lockerbie victims' families could now obtain the outstanding $2m due to each of them. As a result, US secretary of state Condoleezza Rice visited Libya, although the appointment of an ambassador will await the payment of outstanding claims. The EU has also been negotiating a special status agreement with Libya, to bring it into the purview of its policy in the Mediterranean.

Qadhafi startled his General People's Congress (GPC) in March 2008 by announcing that, apart from the ministries of defence, justice, security and foreign affairs, the functions of the remaining ministries were to be devolved to the basic peoples' congresses. Their number was also to be expanded to 30,000 and every Libyan was to receive a share of the country’s oil wealth. This would enable Libyans to become truly responsible for their own government, Qadhafi claimed. A special committee was appointed to report to the GPC in September on how the transition should be made. The result has been that administration has ground to a halt as ministries refuse to respond to requests on the basis that they can no longer guarantee the outcome.

The leader's sons have continued to rival each other, with Al-Mu'atassim now rising in his father's esteem. Saif al-Islam has continued to adopt a liberal agenda, calling for constitutional change and attacking the revolutionary committee movement, despite his father's continuing endorsement of it. In July and August, he attacked administrative abuses and excesses, naming names over some of the worst excesses of recent years. This evidently was too much for his father; shortly afterwards, he announced his retirement from politics, although he is expected to return to the fray. Another son, Al-Saadi, continues to promote a massive free trade zone to the west of Tripoli.

The economy promises well, with real GDP growth projected at 7% in 2008 and 8% in 2009. In the oil sector, Libya has started to review all of its contracts with foreign oil companies. With older contracts coming to an end, Libya wants to alter the split terms in its exploration and production-sharing agreements from the proportions of 50:50 to the level of 72:28 in its favour. Italy's ENI was the first major company to sign up to the new terms, with 25 contracts being extended to 2042 (oil) or 2047 (gas). In the latter part of the year, Italy agreed to pay $5bn over 25 years in compensation for the damage caused following its invasion of the country in 1911.