Here's What You Need to Know About Benghazi

It's less of a conspiracy theory, and more of a business opportunity.

Jan 26, 2014 at 8:00AM

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Benghazi, Libya. Photo: Wikimedia Commons

This is not a story about Benghazi. It has nothing to do with Hillary Clinton, al-Qaeda terrorists, or conspiracy theories.

It is, however, a story about the country surrounding Benghazi.

Two years after the overthrow and execution of Libyan dictator Moammar Gaddafi, Libya remains a country in turmoil. The central government, such as it is, must share power with local militias that originated as rebel groups fighting Gaddafi, but now linger on years after his demise. Imposing checkpoints, persecuting followers of the former regime, and fighting with each other, the militias have blockaded Libya's oil ports -- and on one occasion laid siege to Congress in the capital of Tripoli.

As one former rebel lamented: "It's like the Wild West. Everyone has a gun and a gang. This affects every aspect of the country."

But perhaps not for long.

Foreign arms lend a helping hand
Earlier this month, Italy welcomed a group of 340 Libyan Army recruits to a military base just south of Rome, where they will begin a 24-week training program. Over the course of the next several months, Italian trainers will try to turn the Libyans -- and 1,700 of their countrymen who will follow them -- into a security force capable of restoring order for Libya's central government. Incidentally, Italy will use the opportunity to showcase the weapons systems from its defense industry to Libyan government buyers.

Libya is paying Italy $68 million for the training. But that's not all that Italy hopes to get out of this relationship. By training Libya's recruits to use its Beretta ARX 160 rifle, and other Italian arms and equipment, Italy hopes to make inroads with the central government, facilitating later sales of Beretta firearms, Ariete main battle tanks, and AgustaWestland helicopters, among other weapons systems. Elsewhere, the U.K. and Turkey are working on similar arrangements.

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Italy has tanks, will travel. Photo: Wikimedia Commons.

Not to be outdone, America wants to win a piece of the Libyan pie as well -- and U.S. defense contractors are wasting no time positioning themselves to profit from Libya's re-emergence as a modern nation-state.

Lafayette, we are there!
In America, the U.S. Defense Security Cooperation Agency helps to facilitate international arms sales between U.S. defense contractors and the foreign governments that want to buy their weapons. On Wednesday, DSCA informed Congress of plans to provide Libya $600 million worth of training services.

Assuming Congress grants its approval, the U.S. will undertake to train somewhere between 6,000 and 8,000 Libyan Army recruits over the course of the next eight years -- a deal several times larger than Italy's commitment. The goal will be to take Libyan security forces that currently look like this ...

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Libyan militia running a checkpoint. Photo: Wikimedia Commons.

... and turn them into a force more closely resembling this:

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British Army in Libya, c. 1942. Photo: Wikimedia Commons.

Incidentally, included in the U.S. training contract will be sales of uniforms, equipment, logistical support -- and 637 M4A4 carbines and small arms ammunition, all manufactured by American defense contractors.

The upshot
Already, Libya has asked Congress to sell it two C-130J military transport aircraft, a purchase worth $588 million to Lockheed Martin (NYSE:LMT), the plane's manufacturer. So America's support of the Libyan revolution appears to be paying dividends already. Reportedly, Lockheed and rival U.S. defense contractors Northrop Grumman (NYSE:NOC) and Textron (NYSE:TXT) as well, are all already angling for additional contract wins in Libya.

A member of OPEC, Libya ranks ninth among world nations for the size of its proven oil reserves -- 48 billion barrels, just behind Russia, and ahead of Nigeria, Kazakhstan, and Qatar. With significant petrodollars at its disposal, Libya promises to be the kind of country that can turn into a real export market for American defense contractors. As Richard Griffiths, executive director of the American Chamber of Commerce in Libya put it: "They have the cash. ... What Libya needs is a starter kit to protect itself from roving militias."

This week's $600 million training contract could be only the beginning. 

There's always a war somewhere ...
... and even when there isn't, you can count on countries to spend big buying military equipment in case there is a war. That's why defense contractors are the kind of companies that should serve their shareholders admirably... forever! As world-famous investor Warren Buffett tells us, there's no need to go searching for long shots. Pick your best ideas, bet on them big, and ride them to riches -- let other folks worry about the bobbles in the market. Want to find your own "forever stocks"? Read "The Motley Fool's 3 Stocks to Own Forever." These picks are free today! Just click here now to uncover three companies we love the most. 

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin, Northrop Grumman, and Textron. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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