TRIPOLI (Reuters) - Half of Libya's economy will shift into private hands within 10 years, a privatisation official said, creating opportunities for foreign investors to snap up assets in the oil-exporting country.

After decades of Socialist-style economic policy and international isolation, Libyan leader Muammar Gaddafi has begun tentative liberalisation of some parts of the economy and foreign investors are beginning to return.

The business environment remains unpredictable and decision making can be painfully slow but Libyan officials say that in the past 10 years they have privatised 110 state-owned companies -- a third of the total -- and they want to go further.

"We prefer that the state withdraw from all economic activities and focus on making laws and regulations," Abdelkarim Mgeg, head of the strategic projects department at the government's Privatisation and Investment Board, told Reuters in an interview.

"I expect that more than 50 percent of the economy will be in the hands of the private sector within the next 10 years," he said on the sidelines of the Libya Business and Investment Summit.

"We want to put 100 percent of the economy under the control of private investors but we are still far from that goal. The speed and time to get there depend on the appetite, capability and successes of the private sector."

Libya's privatisation policy is not driven by a need for capital -- it sits on a vast mountain of oil money. Instead, officials have said they want to attract private sector expertise to create jobs and reduce the country's dependence on oil and gas.

It remains a challenging place for investors, especially because government rules can change without warning. For several weeks, Tripoli stopped issuing visas to most European citizens over a dispute with Switzerland.

Swiss businessman Max Goeldi who ran Libyan operations for engineering firm ABB is serving a four-month prison sentence in Tripoli on charges that Switzerland says are linked to a diplomatic row over a Swiss entry ban on scores of Libyan officials, including Gaddafi and his family. Libya denies any connection.

EQUAL FOOTING

Analysts say Libya's lingering suspicion of foreign interference, ponderous bureaucracy and opaque legal system mean it will struggle to match the rapid growth in industry and services that helped Gulf states diversify away from oil.

But Libyan officials say their country has competitive advantages including security, plentiful credit, cheap energy and proximity to Europe.

Privatisation officials have said Libya had revamped its economic laws to end privileges for local investors over foreigners.

"The new legalisation puts foreigners on an equal footing with local investors," said Hashem Azwai, head of the investment department at the Privatisation and Investment Board.

There are exceptions. In the banking sector, foreign ownership is capped at 49 percent and restrictions also apply in oil and gas exploration and production.

Libyan officials said the areas they are targeting for privatisation are oil and gas refining, petrochemicals, tourism and services but they gave no new details on which companies were scheduled for privatisation.

Officials announced last year that shares of four state-owned companies would come up for sale through initial public offerings -- mobile operators Al Madar and Libyana, Iron and Steel Company, and National Commercial Bank.

"We think the prospects for Libya are significant," said Pervez Akhtar, a partner with law firm Allen & Overy.

"They are comparable to what we have seen in the GCC (Gulf Cooperation Council states) over the last decade. The rewards are there. First mover advantage ... If you delay, the competitiveness will increase, so don't delay."