27/11/2017 07:56 GMT | Updated 28/11/2017 08:02 GMT

Rebuilding Zimbabwe's Economy: Emmerson Mnangagwa’s Immediate Priorities

Zimbabwe cannot expect to rebuild in the same [economic] model that brought previous prosperity.

Belal Khaled/NurPhoto/Getty Images
A girl looks at the image of the new president Emmerson Mnangagwa during the ceremony officially sworn in in Harare on November 24, 2017.

Returning to Harare as Zimbabwe's President designate Emmerson Mnangagwa declared, "We want to grow our economy, we want peace, we want jobs, jobs, jobs".

Robert Mugabe leaves a legacy of an independent Zimbabwe in a deep economic crisis. Much remains uncertain as to what a new government in Zimbabwe will look like, and there is sure to be continuity as well as considerable change.

What is clear is that a new administration under Mnangagwa will need to turn the economy around to garner support and legitimacy from the Zimbabwean people.

READ: '10 Crucial Steps To Fix Zimbabwe': Former Finance Minister

Zimbabwe's economic output halved over the period 1997 to 2008, and it has not recovered. With more than 80% of Zimbabweans in the informal economy, and with social and economic resilience undermined by previous crises and decades of mismanagement, the stakes for the new leader are very high.

The military managed transition that brought the new president to power has not fundamentally changed the way the political economy of the country functions. Patronage networks will remain intact.

Reform will be difficult particularly because politically connected elites have acquired businesses through uncompetitive means. They will be reluctant to see significantly more competition. But they will also want an improved economic environment. And there is scope for the people of Zimbabwe to benefit from this.

READ: 'Emmerson Mnangagwa Might Just Be Another Robert Mugabe' -- Analyst

An important change will be in the prioritisation of economic stability. Mugabe demonstrated that he was willing to make political decisions irrespective of the economic consequences. Mnangagwa is thought to be less ideological and more of a pragmatist. For him, delivering economic recovery will be crucial to building political support.

Photo gallery MUGABE FALLS: Euphoric Celebrations in Zimbabwe See Gallery

The most pressing fiscal priority is the public wage bill. Employment costs account for over 80% of government expenditure, crowding out spending on social programmes, health, and education. But the fragility of the economy means that reform cannot be fast-tracked. The public wage bill accounts for over 20 percent of GDP and is an essential driver of demand. Public sector workers are also politically influential. Another further priority is the reform of state-owned enterprises that are pressuring the fiscus.

A new administration will need to rebuild confidence. Policymakers have been operating in a low-confidence environment for a long time, but for any meaningful change to take root there has to be trust between the government, businesses, and the people of Zimbabwe.

Businesses and citizens will want to see a plan of action for remonetising the economy. Zimbabwe faces an acute liquidity crisis. A shortage of US dollars and a lack of confidence in government-issued bond notes are testing resilience.

The financial system has recovered from a crisis of nonperforming loans – triggered by high debt amassed during the post-dollarisation boom, and weak corporate governance. But the system remains highly fragile and swamped with government debt. Hard cash US dollar deposits fell from 49% ($582-million) in 2009 to just 6% ($269-million) in 2016.

Philimon Bulawayo / Reuters
A sweet vendor holds a Zimbabwe $250-million note in the capital Harare May 10, 2008.

In 2015, industrial utilisation stood at just 34.3% of installed capacity, and it was estimated that just 5% of the country's businesses were viable.

The crux of the Zimbabwean economy is the linkage between agriculture and manufacturing. Commercial agriculture contributes approximately 12 percent of the country's GDP, and more than 60 percent of inputs into the manufacturing sector. Tobacco in particular is a vital earner of much needed forex. Policies to support mid-scale farmers will have multiplier effects. They drive agricultural growth and generate jobs throughout the supply chain.

Zimbabwe also has world-class natural resource endowments including ferrochrome, gold, copper, iron ore, lithium, diamonds and platinum group metals. But longer investment-gestation periods and industry risk adversity will mean that payoffs from fresh investments in this sector will take longer to materialise.

Domestic finance will need to be mobilised to generate recovery, and this will need to be supported by international investment. But international investors entering the country must be cognizant of Zimbabwean's expectations and also historical perceptions – especially around the scepticism of neoliberal economics as a result of failed structural adjustment programmes in the 1990s.

Philimon Bulawayo / Reuters
Shoppers walk along empty shelves inside a supermarket in Harare, July 11, 2007.

Zimbabweans have high social expectations on international investors. Educated, tech-savvy, internationally connected youth are at the core of the consumer class that investors will be targeting, to both sell products too but also to staff offices in country. But this cohort also has a greater expectation of international companies to adhere to the norms and standards that they abide by at home and not take advantage of weak governance or poor regulation to exploit citizens.

Investors in Zimbabwe must also recognise that behind the controversial Mugabe policies of land reform and indigenisation – the empowerment of local citizens through shared ownership – was a popular desire for postcolonial economic transformation. This sentiment remains. Working in partnership with local entities and communicating the economic contribution made to society will be necessary to build long-term presence in Zimbabwe, and reap the dividend of what many hope to be a new start for the country.

The world economy has fundamentally shifted since Zimbabwe's heyday in the 1990s, and the country cannot expect to re-build in the same model that brought previous prosperity.

Fresh thinking is required from domestic policymakers and international partners. A skilled population and estimated 3-5-million-strong diaspora will bring international experience and make a considerable contribution to this process.

Some of this thinking has been done. The Lima process of re-engagement with the International Financial Institutions that was agreed at the end of 2015 has laid some of the groundwork, especially around international expectations regarding both economic and governance reform – the substance of which was analysed in a 2016 Chatham House paper. The implementation of recommendations of the well-regarded auditor-general's report on SOE reform will also be a key prerequisite for long-term reform.

As the dust settles on the events of the past week, Zimbabweans are not alone in processing what has happened and how to react. Investors have long been poised to capitalise on what is perceived to be one of the continent's best long-term prospects.

A lot will remain unchanged following the transition. But significantly, for the first time in decades, there is a real opportunity to affect positive change and improve the livelihoods of millions of Zimbabweans.