Oil-rich Libya faces an array of daunting challenges in dealing with the legacies of Muammar Gaddafi's 42 years in power, not least the dysfunctional labor sector he left behind. Add to this the damage done to the country's economic infrastructure during the revolution that ousted Gaddafi in 2011, and the impact of the civil war that has raged for nearly a year, and the prognosis looks very grim.

The deep-rooted labor challenges that bedevil Libya are the fruits of Gaddafi's idiosyncratic rule, and were key among the underlying causes of the uprising against him. The paradoxes of Libya's labor sector are many: soaring unemployment, particularly among youth, which the International Labor Organization (ILO) estimates at 49 percent. This runs parallel with the growing number of skilled and unskilled foreign workers and one of the highest levels of public-sector employment in the world.

Two thirds of the Libyan population (more than 4 million out of 6.4 million) are of working age, according to the ILO. Employment rates are higher than in other countries in North Africa, but the vast majority graft in the public sector. Participation rates vary significantly by gender, with women comprising 30 percent of the labor force, a relatively high figure by regional standards.

Tens of thousands of the country's previously unemployed youth have drawn state salaries as militiamen since late 2011, when the interim government made a fateful decision to put all who claimed to be revolutionary fighters on the payroll. Many are now essentially a law unto themselves, menacing state institutions and driving instability. In 2012, the Warriors Affairs Commission was established to provide support to demilitarized fighters and facilitate their integration into the labor market. But it has had limited success, as most militiamen have resisted demobilization.

Efforts to diversify Libya's economy have largely failed. The oil sector has accounted for over 70 percent of GDP and over 95 percent of exports in recent years, while employing just 43,000 people, according to the African Development Bank. Other spheres like manufacturing, retail, hospitality, finance, real estate and business make up the rest of GDP.

While agriculture contributes just 2.7 percent to GDP, it makes up 6 percent of the workforce, employing more Libyans than the hydrocarbons sector. A 2012 World Bank assessment identified wholesale and retail as the sector with the greatest promise, as investors scrambled to bring a range of foreign franchises to Libya for the first time.

Libya's gargantuan public sector is a legacy of Gaddafi's state-led, redistributive model of development. Seeking to consolidate his power in the early decades of his dictatorship, he embarked on sweeping nationalization programs and introduced property redistribution laws, which dramatically reconfigured the country's economic infrastructure.

The result was not only a massive state payroll but also a particular work culture. Private employers report that Libyans show little entrepreneurial spirit and tend to baulk at manual jobs, which they view as suitable only for migrant workers. Libya's public sector is also beset by the "ghost workers" phenomenon, where salaries are paid to personnel who either do not turn up to work or simply do not exist. Libyan officials estimate that this is the case with at least one third of the 200,000 primary school teachers and 30,000 nurses on state salaries.

After the 2011 revolution, many exiles from the diaspora returned to Libya, several bringing with them high-level experience in the private sector overseas. They arrived with big ambitions, but soon encountered several obstacles. A major snag was finding motivated Libyan graduates with the right skills to help carry projects forward.

Before the current fighting caused most foreigners to evacuate, Libya was home to a significant proportion of expatriate workers. They had been brought in to fill the gaps in an economy that suffered from a mismatch between the educational system and market demand. This was in addition to the high number of low-skilled immigrants who do the manual work Libyans refuse to do themselves.

Broad structural reforms are required to nurture and support private-sector growth and economic diversification. Creating a solid framework for property rights would go far. As it stands, the lack of clear [property] title, a result of Gaddafi's redistribution policies, is a major deterrent to local and foreign investors. Libya must also work toward building skills and competence more generally, in addition to establishing adequate labor rights and a proper social safety net.

Libya's challenges are mounting: falling crude production coupled with plummeting global oil prices, the near-depletion of foreign reserves, and ever-deteriorating security. Real reform of the creaking Gaddafi-era economic infrastructure can be realized only when the new constitution (currently being drafted) is approved and a new government installed. This needs to happen soon, because time is not on Libya's side.

(First published in Good Governance Africa)