Working Papers

Lesotho – where to?

Lesotho – where to?

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27 Nov 2015

Author(s): Ron Sandrey

The objective of this paper is to provide a background to Lesotho’s economic and trade policies with a particular emphasis on future directions for the Mountain Kingdom. For this it relies heavily on several recent published documents.

Lesotho is a relatively poor country, with many of the human development outcomes that are below the norms for a country of Lesotho’s income level. It is close to a poverty trap and, worryingly, this persistence of poverty and rising inequality has happened in an economy that grew at annual rates of 4% per capita over the past decade. Problems that Lesotho faces include the need for the public sector to be modernised and for private-sector jobs to increase. Moreover, declines in Southern African Customs Union (SACU) tariff revenues that provide over half of Lesotho’s public-sector finances, are a reality.

The World Bank considers that Lesotho’s poverty stagnation could be partially attributed to a decline in remittances and a still large dependence on subsistence farming among many households. Lesotho will require broad-based job creation, greater productivity, and a structural shift from an unhealthy dependence on the public sector to a strong and competitive private sector. Lesotho’s economy remains dependent on subsistence agriculture, a sector where most of these people are engaged in small-scale farming and herding; labour productivity is low and is losing competitiveness. Problems in the agricultural sector focus on the land quality and the traditional land tenure systems that discourage investment in land improvements. Lesotho must find the optimal package of policy reforms, institutional changes, and supporting investments to drive technological changes in this sector.

Manufacturing and in particular the textiles and clothing sector is the main contributor to the growth of Lesotho’s formal Gross Domestic Product (GDP), but this sector is stagnating in the face of competition from low-cost Asian producers and rising labour costs. Access to the US market under the Africa Growth and Opportunity Act (AGOA) means that Lesotho is vulnerable to increased competitive pressures from Asia and the United States of America (US). Mining, the fastest growing sector in Lesotho, is the one bright spot in Lesotho’s economy, and water is an important renewable asset as the export of water to South Africa contributes about 3% of GDP. Tourism is important for economic diversification but, again, there are problems with productivity as well as infrastructural constraints.


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