LESOTHO
Economy
Overview
Lesotho is one of the world's poorest countries with a GDP of US$929. Heavily dependent on remittances from migrant workers employed on South Africa’s mines - which contribute to around half of Lesotho's GNP - its economy is highly integrated with that of South Africa. As such the increasing number of redundancies over the past 6 years, from 104,000 to 60,000 has compounded a massive unemployment problem estimated to be some 35 - 40 percent. Lesotho has begun to transform its economic prospects with the exploitation of its rivers to sell water, and possibly also hydroelectric power, to South Africa. Economic growth is also being pursued through the development of export-oriented manufacturing, led by the clothing and footwear subsectors. Growth in construction has been twice that of manufacturing, but this has since levelled off with the end of the construction boom associated with the Lesotho Highlands Water Development Programme.
1998 saw a sharp drop in the GDP, a consequence of the failed army mutiny, as well as the end of phase one of the LHWDP. Revenue from the LHWDP, one of the largest and most ambitious multi-purpose water schemes anywhere in the world, is forecast to contribute R137mn to the 1999/2000 budget.
Labour market and unemployment
Agriculture, forestry & fishing
Only about 13% of the land area is suitable for crop cultivation. Agriculture's share of national output has declined from 50% in the early seventies to around 13% owing to serious soil erosion caused by population pressure and overgrazing. It provides employment for about 50% of the population. With much of the land suitable for animal husbandry, livestock provides a significant proportion of rural income, although the sector suffers form poor and declining animal quality and disease control, as well as droughts. Lesotho also exports high quality wool and mohair.
Mining
Mining declined after the closure of the main diamond mine in 1983, but this has now reopened and production is anticipated to resume in late 2000. There are large deposits of clay which are exploited for the manufacture of bricks, tiles and high-quality ceramics.
Manufacturing
The bulk of this sector - 80% - comes from the clothing and footwear subsector. It grew by 111% between 1994 and 1998, accounting for 82% of the growth in total exports for that period. In 1998 its share of GDP was 17%. The textiles sub-sector accounts for 15,000 of the 23,5000 jobs created by foreign companies operating in Lesotho.
Construction
Building and construction contributed around 25% of GDP in the second half of the 1990s, growth being stimulated mainly by the Lesotho Highlands Water scheme.
Lesotho’s economy is closely integrated with that of South Africa’s, as indicated in the above table. Lesotho has limited visible exports and there are large deficits on merchandise trade. However, these are largely offset by remittances from Lesotho nationals working in South Africa.
Government finance and fiscal policy
In March 2001 the IMF agreed to provide support through a poverty reduction and growth facility (PRGF), following the successful completion of a Fund-monitored programme from January-September 2000. The new programme provides for a loan of US$19m for a three-year period ending October 2003. The loan is conditional upon the government continuing to implement a framework of structural and macroeconomic reform. Reforms targeted in the programme include strengthening the capacity of the public sector, and creating a Treasury-bill market. The programme also calls for a continuation of the privatization programme, attention being focussed on the Lesotho Electricity Corporation. Two initiatives aimed at reducing rural poverty have been launched.
Foreign Aid and Donors
Regional and International economic grouping/alliance:
- Organization for African Unity (OAU)/African Union
- Southern African Development Community (SADC)
- Southern African Customs Union (SACU)
- EU-ACP Convention
- Multi-lateral Monetary Agreement (MMA)
