…It Is Structure

By the Chief Executive Officer of the Lesotho National Development Corporation (LNDC)

In strategy, there is a simple but unforgiving rule: if you misdiagnose the problem, no amount of action will fix it. You may act decisively, consistently, and with the best of intentions and still fail.

That lesson matters profoundly for Lesotho.

For decades, our country has tried hard to grow its economy. We have liberalised markets, tightened fiscal discipline, reformed regulations, invested in skills, and pursued what are widely regarded as sound economic policies. Yet the results remain deeply disappointing. Lesotho’s GDP per capita is around US$1,100, far below regional peers such as Eswatini (about US$3,900), Namibia (around US$4,500), and Botswana (about US$7,000).

This gap is too large, too persistent, and too systematic to be explained by poor effort, weak governance, or lack of commitment. It should force us to ask a more uncomfortable but necessary question:

What if Lesotho’s economic problem has been wrongly diagnosed?

Two ways of thinking about economic growth

Broadly speaking, there are two ways to think about why economies grow and why some do not.

The first is the mainstream neo-classical view, which has dominated economic policy thinking for decades. This is what I, and many other economists, have been taught as the orthodox gospel truth. In this view, growth is primarily a supply-side problem. Countries grow faster if they improve productivity, invest more, build skills, reduce costs, improve ease of doing business and allow markets to allocate resources efficiently. If growth disappoints, the diagnosis is usually that these fundamentals are weak or insufficiently reformed.

This approach treats the structure of the economy — what a country produces, imports, and exports — as largely secondary. The assumption is that once the fundamentals are right, growth will naturally follow.

The second view is the structuralist approach, associated most clearly with economists such as Nicholas Kaldor. This perspective starts from a different observation: countries do not grow simply by doing the same things more efficiently. They grow by doing different things.

What matters is not only how efficiently an economy operates, but what it produces, what it sells to the world, and how it pays for what it consumes.

Why the mainstream diagnosis keeps falling short

Lesotho’s experience aligns far more closely with the structuralist story than with the mainstream one. Despite years of reform, growth remains stop-start. Periods of expansion are followed by slowdowns. Jobs are created briefly and then lost. Each recovery seems to run into an invisible ceiling.

This pattern is not random. It is structural.

Lesotho is a small, open, import-dependent economy operating under a fixed exchange rate system. We import a large share of what households and firms consume: food, fuel, construction materials, pharmaceuticals, and clothing. When incomes rise, spending rises — and because domestic production capacity is limited, much of that spending leaks out through imports.

This missing piece explains why well-intentioned policies repeatedly disappoint.

How growth itself creates a problem

To see the logic clearly, consider a simple example.

Suppose there is a surge in global demand for Lesotho’s diamonds. New mines open. Existing mines expand. More Basotho are employed. Wages and incomes rise. Government revenue improves.

At first, this is an unambiguously positive development.

But higher incomes also mean higher spending. Mining workers and suppliers buy more food, better housing materials, furniture, vehicles, fuel, clothing, and household goods.

Because much of this is not produced locally, the increase in spending translates quickly into higher imports.

So the very boom that creates jobs and incomes also creates:

• A surge in imports
• A surge in demand for foreign exchange

This is what economists mean — in very simple terms — when they say growth quickly increases import demand in an import-dependent economy.

What policymakers fear: the balance of payments crisis explained simply

When policymakers talk about the risk of a balance of payments crisis, they are not talking about abstract accounting concepts. They are talking about something very concrete: the risk that the country could run out of rands.

Lesotho purchases most of its essential goods from South Africa — and these are paid for in rands. This includes:

• Fuel and electricity
• Food
• Medicines and medical supplies
• Construction materials
• Consumer and industrial goods

As imports surge, rands flow out of the country. If this continues unchecked, the Central Bank’s rand reserves begin to fall.

As long as reserves are adequate, the system holds.

The danger arises when reserves fall too low.

If the Central Bank were to run short of rand reserves:

• Importers would struggle to pay South African suppliers
• Shortages of fuel, food, and medicines would emerge
• Confidence in the Loti–Rand peg would collapse

People would quickly demand more maloti for each rand, because rands would have become scarce and valuable. The peg would break.

Overnight:

• Salaries paid in maloti would be worth far less in rand terms
• Business profits would lose purchasing power
• The same income would buy less food, energy, clothing, and medicine

People would not become poorer because they worked less — they would become poorer because their currency could no longer buy essentials.

This is why a balance of payments crisis is feared.

It is an overnight collapse in living standards.

Why authorities slam the brakes

Because Lesotho operates under a fixed exchange rate, authorities cannot allow this to happen. When imports surge and reserves come under pressure, fiscal and monetary authorities are forced to cool the economy. This usually means:

• Cutting or restraining public spending
• Delaying investment projects
• Tightening fiscal policy
• Restricting credit

These actions are not taken because growth is undesirable. They are taken because growth has become externally dangerous.

The result is predictable:

• Imports fall
• Foreign exchange pressure eases
• Stability returns

But so do:

• Slower growth
• Fewer jobs
• Higher unemployment

The one-gear car analogy

A useful way to think about Lesotho’s economy is as a car with only one gear.

When the driver presses the accelerator, the car responds. Speed increases. But because there are no higher gears, the engine quickly starts to scream. The revs rise. The engine overheats.

That overheating is the surge in imports and foreign exchange demand.

To avoid an engine blow-up, the driver is forced to ease off the accelerator. The engine cools down. The noise reduces. But the car slows.

No matter how skilled the driver may be, the outcome does not change.

The problem is not the driver.

The problem is the gearbox.

Evidence of import dependence: the poultry example

This structural weakness is visible even in basic wage goods.

According to data from the Atlas of Economic Complexity, in 2023:

• Lesotho imported about US$29 million (around M500 million) worth of poultry
• Eswatini imported about US$3.6 million (around M60 million)
• Botswana imported about US$6.2 million (around M100 million)

This is striking.

Eswatini’s economy is roughly four times larger than Lesotho’s.

Botswana’s economy is roughly seven times larger.

Yet Lesotho imports many times more chicken.

When incomes rise in Eswatini and Botswana, demand is met largely by domestic producers, creating jobs and spillovers into feed, energy, cold storage, and transport.

In Lesotho, the same income growth fuels production and jobs — outside the country.

Growth leaks out.

Fiscal austerity as a conscious safety-first choice

Importantly, policymakers are not blind to this reality.

Despite:

• Endemic unemployment
• Weak private-sector job creation
• And projected economic growth of only about 1.2% in FY 2025/26

the fiscal authorities recorded a fiscal surplus of around 9% in FY 2024/25.

This surplus was not accidental. It was deliberate.

As a result of this tight fiscal stance:

• The Net International Reserve (NIR) target was around M800 million
• The actual NIR stock reached about M1.2 billion
• That is 50% higher than the target

In the language of the car analogy, this is the driver deliberately slowing down to cool the engineto build a reserve buffer to avoid catastrophe.

On the face of it, this is responsible policy.

The deeper problem with permanent caution

But here is the uncomfortable truth.

What this strategy really does is accept the limits of a one-gear car  and then design policy around it. Never pushing it too hard.

By slowing the economy to the lowest safe speed:

• Import demand is suppressed
• Foreign exchange reserves accumulate
• Some resilience is built

But nothing fundamental changes.

Each cycle looks the same:

1. Growth picks up
2. Imports surge
3. Reserves come under pressure
4. Austerity is imposed
5. Growth slows and unemployment rises

This is not a growth strategy.

It is damage control.

Over time, it normalises low growth and high unemployment. Not because they are desirable, but because going faster is considered too risky.

What a correct diagnosis demands

If the problem is structural, then the solution must be structural.

First, exports must grow faster and diversify. Export capacity is not a niche issue, it is how the economy pays for growth.

Second, Lesotho must reduce how import-intensive growth is, especially in strategic wage goods such as food, energy, construction materials, clothing, and pharmaceuticals. Producing more of what we already consume is not protectionism; it is economic resilience.

Third, agriculture, energy, and industry must be treated as macroeconomic infrastructure, not residual sectors.

Fourth, public procurement and development finance must be used deliberately to build domestic productive capacity and crowd in private investment.

Most importantly, success must be measured not only by fiscal balances and reserve accumulation, but by export growth, import substitution, domestic value creation, and jobs.

Growth is a choice

Lesotho’s low growth is not destiny. It is the predictable outcome of an economic structure that channels rising demand outward.

Kaldor taught us that growth is cumulative and path-dependent. Thirlwall showed us that growth is externally constrained. Together, they deliver a simple message:

Sustained growth is not about doing more of the same more efficiently.

It is about changing what the economy produces, exports, and imports.

The real question is not whether Lesotho can grow faster.

It is whether we are willing to diagnose the problem honestly and build the higher gears our economy so clearly lacks.