Lesotho faces possible economic paralysis in 2016 due to a combination of political and environmental challenges saddling the country as well as other global factors beyond this Kingdom’s control, analysts have warned.
As a result food prices are likely to skyrocket, creating havoc for an already beleaguered population reeling from the worst ever drought in decades.
The South African Rand, against which Lesotho’s Loti is fixed, has been in a free-fall due to a combination of factors including a slowdown in the economies of South Africa’s main trading partners, China and Europe, and the perennial policy inconsistencies of President Jacob Zuma’s government.
The Rand experienced a sharp knock when Mr Zuma replaced respected finance minister Nhlanla Nene with little-known ANC backbencher David Van Rooyen last month.
Even though Mr Zuma rectified his grave error by reversing Mr Van Rooyen’s appointment within four days of the infamous decision and re-anointing former finance Minister Pravin Gordhan to the critical portfolio, enormous damage had already been done with more than M175 billion being wiped off the value of the Johannesburg Stock Exchange (JSE).
Just about two weeks into the New Year, the JSE is down a further six percent and the Rand this week hit its lowest level in history, reaching nearly 18 to the greenback before clawing back to settle at around 16.50.
Lesotho, which is a virtual satellite economy of South Africa, has neither the clout nor financial wherewithal to contain the impact of negative international sentiment against its giant neighbour.
But analysts warn that the situation can become far worse for Lesotho if the coalition government’s policy choices and political decisions alienate the country’s longstanding donors.
Prime Minister Pakalitha Mosisili has already declared a national emergency over the current crippling drought but has also warned foreign development partners to refrain from dictating to his government over governance issues.
The price of white maize hit an all-time high of M4 900 a tonne this week, by far surpassing the previous high point of M3 800. The price of maize has cumulatively risen by about 140 percent in the last 12 months. This is seen escalating the price of maize-meal by more than 50 percent. When the price increases eventually reach the shop shelves after several months, the consumer will be hard hit.
“Water scarcity will affect the rural economy negatively resulting in increased hunger because most agro-economic activities there are rain-fed,” said economist Kanono Thabane of the Lesotho Council of Non-Governmental Organisations (LCN).
“There is therefore a need to improve the coverage of social protection to the most vulnerable households in order to mitigate depletion of productive assets because of the drought.”
Private Sector Competitiveness and Economic Diversification Project Manager, Chaba Mokuku, said Basotho consumers were already under enormous pressure due to increasing food prices.
Summer crops such as maize, beans and sorghum would largely fail due to the current drought.
“Prices of some foodstuffs have been increasing since last April, and prices of vegetable such as tomatoes and cabbages had more than doubled by December 2015. Furthermore, food prices are expected to continue soaring over the next coming months,” said Mr Mokuku.
Yet the biggest concern, according to Mr Mokuku, was the majority Basotho residing in rural areas as subsistence farmers who depended solely on rain-fed agriculture for their livelihoods.
“Presently, water shortages are so severe that the main river systems and dams throughout the country are running dry. Even commercial farmers with well-established irrigation infrastructure are affected,” he said.
Mr Mokuku said farmers were also battling with rising input costs due to the weakening Loti. These costs were in turn passed on to the consumer whose annual income increment does not necessary match food price increases.
Mr Mokuku called for investment in adaptation and mitigation strategies to avoid and reduce the impact of future droughts.”
Such adaptation and mitigation measures could include investment in biotechnology research and planting of drought resistant varieties of crops like genetically modified variety of maize called “Wena” .
He said improved water-conservation, storage and harvesting as well as appropriate irrigation technologies were among other adaptation and mitigation measures.
The situation is also ominous for workers in the textile sector.
Prominent trade unionist, Bahlakoana Lebakae, said if the government failed to mend its strained relations with America and Lesotho’s textile exports into the United States under the American Growth and Opportunity Act (AGOA) were affected, then massive job losses in this critical sector would ensue.
The American government has already deferred the renewal of the Millennium Challenge Compact (MCC) project under which millions of dollars in aid assistance would be given to Lesotho over the coalition government’s handling of human rights issues. The Americans are particularly miffed by attempts to scupper the report of a Southern African Development Community (SADC) inquiry into the brutal killing of former Lesotho Defence Force (LDF) commander Maaparankoe Mahao.
The textile sector is Lesotho’s second largest employer after the government with 35 000 jobs dependent on that sector.
Mr Lebakae said it was in the coalition government’s own interests to address the serious concerns of the very donors it had appealed to for assistance regarding the governance issues they had raised.
He said if the donors ended up withholding aid due to governance concerns, the coalition government would face a severe crisis and most probably crumble. And even if the aid was given, Mr Lebakae said mechanisms must be put in place to ensure it was not stolen for the benefit of influential politicians and their friends at the expense of the masses.
Lesotho also required to attract loads of investment to ameliorate economic hardships for the poor and ensure sustainable job-creation.
But significant investment inflows would not materialise unless SADC’s mediation efforts in the country succeeded, according to the Private Sector Foundation of Lesotho (PSFL) Chief Executive Officer, Thabo Qhesi.
Mr Qhesi commended the government for putting in place the Drought Mitigation and Preparedness Plan but warned that its success would depend on the availability of resources.
The construction and mining sectors nevertheless offered a glimmer of hope for the economy with the construction of Polihali Dam in Mokhotlong, a possible source of substantial job-creation when it finally begins as well as the commencement of operations of key mines in the Northern parts of Lesotho.
Mining Minister, Lebohang Thotanyana, recently announced that the government would ensure Lemphane, Mothae and Liqhobong mines in Mokhotlong and Butha-Buthe, as well as Kolo diamond mine in Mafeteng, become fully operational in the near future.
The minister told the Lesotho Times this week that the government’s intention was to make sure the mines operated in full swing by 2020 and if possible even much earlier.
Central Bank governor Retšelisitsoe Matlanyane, speaking in November during a seminar on Lesotho’s economic outlook for 2016, also warned that drought conditions and extreme weather conditions would negatively affect the already weak agricultural sector. “This is likely to erode some of the gains that the country has made in addressing poverty and vulnerability,” she said.
The depreciation of the Loti, coupled with drought conditions in Southern Africa, would foster inflationary pressures in the economy and impact on positive economic growth, she warned.