Positive economic outlook for Lesotho

Ntsebeng Motsoeli

THE 2014 African Economic Outlook has projected modest growth for Lesotho over the next two years, while also revealing subdued economic activity for 2013.
The Outlook is an annual publication jointly prepared by the African Development Bank (AfDB), Organisation for Economic Co-operation and Development and United Nations Development Programme (UNDP).
The report analyses the continent’s growing role in the world economy and predicts two-year macroeconomic prospects for each country by detailing the performance of crucial areas namely growth, financing, trade policies, regional integration, human development, and governance.

But according to the report released on 7 July, the country’s economy suffered in 2013, largely due to the poor performance of the mining industry.
“In the face of Europe’s sluggish growth, which held back Lesotho’s mining industry, the country’s economy attained modest growth of 3.4 percent in 2013, far below the 6.5 percent the previous year.
“Growth was largely driven by construction, the recovery of the textile and clothing sub-sector, a good performance by transport and communications, and financial intermediation.
“However, in spite of the recessionary impact of the primary sector (agriculture and mining), there was a positive contribution from the tertiary or service (2.3 percent) and secondary (production and construction) sectors (1.1 percent),” notes the Outlook.

The secondary sector, which the report says accounts for 23.3 percent of the country’s Gross Domestic Product (GDP), registered estimated growth of 4.8 percent in 2013, down from 6.5 percent in 2012.
“The expansion came from the recovery of textiles and clothing (3.4 percent); building and construction (7.8 percent) and electricity and water (4 percent). Construction and building was boosted by works on the Metolong Dam and government construction. Textiles and clothing rebounded in response to increased activity in the United States. This was in addition to the relocation of South African-based producers to Lesotho to take advantage of lower labour costs,” reads the report. The tertiary sector, which accounted for close to 65 percent of GDP in 2013, is said to have expanded by 4.2 percent last year, down from 5.7 percent in 2012.

“Robust growth in transport and telecommunications, financial services and wholesale and retail trade underpinned the sector’s good performance. Wholesale, supported by its links to expanding construction activities, was also important. Growth was also bolstered by the opening of shopping malls in Maseru and the availability of big name South African brands,” the Outlook notes.
The report further says there was modest recovery by the crop sub-sector and positive growth from animal farming, services and forestry.

“This was, however, overshadowed by the mining slump. The potential contribution of agriculture was also affected by army-worm infection, limited grazing land and stock theft.”
In the medium term, the primary sector is expected to “modestly recover through government investment to reverse the contraction of the industry and enhance food-security,” notes the Outlook, adding: “Agriculture faces challenges which reduce its contribution to growth. These range from a decline in incomes to unfavourable weather and soil infertility. In view of this, government investment, including minor subsidies, is needed.”

There is a largely positive outlook for 2014-15, with a good performance from the secondary sector expected, particularly construction. Additional growth is expected from the tertiary sector supported by strong financial intermediation, transport and telecommunications, and government efforts in health and social welfare. The extension of the Millennium Challenge Compact for Lesotho is expected to enhance growth in water and sanitation.

However, international conditions cast a shadow over Lesotho’s prospects. There is uncertainty over global demand for diamonds and the future of the Third Country Fabric Provision in the United States African Growth and Opportunity Act which has to be renewed by the end of 2015. The restructuring of textiles and clothing to meet new global demands is also said to remain a challenge.
“Poor growth in Europe, a key traditional trading partner, remains a critical concern. Measures are needed to diversify the industry and Lesotho’s export markets.”
According to the Outlook, medium-term output growth will largely be driven by increased fixed capital formation and net exports.

“The private sector, which constitutes close to 14 percent of GDP, will play a pivotal role provided structural reforms are deepened. Reforms to free the private sector are still needed. Additionally, a gradual improvement in the investment climate, to attract more Foreign Direct Investment remains a key factor in this outlook,” concludes the projection.

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