–As unemployment and poverty continues to plague Lesotho
Mohloai Mpesi
FOSTERING a private sector-driven economy is essential for rejuvenating Lesotho’s ailing economy, the World Bank Group has said.
As Lesotho gradually emerges from the impacts of the Covid-19 pandemic, the private sector has been largely sidelined, resulting in the government becoming the predominant employer, the bank said.
This shift has led to a ballooning civil service wage bill, consequently hindering economic progress.
Privatizing the economy could significantly benefit Lesotho, the World Bank said at the launch of its ‘Lesotho Economic Update Report’ at Avani Lesotho on Monday
The report itself raises alarm at the rising levels of unemployment and poverty in Lesotho.
It estimates that as of 2024, approximately 37 percent of Lesotho’s two million people were living in extreme poverty. Women and young people were disproportionately affected by unemployment.
Minister of Finance and Development Planning, Retṧelisitsoe Matlanyane, noted in her budget speech in February this year, that the overall youth unemployment rate was currently at 38.9 percent.
The ‘Lesotho Economic Update Report’ states that the private sector’s contribution to economic growth remains limited. In 2024, domestic investment was expected to account for only 15 percent of GDP, while Foreign Direct Investment (FDI) inflows were anticipated to drop to less than one percent of GDP.
“The restricted role of the private sector hampers job creation and diminishes the government’s ability to generate tax revenue. Factors such as a challenging regulatory environment, inadequate skills and skill mismatches, insufficient access to credit for businesses, and infrastructure deficiencies are significant obstacles for the private sector,” the report states.
The World Bank unveiled the report shortly after US President Donald Trump announced his “state of emergency on trade” which has seen him imposing tariffs on his country’s worldwide trade partners, upending international trade in the process.
At 50 percent, Lesotho was slapped with one of the highest tariff rates which threatens to imperil its textiles sector and worsen joblessness.
President Trump’s tariffs have effectively rendered all existing trade agreements with the US’s partners void, including the African Growth and Opportunity Act (AGOA).
For the past twenty-five years, AGOA had enabled eligible Sub-Saharan African nations to export goods to the US without tariffs.
Lesotho has significantly benefited from AGOA, particularly in its textile sector, which at its peak employed approximately 53,000 factory workers, making it the second-largest employer in the country after the government.
However, in recent years, the textile industry has experienced substantial job losses, with current employment figures around 31,000.
The latest shift in the US-Lesotho trade relationship jeopardizes an estimated 12,000 jobs or 42 percent of the workforce in the country’s textile sector.
Thus, during her keynote speech at the ‘Lesotho Economic Update Report’ launch event, Dr Matlanyane emphasized the need and urgency for the private sector to take an active role in Lesotho’s economy at this critical juncture.
“We urge the private sector to engage meaningfully in the economic development of our nation. Recent events, including last week’s tariff increase, have prompted us to reassess our strategies to ensure we move in the right direction,” Dr Matlanyane said.
“We are introducing the inaugural Lesotho Economic Update Report, which aims to assist us in achieving our goals, including economic growth and addressing the persistent challenges facing our economy.”
She added: “This report underscores the vital importance of fiscal policy in reducing macroeconomic volatility and promoting effective governance. It highlights that sound fiscal management is essential for tackling macroeconomic fluctuations, thus reinforcing the need to enhance fiscal discipline alongside efficient public investment.”
In a call to action, Dr Matlanyane urged the private sector to take the initiative, rather than blaming the government for perceived shortcomings. She emphasized the need for Basotho to “confront each other candidly about the realities we face.”
Dr Matlanyane acknowledged the common refrain that “the private sector is not stepping up” is often met with the response that “the government is not doing enough.”
However, she argued this dynamic must change.
“The private sector must recognize that business involves risk management,” she said.
“It operates in a challenging environment, requiring agility and the ability to act, sometimes even ahead of government initiatives. We cannot afford to wait for the government. Time is of the essence, and if we do not take action now, we may find ourselves in a precarious situation with no one to assist us.”
Rather than relying on government support, Dr Matlanyane urged the private sector to be more dynamic and responsive, taking the lead in addressing the country’s challenges.
She asserted that Basotho themselves, not anyone else, must remedy Lesotho’s problems, bluntly stating, “I don’t care who it is, but no genius would be able to pick us up from where we are. Everything is in our hands.”
Dr Matlanyane emphasized that talk of “focus” was meaningless, as the country’s rapidly changing circumstances made it difficult to maintain focus.
She warned that the current environment put public and foreign investment at risk, and Lesotho’s contribution to growth was diminishing.
Stressing the importance of reducing reliance on development partners, Dr Matlanyane called for the private sector to take the lead, while also collaborating more meaningfully with other countries. However, she cautioned against becoming overly narrow-minded as a small economy.
Dr Matlanyane urged the private sector to play a more significant role, acknowledging the risks involved but encouraging them to find ways to de-risk their businesses.
Ultimately, Dr Matlanyane criticized Lesotho’s over-reliance on development partners, saying, “We have been resting for 58 years on development partners. Shame on us.”
She emphasized the need for the country to move forward, rather than continuing to rely on external support.
Dr Maluke Letete, the Governor of the Central Bank of Lesotho, expressed concern over the country’s slow economic growth and high unemployment rate.
“This economy has not been growing very well – it has only been growing at around 1.5 to 2.3 percent. In fact, if we exclude the impact of government projects, the economy is only growing at around 1 percent,” Dr Letete said.
He noted that with an unemployment rate of over 30 percent, this level of growth was “absolutely not” what the country needs.
“There is something we are not getting right here, and that is the private sector,” he added.
Dr Letete pointed to challenges facing the private sector, such as slow project delivery times.
He cited the example of a road construction project that took a local company 10 years to complete, while a Chinese firm was able to do the same job in just 2 months.
“I know it is very painful to do so (give work to foreign companies), but at the same time I want delivery because I don’t have all the time in office. Otherwise, I am kicked out of office immediately,” Dr Letete said. He said he would choose the faster foreign contractor over the local one.
The governor also accused the private sector of taking advantage of the government by charging inflated prices.
He called for “meaningful and inclusive growth” rather than private companies exploiting their government contracts.
“We have to talk about these issues where people sometimes charge the government for things that they have not delivered, then go and claim from the government…,” Dr Letete said.
He said reforms were necessary on both the private sector and government sides to address these challenges and drive Lesotho’s economic growth.
Dr Monaheng Seleteng, an economist, asserted that Lesotho’s economy had not fully recovered from the COVID-19 pandemic, although it had received a boost from the Southern African Customs Union (SACU) and Lesotho Highlands Water Project (LHWP) revenues.
“The economy is still recovering from the COVID-19 pandemic, and we have not reached our full potential,” he said.
“What has been driving recent growth is the Lesotho Highlands Water Project, but other sectors like manufacturing, mining, and quarrying have underperformed due to weak global demand.”
Dr Seleteng said the private sector used to be the largest employer in the country, but this had shifted to the public sector, which he said was undesirable.
“In early 2019, manufacturing was the largest employer, but this has since changed, with the government now being the biggest employer. We want to shift from public sector-led growth to private sector-led growth.”
On the external side, Dr Seleteng noted that Lesotho had been in a good position due to SACU revenues, water royalties, and remittances from abroad, “which is why the country is projected to have a current account surplus in 2024”.
Regarding fiscal policy, he said the country was in a better position in 2025 compared to 2012 and 2014, having observed a fiscal surplus since 2023.
