The appreciation of the currency against major international currencies reduces Lesotho’s export competitiveness while the depreciation of the loti increases input costs since raw materials are sourced from international markets. We bring some understanding on the speech to the business sector by chatting to Lehlohonolo Rakubutu, a professional accountant also a business and economic commentator.
What does the appreciation of Loti mean to traders and the effects expected? The appreciation of Lesotho loti to other foreign currency is hugely influenced by the theory of demand and supply. Therefore a higher demand of Loti means the demand of the loti products in foreign exchange was much higher than the supply in international market. That will result in a much higher value seen on Loti against foreign currency to discourage the market affordability. An opposite will happen when there is a bit lower demand of Loti to other foreign currencies.
From the minister of finance speech government’s willing to empower local produce. They are more willing to invest into making sure agricultural production increase in Lesotho together with other mass production sectors like textile. This on its own means the importation rate in Lesotho will now lessen resulting in a lower imports and possibly high exports. Ultimately the Lesotho Loti may increase as the products traded out of the country will now be more and hence a more demand of a Loti currency in International Market.
What major international currencies is the loti possibly being compared to in this speech and why? There are various currencies that Loti have been compared to in this speech and that is possibly due the fact that Lesotho trades with such country while others may be due to the nature of their use in the International Market. The USA dollar is one the mostly used base currencies to communicate the value of an international transaction. Apart from the dollar is the second largest market for Lesotho products exporting sitting at 14.6% of the garments and other commodities. We also have the Euro and Sterling Pound which are currencies used mostly in European countries. Lastly, we have the Rand which is the most currency brought in our budget.
Aside the currency appreciation, what other factors should traders be aware of that may impact the competitiveness of Lesotho’s export? Firstly, the quality of our products should be one of the best priorities in order for the Lesotho’s competitiveness in the International Market. Farmers and other professionals involved into mass production should be given chances for quality training. Secondly GOL and other major entities should be ready to assist as the mass production is more capital intensive and therefore there will be financial aid needed for Lesotho to boost the production and maintain the level of supply in intoernational markets. This calls on use of major machines, other organic manure, herbicides and pesticides.
On the backdrop of the minister’s speech, are there any factors in Lesotho that could lead to the depreciation of the loti? Inflation is one of the major causes behind input prices. Around 1st of April 2022 inflation was reported at around 6.8% while in the last quarter of 2023 it is estimated around 8.0% which could possibly be higher in the 2023/24 financial year as said by the minister of finance prediction on the possible world economic crisis. Chances that the world might go to recession means that interest cost on suppliers supplying Lesotho might go higher which will in turn result in a much higher price per unit looking at the fact that global recession drives prime rate higher and therefore interest charged on loans. In 2007/09 global recession the prime rate reached an average of 15.5%.
What common retail products are likely to be affected by rising input costs in the year 2023/24? One of the major issues attached to possible and continued high input cost in Lesotho is lack of powerful taxation laws that will fight against transfer pricing in Lesotho. Transfer pricing is where by subsidiaries from a foreign company absorb inputs from its parent company at a much higher costs and such subsidiaries reporting losses to avoid taxes In Lesotho while technically, they are just shifting profits to their Parent companies in a foreign country. The transfer pricing issue does not only affect the Lesotho production in terms of rising product unit cost but also makes it difficult for the targeted Tax Revenue of 10.98 billion to be attained.
Are there ways entrepreneurs can help reduce input costs or lower the price of local goods? There are ways to mention a few through buying from the local markets if there are any. Apart from that buying in areas of high trade opportunities like the SACU area can help to manage and lessen the Input cost through favorable agreements like SACU. Also the distribution cost of inputs will be much lower due to Lesotho producers buying inputs at nearby countries like South Africa, Botswana and Swaziland. Double taxation agreements made between SACU countries non double taxation imposition of products within SACU region are one of the trade breakthroughs for Lesotho importation of Raw materials or Inputs.
The rate of sourcing raw materials from international markets must be lowered. This is the warning Rakubutu has about Lesotho Unstable economical state of the importing countries which are experiencing a high-cost of production which results from high-cost fuel and other inputs. The Markup costing of products will mean that the consumed raw materials into Lesotho will be on a much higher prices hence a much high drive into input cost. Energy is one of the unstable inputs in products especially in the overseas countries where Lesotho Imports raw materials from.