By: Thoboloko Ntšonyane
MASERU- In its recent report, the Southern African Customs Union (SACU) has shown that Lesotho’s trade balance continues to be a point of contention.
The report shows that in 2023, the country exported goods worth M15.3 billion while importing M31.7 billion, leading to a widening trade deficit. As a member of SACU, Lesotho heavily relies on revenue from the customs union, with a significant portion of its national budget derived from these receipts.
Lesotho has been critised for being the biggest consumer than the producer. While there are efforts by the government to change the status quo, there is seemingly a need for more concerted efforts not only from the government but also the private sector.
The shifts in regional trade policies and South Africa’s economic performance directly impact the funds Lesotho receives.
Lesotho, having ratified the African Continental Free Trade Area (AfCFTA), stands to benefit from enhanced regional trade opportunities. However, challenges at border posts, including delays, red tape, and inadequate infrastructure, continue to hinder seamless trade. These barriers not only slow down the movement of goods but also limit the country’s ability to fully exploit the AfCFTA’s potential in diversifying exports and reducing its reliance on the SACU.
The business community has also called on the country to strengthen border efficiency, streamline customs procedures, and enhance local production capacity to take full advantage of the continental market.
The report further shows that the manufacturing sector has seen a decline. Historically, this sector has been a significant pillar of the economy, peaking at 24.6% in 2002, primarily due to a surge in textile exports. Over the years, the contribution has fluctuated, influenced by global market dynamics and regional trade agreements.
The textile and apparel industries remain central, with Lesotho being among the top four producers of textiles and garments in Africa.
Meanwhile, the government continues to encourage diversification within the manufacturing sector to ensure sustainable economic growth.
As of 2023, Lesotho’s manufacturing sector contributed approximately 14.02% to the nation’s Gross Domestic Product (GDP).
Lesotho’s economy, like much of the SACU region, has experienced notable fluctuations in recent years, reflecting both domestic and external economic pressures. However, with a GDP growth rate of just 1.8% in 2023, Lesotho remains one of the more sluggish economies within SACU.
Lesotho’s economic backbone is its Financial and Business Services sector, which continues to be one of the largest contributors to GDP. The mining sector, particularly diamond exports, also plays a crucial role in foreign exchange earnings, but its growth has been inconsistent.
Manufacturing, once a dominant force in employment, has faced setbacks due to global supply chain disruptions and fluctuating demand in key export markets like the United States and South Africa.
The textile and apparel industry, a historical pillar of Lesotho’s economy, continues to navigate uncertainty. This sector, which employs thousands, faces competitive pressures from Asian manufacturers and evolving global trade policies. Efforts to diversify exports beyond traditional markets will be crucial in sustaining long-term growth.
“Mining and quarrying, manufacturing, and financial and business services ranked among the key contributing sectors of the SACU economies,” reads the report.
Inflationary pressures in Lesotho remain a concern. While inflation was at 6.2% in 2023, it is projected to ease slightly to 6.1% in 2024. This marginal decline offers some relief but still places strain on households, particularly with rising food and energy costs.
Compared to the regional average of 4.3%, Lesotho’s inflation remains high, reflecting underlying structural weaknesses such as dependency on imports and exchange rate vulnerabilities.
Unemployment remains one of Lesotho’s pressing socio-economic challenges especially amongst youth who are economically active population. Youth unemployment, particularly among recent graduates, continues to rise, highlighting the need for targeted interventions in entrepreneurship and skills development.
While economic expansion has been recorded, job creation has lagged behind. The agriculture sector, despite its potential to absorb labour, has suffered from erratic weather patterns, land degradation, and limited access to financing.
To ensure economic resilience and long-term prosperity, Lesotho must pursue policies aimed at diversifying its economy, reducing reliance on SACU revenues, and enhancing private sector growth.
Investments in renewable energy, infrastructure development, and digital transformation could provide new avenues for employment and economic expansion.
The government’s focus on attracting foreign direct investment (FDI) could be instrumental.
Reports have shown that creating a more investor-friendly environment through regulatory reforms, easing business registration processes, and strengthening governance could position Lesotho as a more attractive destination for capital inflows.
SACU pointed out that: “In general, all SACU Member States experienced increases in GDP I 2023, continuing the trend observed in the previous year… Botswana’s GDP rose to R364.5 billion in 2023, up from R332.3 billion in 2022. Eswatini recorded an increase to R82.0 billion from R78.4 billion, while Lesotho’s GDP grew from R37.4 billion in 2022 to R39.1 billion in 2023.
“Similarly, Namibia increased to R227.8 from R206.2 billion, and South Africa’s GDP expanded to R7.0 trillion in 2023, up from R6.6 trillion in 2022.”
Experts have since said that with the careful planning and strategic investments, Lesotho has the potential to transform its economic landscape and offer greater prosperity to its citizens.