Lesotho gained its independence from Britain in 1966. There followed distinct political periods, characterized, in turn, by multiparty democracy (1966-1970), one-party state (1970-1986), military dictatorship (1986-1993) and the return of multiparty democracy (1993). The last competitive elections were held in May 2012 and involved 18 parties. These elections were free and fair and resulted in an effective peaceful transfer of power from the 14-year incumbent, Pakalitha Mosisili, to a coalition government headed by Prime Minister Motsoahae Thabane.
Although corruption is a major problem in Lesotho, there have been remarkable improvements since 2011, thanks to the creation of independent institutions such as Directorate on Corruption and Economic Offences. EESE survey data reveals that enterprises in Lesotho are usually considered to be socially responsible, especially larger multinational companies.
Despite scanty data, cooperation in labour-employer relations are comparable to those of neighbouring countries such as Botswana and Namibia. Social dialogue is codified by the country’s labour code, but union activities are in effect curtailed. Lesotho has ratified all main international standards with regards to labour and human rights, but either lacks the capacity to domesticate these international pieces of legislation or the capacity to implement them.
Economic elements
In 2003 Lesotho launched a long-term development plan called National Vision 2020. The National Vision’s overarching objective is that by 2020 Lesotho will be a stable democracy and a united, prosperous nation at peace with itself and its neighbours; that it should have healthy and well-developed human resources; and that its economy would be strong, its environment well-managed and its technology well-established. The plan emphasizes that an inclusive economic growth is the most effective route for poverty reduction, but that it has failed to be adequately inclusive so far. There remain a high concentration of poverty in rural areas, persistent high levels of inequality, and widespread unemployment. Unemployment stood at 24 per cent in 2008. Only 230,000 of the 608,000 employed people engage in formal wage employment. The rest are in informal activities, and they are often paid in-kind.
Guided by the National Strategic Development Plan (NSDP), the 2013/14 Budget has therefore been designed to promote a sustainable and employment-led economic growth. It aims to achieve growth of 6 to 7 per cent per annum through targeted spending and to create 50,000 sustainable jobs to the economy by the end of the Plan period, approximately 10,000 jobs each year. This level of employment growth would allow achieving the National Vision interim unemployment target of 18 per cent for 2016/17 and putting the country on track to reduce it to 15 per cent by 2020. In 2012, Lesotho’s growth rate was 4 per cent, which is far above the world average of 2.2 per cent in the same year, while at the same time inflation came down slightly.
Given its geographical situation, small domestic market (2 million people) and low GDP, regional integration is essential to Lesotho’s economic development, poverty reduction efforts and progress towards achieving the MDGs. Trade is an important part of its economy, and represents 154.5 per cent of GDP in 2012. Lesotho has taken advantage of the AGOA to become the largest exporter of garments to the US from sub-Saharan Africa. However, the industry is at risk of changes in trade policy of importing countries, particularly from the US. The apparel industry is the largest formal employer in Lesotho, with nearly 50 per cent of the formally employed workforce.
Informal employment constitutes a large share of employment in Lesotho. In 2008 (the latest year for which data is available), 70 thousand women and 90 thousand men were informally employed. This amounted to, respectively 36.1 and 34.1 per cent of all non-agricultural employment. Sectors most contributing to informal employment are manufacturing (49 per cent of employment is informal), construction (26.7 per cent), wholesale and retail trade (29.1 per cent), public administration (19 per cent, mainly in rural areas) and education, (23.9 per cent, also mainly in rural areas). There are indications that a simplification of the tax regime would encourage businesses to comply with tax requirements. Lesotho’s performance in the “Ease of Doing Business Index” is considerably worse than that of its direct neighbours.
There is generally respect for the rule of law in Lesotho, but because of long delays in dispensing justice and a general lack of trust and confidence in the capacity and political neutrality of law enforcement agencies, the country records a low score for the “Rule of Law Index”. A major challenge is the absence of adequate infrastructure and of human and physical resources that could afford sufficient protection to particular sections of society. Women in particular are discriminated against in the economic spheres, in spite of recent advances, such as the adoption of the Legal Capacity of Married Persons Act 2006. In addition, EESE survey findings suggest that although property and intellectual rights may be defined in law, protection was perceived to be only moderate, as was the capacity of the courts and the police: 41 per cent of respondents believed property rights to be both clearly defined and well protected, and 36 per cent that these rights were well defined but not well protected.
There are currently no laws or regulations enforcing fair competition in Lesotho. A Competition Bill is currently being drafted, which should have been passed in 2013. At time of writing, in April 2014, there are no signs of this bill being implemented, although there are isolated pieces of legislation promoting competition in selected sectors.
Lesotho’s policy and regulatory framework in the area of ICT comprises the Information and Communications Technologies (ICT) Policy of 2005, the Lesotho Communications Policy of 2008 and the Communications Act of 2012. This Framework paved the way for the development of a comprehensive strategic programme to steer the evolution of Lesotho’s ‘information economy’. The key focus of the policy centres on providing countrywide access to appropriate, affordable, cost-effective and equitable ICT services over diverse platforms such as telecommunications networks, radio, television and the Internet. Liberalisation and privatization of the country helped improve access to telecommunications. ICT development remains concentrated in the lowlands, especially Maseru, but significant efforts are being made to expand ICT coverage to the entire country.
Access to credit is a major challenge for Lesotho’s businesses. Lesotho’s Vision 2020 calls for the financial intermediation sector to be diverse and highly responsive to customer demands and needs. Access to credit and good loan management and repayment mechanisms are to be the corner stone for development and promotion of the SMME and informal sectors. Women and young people are identified as the groups having most difficulties accessing finance. Banks set too stringent requirements and have too complex procedures hindering disadvantaged groups access to finance. Recent progress has however been made, through the amendment of the Lesotho Bank Savings and Development Order which ensures women’s access to opportunities to acquire collateral, obtain loans or credit from commercial institutions and empower them to own and manage companies/enterprises.
In 2012, the Government of Lesotho entered into an agreement with the Lesotho National Development Corporation (LNDC) and commercial banks. Referred to as the Partial Credit Guarantee Scheme (PCGS), the agreement aimed to fund local business initiatives and promote and grow entrepreneurship. Banks are nevertheless deemed the most likely to provide credit.
Lesotho has very large and unexploited hydropower potential yet remains a net importer of electricity from South Africa. The unreliable and inadequate power supply is the most severe infrastructure constraint on business development. The Lesotho Highlands Development Authority, a joint institution between Lesotho and Republic of South Africa, has just launched the Lesotho Highlands Water Project Phase II, a project for the development of a water delivery system and is undertaking feasibility studies for the development of the Kobong project to generate electricity for export to South Africa and for local consumption.