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Economy of Lesotho

National economy

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Lesotho is a member of the Southern African Customs Union (SACU) in which tariffs have been eliminated on the trade of goods between the other member countries, Botswana, Namibia, South Africa, and Eswatini. Lesotho, Eswatini, Namibia, and South Africa also form a common currency and exchange control area known as the Rand Monetary Area that uses the South African rand as the common currency. In 1980, Lesotho introduced its own currency, the loti (plural: maloti). One hundred lisente equal one loti. The loti is at par with the rand.

Economic history

Lesotho's early economic history was shaped by its integration into the regional economy of Southern Africa, a heavy reliance on labor migration and productivity in agriculture. In the 19th century, Lesotho was a significant agricultural exporter, supplying grain and mohair to South African mining camps. However, by the early 20th century, worsening land shortages and unfavorable climate conditions shifted Lesotho into a net food importer and a labor reserve for South African mines and farms. Labor migration became a central economic pillar, with tens of thousands of Basotho men seeking employment in South Africa throughout the 20th century. By 1982, over 100,000 Basotho were working in South African industries.

Lesotho's independence on the 4th of October 1966 marked the beginning of increased international aid flows, with Britain, Sweden, and multilateral donors providing financial assistance. And early aid efforts were largely directed at agriculture, based on the assumption that Lesotho was a purely agrarian society. Large-scale rural development projects, including those funded by the World Bank and USAID, repeatedly failed due to, among other reasons, poor planning and a lack of local participation.

Political instability influenced aid patterns. Following a 1970 coup, British and Swedish aid was temporarily suspended but resumed later that year. Lesotho also leveraged its opposition to apartheid to attract more aid, particularly after the 1976 Soweto Uprising and Transkei border conflicts. By 1979, development assistance had risen to $64 million.

Until the political insecurity in September 1998, Lesotho's economy had grown steadily since 1992. The riots, however, destroyed nearly 80% of commercial infrastructure in Maseru and two other major towns in the country, having a disastrous effect on the country's economy. Nonetheless, the country has completed several IMF Structural Adjustment Programs, and inflation declined substantially over the course of the 1990s. Lesotho's trade deficit, however, is quite large, with exports representing only a small fraction of imports.

The global economic crisis hit the Lesotho economy hard through loss of textile exports and jobs in the sector due largely to the economic slowdown in the United States which is a major export destination, reduced diamond mining and exports, including weak prices for diamonds; drop in SACU revenues due to the economic slowdown in the South African economy, and reduction in worker remittances due to weakening of the South African economy and contraction of the mining sector and related job losses in South Africa. In 2009, GDP growth slowed to 0.9 percent.

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