Lesotho’s economy on the mend

Business Reporter

MASERU – LESOTHO’s economy could be on the mend with sustained growth expected in the next two years, according to projections from the Central Bank of Lesotho (CBL).

The CBL’s Economic Outlook report released last month says the economy will see a growth of 3.1 percent this year, 3.5 percent in 2017 before leaping to 4.6 in 2018.

Last year growth tumbled to 2.9 percent from 3.6 percent in 2014, mainly due to a slump in global demand, the devastating drought and depressed activity in some sectors of the economy.

The central bank says the steady recovery will be anchored by strong growth anticipated in the mining sector and moderate growth in the service sector. The mining sector is expected to grow by 9.6 percent this year before recording a massive jump to 25.7 percent next year.

Although it will slow down to seven percent in 2018 the central bank expects that will not make a significant dent in the overall economic growth because the drop will be covered by a recovery in the building and construction subsector.

The mining industry will benefit from increased capacity at Letseng Diamond, Lesotho’s biggest mine, and Kao Diamond mine.

Liqhobong Mine which is expected to start full production late this year after completion of its M2.5 billion processing plant is expected to contribute significantly to the growth in the sector.

Liqhobong Mine expects to produce 1.1 carats once in full production.

The report notes that the secondary sector which includes manufacturing, textiles and construction will remain subdued this year and the next before a strong rebound in 2018.

The sector is expected to shrink by 4.4 percent next year but grow by 4.6 percent in 2018. The building and construction industry is expected to cause both the dip and recovery, as the 16.4 percent drop is expected to be followed by a 11.2 percent growth the year after.

The CBL is basing those growth estimates on the assumption that construction of the advance infrastructure for the Polihali Dam would have started. The advance infrastructure includes access roads, accommodation facilities as well power supply and telecommunication.

Prospects for the textile and clothing industry look bleak with negative growth expected to continue for the next two years.

“While textiles and clothing exports in non-AGOA destinations are expected to grow, exports to US markets are set to remain under pressure due to continuous erosion of the country’s competitiveness in the US markets,” says the report.

The report adds that the recently concluded Trans-Pacific Partnership (TPP) agreement between the US and several pacific countries “poses a threat to Lesotho’s manufacturing exports”.

The US is the biggest market for Lesotho’s textiles. The TPP deal however opens the US textile markets to other countries whose textiles are cheaper because of government subsidies and low labour productions costs.

That means even though it is insulated by AGOA Lesotho will have to battle with other countries in the US’s textile market.

The tertiary sector, which is the biggest contributor to the economy, is expected to remain strong with an average growth of 4.3 percent until 2018.

Its subsectors of wholesale and retail, transport and communications as well as financial and insurance services are expected to drive this steady growth.

“A rebound in the general economic growth, is set to provide impetus to consumer spending, boosting wholesale and retail trade services.”

The transport industry, the report says, will benefit from low oil prices and expected growth in the mining and construction industries.

It also says new technology, mobile money services and increased internet coverage will continue to drive growth in the telecommunications industry.

“On-going reforms including the establishment of the national identification card system, credit bureau and implementation of the Land Act of 2010 are expected to give impetus to financial and insurance services.”

The report notes the law could be a boon for the financial sector as it will improve security of tenure and allow people to use their land as collateral for credit.

The central bank however points out the expected growth remains shaky because of the risk posed “by adverse weather conditions, possible delays in the implementation of major capital projects and the recently signed TPP agreement”.

“Unfavourable weather conditions constitute a major risk to agricultural growth prospects, with possibility of a delay in recovery if sufficient rainfalls are not received well in time at the beginning of the agriculture year.”