Lesotho

Politics:

• Analysis

  Lesotho politics: Quick View - The minimum wage for textile workers is rais

  Event

  The government has announced a 9% increase in the minimum wage for workers in the textile industry.

  Analysis

  This comes against the backdrop of an ongoing wage dispute in the textile sector, where workers are calling for wage hikes well in excess of 100%, while employers are only willing to offer increases of about 7%. Having tried in vain to distance itself from the dispute, the government has come down firmly on the side of employers when revising the sector minimum wage-its 9% increase legitimises the modest wage increase offered by employers. This has risked alienating textile workers, many of whom voted for the parties in the coalition at the recent general election. The new minimum wage was due to be introduced in October, but the government had prevaricated on the grounds that time should be allowed for employers and workers to reach an agreement. However, this was always highly unlikely-while workers indicated that they would be prepared to moderate their demands, their proposed "compromise" would still have involved increments of almost two-thirds, well above what employers were willing to consider.

  From an economic perspective, the government's decision seems like a pragmatic one. The competitiveness of Lesotho's textile industry-the only large-scale employer in the manufacturing sector-is based on cheap labour, and despite this it is struggling to compete with more efficient, lower-cost producers elsewhere. Substantial wage increases for textile workers would also have had destabilising effects across the rest of the economy, especially at a time of widespread labour unrest in neighbouring South Africa.

  Nonetheless, workers' anger and sense of betrayal is understandable. The annual negotiation over minimum wages clearly gained additional momentum from lavish campaign promises, notably by the All Basotho Convention (ABC), which leads the governing coalition, that textile workers should be granted "living wages". An earlier decision to increase secondary school fees by almost 25% has further undermined the government's image in the eyes of ordinary voters.

  November 16, 2012

• Background

  Lesotho: Key figures

  King Letsie III

  Constitutional monarch from March 1990 to January 1995, then again following the death of his father, Moshoeshoe II, in January 1996.

  Pakalitha Mosisili

  As prime minister, Mr Mosisili led the Lesotho Congress for Democracy (LCD) to easy victories in three successive elections. Having seen off various challengers, his leadership of the LCD appears to be unassailable.

  Monyane Moleleki

  An LCD party stalwart, Mr Moleleki was at one stage tipped as the favourite to succeed Mr Mosisili, although his challenge has faded as Mr Mosisili has tightened his grip on the leadership position. Mr Moleleki became the minister of natural resources in the new cabinet appointed after the 2007 legislative election.

  Timothy Thahane

  A technocrat (former executive director of the World Bank and deputy-governor of the South African Reserve Bank), Mr Thahane has served as finance and development planning minister since 2002 with reasonable success.

  Tom Thabane

  A once powerful LCD insider, in 2006 Mr Thabane left the party with 17 other members of parliament to form the All Basotho Convention (ABC). His popularity with the electorate and his leadership of the protests against the results of the 2007 legislative elections have helped to establish the ABC as one of the most powerful opposition parties in Lesotho.

  Metsing Lekhanya

  A former head of government and chairman of the ruling Military Council (1986-91), Mr Lekhanya became leader of the Basotho National Party (BNP) in March 1999. His stern leadership style has alienated some in the party, and he only narrowly survived a challenge to his leadership at the party congress held in December 2007.

  The judiciary

  Lesotho's legal system is based on Roman-Dutch law and is close to that practised in South Africa. Historically, the judiciary has been independent and has generally been allowed to carry out its role effectively, even during the years of military rule, although recently concerns over political interference have arisen. A recent investigation by the Southern African Development Community Lawyers' Association (SADCLA) found that one High Court judge had been targeted after making rulings that were not in the government's favour. There are also concerns that draconian internal security legislation gives considerable power to the police and restricts the right of assembly and some forms of industrial action; moreover, SADCLA also found evidence of abduction, illegal detention and torture by the security forces during the curfew period that was imposed in June 2007.

  The legislature

  Lesotho is a constitutional monarchy, with the king as head of state, although his power has been curtailed. Executive power resides in the government, led by the prime minister. The bicameral parliament consists of a lower house, the National Assembly, whose 80 members are elected by universal suffrage, and (since the 1990 constitutional revisions) a 33-seat upper house, the Senate, with 22 principal chiefs and 11 other persons nominated by the king. A mixed-member proportional (MMP) system is used to allocate seats to the National Assembly: in addition to the 80 first-past-the-post constituency seats, a further 40 seats are allocated on a proportional basis in order to give the smaller parties greater representation in parliament.

  Media services

  Although the press is generally free in Lesotho, journalists who have been critical of the government have on occasion experienced harassment, according to the International Press Institute, a global media watchdog. Reporters Without Borders, another non-governmental organisation (NGO) monitoring press freedom, ranks Lesotho's press freedom as having "noticeable problems". There are several private radio stations and a number of private newspapers operating freely, but state media tend not to be critical of the government. South Africa's electronic and print media are also widely available in Lesotho.

  Democracy index (for methodology, see Appendix)

  The Economist Intelligence Unit's 2007 democracy index ranks Lesotho 71st out of 167 countries, putting it among the 54 countries considered "flawed democracies". This designation includes neighbouring states such as South Africa, Namibia, and Botswana, as well as two of the so-called "BRIC" emerging-market giants: Brazil and India. Lesotho is placed towards the bottom of this categorisation, reflecting the fact that its democracy, while in many respects functioning well, has a number of flaws. Lesotho ranks relatively well for Electoral process and pluralism, reflecting the generally free and fair manner in which elections are held. Democratic processes have been established in the last decade after a long period of autocratic rule; but the rules are not always clear and the results not necessarily accepted. The 1998 elections were followed by unrest, and the results of both the 2002 and 2007 legislative elections were legally challenged, although these have been peacefully resolved. Although Lesotho does not score badly for civil liberties, there are concerns that some of the government's critics and political rivals are being intimidated. Lesotho receives a satisfactory score for Government functioning, reflecting the reasonably sound governance delivered by the technocratic government. Political participation and Political culture score less well, reflecting the fact that there is still much room for the development of a dynamic multiparty democracy in which the electorate regularly participate; the existence of large rural communities makes this difficult, but there is scope for more political activity in the towns.

  Democracy index
  	Overall score	Overall rank	Electoral process	Government functioning	Political participation	Political culture	Civil liberties	Regime type
  Lesotho	6.29	71	7.42	6.07	5.56	5.63	6.76	Flawed democracy
  Overall and component scores are on a scale of 0 to 10; overall rank is out of 167 countries.

  Download text file (csv format)

  May 29, 2008

• Structure

  Lesotho: Political structure

  Official name

  Kingdom of Lesotho

  Form of state

  Constitutional monarchy

  Legal system

  Based on Roman-Dutch law

  National legislature

  Bicameral parliament; following an agreement reached in March 2001 and subsequent enabling legislation, the 80-member National Assembly (the lower house), which is elected on a constituency basis according to the terms of the 1993 constitution, was expanded by 40 members, elected by proportional representation; the upper house (Senate) consists of 33 non-elected members, 11 of whom are nominated by the king on the advice of the prime minister, plus the 22 principal chiefs of Lesotho

  National elections

  May 2012 (legislative); the next election is due to be held by May 2017

  Head of state

  Monarch; the succession is governed by custom; King Letsie III was sworn in on February 7th 1996 and crowned on October 31st 1997

  National government

  Prime minister and a 22-member cabinet, appointed in June 2012

  Main political parties

  Party political organisation was legalised in May 1991; of the 18 political parties that contested the 2012 election, 12 are represented in parliament: Democratic Congress (DC), All Basotho Convention (ABC), Lesotho Congress for Democracy (LCD), Basotho National Party (BNP), Popular Front for Democracy (PFD), National Independent Party (NIP), Lesotho Workers' Party (LWP), Basotho Batho Democratic Party (BBDP), Basotho Democratic National Party (BDNP), Basotho Congress Party (BCP), Marematlou Freedom Party (MFP) and the Lesotho People's Congress (LPC)

  Key ministers

  Prime minister, defence & national security: Thomas Thabane

  Deputy prime minister, local government & chieftainship: Mothetjoa Metsing

  Agriculture & food security: Litsoane Litsoane

  Communications, science & technology: Tseliso Mokhosi

  Development planning: Maboee Moletsane

  Education & training: Makabelo Mosothoane

  Employment & labour: Lebesa Maloi

  Energy, meteorology & water affairs : Timothy Thahane

  Finance & development planning: Leketekete Ketso

  Foreign affairs: Mohlabi Tsekoa

  Forestry & land reclamation: Khotso Matla

  Gender, youth, sports & recreation: Thesele 'Maseribane

  Health: Pinkie Rosemary Manamolela

  Home affairs: Joang Molapo

  Justice, human rights, correctional services, law & constitutional affairs: Haae Phoofolo

  Mining: Tlali Khasu

  Prime minister's office: Molobeli Soulo; Mophato Monyake

  Public service: Motloheloa Phooko

  Public works & transport: Keketso Rantso

  Tourism, environment & culture: Mamahele Radebe

  Trade & industry: Temeki Tsolo

  Central Bank governor

  Rets'elisitsoe Matlanyane

  October 01, 2012

Economy:

• Background

  Lesotho: Economic background

  Real gross domestic product by sector
  (% share of GDP)
  	2003	2004	2005	2006	2007
  Agriculture	17.9	17.1	17.3	17.7	15.2
  Industry	41.4	43.1	41.4	42.2	45.0
  Services	40.7	39.8	41.3	40.1	39.7
  Source: Economist Intelligence Unit.

  Download text file (csv format)

  May 29, 2008

• Structure

  Lesotho: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011a	2012b
  GDP at market prices (M bn)	13.4	14.5	16.0	17.6	18.9
  GDP (US$ bn)	1.6	1.7	2.2	2.4	2.3
  Real GDP growth (%)	5.4	2.9	5.6	5.8b	4.3
  Consumer price inflation (av; %)	10.7	7.2	3.6	5.0	6.1a
  Population (m)	2.1b	2.1b	2.2b	2.2b	2.2
  Exports of goods fob (US$ m)	884.0	734.1	851.8	1,003.2	1,038.9
  Imports of goods fob (US$ m)	1,531.7	1,587.2	1,998.3	2,306.1	2,469.3
  Current-account balance (US$ m)	143.7	-2.4	-421.4	-521.5	-352.6
  Foreign-exchange reserves excl gold (US$ m)	939.7b	917.7b	1,012.4b	1,108.9b	1,088.6
  Exchange rate (av) M:US$	8.3	8.4	7.3	7.3	8.1a
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2009	% of total	Components of gross domestic product 2009	% of total
  Agriculture	8.1	Consumption (private & government)	145.7
  Industry	33.8	Gross fixed capital formation	30.6
  Manufacturing	17.2	Change in stocks	0.4
  Services	58.1	Exports of goods & services	52.9
  		Imports of goods & services	-129.6
  Principal exports 2007	% of total	Principal imports 2007	% of total
  Clothing	72.9	Garment inputs	17.1
  Diamonds	20.5	Others	82.9
  Other manufactures	4.7
  Agricultural products	1.9
  Main destinations of exports 2007a	% of total	Main origins of imports 2007a	% of total
  US	59.7	SACU	85.4
  SACU	19.0	Taiwan	4.9
  Belgium	17.0	Hong Kong	4.2
  Other, Africa	2.4	China	2.6
  Canada	0.2	Other, Asia	2.5
  a IMF, Kingdom of Lesotho: Statistical Appendix, 2008.

  Download the numbers in Excel

  Download text file (csv format)

  October 01, 2012

• Outlook

  Lesotho: Country outlook

  Lesotho: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: Political stability has been supported by the smooth transfer of power from the long-serving former prime minister, Pakalitha Mosisili, to Thomas Thabane, the leader of the All Basotho Convention (ABC), in June. The ruling coalition-comprising the ABC, the Lesotho Congress for Democracy (LCD) and the Basotho National Party (BNP)-is the first of its kind in Lesotho and there is some uncertainty about how it will fare, but prospects seem good. The likelihood of a more left-wing or nationalist agenda has increased following the transfer of power, but radical changes are unlikely and a broadly technocratic approach to economic policy is likely to be maintained. Real GDP growth is forecast to pick up from 4.3% in 2012 to 5.9% in 2013 as a major infrastructure project begins, and to fall to 5.3% in 2014 as mining performs well but manufacturing and agriculture record weak growth. Inflation is forecast at 4.7% in 2013 and 5% in 2014 driven by trends in South Africa (the main source of Lesotho's imports) and in global oil prices. The current-account deficit is forecast at 23% of GDP in 2013 and 21.6% of GDP in 2014 owing to continued weak growth in textile exports and strong demand for imports of capital goods. Financing difficulties are not expected.

  DOMESTIC POLITICS: The smooth transfer of power from Mr Mosisili to Mr Thabane marked the first peaceful transfer of power in Lesotho's history. The ABC won the second-largest number of parliamentary seats in the general election on May 26th and was able to form a government after forging an alliance with the LCD and the BNP. This was buttressed by the tacit support of several other small parties. Mr Mosisili's party, the Democratic Congress (DC), won the most parliamentary seats but was unable to form a government, as it was bereft of allies. The former prime minister's decision earlier in 2012 to leave the LCD-which he had led for over a decade-to form the DC, played a major part in ending the LCD's hegemony. Nevertheless, the extent of the break with the past should not be exaggerated-Mr Thabane and his deputy, Mothetjoa Metsing of the LCD, are former cabinet colleagues of Mr Mosisili, so the same political class remains in charge. The coalition is the first of its kind in Lesotho and so there is inevitably some uncertainty about how it will fare. However, its prospects do seem positive. The two main coalition partners, the ABC and the LCD, are not ideologically far removed, and Mr Thabane's cabinet appointments have reflected the balance of power within the coalition, with the ABC and the LCD receiving an almost equal number of portfolios, in line with their parliamentary representation. However, the personality-driven nature of Lesotho politics could emerge as a source of unrest. In addition, dissatisfaction with widespread poverty and low wages in the textile sector could lead to further sporadic social unrest over the 2013-14 forecast period. The next parliamentary election is due in 2017. Recent elections have been declared free and fair by international observers, although concerns have been raised about inaccuracies in the voter's roll. The outcome of the 2012 election has been accepted by all parties, with Mr Mosisili promptly accepting defeat. However, the ABC and other former opposition parties had previously expressed dissatisfaction with the manner in which parliamentary seats are allocated under Lesotho's highly complex electoral system-the mixed-member proportional representation system-and some changes could be made to the electoral system.

  INTERNATIONAL RELATIONS: There will be no external threats to Lesotho over the forecast period. Despite superficial signs of improvement, crossborder security continues to overshadow the bilateral relationship with South Africa, which surrounds Lesotho. The deployment of South African soldiers to patrol the joint border is expected to be supplemented by the construction of a security fence to deter stock theft and drug-smuggling. There are also concerns that economic relations with South Africa, although inevitably dominated by the larger country, are too one-sided, as the Joint Bilateral Commission for Co-operation, which was established in 2001, hardly functions. The government will work hard to maintain its largely amicable relations with donors, although corruption will remain a sticking point. It may also try to improve Lesotho's international image, which has been marred by alleged human rights abuses and political interference with the judiciary.

  POLICY TRENDS: The likelihood of a shift towards a more left-wing or nationalist agenda has increased following the transfer of power to the current ruling coalition. Media reports in late July that the government was considering introducing a 51-49 ownership model to raise local control of businesses caused alarm among investors, particularly as the proposed model resembled recently introduced measures in Zimbabwe. However, Mr Thabane was quick to clarify that any such strict localisation criterion would apply to the mining sector only and that Botswana, with its much more favourable investment environment, would serve as a model for any changes. Similarly, although the minimum wage could be raised, the government is expected to take into account the impact on the vital textile industry. The Economist Intelligence Unit's core scenario, therefore, remains that any policy changes will be measured and that a broadly technocratic approach to economic policy will be maintained. However, the risks to this are substantial as there is considerable uncertainty, including within the new government, about the future direction of policy. Macroeconomic stability will be supported by the recently augmented US$75m Extended Credit Facility (2010-13) with the IMF, on which Lesotho has continued to receive favourable reviews, and the peg of the currency, the loti, to the South African rand. The government will work on improving the business environment-the Global Competitiveness Index for 2012-13 ranks Lesotho 137th out of 144 countries, while the World Bank's Ease of Doing Business Index ranks it 143rd out of 183 countries-but progress is likely to be slow. It is also expected to scale up investment in roads, water supply and power. Despite the previous government's stated commitment to improving the management of the public finances, backlogs in auditing government accounts continue to stretch back several years and senior civil servants continue to be found guilty of misusing public funds. The likelihood of substantial change over the forecast period remains limited. The fiscal deficit jumped to 5.1% of GDP in fiscal year 2010/11 (April-March) owing to a 47% decline in Southern African Customs Union (SACU) revenue, which was driven in part by weak trade flows and a less generous revenue-sharing formula. In 2011/12 the deficit widened to 12.3% of GDP as SACU receipts stagnated and expenditure growth picked up in the run-up to the elections. In 2012/13 it is forecast to narrow to 1% of GDP as SACU receipts more than double owing to an expected windfall payment to compensate for some underpayments in previous years and an increase in Lesotho's imports from South Africa as the second phase of the Lesotho Highlands Water Project (LHWP II) begins. In addition, the Lesotho Revenue Authority is becoming increasingly aggressive in pursuing unpaid taxes, and this should help to offset the increase in the threshold for value-added tax registration from M500,000 (US$63,300) to M850,000. Fiscal spending is expected to grow by 19% in 2012/13, slightly under the official target. As the windfall payment is a one-off, SACU revenue will contract by 7.8% in 2013/14. Despite this, it will remain a vital source of financing, accounting for 40% of total fiscal revenue. Tax revenue is expected to grow in line with economic growth. Grants are officially projected to fall by 23%, but this is not in line with recent trends (and may reflect a failure by donors to clarify their medium-term commitments), and we expect higher inflows. On the spending side, current expenditure is budgeted to grow by only 4.1% and capital spending to decline by 15.7%. Sizeable spending overruns are expected, especially on current expenditure, although this will be partly offset by higher than expected grants, leading to an overall deficit of 2.3% of GDP. In 2014/15 SACU revenue is expected to stagnate, curbing overall revenue growth. The government projects that the deficit will fall to 0.5% of GDP, but this is premised on a 7% contraction in fiscal spending, which is very unlikely. We forecast the deficit at 1.9% of GDP in 2014/15. The risk of larger than expected spending overruns has increased following the change of government. Despite this, debt-sustainability is expected to stay intact-interest payments account for less than 2% of total spending, partly because the government ran large fiscal surpluses in 2006/07-2009/10 (averaging 12.8% of GDP), when receipts from SACU were at their peak.

  ECONOMIC GROWTH: Manufacturing and mining, the mainstays of recent growth in Lesotho, have faced divergent prospects in the aftermath of the global recession. Diamond sales have recovered strongly since 2010 and four mines are now operating at various levels of capacity. Robust growth is expected in 2013/14 as investments are made in existing mines and the development of new prospects, with the government contributing complementary infrastructure. In contrast, the decline in textile production, largely owing to competition from lower-cost Asian producers, may be terminal. This is despite the fact that there is some potential to develop manufacturing capacity to serve the regional market, which currently accounts for a small share of Lesotho's exports, and to benefit from the relocation of businesses from South Africa, where production costs are higher. The renewal to 2015 of the Third Party Fabric provision under the African Growth and Opportunity Act-which gives Lesotho favourable access to the US market-has, however, averted the risk of a contraction in the textile sector. Agricultural output slumped in 2012 because of unfavourable weather and a continued decline in the area of land under cultivation, owing to land degradation. It is expected to recover in 2013, assuming a return to more favourable weather conditions, and to stagnate in 2014, as problems with land quality persist. Growth in construction will increase sharply owing to the onset of the M7.3bn (US$990m) LHWP II, financed by South Africa, as well as higher government spending on infrastructure. Tourism remains a priority for development, although there is little sign of meaningful growth in the short term. So far, electricity shortages in South Africa have had only a modest impact on Lesotho, which is largely self-sufficient in electricity. However, as demand for electricity grows, fuelled by the diamond mines, power supply could emerge as a constraint on growth, at least until power projects associated with the LHWP start to come on stream later in the decade. Overall, real GDP growth is forecast to pick up from 4.3% in 2012 to 5.9% in 2013 as the LHWP gets under way and the agriculture sector recovers, before moderating to 5.3% in 2014 as mining continues to perform well but manufacturing and agriculture record insipid growth.

  EXTERNAL ACCOUNT: Export growth is likely to be slow in 2012 because of a continued lack of competitiveness in the textile industry and fewer large diamonds being mined at the country's main mine, the Letseng mine. It is expected to pick up in 2013/14 as investment in mining boosts output and external demand improves. Imports will grow sharply, particularly in 2013, owing to the onset of the LHWP II and investment in mining. Lesotho's sizeable trade deficit (which stood at 53% of GDP in 2010) is, therefore, set to widen. The services account will remain firmly in deficit, as services exports remain tiny. Having increased sharply in 2012 (owing in part to a one-off windfall payment), SACU receipts are forecast to fall in 2013 and stagnate in 2014, based on projections by the customs union. Together with the deterioration in the trade balance, this is expected to lead to a widening of the current-account deficit from 15.1% of GDP in 2012 to 23% of GDP in 2013. A small narrowing of the deficit to 21.6% of GDP is forecast in 2014 as import growth slows. We expect that the government will receive sufficient inflows of foreign loan disbursements to finance the current account, and South Africa is to fund most of the costs of the LHWP II. Delays in the receipt of financial flows may cause financing difficulties, although in that case Lesotho is likely to be able to access emergency funds from the Fund.

  December 19, 2012

View detailed map

Country Briefing

Land area

30,344 sq km

Population

2.2m (2012 UN estimate)

Main town

Maseru (capital) has an estimated population of 266,000

Climate

Continental, extreme temperatures

Weather in Maseru (altitude 1,500 metres)

Hottest month, January, 15-33°C; coldest month, July, -3-17°C; driest month, June, 7 mm average rainfall; wettest month, February, 141 mm average rainfall

Languages

Sesotho and English

Measures

Metric system

Currency

Loti, plural maloti (M)=100 lisente; pegged at parity with the rand.

Time

2 hours ahead of GMT

Public holidays

January 1st (New Year's Day), March 11th (Moshoeshoe's Day), April 6th (Good Friday), April 9th (Easter Monday), May 1st (Workers' Day), May 17th (Ascension Day), May 25th (Heroes Day/Africa Day), July 17th (King's birthday), October 4th (Independence Day), December 25th (Christmas Day), December 26th (Boxing Day)

July 04, 2012