Lesotho is a small, landlocked country, mostly mountainous and with limited agricultural output. The country needs to import foodstuff and most consumers’ items, since industries are few and unable to meet internal demands. Being completely surrounded by South Africa, Lesotho is vulnerable to external factors. The global economic recession started in 2008 has had a severe impact on the local economy. Most textile companies have seen their market shrink. At the same time, Asian banks that used to offer financing, started to decline new loans. Basotho miners were the first to be laid off in South African mine, as mining was also hit by the recession. This has meant less income for families, and a direct loss for the government which receives statutory remittances from these workers. Growth decreased from 7.2% achieved in 2006, to 5.1% in 2007, and 2.4% in 2010.
Only 11% of the land is arable, with another 70% suitable for pasture. Agriculture nonetheless occupies the majority of the work-force (82% of the internal labour market), and accounts for about a fifth of export earnings. Output fluctuates from year to year because of poor practices, soil erosion and erratic weather patterns. Most farmer still use traditional methods and few have access to tractors of other modern machinery. All in all, only half of the 700,000 tons of cereals needed every year are produced locally. The present crisis also prevents farmers to buy seeds; as a result, large areas of arable land are left unused, increasing the country’s dependence from imports. Livestock is a profitable sector, with opportunity for expansion. Lesotho produces enough meat for local consumption and it exports large quantities to South Africa and the EU. Mohair and wool production is of good quality and sought after in Western markets.
Diamond mining has seen alternate fortune in the Maloti Mountains. After an initial interest by South African De Beers, the government formed the Lets’eng Diamonds Ltd. with other South African companies. Mining resumed in 2003 and production is now picking at 200.000 carats per year. Diamonds form Lesotho are mostly of industrial quality, with some notable gems of great value. This sector occupies only a few hundred workers. Manufacturing never expanded because South Africa actively discouraged the development of competing industries in Lesotho. New life was injected in the textile industry when Chinese companies started investing in Lesotho. In 2001, Lesotho was declared eligible for AGOA, a USA initiative to jump start textile industries in the South of the World. However, this sector is now under threat due to the high cost of labour, compared to those in China, and the end of tax cut programs like AGOA.
Water is the only natural resource found in plenty in Lesotho. Lesotho has an average rainfall of 1.905 mm. In 1986, Lesotho and South Africa signed the Lesotho Highland Water Project treaty. The project plans the diversion of water from Lesotho’s streams for export in South Africa. Hydro-generated electricity is the main by-product. The project is being financed by private enterprises, South African banks and the World Bank. Phase 1 was the construction of Mohale Dam on the Senqunyane River. The dam became fully operational in 2006, providing 5% of Lesotho’s GDP. However, 1750 families had been displaced and not properly rewarded. The World Bank had to admit that the social targets of the project had not been achieved. Even with the construction of other dams, water needs within the country outstrip supply. Construction continues to prepare for phase 2; and last September the Authority managing the project has asked companies to present their Expression of Interest in providing services during the second phase of the project.