TRALAC - Trade Law Centre

Country Info: Lesotho

Economic Background

Small, mountainous, and completely landlocked by South Africa, Lesotho is a least developed country in which about three-fourths of the people live in rural areas and engage in subsistence agriculture. Lesotho produces less than 20% of the nation's demand for food. Lesotho relies on South Africa for much of its economic activity. Lesotho imports 90% of the goods it consumes from South Africa, including most agricultural inputs.

Households depend heavily on remittances from family members working in South Africa, in mines, on farms and as domestic workers, though mining employment has declined substantially since the 1990s.

Government revenue depends heavily on transfers from South Africa. Customs duties from the Southern Africa Customs Union accounted for 44% of government revenue in 2012. The South African Government also pays royalties for water tranfered to South Africa from a dam and reservoir system in Lesotho.

However, the government continues to strengthen its tax system to reduce dependency on customs duties and other transfers. Access to credit remains a problem for the private sector. The government maintains a large presence in the economy - public expenditures accounted for 55% of GDP in 2010 and the government remains Lesotho's largest employer. Lesotho's largest private employer is the textile and garment industry - approximately 36,000 Basotho, mainly women, work in factories producing garments for export to South Africa and the US.

Diamond mining in Lesotho has grown in recent years and may contribute 8.5% to GDP by 2015, according to current forecasts. Lesotho's $362.5 million Millennium Challenge Account Compact, which focused on strengthening the healthcare system, developing the private sector, and providing access to improved water supplies and sanitation facilities, will end in September 2013. Despite the 2008/09 global economic crisis, the economy has recovered strongly with growth averaging nearly 5% per year since 2010. (Source: World Factbook, 2013)

Trade Profile

Bi-lateral trade between the United States and Lesotho is characterised by the latter country's rapid expansion of its exports to the US. In 2001, Lesotho recorded a $ 215 million trade surplus with the U.S., double that of two years previously. By the end of 2002, this had risen further to $ 319 million. Lesotho imports only a very small amount of goods from the U.S.

The U.S. has traditionally provided a ready market for Lesotho's exports of apparel, which have been strongly bolstered by the advent of the AGOA. In 2001 and 2002, 99% of Lesotho's exports fell into the 'textiles and apparel' category, of which 98% were AGOA-eligible, a feat achieved by no other AGOA-eligible country (see link to Country Trade Profile below). Due to the highly concentrated nature of Lesotho's exports, the country has the distinction of having virtually 100% of its exports falling under AGOA.

However, Lesotho's classified status as a 'Lesser Developed Country' provides the country with a window of opportunity (until September 30, 2004) to utilise third country textile inputs for its AGOA-eligible exports. The country currently has limited textile production capacity (its production and exports consisting almost exclusively of ready-made garments), which means that in the absence of a major expansion of textile production capacity prior to September 2004, it will have to rely on sourcing its textiles from its regional trade partners, such as South Africa. This in all likelihood will provide a major boost to the South African textile industry.

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