Lesotho’s exports have had a slower growth since the recovery from the shock caused by the COVID-19 pandemic. The country’s total merchandise exports had a slower growth since the recovery to USD 998.1 million in 2021. Lesotho has a slightly diversified export profile and earnings from Diamonds have begun recovering despite being below the medium-term average to USD 343.2 million (approx. 34.4% of total exports) in 2021. Other top exports from Lesotho include men and women’s clothing. These exports contributed USD 218.1 million (approx. 21.9% of total exports). Lesotho’s export earnings from men and women’s clothing have begun recovering despite being below the medium-term average at USD 117.7 million and 100.5 million respectively in 2021. Lesotho’s trade deficit continued widening beyond the historical medium-term average of -USD 1.4 billion for 2018 to 2020, to -USD 1.5 billion in 2021.
Total merchandise export earnings have begun recovering despite being below the medium-term average which relieved the pressure caused by the declining net FDI inflows (foreign capital being invested domestically). Lesotho’s FDI inflows have not recovered from COVID-19 and continued decreasing to USD 26.6 million in 2021. Hence, Lesotho’s FDI stock has increased marginally from an annual average of USD 999.1 million for 2018 to 2020, to USD 1.1 billion in 2021. This does not bode well for Lesotho as a country that is aiming to attract more foreign investment to diversify its economy away from the reliance on diamonds exports. The transition will require further market access deals beyond the US Africa Growth and Opportunities Act that Lesotho currently benefits from. However, without long-term industrial policy the access to markets quickly runs aground unless firms are able to use the competitive gains of preferential market access to develop competitiveness through productivity gains. This seems to be the main constraint holding back further development Lesotho’s clothing and textiles sector.
Remittances receipts have grown significantly over the period. Personal remittances received have begun recovering from COVID-19 despite being below the historical medium-term average of USD 531.2 million for 2018 to 2020, at USD 499.2 million in 2021. Lesotho has no recorded personal remittance payments to foreign nationals. This may also be due to the fact that Lesotho is in a monetary union with South Africa which means the LSL is pegged at par to the ZAR. This is reflected in the current account balance and strength of the LSL over the period.
The LSL has continued depreciating. Lesotho is in a monetary union with South Africa which means the SZL is pegged at par to the ZAR. In nominal terms, the LSL depreciated by an annual average of -8.7% against the USD for 2018 to 2020. The LSL depreciated by -9.8% to an annual average of LSL 14.8 per USD in 2021. Lesotho’s current account deficit continued widening beyond the historical medium-term average. In 2022, Lesotho’s current account deficit continued widening beyond the historical medium-term average. In particular, Lesotho has benefited from high global diamond prices which continued appreciating due to lower global supply following the sanctions against Russian (the leading diamond exporter globally) after its military exercises in Ukraine. However, this has been offset by higher fuel and food import prices. This is also reflected in the projections for Lesotho’s current account balance.
In 2023, Lesotho’s current account deficit is projected to continue widening beyond the historical medium-term average to USD 225 millio (approx. -8.7% of GDP). In the medium-term from 2024 to 2026, Lesotho’s current account deficit is project to continue widening, to an annual average of USD -280 millio (approx. -9.9% of GDP). This illustrates an offsetting of higher export earnings due to higher prices by the higher cost of fuel and food imports which is primarily driven by the impact of sanctions against Russia on global commodity prices. Nevertheless, given the comprehensive sanctions against Russia, the price of diamonds should remain in the short- to medium-term. However, this is not sustainable in the long-term due to the inevitable easing of geopolitical tensions. Therefore, Basotho authorities will have to take advantage of the current reprieve and invest in industrialisation and increased productivity for its clothing and textiles sector. This would help further diversify the country’s exports away from the continued reliance on diamonds.
The issue of diversifying the Basotho economy remains an elusive obstacle for the country. Lesotho has a significant potential to grow its exports from men and women’s clothing. These represent the highest growth potential towards diversifying the Lesotho’s economy and export earnings. Apart from this, Lesotho should also deepen its integration in the SACU and SADC region and increase its intra-regional trade. The Basotho authorities also need to negotiate preferential market access for Lesotho in frontier markets to encourage further productivity gains for its clothing and textiles sector. Moreover, Lesotho needs to ensure that it can use its competitive advantage through market access to develop competitiveness through productivity gains.
