Economy in need of revival

Impoverished Lesotho is battling to recover from the effects of political violence in 1998, the loss of foreign currency earnings of migrant workers and rampant corruption. Official estimates of the unemployment rate vary. The prime minister, as recently as last week, pegged it at about 30 percent while the finance ministry said it was between 40 percent and 45 percent. Either way, there is little doubt that the country urgently needs an economic revival. South African mines were a major source of employement for Basotho men, whose remittances were a significant source of household incomes. Mine retrenchments have deepened Lesotho's unemployement problem. The government estimates that half of the population, estimated at just over two million, lives in poverty. A UN Development Programme (UNDP) report said independent estimates "range as high as 70 percent". The UNDP report said the country was slowly recovering from the civil strife that followed the disputed May 1998 elections. Protests against the result, which saw the ruling party take 79 of 80 seats in parliament, culminated in the military intervention of Southern African Development Community (SADC) troops in September 1998. The Interim Political Authority (IPA) was created, to incorporate Lesotho's opposition parties in a kind of parallel parliament, until fresh elections were held. On 25 May Basotho go to the polls under a new electoral system that allows for greater representation in parliament. Many businesses that were affected by the rioting in Maseru in 1998 have not re-opened and it has been difficult for the government to attract investment. Dr Wally Ogunkola, of the economics department at Lesotho National University, told IRIN that the economy would only recover through effective job creation programmes. The economy has grown by about 3.3 percent during 2000 and 2001. However, the government is projecting a slightly lower growth rate, of 2.8 percent, for the 2002 fiscal year. According to the 2003 budget, presented by Minister of Finance Mohlabi Kenneth Tsekoa in January, inflation rose from 6.2 percent in 2000 to 7.3 percent by the end of the third quarter of 2001. The rise was attributed mainly to an increase in the price of food, which was in short supply due to the low agricultural output brought about by unfavourable weather conditions in 2001. Lesotho's main supplier of foodstuffs, South Africa, also suffered a sharp depreciation of the rand against the dollar. As a result, Lesotho's import bill went up. Rising costs in the transport sector also contributed to rising inflation. Among the challenges facing Lesotho is corruption. In his budget speech Tsekoa said it was a "debilitating phenomenon that deprived the bulk of the nation of its legitimate right to service, growth and wealth". Lesotho was "littered with living examples of corruption," he said. Offences ranged from misappropriation of public funds and public property, to bribery. The UNDP report stated that "political stability and governance reform remain fundamental for effectively addressing the vast economic and social problems facing the country". Prior to 1998 Lesotho had experienced an economic boom. "The economic expansion was driven mainly by the large-scale constructions of the Lesotho Highlands Water Project and rapid growth in the exports of manufactured textiles and clothing," the UNDP report said. The Highlands Water Project is a massive hydro-electric damn that supplies both electricity and water to South Africa. "However, towards the late 1990's these two growth engines slowed down," UNDP said. "Structural problems in the financial and utilities sectors were also building up and the remittances from Basotho migrant miners in South Africa, on which Lesotho is heavily dependent, continued to decline with falling gold prices and increased mechanisation in the industry." This, combined with the 1998 unrest, resulted in the economy experiencing its first outright recession in over 20 years. Ogunkola said: "In 1998 Basotho directed their anger at the very people who made the economy. Now the majority do their shopping on a Saturday across the border in Ladybrand and Bloemfontein [in South Africa's Free State province]. The Basotho are very well integrated into the South African economy." The Lesotho currency, the loti, is equal to the rand. However, there is some discussion as to whether or not maintaining parity with the rand is wise. Especially given recent attempts by the government to kickstart the manufacturing sector, which included trips to the Far East to lure investors. Said Ogunkola: "Price wise, in some cases it makes sense to buy in South Africa. The prices are usually lower, Lesotho sources most goods from South Africa and local retailers must then put a margin on the goods to make a profit." Job creation strategies are a feature of most of the parties election manifestos and of government's 2003 budget. Executive secretary of the IPA, Malefetsane Nkhahle, said: "Poverty and job creation and how to attract investors is a major theme." He said the results of not dealing effectively with both had led to an increase in crime. "In the rural areas it's cattle rustling and in the urban areas it's housebreaking and theft." The government has set about establishing a Poverty Reduction and Growth Strategy, which is partly aimed at attracting more resources from the donor community. This has been criticised by Ogunkola. "I think they have, for many years, been far too used to largesse. South Africa is supporting Lesotho in many ways. If all these donors should one day stop, what would happen?"