Lesotho Economic Outlook

  • The economy is on a recovery trajectory with 2016 GDP growth estimated at 3.1%, largely driven by a booming tertiary sector and mining investment, while the outlook is for higher growth in 2017 and 2018.
  • In spite of the boost in economic growth, high unemployment and inequality have intensified poverty to 56.2% of the population, calling for a more aggressive response to realise more inclusive development outcomes.
  • The existing policy linking entrepreneurship and industrialisation, a key instrument to create jobs, could be supported by a multitude of factors including technological entrepreneurship that is central to the whole process of meaningful structural transformation.

Lesotho‘s gross domestic product (GDP) growth, at 3.1% in 2016 relative to 2.8% in the past year, is showing signs of recovery as a result of the booming tertiary sector, ongoing investment in mining and steady growth in the electricity and water sector. In the medium term, growth is expected to further improve to 3.5% and 4.6% in 2017 and 2018, respectively.

However, poverty, inequality, and unemployment remain major development challenges facing Lesotho in spite of high literacy rates and high investment in social sectors over the years. The national poverty head count ratio, at purchasing power parity (PPP) USD 1.25 a day, has increased and currently stands at close to 56.2%. Rural areas harbour the majority of the poor. Over 50% of the population remains unemployed and inequality, as measured by a GINI coefficient of 0.5, is considered unacceptably high.

The participation of the private sector and building entrepreneurship meant to spur industrialisation has been enshrined in the country’s National Strategic Development Plan (2012-2017). Its objective is to transform the skills development institutions and to improve the skills and innovation base of the economy. In spite of the existing policy link between entrepreneurship and the industrialisation framework, enhancing this relationship is still challenged by a multitude of factors. These factors include among others: skills’ mismatch; lack of skills transfer by foreign entrepreneurs for fears of domestic entrepreneurs imitating their products; lack of entrepreneurship skills to diversify products; low technological entrepreneurship that is central to the whole process of meaningful structural transformation; and the lack of opportunities fostered through access to finance, information flows and infrastructure.

This AEO report highlights the need to aggressively tackle unemployment, poverty and inequality through the adoption of more inclusive growth policies. It also proposes that the government’s National Strategic Development Plan (NSDP) framework, which seeks to enhance the skills base, technology adoption and foundation for innovation, may provide incentives to lead companies to strengthen chain linkages with local, emerging entrepreneurs to bolster supply. It also proposes more dialogue with existing entrepreneurs on how to enhance skills development and transfer between foreign and local entrepreneurs.