Lesotho - Overview of economy

Subsistence agriculture, livestock, manufacturing, and the paycheck remittances of "migratory" laborers employed in South Africa dominate the economy of Lesotho. Fresh water is the only important natural resource and is being exploited under the multi-year, 30 billion dollar, Lesotho Highlands Water Project (LHWP). This massive scheme provides employment, domestic energy needs, and revenue from selling both water and hydropower to South Africa. The country also depends on foreign development assistance to meet much of its current food and infrastructure needs.

Since the 1950s, fixed-length migratory contracts to work gold and diamond mines in South Africa have been the most important source of income for Lesotho. Under present employment terms, a percentage of the salary is remitted directly to the National Bank in Lesotho. These earnings support the farms and families back home. In the 1990s, 70 percent of households had at least 1 migrant worker, and 35 percent of households used migratory earnings as their primary income. However, the Economist Intelligence Unit reports that from 1995 to 1999, the number of migrant mine workers hired in South Africa declined from 104,000 to an estimated 65,000, adding to a growing unemployment problem.

Subsistence agriculture accounts for 75 percent of domestic employment and production and about 14 percent of the GDP. However, land shortages, international aid, and government initiatives to increase credit and implement seed-fertilizer machinery are not keeping pace with population growth and decreasing migratory work in South Africa. Since 1987, population increase has doubled the growth of agricultural productivity.

A small but growing manufacturing sector produces woolen items and machine parts, and an expanding service industry accounts for the remaining 25 percent of domestic production.

Tourism in this "Rooftop of Africa" attracts South Africans and other foreigners to hike, pony-trek, and bird watch. The hospitable Basotho villages afford excellent opportunities to observe subsistence agriculture and transhumance (the seasonal migration of livestock and the people who herd them from lowlands to mountainous regions). This sector is expanding rapidly.

Foreign assistance to Lesotho in support of the struggle against apartheid (the legal separation of races) in South Africa increased during the 1970s. This aid quickened the pace of modernization and urban development, and there were significant improvements in infrastructure, education, and communications. Since 1995, the real GDP growth rate averaged an impressive 7 to 10 percent. However, population growth, political conflicts, and the shrinking demand for mine workers in South Africa now jeopardize these gains.

From 1988 to 1998, the annual GNP growth averaged 3.7 percent, and the per capita GNP increased US$47, from US$649 to US$696 (in constant 1995 U.S. dollars). Civil unrest following an unsuccessful coup in 1998 eroded Lesotho's economy and destroyed nearly 80 percent of the commercial infrastructure. The CIA World Factbook estimated the rate of GDP growth to be 2.5 percent in 2000 and GDP per capita was estimated at US$2,400.