. . .as neighbouring country plunges into recession
LESOTHO needs to develop robust long-term strategies including building its production base through increased domestic entrepreneurship and reducing its heavy dependence on neighbouring South Africa in order to escape the negative ramifications of the latter’s economic woes.
This was said by Mr Retšelisitsoe Thamae, an economics lecturer at the National University of Lesotho (NUL) in an interview with Lesotho Times this week.
Mr Thamae said this in response to reports that South Africa is experiencing its second major economic downturn in eight years, after its gross domestic product (GDP) contracted by 0.7 percent in the first quarter of 2017.
This follows another 0.3 percent contraction in the last quarter of 2016.
The South African government confirmed the latest development on Tuesday.
The National Treasury said further GDP decline would jeopardise fiscal policy and the delivery of social services.
South Africa is under pressure to “improve confidence as a matter of urgency to arrest the decline,” it said.
Trade fell by 5.9 percent and manufacturing declined by 3.7 percent in the first quarter of 2017, reported Statistics South Africa, a government agency. The sector comprising finance, transport, trade, government and personal services logged its first quarter of decline since 2009, when South Africa was swept up in the global financial crisis, it said.
Agriculture posted growth in a possible sign of recovery from a harsh drought, and mining grew partly because of a production increase in gold and platinum, according to the agency.
South Africa has been struggling due to a financial fallout from scandals surrounding President Jacob Zuma.
This year, Fitch and Standard & Poor’s lowered South Africa’s credit rating to below investment grade after Mr Zuma fired Pravin Gordhan, a Finance Minister seen by many South Africans as a bulwark against alleged corruption at the top levels of government.
A recovery is reported to be underway and is expected to further improve to 3.5% and 4.6% in 2017 and 2018, respectively.
However, Mr Thamae said Lesotho should cushion its economy from the likely ripple effect of South Africa’s economic recession.
He said Lesotho’s failure to act could result in a negative impact coming in a number of ways.
Firstly, the reduction in economic activity in South Africa would impact negatively on the South African Custom Union’s (SACU) revenue performance, on which Lesotho depends to finance part of its budget.
“Also, Basotho migrant workers in South African mines may also be retrenched because the mining sector in that country could be affected by the economic decline,” Mr Thamae said.
“When that happens we are going to have a situation where the dependents of the miners will face poverty as a result of reduction in the remittances they used to depend on for survival.”
He further indicated that another sector likely to feel the pinch was the clothing sector, which exported to South Africa among its markets.
“Reduced demand from South African could therefore lead to job losses in Lesotho’s textile industry,” he added.
Mr Thamae further indicated that the expected reduction in the investor confidence in South Africa could result in depreciation of the Rand, to which the Loti is pegged.
“Depreciation of the Loti against international currencies is likely to increase what we have to pay in settling our external debt which is denominated in US Dollar terms.”
Asked if there was anything Lesotho could do to lessen the effects of its neighbour’s economic recession, Mr Thamae said, “In the short term we can try to reduce our recurrent expenditure and increase our capital investment since economic growth can be stimulated by investment”.
He said in the long term solution, Lesotho should build its production base to cushion its economy.
“We can also try to increase revenue generation by developing our domestic entrepreneurship by increasing access to finance.
“This would help to create employment and also generate revenue through tax collection,” he said.