Lesotho - Market OverviewLesotho - Market Overview

• Lesotho, with a population of 1.88 million, is geographically surrounded by and economically integrated with South Africa, from which it receives approximately 80 percent of its imports for final consumption.

• Lesotho held free, fair, and transparent general elections in February 2015, in which a seven-party coalition government, the second coalition in Lesotho’s history, ousted the ruling coalition government. The election marked Lesotho’s second democratic and peaceful transition of power between parties since its independence. The elections followed a period of instability following clashes between the police and army on August 30, 2014, which led to the Prime Minister briefly fleeing the country. In this context, Freedom House ranks Lesotho’s as “free” in its 2015 Freedom in the World Report, and Fitch upgraded its sovereign credit outlook for Lesotho to stable, citing improvements in political stability and infrastructure investment.

• The 2015 World Bank Doing Business report reveals that Lesotho has eliminated some binding constraints to private investment, despite the negative impact of recent political instability and subsequent prorogation (temporary suspension) of Parliament in June 2014, which largely hindered implementation of investment climate reforms. The country moved up four places from 97 to 93 in the area of registering property and two places from 163 to 161 in the area of issuing construction permits. The Land Act of 2010 and the establishment of the Land Administration Authority have made transferring property easier by streamlining procedures and increasing administrative efficiency.

• Lesotho is a member of the Southern African Customs Union (SACU), and as such, does not pay tariffs to export goods to other SACU members (Botswana, Namibia, South Africa, and Swaziland). With the exception of Botswana, these countries also form a common currency and exchange control area known as the Common Monetary Area (CMA). Within Lesotho, the South African rand can be used interchangeably with Lesotho’s currency, the loti, since the loti is pegged one to one (1:1) to the South African rand. The loti-rand peg provides some level of economic stability, and the Government Lesotho also has a record of pursuing prudent macroeconomic policies.

• Lesotho gets most of its foreign exchange through earnings from the Southern African Customs Union (SACU), water exports to South Africa, and, to a decreasing extent, remittances from migrant laborers employed in South Africa.

• Lesotho has relatively low inflation, around 5.4% at the end of 2014. The economy is mostly export driven. Major export products are garments, diamonds, water, electricity, wool and mohair. The major economic sectors are manufacturing, mining, agriculture and services.

• Lesotho is one of the top ten exporters to the United States under the African Growth and Opportunity Act (AGOA) and was one of the top exports of textiles and garments under AGOA,  U.S. total trade (exports plus imports) with Lesotho was $288.9 million in 2014.

• The U.S. is the largest recipient of Lesotho’s exports, mostly garments exported under AGOA. The table below shows percentages of Lesotho’s exports by region of destination.

Destination of Lesotho’s Exports in 2014

Note: 2014 export data is unavailable from Lesotho, the above figures are based on reports of imports from Lesotho’s trade partners.

• Lesotho is also a member of the Southern Africa Development Community (SADC). The SADC Free Trade Area (FTA), launched in 2008 and fully implemented within the 12 SADC member states in 2012, provides foreign investors easier access to the regional market. SADC also has signed an economic partnership agreement with the European Union, giving Lesotho duty and quota free access to the European market for its products.

• Double taxation agreements exist with South Africa, Mauritius, the United States of America, and the United Kingdom.