Lesotho is geographically surrounded by South Africa and economically integrated with it as well. The economy of Lesotho is based on agriculture, livestock, manufacturing, mining, and depends heavily on inflows of workers’ remittances and receipts from the Southern African Customs Union (SACU). The majority of households subsist on farming. The formal sector employment consist of mainly the female workers in the apparel sector, the male migrant labor, primarily miners in South Africa for 3 to 9 months and employment in the Government of Lesotho (GOL) . The western lowlands form the main agricultural zone. Almost 50% of the population earn income through informal crop cultivation or animal husbandry with nearly two-thirds of the country's income coming from the agricultural sector.
Lesotho has taken advantage of the African Growth and Opportunity Act (AGOA) to become the largest exporter of garments to the US from sub-Saharan Africa. American Brands and retailers sourcing from Lesotho include: Foot Locker, Gap, Gloria Vanderbilt, JCPenny, Levi Strauss, Saks, Sears, Timberland and Wal-Mart. In mid-2004 its employment reached over 50,000 mainly female workers, marking the first time that manufacturing sector workers outnumbered government employees. In 2008 it exported 487 million dollars mainly to the U.S.A. Since 2004 employment in the sector was somehow reduced to about 45,000, in mid-2011, due to intense international competition in the garment sector. It was the largest formal sector employer in Lesotho in 2011. The sector initiated a major program to fight HIV/AIDS called Apparel Lesotho Alliance to Fight AIDS (ALAFA). It is an industry-wide program providing prevention and treatment for the workers.
Lesotho, is a member of the Southern African Customs Union (SACU) in which tariffs have been eliminated on the trade of goods between other member countries, which also include Botswana, Namibia, South Africa, and Swaziland. Lesotho, Swaziland, Namibia, and South Africa also form a common currency and exchange control area known as the Rand Monetary Area that uses the South African rand as the common currency. In 1980, Lesotho introduced its own currency, the loti (plural: maloti). One hundred lisente equal one loti. The Loti is at par with the rand.
Until the political insecurity in September 1998, Lesotho's economy had grown steadily since 1992. The riots, however, destroyed nearly 80% of commercial infrastructure in Maseru and two other major towns in the country, having a disastrous effect on the country's economy. Nonetheless, the country has completed several IMF Structural Adjustment Programs, and inflation declined substantially over the course of the 1990s. Lesotho's trade deficit, however, is quite large, with exports representing only a small fraction of imports.
The global economic crisis hit the Lesotho economy hard through loss of textile exports and jobs in the sector due largely to the economic slowdown in the United States which is a major export destination, reduced diamond mining and exports, including weak prices for diamonds; drop in SACU revenues due to the economic slowdown in the South African economy, and reduction in worker remittances due to weakening of the South African economy and contraction of the mining sector and related job losses in South Africa. In 2009, GDP growth slowed to 0.9 percent.
Lesotho’s progress in moving from a predominantly subsistence-oriented economy to a lower middle income, diversified economy exporting natural resources and manufacturing goods has brought higher, more secure incomes to a significant portion of the population. The percentage of the population living below USD PPP US$1.25/day fell from 48 percent to 44 percent between 1995 and 2003. The country is still among the "Low Human Development" countries (rank 155 of 192) as classified by the UNDP, with 42.3 years of life expectancy at birth. However, adult literacy is very high - 82% and children under weight aged under 5 is only 20%.
Lesotho has nearly 6,000 kilometers of unpaved and modern all-weather roads. There is a short rail line (freight) linking Lesotho with South Africa that is totally owned and operated by South Africa.
Water and diamonds are Lesotho's only significant natural resources. Water is being extracted through the 30-year, multibillion-dollar Lesotho Highlands Water Project (LHWP), which was initiated in 1986. The LHWP is designed to capture, store, and transfer water from the Orange River system and send it to South Africa's Free State and greater Johannesburg area, which features a large concentration of South African industry, population and agriculture. At the completion of the project, Lesotho should be almost completely self-sufficient in the production of electricity and also gain income from the sale of electricity to South Africa. The World Bank, African Development Bank, European Investment Bank, and many other bilateral donors are financing the project. Diamonds are produced in Letšeng, Mothae, Liqhobong and Kao mines. The sector suffered a setback in 2008 as the result of the world recession but rebounded in 2010 and 2011. It is a major contributor to the exports of Lesotho.
The following table shows the main economic indicators in 1980–2017.
|GDP in $
|0.65 Bln.||1.01 Bln.||1.50 Bln.||2.10 Bln.||2.68 Bln.||3.47 Bln.||3.73 Bln.||4.02 Bln.||4.33 Bln.||4.50 Bln.||4.84 Bln.||5.27 Bln.||5.63 Bln.||5.85 Bln.||6.13 Bln.||6.35 Bln.||6.63 Bln.||6.96 Bln.|
|GDP per capita in $
|−0.8 %||3.3 %||5.2 %||2.8 %||4.9 %||3.1 %||4.4 %||5.0 %||5.5 %||3.1 %||6.3 %||6.7 %||4.9 %||2.2 %||3.0 %||2.5 %||3.1 %||3.1 %|
|19.6 %||15.0 %||12.0 %||9.7 %||6.1 %||3.6 %||6.3 %||9.2 %||10.7 %||5.8 %||3.3 %||6.0 %||5.5 %||5.0 %||4.6 %||4.3 %||6.2 %||5.6 %|
(Percentage of GDP)
|...||...||18 %||62 %||88 %||49 %||51 %||51 %||45 %||35 %||31 %||33 %||35 %||37 %||37%||41 %||35 %||35 %|
Household income or consumption by percentage share:
lowest 10%: 0.9%
highest 10%: 43.4% (1986–87)
Industrial production growth rate: 3% (2010)
Electricity - consumption: 626 GWh (2010/11)
Currency: 1 loti (L) = 100 lisente; note - maloti (M) is the plural form of loti
Exchange rates: maloti (M) per US$1 – 7.32 (2010), 6.10948 (1999), 3.62709 (1995); note - the Basotho loti is at par with the South African rand