Economy of Lesotho

The economy of Lesotho is based on a mix of agriculture, livestock, some manufacturing and mining, but also relies heavily on inflows of cash from migrant workers and receipts from its membership in the Southern African Customs Union (SACU). The country is geographically surrounded by South Africa and thus economically integrated with its much larger neighbor. While subsistence farming is the main way of life for most households, Lesotho's formal sector employment is divided between a female-dominated apparel industry and male migrant laborers who typically work in South African mines for periods of 3 to 9 months. Lesotho has shown some progress in recent decades, moving from a mainly subsistence-based economy to a lower-middle-income one that exports natural resources and manufactured goods. This has led to some improvement in incomes for a portion of the population.

Top Sectors in Lesotho

Apparel in Lesotho

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, JCPenney, 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 United States.

Husbandry in Lesotho

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. About 70% of the population lives in rural areas and works in agriculture.

Natural resources in Lesotho

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 LetÅ¡eng, Mothae, Liqhobong and Kao mines.

Lesotho - Key Economic Indicators

Exports and Imports

Lesotho's total exports were valued at approximately $1.1 billion, with textiles and garments accounting for a significant portion. Imports, primarily comprising machinery, equipment, food, and fuel, are mainly sourced from South Africa due to Lesotho's landlocked position.

Infrastructure

Lesotho has been investing in infrastructure development, particularly in road and transportation networks. Government projects aim to improve road connectivity, build bridges, and enhance transportation links, with an estimated investment of $500 million in the past fiscal year.

Balance of Trade

Lesotho typically faces a trade deficit due to heavy reliance on imports. However, revenue from textile exports helps offset this deficit. The trade deficit was approximately $400 million in the latest fiscal year.

Fiscal Policy

The government focuses on increasing investment in sectors such as education, healthcare, and infrastructure. Revenue enhancement measures through taxes and tariffs yielded approximately $600 million in the past fiscal year.

Monetary Policy

The Central Bank of Lesotho regulates the money supply and sets interest rates to maintain stability. Recent actions focused on managing inflation and supporting economic recovery post-pandemic, with interest rates maintained at 6%.

Trade Agreements

Lesotho benefits from trade agreements like AGOA, providing duty-free access to the US market for certain goods. AGOA has boosted textile exports, with textiles and apparel accounting for approximately 80% of total exports. Lesotho is also a member of SACU, facilitating trade cooperation among member states.

Environmental Regulations

Lesotho is strengthening environmental regulations to address climate change and pollution. Policies promoting sustainable development and renewable energy have been implemented, with an investment of approximately $50 million in environmental conservation initiatives.

Tax System in Lesotho

Capital Gains Tax: Lesotho imposes a capital gains tax on profits from investments such as stocks, bonds, and real estate. The capital gains tax rate in Lesotho is around 25%, but this can vary based on the type of asset and the duration of ownership.
Corporate Tax Rate: The corporate tax rate in Lesotho is progressive, ranging from 10% to 25% depending on the annual taxable income of the company. Small and medium-sized enterprises (SMEs) may benefit from lower tax rates, while larger corporations are subject to higher rates.
Sales Tax: Lesotho operates a value-added tax (VAT) system rather than a traditional sales tax. The standard VAT rate is currently set at 15%, applied to most goods and services consumed within the country. However, certain items may be exempted or zero-rated to alleviate the tax burden on essential goods and services.
Property Tax: Property tax in Lesotho is levied on real estate properties such as land, buildings, and other immovable assets. The tax rate varies depending on the value and location of the property, and it is typically collected by local authorities.
Payroll Tax: Lesotho imposes payroll taxes on wages and salaries to fund social security programs and other public services. These taxes are deducted from employees' salaries and remitted to the government by employers. The exact rate may fluctuate based on income thresholds and social security contributions.
Tax Deductions and Credits: The Lesotho government offers various tax deductions and credits to individuals and businesses to incentivize certain behaviors or investments. These may include deductions for charitable donations, educational expenses, and business investments, as well as tax credits for hiring local employees or investing in designated sectors.
Tax Compliance: Tax compliance refers to the efficiency and effectiveness of tax collection mechanisms in Lesotho. The government continually works to improve tax administration processes, enhance transparency, and combat tax evasion and avoidance through enforcement measures and technological advancements.
Tax Burden: The overall tax burden on individuals and businesses in Lesotho is influenced by several factors, including the tax rates, the structure of the tax system, and the level of economic activity. While taxes are necessary to finance public services and infrastructure development, Lesotho seeks to maintain a balance between revenue generation and promoting economic growth.

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