FAILURES
By Khotso Mahonko
Lesotho’s economy in 2025 presents a complex and layered story, one that features
encouraging fiscal numbers on the one hand, and deep structural cracks on the other. The
economy has grown with 2.5% of the GDP in 2024/2025 fiscal year. Yet, beneath this headline,
lies a narrow base for that growth, which is heavily dependent on public infrastructure projects,
particularly the ongoing construction at Polihali under the Lesotho Highlands Water Project
Phase II (LHWP-II). If you strip away the contribution of this single project, the rest of the
economy barely grows at 2.0%, revealing an economy whose progress remains fragile and
unevenly distributed.
The LHWP-II has emerged not only as a water infrastructure initiative but also as a much
needed stimulus engine. It has created over 8000 direct jobs. These gains have offered
temporary relief to many Basotho families. However, the sustainability of this growth is
questionable. Once the construction winds down, the question remains: what comes next to
absorb this labor and maintain the growth momentum?
Fiscal performance, on paper, is more encouraging than it has been in years. The government
recorded a fiscal surplus, thanks in large part to windfall revenues from the Southern African
Customs Union (SACU), which reached nearly 27% of GDP, and water royalties that now stand
at over 7.2% of GDP. Public debt has been reduced to 56.6%, and foreign reserves now cover
six months of imports. But these achievements mask a more concerning reality: SACU transfers
are highly volatile and non-guaranteed, while water royalties, though rising, are temporary. The
risk, therefore, is that these gains will fund consumption or administration rather than investment
in productive sectors.
Yet the larger story is about structural stagnation, and no area illustrates this more clearly than
foreign direct investment (FDI). Lesotho has not attracted any significant FDI in several years
now, a stark reversal from the early 2000s when the country was hailed as a model of
investment-driven industrial growth, especially in manufacturing. Today, investor confidence is
eroded by a combination of factors: a cumbersome regulatory environment, limited ease of
doing business, persistent political uncertainty, and inadequate infrastructure outside of
donor-supported megaprojects. But part of the blame must also be placed on the Lesotho
National Development Corporation (LNDC). Despite being the apex investment promotion
agency, LNDC has not demonstrated the urgency or strategic aggression required to attract
investors in a globally competitive landscape. It lacks a coherent investment promotion strategy,
has weak aftercare support for existing investors, and has not adapted to the evolving needs of
21st-century capital which seeks not just tax holidays, but the entire ecosystem readiness.
Compounding this stagnation is the gradual collapse of a once-reliable income source for many
families: remittances from Basotho working in South African mines. For decades, theseremittances served as the lifeblood of rural economies, supporting school fees, livestock
purchases, retail spending, and even construction. However, declining mine employment,
mechanization in South Africa’s mining industry, and tightening immigration policies have led to
a sharp fall in remittances. In the 1990s, more than 100,000 Basotho worked in South Africa’s
mines; today, that figure has dropped to under 35,000. As remittance flows shrink, so too does
local liquidity in Lesotho’s rural and peri-urban economies, resulting in weakened demand for
goods, growing rural poverty, and a further contraction of informal market activity.
Meanwhile, Lesotho’s education system continues to operate in a vacuum, producing thousands
of graduates every year into a job market that is already saturated and structurally misaligned.
Higher education institutions are flooding the market with degree holders in traditional fields
without regard to current absorption capacity or economic relevance. Despite the transformation
of the global economy, very little has changed in Lesotho’s curriculum structure, pedagogy, or
output expectations. The system still prioritizes rote learning and theory-heavy programs, rather
than equipping learners with the skills and mindsets needed in modern economies; namely
creators, problem-solvers, innovators, digital practitioners, and entrepreneurs. The result is a
mismatch: a surplus of graduates chasing nonexistent jobs, while the economy simultaneously
suffers from deficits in technical, digital, and innovation oriented capabilities.
On the ground, the average Mosotho continues to feel the weight of a jobs crisis that shows no
signs of abating. Official youth unemployment is pegged at around 39%, but this figure is
misleading. It is said that over 220,000 youth were excluded from labor force calculations in
recent assessments, which significantly understates the true scale of youth joblessness. If these
excluded youth are factored in, the real youth unemployment rate may exceed 60%. Among
adults, job losses have been concentrated in key sectors such as textiles and mining, the two
pillars that have historically driven formal employment.
The textile manufacturing sector, once the pride of Lesotho’s industrial development under
AGOA, has been shrinking since the COVID-19 pandemic. In 2023 alone, over 10,000 jobs
were lost, and by 2024 employment numbers had declined further to around 27,000. With the
return of U.S. President Donald Trump and the imposition of steep tariffs—reportedly as high as
50%, a further 12,000 jobs are at risk this year if the negotiations to talk the U.S to a lower
percentage fail. Factories could scale down, and in some cases, closing entirely, as exports
become uncompetitive.
In the mining sector, the situation is equally grim. Mothae and Liqhobong mines are currently not
operational. Letšeng, the flagship mine, is struggling with low diamond sales, partly due to the
rise of synthetic lab-grown diamonds, global price weakness, and foreign currency exchange
challenges. The mine is cutting 20% of its workforce, amounting to about 300 jobs. These
developments have meant that dividends from the mining sector are virtually non-existent or just
extremely low this year despite the government holding 30% equity in these operations. Other
state-linked enterprises like Lesotho Flour Mills have not declared dividends in years, while the
dividend status of Econet and other government-shareholding entities remains unclear.Foreign aid, which has historically been a critical support structure for Lesotho, is also under
strain. The closure of several U.S. funded initiatives, including USAID programs and the
Millennium Challenge Corporation (MCC) Compact, has not only slowed development work but
also resulted in job losses. Although official figures remain difficult to verify, it is estimated that
thousands of professionals and community-level workers were affected by the withdrawal or
suspension of these projects.
The broader economic landscape reveals deepening poverty and rising vulnerability. While
macro-level poverty indicators show slight improvement, the lived experiences of Basotho tell a
different story. According to Afrobarometer’s 2025 survey, 85% of citizens experienced cash
shortages, 61% went without food, and nearly half lacked access to clean water at some point
during the year. Inflation, particularly food inflation, continues to erode real incomes, especially
for the working poor and those in the informal economy who live hand to mouth, I cannot talk
about those without income at all, it must be a disaster.
Entrepreneurship, often touted as the solution to unemployment, struggles in this environment.
The domestic market is weak. With only an estimated 350,000 people having steady income out
of a potential 550,000 economically active population, local demand remains constrained. Most
micro-entrepreneurs are trading in saturated markets, with little growth capital, no access to
meaningful business development services, and limited state support. Entrepreneurship, in this
case, becomes a survival mechanism rather than a catalyst for wealth creation.
Agriculture remains an underperforming sector. While livestock showed some resilience, crop
production was again hit by climate-related challenges and market inefficiencies. Government
efforts toward improving inputs and irrigation remain fragmented. Lesotho still imports more than
90% of its food, even while thousands go hungry, a tragic contradiction in an agriculturally
endowed country.
Despite these sobering realities, not all is bleak. Tourism, often overlooked in previous national
strategies, is showing signs of promise. In 2024, nearly one million tourists visited Lesotho, a
figure that signals both recovery and opportunity if you ask me. The country’s unique mountain
landscapes, cultural heritage, and growing eco-tourism ventures present a chance to build a
more inclusive and locally-rooted economy. If developed carefully, tourism could emerge as a
top-three contributor to GDP in the coming years. However, this will require coordinated
investment in infrastructure, hospitality training, and marketing alongside measures to ensure
community participation and benefit-sharing.
The time for talk is over. What Lesotho now needs is practical delivery, inclusive policymaking,
and bold leadership. The choices made between now and 2027 will define whether the country
remains stuck in the loop of dependency or charts a new path toward sustainable,
people-centered growth
