‘Instability bane of economic growth’
WHEN Lesotho celebrates 50 years of independence from British rule later this year, industrialisation will not be among its developmental strong points.
Regarded as a least developed country, Lesotho’s economy is based on subsistence farming and animal husbandry, as well as small-scale industries that include clothing, textiles and construction.
While the textile and clothing industries are the largest private employers with about 35 000 people, the government remains the biggest single employer and spender. Unemployment is estimated at 34 percent among youths.
Lesotho imports 90 percent of the goods it consumes from South Africa, including most agricultural inputs. It produces only 20 percent of its food requirements.
Local industry, which consists of mining, manufacturing, energy production, and construction, accounts for 28.3 percent of the gross domestic product (GDP).
The rest of the economy centres on the services sector including government activities, communications, transportation, finance and all other private economic activities that do not produce material goods. These activities account for 66.5 percent of GDP, while agriculture which includes farming, fishing, and forestry accounts for the remaining 5.2 percent.
The question can then be asked as to why Lesotho does not improve its industrial drive to boost its economic and social development.
According to former Finance minister, Timothy Thahane, the reason is fundamental and there for all to see.
“You do not need to look far to find the answer to this question. No one can do anything useful inside a burning house. You can go anywhere in the world, and where there is political instability there is nothing that can be built,” says Mr Thahane.
“Therefore, no investor in his right frame of mind, be it domestic or foreign, can invest in a country which is unstable. That is the case with Lesotho. Political stability is the foundation of everything else.”
Retšelisitsoe Thamae, who is an economics lecturer at the National University of Lesotho, believes industrialisation can be boosted by investing in research and innovation.
Mr Thamae says government and the private sector need to support tertiary institutions with research and innovation departments that are focused on academic entrepreneurship.
“We need to invest more in research and innovation departments for our tertiary institutions,” he says.
“Such departments can produce innovative entrepreneurial projects that have proven commercial value and can easily compete in the market. “However, one challenge I have noticed is lack of funding for such departments hence the inability to come up with new innovations.”
“Such departments need direct funding for their activities as opposed to generalised funding given to the tertiary institutions. Their capacitation would bridge the gap of lack of creativity which seems to be so prevalent in our private sector.”
Under such a framework, business ideas that can be turned into viable industries can be formulated to drive the country’s economy forward.
“The private sector may have all the money and we can have the best business climate possible, but without innovation to develop new industrial ideas on which to invest, our economy cannot achieve private sector-led growth,” says Mr Thamae.
“So, we need to create linkages between the private sector, tertiary institutions as well as the government to address this problem. We really need to invest in research and development.
“Right now, the NUL science faculty has developed about 170 entrepreneurial projects which they hope to entice the private sector to invest in.
“These are examples of initiatives that have the potential to inspire the government or the private sector to invest in their research and innovation activities.”
Former Development Planning minister, Dr Moeketsi Majoro, identified four factors affecting Lesotho’s industrialisation drive namely political and macroeconomic instability, investment climate and entrepreneurial capacity.
Dr Majoro said that for the better part of the past 50 years since independence, Lesotho has been grappling with political unrest that has blighted the investment climate and destroyed business confidence in the country.
“There are a number of reasons for this situation, some of which are fundamental or actual causes while others are associated with actual causes but not necessarily the cause themselves,” he said.
“Over the past 50 years, our policies have never been tailored appropriately to pursue production as opposed to just consumption.
“To attract investors would require a suitable environment, and that consists of a number of issues that need to be aligned.”
Dr Majoro added: “As the Americans say, put your ducks in a row so that when you shoot you can hit all of them at the same time. But, we have never had all our ducks in a row so that we get investment generated by Basotho and foreign investors. If something is fixed, other things that are critical to be in that row are not fixed.
“The first duck is political instability. Starting from around 1970, there was political instability, disagreements on the political course of Lesotho that involved violence and ascendency of the army in governance matters.
“In 1986, the army decided they could run the country better and took over the reins.”
He said the period between1970 and 1993 was characterised by political disagreements and instability.
“In a situation of political instability and violence, nobody wants to make long lasting investments because those investments will be lost if conflict arises,” notes Dr Majoro.
“The perception of instability or even a possibility of violence that would result in property being destroyed ensures that nobody risks investing in an environment that is uncertain.
“Political instability, apart from its horrible effects of violence, also creates a perpetual sense of uncertainty in the minds of investors.”
Despite the relative calm that reigned after the 1993 general elections, he said instability returned in 1998 resulting in the destruction of investments.
“After 1998, there was a question mark as to whether we were stable after we allowed governance to proceed during negotiations for a new political arrangement under the Interim Political Authority (IPA),” the former minister states.
“From 2002- 2007, we had a situation where the focus was basically on moving away from political instability to a stable and secure Lesotho. The question now was; since we had taken out the impediment of political instability, were things now ok for investment?”
Dr Majoro says during that period, another period of temporary political stability reigned in Lesotho, though it was not enough to attract investment.
“We found that there was another obstacle that needed to be addressed, which is macroeconomic stability,” he notes.
“Macroeconomics basically is about the stability of debt and inflation. Ideally, there should be no runaway inflation which raises the cost of borrowing, which in turn depresses investment.
“If you have public debt rising, it means government is living beyond its means and is depending on the private sector to finance its consumption. “Debt is a signal that the government is contributing negatively to the process of investment by taking money that would have otherwise been used for private investment.”
For Lesotho to catch up with other southern African countries in terms of ease of doing business, he says it needs to introduce many investment reforms.
“While most countries in the region are in the 60’s, 70’s and 80’s on the ease of doing business world rankings, we are very much behind on position 128,” says Dr Majoro.
“We really need to fix our investment climate. For example, we have a requirement that operational companies should be licensed. When you inquire about the purpose of licensing, our trade officers say it is meant to generate revenue for the government.
“But the cost of the licensing process is higher than the revenue being generated for government. I think we are licensing this way because nobody has ever questioned why we do it.
“There are some few industries that need licensing mainly because of the dangers their products pose to humans. But let’s say I want to start a consulting business from my home. Why does this business need to be licensed? This is just an unnecessary piling of requirements to starting a business.”
He says infrastructure is part and parcel of the investment climate and it should be developed to promote and accelerate investment rather than be an impediment.
“The provision of investment-friendly infrastructure services by the government such as water, electricity and roads is critical. However, currently we are approaching infrastructure from a social motive where we are not conscious of where investment is needed but driven by voter behaviour,” states the former minister.
“The final duck is entrepreneurial talent or capacity, which is that human capacity of wanting to create a business enterprise to make profits and getting it right.”
Dr Majoro said Basotho’s entrepreneurial acumen was not at the same level as other enterprising African nations.
“Our entrepreneurs demonstrate lower business skills. They will produce and then find a market afterwards! This shows technical competence but lack of commercial sense,” he adds.
“At one point in the past we did get political and macroeconomic stability reasonably okay. But we have never at the same time had a fixed investment climate and a powerful entrepreneurial culture.”