The small mountainous landlocked nation of Lesotho with a population of 2.1 million is surrounded by the larger and powerful country of South Africa. Currently, the main focus for the government is to tackle the issue of unemployment which is at crisis levels. Other areas of concern for the authorities include the high infant mortality rate, HIV/AIDS prevalence, and overall life expectancy that average only 40 years.
POLITICS: please contact us here at BankINTRO.com for further information on the political framework of the Kingdom of Lesotho.
ECONOMY: tiny. Remittances from miners in South Africa (although falling) - remittances account for 30 percent of Lesotho's GDP. Unemployment / underemployment is high at over 50 percent. The Lesotho economy follows price developments in South Africa closely. Lesotho does have preferential trade access to the European Union. Early on during this decade, there has been a dramatic growth in Lesotho's textile industry to 30,000 positions as several Asian based companies now have manufacturing plants within Lesotho.
Economic Statistics
Total GDP as measured by purchasing power parity stands at 3.06 billion USD (2007) with corresponding GDP/Capita at 1,400 USD (2007). GDP as measured by market exchange rate at 1.6 billion USD (2007). Real GDP growth for 2008 estimated at 5.2 percent, year 2009 at 5.4 percent, GDP growth rate came in at 4.8 percent (2007). Inflation for 2008 at 11.2 percent estimated, year 2009 at 9.5 percent. The current account is in surplus (including grants) at 49 million USD (2007) with the trade component in deficit at a high level of 851 million USD (2007). Year 2007 fiscal deficit reported at 83 million USD. There are no known oil or gas reserves but Lesotho does produce 90 percent of its own electricity requirements. Industry segments include remittances, textiles, agriculture (ie. livestock), light manufacturing base (ie. canning, leather, etc.) and grants/donations/duties.
POSITIVE: productive workforce, wage levels are low making it attractive for Asian companies to set up manufacturing plants in Lesotho coupled with access to the U.S. market for textiles. Completion of the Muela hydroeclectric power facility in January 1998 now enables Lesotho to be a net exporter of electricity and water, primary customer is South Africa. CONCERN: HIV/AIDS epidemic is at crisis levels with the adult rate at 28.9 percent (2003) infection. The economy is vulnerable to external developments particularly since it is a very small sovereign nation, episodes of food shortages - hunger.
REGIONAL: deepening economic crisis in Zimbabwe impacting regional balance. Lesotho's future is largely dependent on the success of the dominant South African economy. Currently, the South African rand (ZAR) is not performing well in relation to global purchasing power. The main cause for the rand's weakness is a significant drop-off in emerging market currencies during this global credit crisis that is currently unfolding during this fall 2008 as the USD has dramatically appreciated in value.
BANKING SYSTEM: official foreign exchange reserves are buoyant at 852 million USD (January 2008) and/or equivalent to 6 - 7 months of import coverage. October 2008 prime lending rate stands at 16.58 percent.
CURRENCY: ISO Symbol 'LSL'. Maloti (M) is the plural form of loti. Loti (L). At time of review on October 14, 2008, the loti had a value of 8.875 LSL to 1 USD and/or 12.183 LSL to 1 Euroland euro (EUR). Fixed exchange rate system with the official rate for the loti pegged to the South African rand at par (1.0). The one-to-one exchange rate peg between the loti and the rand has helped Lesotho maintain relative monetary stability coupled with lower inflation levels. The South African rand is also accepted as legal tender within Lesotho.
CURRENCY HISTORY: the loti in circulation since 1980 when it replaced the South African rand. Historical exchange values include: September 2001 at 7.099 to the USD, August 25, 1999 at 6.242 to 1 USD, January 98 at 4.94 to 1 USD, 1997 at 4.607, 1996 at 4.29, 1995 at 3.62, 1994 at 3.55 and year 1993 at 3.26. Although difficulties persist with the huge current account deficit (excluding grants), official foreign exchange reserves are buoyant to help support the loti. In the wake of volatile economic times, a final upward move expected in the price of gold bullion will indeed be very bullish for the South African rand and the Lesotho loti over the medium term.
CURRENCY FORECAST: vulnerable to external risks particularly due to the tiny size of the economy, the loti warrants a lower subjective risk ranking (42) conveying higher currency risk.
Please also visit the write up on SOUTH AFRICA in this BankINTRO.com currency index for further background information.
