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The Process of Preparing the National Strategic Development Plan is Launched

Lesotho sets its eyes on Social and Economic Transformation: The Role of National Strategic Development Plan ………...

Background is one of the most undeveloped The main objectives of the NSDP include of the world’s developing countries. Not outlining the strategies for transforming withstanding the positive developments the economy, improving intellectual and that have taken place in the country, skills profiles and defining a future that is including, inter alia, implementation of the characterised by the capacity to produce highlands water project and expansion of goods and services for the global the and mining sectors, markets. Lesotho has experienced low economic growth, poor agricultural productivity, sluggish infrastructure development and The National Vision 2020, which defines increased unemployment, particularly for how Basotho would like to see their the youth, to name but a few. This has nation in the first 20 years of this century raised the need and urgency for radical in terms of economic growth and socio transformation of the economy of economic development, was launched in Lesotho to foster broad based and 2003. Medium term development sustainable economic growth and frameworks are used to coordinate and employment generation that will be guide policy formulation and resources translated into poverty reduction. allocation in the implementation of the National Vision 2020. Since its launch, Vision 2020 has been implemented It is in this spirit that the Government of through the Poverty Reduction Strategy Lesotho (GoL) launched the process of Programme from 2004 to 2008 and preparing the National Strategic currently the Medium Term Development Plan (NSDP) for the period Macroeconomic Framework (MTEF) is 2012/13 to 2016/17. The outcome of this being used. The NSDP, once developed, process will be a document that outlines will take over from and/or complement the strategy that will be followed to attain the MTEF in the implementation of the an accelerated and sustainable economic National Vision 2020. and social transformation.

Social, Political and Economic growth that are sustained over many Challenges Facing Lesotho years. In addition, agricultural production has deteriorated significantly over the Lesotho is faced with a number of years, resulting in increased food macroeconomic and socio-economic insecurity. This could be addressed, by challenges, which need to be addressed amongst others, increasing formal and to attain the national vision that by the “ informal work opportunities, improving year 2020, Lesotho shall be a stable agricultural productivity, as well as by democracy, a united and prosperous increasing utilisation of land by availing to nation at peace with itself and its those who have the means to utilise it for neighbours. It shall have a healthy and production. well developed human resource base. Its economy will be strong; its environment well managed and its technology well Development of infrastructure is established. ” important for the creation of an attractive environment for investment. While it is true that some milestones have been Economic growth has been fluctuating achieved in the development of the road over the years, indicating that Lesotho network, village water supply systems, has not been able to sustain its economic communications network, major dams, growth rates at high levels. Growth rates hydroelectric plant and other as high as 6.0 per cent per year were infrastructure, a lot still remains to be registered in the 1990s. In the early done. Access to roads needs to be 2000, growth slowed down to about 3.0 increased. More water resources are per cent, on average. This slowdown being developed to support further resulted from several shocks including growth of the wet industries while rural the removal of textiles quotas, the real water supply systems need to be appreciation of the exchange rate and expanded. persistent drought that crippled agricultural productivity. Lesotho experienced strong macroeconomic Pre-requisites for high Broad Based performance during 2006-08, supported and Sustainable Economic Growth mainly by favourable external conditions. During this period, real grew at an average rate of 4.5 On the one hand, rapid and sustainable per cent. Economic performance economic growth is a necessary deteriorated in 2009 as a result of, condition for employment generation and amongst other things, reduced demand poverty reduction. On the other hand, for Lesotho’s main of textiles and rapid economic growth requires high and diamonds as well as the decline in sustained levels of investment across all migrant mineworkers’ . sectors of the economy. Investment also thrives and becomes sustainable in an investment friendly environment, The unemployment rate for Lesotho, otherwise it stagnates. The strategic plan estimated at 31.0 per cent, is also high. will have to be clear and precise on what In recent years, unemployment has should be done to improve the worsened among the youth, including investment climate in Lesotho. The university and other tertiary institutions ’ literature identifies a number of factors graduates. Employment creation, which that are necessary conditions for the is vital for reducing poverty, could be growth of both foreign and domestic attained through high rates of economic investment.

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Political and social instability create an production processes of many goods and uncertain environment, which services. Infrastructure also acts as a discourages investment. A number of complement to other production inputs. studies on growth find that politically Good infrastructure generally increases unstable regimes generally grow slower the productivity of other inputs in the than stable ones. This is because the production process. Reliable power incentives to invest or disinvest depend supplies enhance productivity of largely on the likelihood that the policies machinery and other equipment just like of the prevailing political regime and the good education and health care enhance regime itself will remain stable in the labour productivity. Availability of foreseeable future. Foreign investors are infrastructure also stimulates less likely to commit their capital into accumulation of other factors of unstable political environments. production and also increases aggregate Therefore peace and stability are demand, particularly during construction important for economic and social and maintenance operations. prosperity.

High quality formal education that meets The rule of law is not only essential for the skills demands of the economy is the protection and defence of human and necessary for improving the production political rights but efficient law capacity of a nation. Availability of enforcement is also essential for technical skills that meet the economic and social development. It requirements of the modern economy is encourages investment, both domestic a critical ingredient for economic growth and foreign, along with entrepreneurship and employment generation, not only and business development. While many because it increases productivity but also aspects of the rule of law are important because it makes an economy more for generating broad-based economic competitive and provides increased growth, certain areas, namely the incentives for investors to provide capital administration of justice, the regulatory and to engage in economic activities that framework for business and investment, could propel growth. the use and enforcement of contracts and the protection of property rights and intellectual property rights emerge as Economic reforms cannot be some of the most fundamental implemented properly without institutions challenges to be addressed if countries that are functioning well. Strong and are to promote and facilitate small efficient institutions will formulate good business development and attract direct policies and will execute and monitor domestic and foreign investment. such policies effectively. This will in turn result in an investor friendly environment

and improve business competitiveness. Another prerequisite for high and sustainable economic growth and employment creation is the availability of Preparation of the Strategic Plan good physical infrastructure. Infrastructure can positively impact on economic growth in various ways. Some The strategic plan will identify key types of infrastructure are used as direct constraints that must be addressed to inputs in the production processes. For transform Lesotho from a subsistence example, electricity generation economy to a modern industrial and infrastructure is a necessary input in the service economy. In addition, it will

CBL Economic Review, January 2011, No. 126 Visit: www.centralbank.org.ls/publications 3 suggest policies, actions, strategies and position of high and sustainable investments that should be implemented economic growth. to put the economy of Lesotho on a rapid growth path that is necessary for sustainable job creation. This section will include an elaboration of policies, strategies, actions and

investments that will be implemented to Building on Vision 2020, the preparation promote peace, democracy and good of the plan will be based on a governance; generate employment, consultative process. The consultations reduce poverty and social vulnerability; will be grouped into five clusters, namely; protect the environment and promote i) Investment climate, financial services, climate friendly technologies and trade and manufacturing; ii) practices; promote HIV/AIDS prevention, Infrastructure, including roads, water, care and treatment; and radically information and communications transform technical, vocational and technology (ICT), power and institutions; higher education to produce world class iii) Skills development, focusing on skills and expand access to technology, technical, scientific, medical, managerial applications, innovation and networks. and ICT skills; iv) Economic sectors Lastly, an analysis of the fiscal budgetary including tourism, agriculture, mining and implications of the implementation of the environment and natural resources; and plan, particularly in relation to the role of v) health, HIV and AIDS and vulnerability. government as facilitator, regulator and promoter of fair market competition will

be provided. The planning team, comprising of a secretariat and a few local and international consultants will be The second part will comprise of a responsible for undertaking consultations comprehensive investment programme and producing the plan. This team will that will identify areas for investment that report to the Steering Committee, which will maximise the chances of attaining the will be chaired by the Honourable overarching objective of high, sustainable Minister for Finance and Development and job creating growth. Planning. After being reviewed by the

Steering Committee, the reports will be submitted to Cabinet before being It is expected that the first draft of the released for discussion by the National strategic plan will be completed by Planning Board. Thereafter the plan will July/August 2011. If this timeline is met, be shared with the key stakeholder the draft plan will be used to inform the groups and the general public through preparation of the national budget for districts consultations. 2012/13 . If all goes according to plan, the plan will be finalised in

December 2011 and its implementation The strategic plan is envisaged to have will commence in April 2012. two major components. The first part will focus more on analysing the existing or current socio-economic status of Conclusion Lesotho, that is, the situation as it prevails now. This will lay the basis for defining policies, strategies, actions and Economic transformation is achievable, investments that could be implemented as demonstrated by the success of to move the economy of Lesotho to a countries like Singapore and Ireland.

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These countries have revived their technology. In Singapore, government economies to reduce unemployment and also cultivated the culture of IT use and achieve high standards of living. Having application among businesses and recognised and accepted the failure of invested heavily in IT infrastructure past policies, major policy changes were development. High technology implemented and new strategies were institutions were also developed and adopted over several decades to achieve government also deepened the level of economic transformation. technological research through global cooperation programs with highly

established tertiary institutions in the Attraction of foreign direct investment, Unites States (US), Australia and in mainly into manufacturing industries, . Throughout the years, (FDI) played a major role in reducing government increased investment in the unemployment in these countries. A establishment of technical institutes and number of incentives that reduced the also increased sponsorship for overseas costs of setting up business and of training. production were put in place.

Administrative barriers to investment were also dealt with. The political stability In addition, to facilitate the transfer of that prevailed in these economies also skills and technology to the local people, encouraged foreign investment. government provided incentives for Nonetheless, the role of domestic foreign firms to establish local training investment in development was not centres. Many such centres, mainly disregarded as programmes for assisting geared towards high skilled industries the development of small and medium such as electronics, were opened. The enterprises were developed. With time, education system in Singapore has also these economies shifted from basic gone through a number of reforms to manufacturing to production of high value make it highly selective. It is such that, added commodities and services through tough competition, it categorises industries. students into the best who can go to university and who will be part of the

higher skilled workforce as well as those The transformation was facilitated by who go to the practical training schools to massive investment in human capital become semi-skilled manufacturing development to produce highly skilled workforce. workforce, particularly in information

Implication of Rising Food Prices on Lesotho’s Economy

The upsurge in the prices of various international agricultural commodities has put an upward pressure on prices of basic food items……..

Background

Food prices went on an upward trajectory agricultural food commodities) rose by at the end of the second quarter of 2010 56.2 points since January 2010 to 231 and increased through January 2011. points in January 2011, the highest level According to the United Nations Food since 1990. The hike in international food and Agriculture Organization, the Food prices and their pass-through into basic Price Index (a benchmark basket that foodstuff prices are threatening the tracks the wholesale basket of 55 advent of another food crisis.

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While the hike in food prices will benefit current trends in food prices and the agricultural food commodity exporting factors behind the recent price hikes, The countries, it will lead to deterioration in implications of the surge in food prices the terms-of-trade in agricultural food for the economy of Lesotho are also commodity importing economies. Thus discussed. this article provides an analysis of the

The Recent Trends In International FCPI has increased by 48.1 per cent in Agricultural Food Prices January 2011 from a year ago.

The international price index for the basic The spike in food prices is led by cereals foodstuffs rose sharply in the latter half of (e.g. , and rice) which are 2010 as indicated in Figure 1 below. The important staple food in many developing FAO Food Price Index (FFPI) rose for the countries. The monthly average price for eighth consecutive month to 230.9 points wheat increased by 23.8 per cent in in January 2011, up 59.5 points from the January 2011 from March 2010. The lowest level in June 2010. In addition, the benchmark wheat price ( FAO Cereal price Index (FCPI) averaged (US) No.2 Hard Red Winter) averaged 215.4 points in January 2011, up by USD326.6 per tonne, 62.1 per cent 116.2 points from January 2006. The higher than in the previous year.

Figure 1: Monthly Food and Cereals Price Indices (2004=100) and Crude oil Price Index (2005=100) 300

250 Crude Oil Price index ) 0

0 200 1 = 4

0 Cereals Price Index 0 2 - 150 2 0 0 2 (

x Food Price Index

e 100 d n I

50

0 l l l l l r r r r r n y v n y v n y v n y v n y v n p p p p p u u u u u a a a a a a a o a a o a a o a a o a a o a e e e e e J J J J J J J J J J J M M M M M S N S N S N S N S N M M M M M

7 8 9 0 1 6 0 0 0 1 1 0 0 0 0 0 0 0 2 2 2 2 2 2 Source: United Nations Food and Agriculture Organisation and International Monetary Fund

Export prices of cereals also increased higher than in June 2010. In addition, the as depicted in figure 2 below. The export price of rice averaged USD528.2 prices of Maize averaged USD265.3 per per tonne in January 2011, up 12.3 per tonne in January 2011, 73.5 per cent cent from July 2010.

Figure 2: Monthly Maize, Rice and Wheat Prices per metric tonne in US Dollars

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1200

1000 Rice e n n o

t 800

c i r t e m

r 600 e p

r a l l

o Wheat D

400 S U

200 Maize

0 l l l l l t t t t t n r n r n r n r n r n u u u u u c c c c c a p a p a p a p a p a J J J J J J O J O J O J O J O J A A A A A

8 6 9 0 1 7 0 0 0 1 1 0 0 0 0 0 0 0 2 2 2 2 2 2 Source: International Monetary Fund

Causes and Factors Underlying the drastic droughts in Eastern Europe, Current Hike in International Food , wildfires in Russian Prices Federation, and heavy rains in North America and Australia - the leading A variety of new and ongoing forces are agriculture commodity producers - have driving the world food situation and, in led to the curtailment of production in turn, the prices of international food cereals. For example, early in the latter commodities. These factors include: half of 2010, Russian Federation announced a ban on the country’s Global Food Imbalance: Perhaps one of exports of grains (wheat) due to low grain the most important forces behind the stocks caused by ravaging fire and a recent food price increase is the severe draught that had devastated structural imbalance between the food crops. Concurrently, the bad weather in supply and demand. The imbalance is several key exporting countries around largely driven by the growing population the globe sent the European wheat and high economic growth dynamics in futures prices up by more than 12.0 per many countries. Rapid population and cent in a day. This saw the price of wheat economic growth in emerging-market soaring by nearly 90.0 per cent between economies such as and India have June and December 20101. shifted demand for grains into high protein foods. The consequence of this is High Energy Prices and Increased that more land is being used for animal Biofuel Production: High energy prices, grazing and to produce animal feed at especially the oil (petroleum) prices have the detriment of food production for contributed to the upward spiral of food human consumption. prices. This is because oil is used as an input in the production of fertilizer. Volatile Weather Shocks and Patterns: Petroleum oil is also used in agricultural The second factor is the adverse weather 1 conditions caused largely by rapid Financial Times – August 5, 2010 “Russia Grain climate change. Catastrophic storms and Export Ban Sparks Price Fears”

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production cycle, that is, it is used from Implication of Rising Food Prices on sowing to harvesting and to distribution Lesotho’s Economy processes. Moreover, the increased demand and use of ethanol fuel The recent rise in the international food produced from crops have also prices is likely to impact negatively on the contributed to the food price boost. economy of Lesotho. Given that Lesotho Biofuel is used as a supplement in is a net importer of cereals and given the transportation, especially in advanced recent adverse and heavy rain falls in economies and also some emerging Southern Africa, the food price in Lesotho market economies. The high demand for is expected to continue to increase. this type of fuel has contributed to the Between March 2010 and December absorption of corn-based ethanol of 15.0 2010, average food price index in per cent of global corn crop. This has by Lesotho has increased by 29.0 per cent. the way contributed to the recent price The continued rise in food prices is spikes. expected to further exacerbate the food price and the overall inflation in Exchange Rate Volatility: Since the Lesotho. This is because food basket second half of 2010, the USD has carries around 39.0 per cent of the total depreciated against trading partners’ in Lesotho’s overall consumer basket of currencies. When the USD depreciates, goods and services. prices of commodities fall and, vice versa. At the household level, food price hikes are likely to worsen food insecurity. Government Trade Policies: Restrictive Thousands mouths of unfed and ill-fed trade polices like export restrictions are infants are likely to increase given the also part of the equation for rising food continued rise in food prices. This will prices because they aggravate global have serious implications on the supply shortages. In addition, export achievement of the Millennium bans and restrictions reduce the Development Goals (MDGs). In addition, confidence in international grain markets, the rise in food prices is likely to increase concurrently signalling to others to hoard Lesotho’s import bill, especially given the or build up strategic reserves. Given the current strengthening of the loti against expectation that consumers will buy at the USD. any price, these restrictions have led to sharp price spikes currently. Food price hikes like this one increase the urgency for Lesotho to implement In response to the rising foods price and long term strategies to resuscitate food its repercussion, many governments production. The subsistence nature of have adopted several polices. In this farming in Lesotho has not served this regard, the paid out 39 economy well and needs to be done billion euros on direct agriculture away with in favour of commercialization. subsidies while the US spent USD21.3 This is necessary for Lesotho to be able billion to subsidise mainly large-scale to build its own food reserves as farmers. insurance against recurring food crisis.

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