Lesotho’s services sector is the biggest contributor to national gross domestic product (GDP) and has great potential for generating sustainable growth and creating employment opportunities in the future. However, the relative performance of Lesotho’s services exports has been poor in comparison to the country’s total merchandise exports over the past two decades. Lesotho remains a net services importer.
The Lesotho Services Policy Review provides an analysis of the current policy framework for the three sectors, identifies regulatory challenges and institutional weaknesses inhibiting sectoral development, and proposes policy options that could better respond to the country’s financial, health and tourism development objectives. Issues are reviewed that pertain to the strengthening of domestic supply capacity, the competitiveness of small and medium-sized enterprises, employment and poverty alleviation, and universal access to basic services. The potential impacts of services and services trade liberalization, and the prospective benefits of access to foreign markets, receive particular attention.
The publication concludes with both horizontal and sector-specific recommendations, which were developed and adopted with national stakeholders via consultations and a workshop.
The cross-sectoral recommendations designed to strengthen the services sector broadly, include:
- Better coordination among institutions conducive to services growth;
- Improving critical infrastructure, such as transport and telecommunications:
- Improving the investment climate so as to attract more domestic and foreign investment for services; and
- Securing access to other markets (beginning with those of Lesotho’s SADC trading partners).
In the financial services sector, there remains a need in Lesotho to improve the current levels of access to financial services. The majority of financial and non-financial institutions are based in urban areas (mostly in the capital), with only limited access to financial services in the country’s rural areas. Women, in particular, are facing great difficulty in accessing credit. The recommendations to address this situation include the adoption of microfinance legislation in Lesotho, to support the creation of microfinance institutions which could diversify the financial services sector.
With regard to the professional medical services sector, limited capacity within Lesotho’s health sector remains a major challenge. This problem is exacerbated by the fact that 80 per cent of the Basotho population lives in remote rural villages, often several hours away from the nearest clinic. The health sector is confronted by a scarcity of skills in the medical and related professions. Lesotho continues to suffer from a “brain drain” of skilled Basotho medical professionals. Among the possible remedies is the implementation of a retention strategy to avoid the exodus of healthcare professionals from the country, as well as the establishment of a medical school, and of more nurse training institutions that offer high-level qualifications.
The tourism sector in Lesotho has been promoted as a key element of strategies for national development. The labour-intensive nature of the sector and its backward and forward linkages with other economic sectors imply that it can create many direct and indirect jobs. However despite its potential, the sector has recently witnessed stagnating growth, as it remains constrained by limited progress in diversifying source markets to tourists arriving from beyond South Africa. Recommendations for boosting the contribution of the tourism services sector to the national economy include distinguishing Lesotho from key competitor destinations, developing new tourism products, and diversifying the country’s tourism product base.
Services liberalization under the Southern African Customs Union is currently non-existent and, although it is envisioned under the Southern African Development Community (SADC), negotiations are still in the very early stages. Most of the liberalizations have taken place at the multilateral level under the General Agreement on Trade in Services (GATS), where Lesotho has liberalized its economy extensively yet is still waiting to reap the benefits of doing so. Liberalization needs to be considered within a comprehensive, integrated and coherent strategy of growth, development and trade, accompanied – where necessary – by further sectoral development planning, as well as macroeconomic, social, investment, competition and environmental policies.